Noble Corporation (NYSE:NE) reported earnings of $235 million or $0.91/share, beating consensus estimates of $0.65/share. Sequentially, revenues were essentially flat ($1.241 billion in Q2 vs. $1.251 in Q1), while fleet utilization dropped to 79% in Q2 from 84% in Q1, partially offset by higher day rates; operating cash flow increased to $526 million in Q2 from $506 million Q1. While the decline in sequential fleet utilization was troubling (if expected), the drop in backlog to $13.4 billion at the end of Q2 from $14.3 billion at the end of Q2 was a confirmation of a disturbing trend. Further, only 74% and 50% of available rig operating days were committed for the remainder of 2014 and 2015, respectively. NE confirmed August 1 as the spin-off date for Paragon Offshore (PGN), the entity that will hold many of the Company's older and less desirable rigs. Cash and line availability dropped to $772 million at the end of June, from $1.03 billion at the end of March, reflecting progress payments on newbuilt rigs (dividends are approximately $95 million per year).
The second quarter numbers are in the range with my expectations following the release of NE's latest fleet report, discussed in my article, "Update: Noble Corp. Announces Fleet Report and Timing of Paragon Offshore Spin-Off". However, the inability to sign new contracts is a bit disappointing.
I am still bullish on NE and the sector, including Transocean (NYSE:RIG) and Seadrill (NYSE:SDRL) as my thesis for growth rests upon geo-politically driven change in producer behavior (as was discussed in a WSJ article on July 28). Further, I think separating assets into a pure play is a "parts is worth more than the sum" story. NE will be able to present itself as having a modern, well-position fleet, while the PGN spin-off will be managed with the exclusive goal of optimizing its assets and leveraging its balance sheet accordingly.
Disclosure: The author is long NE, RIG, SDRL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.