Noble Corp CEO optimistic operators will start spending more on drilling

Noble Corporation plc today reported first quarter 2014 net income of $256 million, or $0.99 per diluted share, compared to $174 million, or $0.68 per diluted share, for the fourth quarter 2013.

Results for the fourth quarter of 2013 included an after-tax charge of $36 million, or $0.14 per diluted share, relating to an asset impairment. Excluding the impairment charge, net income for the fourth quarter would have totaled $210 million, or $0.82 per diluted share. For the first quarter of 2013, net income totaled $150 million, or $0.59 per diluted share. Revenues for the first quarter of 2014 were $1.3 billion compared to $1.2 billion in the fourth quarter of 2013 and $971 million in the first quarter of 2013.

David W. Williams, Chairman, President and Chief Executive Officer of Noble Corporation plc noted, “Our contract drilling margin improved to 54 percent in the first quarter, up from 50 percent in the fourth quarter of 2013, as new rig additions contributed to a 7 percent increase in revenues while contract drilling costs were essentially flat in the quarter. In addition, a reduction in operating downtime to 4.5 percent and higher bonus revenue further supported the increase in quarterly revenues.

“Following shipyard deliveries in 2013 of three ultra-deepwater drillships and two high-specification jackups, we began 2014 with the delivery of two additional jackups, the Noble Houston Colbert and Noble Sam Turner. Both rigs are preparing to commence their initial operations offshore Argentina and the Danish sector of the North Sea, respectively. By the end of 2014, we expect to have taken delivery from shipyards of our final two ultra-deepwater drillships and two of our final three high-specification jackups, largely concluding our current rig construction program. These fleet additions should provide significant contributions to future financial results as our fleet mix continues to shift toward a premium weighting.”

Contract drilling services revenues for the first quarter of 2014 reached $1.2 billion, a 7 percent improvement from $1.1 billion in the fourth quarter of 2013. The increase was due primarily to full or partial contributions in the quarter from several of the Company’s new rigs. Also, fleet operating days increased as a result of a reduction in shipyard days. Average daily revenues improved 5 percent in the first quarter to $223,600 compared to the previous quarter average of $212,000, reflecting the addition of premium assets, while fleet utilization rose to 84 percent in the first quarter compared to 82 percent in the fourth quarter of 2013. Contract drilling operating costs increased marginally in the first quarter to $561 million compared to $560 million in the fourth quarter of 2013. Higher costs associated with adding newbuild rigs to the fleet were almost entirely offset by a reduction in mobilization and repair and maintenance costs.

Net cash from operating activities was $506 million in the first quarter of 2014 as compared to $541 million for the fourth quarter of 2013. Capital expenditures in the first quarter of 2014 totaled $517 million, including $326 million related to the Company’s fleet expansion program. As of March 31, 2014, approximately $1.6 billion in capital expenditures was required to complete the remaining five projects in the Company’s newbuild program, comprised of two ultra-deepwater drillships and three high-specification jackups.

Debt as a percentage of total capitalization at March 31, 2014 was 38 percent, unchanged from December 31, 2013, while liquidity, defined as cash and cash equivalents plus availability under revolving credit facilities, totaled $1.03 billion compared to $1.45 billion at December 31, 2013. The decrease in liquidity primarily relates to the maturity in March of our $250 million 7.375 percent senior notes, which were paid off with the proceeds of commercial paper issuance, combined with capital expenditures to meet newbuild deliveries.

Operating Highlights
The Company’s total contract backlog at March 31, 2014 was an estimated $14.3 billion compared to $15.4 billion at December 31, 2013, reflecting a reduced pace of customer activity in early 2014.

Utilization of the Company’s floating rig fleet (semisubmersibles and drillships) improved to 85 percent in the first quarter of 2014 from 84 percent in the fourth quarter of 2013. Excluding the impact of two cold stacked rigs, utilization would have been 92 percent in the first quarter of 2014 and 91 percent in the fourth quarter of 2013. The improvement in utilization was due to a full quarter of operations on the newbuild ultra-deepwater drillship Noble Bob Douglas, which was operating offshore New Zealand, and on the drillship Noble Roger Eason, operating offshore Brazil. The Eason completed a shipyard program in the fourth quarter of 2013. Partially offsetting the utilization improvement was increased idle time on the semisubmersible Noble Homer Ferrington following the completion of a drilling program in the Eastern Mediterranean in early January 2014. Average daily revenues in the floating rig fleet were $393,300 in the first quarter of 2014, or an improvement of approximately 4 percent compared to $378,400 in the fourth quarter of 2013.

First quarter 2014 utilization of the Company’s jackup rig fleet was 86 percent, consistent with the fourth quarter of 2013. Fewer operating days on certain rigs in Mexico and West Africa were offset by a full quarter of operations from the newbuild jackup Noble Mick O’Brien, which began operations in the Middle East in the fourth quarter of 2013, and the newbuild jackup Noble Regina Allen, which commenced operations in the first quarter of 2014 in the North Sea. Average daily revenues during the first quarter improved to $125,000 from $115,700 during the fourth quarter of 2013.

At the end of the first quarter of 2014, 74 percent of the Company’s available rig operating days for both our floater and jackup units were committed for the remainder of 2014. For 2015, an estimated 47 percent of the available rig operating days were committed, including 62 percent and 39 percent of the floating and jackup rig days, respectively. The calculations for committed operating days include available days for two floaters and one jackup, all of which are currently cold stacked.

Outlook
While addressing the current offshore environment and Noble’s enhanced positioning, Williams stated, “We continue to believe the more guarded exploration and production spending pattern shown by some operators during early 2014 is temporary and that contract visibility, especially in the floating rig segment, is likely to improve as we progress further into 2014 and 2015.

“Despite the current market dynamics, Noble is well positioned with limited near-term fleet exposure, a large revenue backlog, strong client relationships, well-timed premium rig additions with attractive contracts, a rapidly declining capital expenditure commitment and successful implementation of new operating systems and procedures that are driving improved financial performance. We continue to anticipate improving free cash flow in 2015 despite current industry developments. We believe the offshore drilling business remains fundamentally sound over the long-term and Noble is better positioned to address the opportunities expected with the next cyclical upturn with a more versatile and focused fleet run by skilled and highly competent crews.”