Seeking Alpha
Recommended for you:
Growth at reasonable price, long/short equity, foreign companies, master limited partnerships
Profile| Send Message|
( followers)  

Offshore drilling giant Noble Corp. (NYSE:NE) released its updated fleet status report (PDF) on January 10, 2013. This report shows that the company continues to suffer from downtime although it also enjoyed some success at securing new contracts and contract extensions. Overall though, the downtime continues to be a drag on the company's potential and serves as a drag on earnings. I will look at both the good news and the bad news in this article.

Noble Corp. was awarded three new contracts and/or contract extensions during the month of December.

  • Noble Julie Robertson: The Noble Julie Robertson is a premium jack-up rig operating under contract for Centrica in the U.K. North Sea. The current contract is from March 2012 until April 2013 at a dayrate of $118,000. Centrica has extended this contract to April 2014 at a dayrate of $160,000. The rig will begin collecting this higher dayrate in early April.
  • Noble Tommy Craighead: The Noble Tommy Craigshead is a jack-up rig operating under contract for Eni-AGIP (E) in West Africa. The current agreement for the rig runs until early June at a dayrate of $108,000. Eni has exercised its final option on the rig, extending the contract until early August. The dayrate for the extra two months will remain at $108,000.
  • Noble George McLeod: The Noble George McLeod is a jack-up rig currently undergoing modification work at a shipyard in the Arabian Gulf. The rig secured a new contract with Talisman to perform work in Malaysia beginning in May 2013. The rig's dayrate under this contract is $115,000.

Overall, these three new contracts and extensions will serve to boost Noble's revenues going forward. This increase will come in the second quarter of this year. However, since the contract changes start in the middle of the second quarter, it is the third quarter where the full extent of the increased revenue will be seen. The Noble George McLeod will be the biggest contributor to this revenue boost as its new contract promises more incremental revenue than the increased dayrate for the Noble Julie Robertson.

Despite the positive new contract developments, there are some things to be concerned about on this report. In particular, Noble saw a significant amount of downtime over both the month of December and the fourth quarter in general. During the month of December, Noble experienced downtime on the following rigs:

(click to enlarge)

Source: Noble Fleet Status Report, International Hedges

Noble thus experienced 68 rig days of downtime in the month of December alone. The downtime experienced by the company during the entire fourth quarter is even worse, however. Here are the rigs that have suffered downtime in the fourth quarter and how much downtime each rig suffered:

(click to enlarge)

Source: Noble Fleet Status Report, International Hedges

As the chart shows, Noble experienced a jaw-dropping 277 rig days of downtime during the fourth quarter. To put this in perspective, Noble's competitor Seadrill (NYSE:SDRL) had one of its worst quarters ever with downtime in its third quarter reaching 90 rig days. While Seadrill is smaller than Noble, it is not so much smaller as to make Noble's downtime look comparable relative to the size of the fleet. To put it simply, the downtime record of Noble Corp. over the fourth quarter is nothing short of atrocious.

Rig downtime serves as a drag on earnings because the rig does not collect dayrate if it is not operating. So, the rig is not collecting revenues during the days that it is experiencing downtime. If the rig is not collecting revenues then it is not contributing to either the top or bottom lines. Therefore, earnings will be lower than they otherwise would be.

Hopefully, Noble will address this downtime in its next quarterly conference call. In particular, the company needs to discuss how it will reduce downtime to more reasonable levels going forward. At the moment, the company is doing a poor job at maximizing earnings for investors due to all of this downtime.

Source: Noble's Downtime A Negative For Investors