Noble Corp. CEO Discusses Q1 2011 - Earnings Call Transcript

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 |  About: Noble Corporation plc (NE)
by: SA Transcripts

Noble Corporation (NYSE:NE)

Q1 2011 Earnings Call

April 21, 2011 9:00 am ET

Executives

David Williams – Chairman, President, Chief Executive Officer

Tom Mitchell – Chief Financial Officer

Roger Hunt – Senior Vice President, Marketing and Contracts

Lee Ahlstrom – Vice President of Investor Relations and Planning

Analysts

Omar Nokta – Dahlman Rose

Ian Macpherson – Simmons & Co.

Collin Gerry – Raymond James

Dave Wilson – Howard Weil

Arun Jayaram – Credit Suisse

Judd Bailey – Jefferies & Co.

Joseph Triepke – Guggenheim

Max Barrett – Tudor, Pickering, Holt

Matt Beeby - Global Hunter Securities

David Smith – Johnson Rice

Jay Frank – Deutsche Bank

Operator

Good morning. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Noble Corporation First Quarter 2011 Earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. If anyone should need operator assistance at any time during this conference, press star then zero and an operator will come back online to assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, April 21, 2011.

Thank you. I would now like to introduce Mr. Lee Ahlstrom, Vice President of Investor Relations and Planning. Mr. Ahlstrom, you may begin your conference.

Lee Ahlstrom

Thank you, Regina, and welcome to Noble Corp.’s first quarter 2011 earnings call. Before we begin, I’d like to remind everyone that any statements we make about our plans, expectations, estimates, predictions or similar expressions for the future, including those concerning the drilling business, financial performance, operating results, tax rates, spending guidance, backlog, day rates, contracts, tenders, extensions or announcements, letters of intent, the outlook for the U.S. Gulf of Mexico and other regions, new build delivery costs and dates, plans and objectives of management for future operations, and the outcome of any litigation, dispute or investigation are forward-looking statements and are subject to risks and uncertainties. Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized. Our actual results could differ materially from these forward-looking statements.

We have included summary balance sheets and income and cash flow statements with our earnings news release. Also note that we may use non-GAAP financial measures in the call today. If we do, you will find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation, on our website.

Now I’ll turn the call over to David Williams, our Chairman, President and Chief Executive Officer. David?

David Williams

Thanks, Lee. Good morning and thanks for joining us today. With me today in Geneva are Tom Mitchell, our CFO, and Roger Hunt, our Senior Vice President of Marketing and Contracts.

Today’s call marks two important milestones: first, on Friday, April 1 Noble turned 90 years old. From very modest origins as a land drilling company, Noble has been on a continuous path of fleet enhancement and has now evolved into one of the largest and most formidable offshore drilling contractors in the industry. This is a company with an incredible legacy that has always been focused on creating shareholder value, running the safest and most efficient operations possible, and protecting the health and safety of both the employees and the environment. As we continue to enrich our fleet, I want to thank everyone who has contributed to making Noble what it is today. It’s likely none of us will be around in another 90 years but I believe that we are laying the foundations today that future shareholders and company leaders will look back on with pride.

The second milestone is that we are now one year removed from Macondo. While we are continuing to suffer from the continuing effects of the moratorium and the permitorium, we are finally beginning to see some real signs of improvement. Not only are some rigs starting to return to work in the U.S. but we’ve also seen improvement in our utilization elsewhere in the world, and the environment continues to look promising.

Furthermore, our fleet enhancement program is well underway and we are creating real earnings power for the future. This year alone, we plan to deliver three ships, but our growth doesn’t stop just there. Last December, we launched the latest phase of our fleet renewal efforts with the announcement of two high-spec heavy duty harsh environment JU3000N jackups. We quickly followed that in January with the announcement of two high specification ultradeep water drill ships. As you know, our agreements with the shipyards include a series of options for additional rigs, four for the jackups and two for the ships. During the first quarter, we exercised half of the options – two jackups and one ship – at attractive pricing that we believe will deliver strong returns.

All in all, Noble has committed to more than $2.7 billion of new build spending in the last five months, all with well-established yards using proven designs with very attractive financing and payment terms, and the assets we’re adding are at the top end of the technology curve. For example, our jackups have 2.5 million pound hook loads, nearly 15 million pounds of variable deck load, and quarters that can hold up to 150 people. As you look at both the existing assets and those under construction, there are only a handful of rigs of this capability anywhere in the world. The ships are also going to be some of the most capable units in existence. Dual-derrick rigs with 2.5 million pound load paths, these ships will be capable of carrying two complete BOP stacks and of handling multiple Christmas trees, making them ideal tools for exploration and development.

Combined with the two Bully rigs and the two globetrotters already under construction, Noble is adding 11 rigs to its fleet; and we still have two jackup options and one floater option remaining, all still at attractive prices.

The transformation of our floating fleet over the past five years is remarkable. In 2005, we had 12 floaters, four of which were DP. With the acquisition of Frontier and the new build program, we’re headed towards 27 rigs. Fifteen of these units are DP and the quality of these assets is exceptional. Even the older assets we acquired from Frontier are in very good condition and some, like the Noble Discover, are unique. That particular rig is one of the few existing Arctic-class rigs around, and it’s the asset that Shell has targeted for drilling in Alaska as soon as they are able to secure permits.

On the jackup side, we’re just getting started. The four new rigs under construction combined with the three JU2000Es we built during the last cycle will help lower the average age of our jackup fleet. Overall, our jackup fleet is in excellent condition; however, from a strategic standpoint, it’s time to take a hard look at the fleet and see if there are some assets that may not be core going forward. We’re very early on in our efforts, so we’re not at a point where we want to set expectations on timing or how many units could ultimately be involved, but we believe the quality of the fleet and the maintenance we’ve consistently performed over the operating life of these assets could make them some of the more attractive units in the marketplace.

For Noble, this is a purely strategic question. Our current jackup utilization is fairly high and rising, so it’s not an operational imperative that we have to do something. The issue for us is what do we want this fleet to look like in five years. I will say that with the quality of our rigs and our rising utilization, executing a deal or deals can be challenging because of customer issues, so we’ll have to see how this develops in the months ahead.

On other fronts, a couple of catalysts that we were expecting have been realized since our last call. First, you’ll recall that the contract for the Noble Jim Day had recently been cancelled. While we expressed optimism last quarter that we would secure contracts soon, we were extremely pleased by the number of opportunities that presented themselves and as quickly as they came forward. Some of these were outside the U.S., but we ultimately accepted a short-term contract with Shell in the U.S. Gulf which includes a period of standby but also ensures that, permit or no, the rig is contracted to earn $485,000 per day no later than August 1. If it’s operating, we’ll be eligible for up to a 15% performance bonus potentially including the earn day rate up into the 550s.

The Gulf is moving in the right direction, and we think the Jim Day contract is an expression of optimism in the operating community. The Noble Jim Thompson is already back to work drilling an exploration well, and we’re hopeful we could see additional permits for some of our other units in the coming weeks.

In Mexico, events have finally unfolded in our favor. For some time, we’ve been reporting that Pemex would publish tenders for legacy jackups, and while it’s taken longer than we would have liked, we now have nine of our rigs committed, one rig in the bidding process, and the final two rigs with fast-track tender opportunities that were published Tuesday. By midsummer, we think we could have all 12 of our jackups in Mexico back on contract. In addition, we believe that Pemex is interested in keeping the Noble Max Smith for their deepwater exploration program, and we are engaged in a dialogue for a 20% extension on that rig, which would keep it busy until January of 2012.

Finally, our new build projects are coming along nicely. I want to remind everyone again about the analyst day in Singapore that we’ll be hosting in mid-May. We’ll begin with a dinner with management on May 17, and that will include a guest speaker from PFC Energy who will discuss their views on the ongoing events in the Middle East and North Africa. You’ll also have an opportunity to tour the Keppel yard to see firsthand the progress that we’re making on the Bully rigs, and then we’ll get to experience a steel-cutting ceremony for the first jackups we’ll be building in Jurong. Bully 1 is almost 98% complete and about 78% commissioned. The unit entered the dry dock last week to begin the installation of the (inaudible) and is still on target for July delivery. Likewise, Bully 2 is on schedule for an October delivery, and Globetrotter 1 is about to commence sea trials in China prior to leaving for Holland in May when the drilling equipment will be installed. So our plans to deliver three new build drill ships, all fully contracted before year-end, are still on track.

2010 was a rough year for us but we’ve turned a corner. While a few catalysts have been realized and the stock has performed well so far, we think the market is headed in the right direction and we still have room to run in the valuation department. We’re really just getting back to pre-Macondo stock price levels and that was before the Frontier acquisition, which doubled our backlog, before the new build announcements which are reshaping the fleet, and before the improvement in both day rates and utilization for our jackups. If you look at our story, you’ll see a combination of value and growth, and we believe that we’re reward our long-term investors.

With that, I’ll turn the call over to Tom to review the numbers.

Tom Mitchell

Thank you, David, and good morning. I think our results are fairly straightforward this quarter, so let me review those quickly and then we’ll turn to an updated guidance for you. Last night, we reported first quarter net income of 54 million or $0.21 per fully diluted share on total (audio interference) of 579 million. These results include a net gain of 20 million or about $0.06 per share associated with the substitution of the Phoenix for the Noble Muravlenko in Brazil. We had anticipated when we announced that that the substitution in January, that the net gain would be 15 million; but charges related to the cancellation of the reliability upgrade project on the Muravlenko were a little bit less than we had originally expected. We footnoted the components of the gain on the income statement, which is included in the press release.

Contract drilling services revenues decreased 12% quarter-on-quarter to 543 million; however, average daily revenues of approximately 150,300 for the first quarter were up 7% from the previous quarter. Non-operating time across the fleet accounted for most of the decline in absolute revenues. In Mexico, a number of rigs rolled off contract as predicted on the fleet status, increasing the stack time by about 300 days. We are of course pleased to have reported that some of these units are back to work on contract, and others are expected to commence work for Pemex shortly.

With respect to Brazil, the Noble Leo Segerius entered the shipyard in early February to begin its reliability upgrade, and the Noble Clyde Boudreaux underwent contract preparations for its one-year commitment with Shell before being transported on a heavy-lift vessel to Brazil. Temporary import permit issues sidelined the Noble Ed Noble in Nigeria, where we also stacked the Noble Duchess and had some shipyard time on the Noble Percy John. Unfortunately, we experienced a fire on the John during some maintenance that will keep the rig out of service during the repair period. The John was scheduled to resume working for Exxon Mobile shortly, and we’re in the process of discussing a rig substitution for them so that it won’t impact our program. Finally, we had several rigs, including the Noble Julie Robertson in the North Sea and the Noble Scott Marks in the Middle East in the shipyard during the quarter, preparing for upcoming contracts.

Offsetting these non-operating days was a return to work by the Noble Homer Farrington, commencement of the Noble Roger Lewis contract, increases in stand-by rates on the rigs under contract to Shell in the U.S. Gulf, and the commencement of the Noble Jim Day contract with Shell. Our operational downtime for the rigs working during the quarter was 3.8%.

Our contract drilling services costs for the first quarter were 306 million. That is down 8% from the fourth quarter 2010; however, this was about 6 million above the top of the guidance we gave you in January and is largely tied to activity in Mexico. First, we made the decision to demobilize certain rigs back to the Gulf of Mexico when their contracts were finished, and those demobilization costs were not in our original numbers; but they are largely offset by mob revenues. Second, we ramped up our activity back on those rigs earlier than anticipated as contracting activity in Mexico increased more rapidly than we had planned.

DD&A for the first quarter came in at 158 million. That’s up marginally from the fourth quarter’s 154 million and it’s within the range that we gave you. SG&A expenses of 24 million were up compared to the 21 million in the fourth quarter, and the increase is related almost entirely to the settlement costs under the non-prosecution agreement reached with Nigerian authorities that’s related to our recently concluded U.S. FCPA investigation.

Our tax rate was 22%, as expected. Capital spending during the quarter was 614 million, up from 537 million almost entirely as a result of expenditures on our additional new build commitments announced during the quarter, which totaled around 252 million for the three drill ships and two jackups. Capitalized interest for the quarter was about $27 million.

Now we’ll update you on our current expectations for capital and expenses for the remainder of 2011. Our contract drilling services costs are now expected to come in a little over 1.3 billion as we put rigs back to work sooner than we had originally budgeted. Obviously, that’s a great thing from a revenue standpoint but it does increase our expenses as well. Our outlook for the second quarter contract drilling costs is that they will fall between 325 million to 335 million. This increase is consistent with our expectation from January that the cost span was expected to move upward by about 20 million each successive quarter this year.

DD&A for the full year is estimated to be in the range of 630 million to 640 million with our second quarter figure expected to be in the range of between 155 million and 165 million. SG&A is still expected to fall in the range of 90 million to 100 million with costs split about evenly across the quarters. Interest expense net of capitalized interest will remain in the range of 50 million to 60 million which we gave on the last earnings call.

Finally, we’re still forecasting our effective tax rate for the year to be around 22%. The rate could be affected by continuing changes in revenue in the Gulf of Mexico, but we’re going to keep it here for now. Capital expenditures are expected to be around 2.5 billion in 2011. That’s up from 2.1 billion on the last call with the increase reflecting the additional new builds we committed to since that time. Of the total, we expect capitalized interest to be around 120 million for the year.

We obviously have a lot going on with our new build program with significant outlays stretching out over the next three years. To help with your modeling, I wanted to give you a feel for our current CAPEX expectations for the new build program only, excluding capitalized interest. Currently, we expect new build CAPEX in 2012 and beyond to total about 2.3 billion with around 900 million of that in 2012.

That concludes my remarks, and I’ll turn it over to Roger to talk about the market.

Roger Hunt

Thank you, Tom, and good morning to everybody. As usual, I’ll begin by updating you on our backlog statistics. At March 31, the value of our backlog was approximately 15.1 billion, which breaks out as 11.8 for floating units and 1.3 for our jackups. Overall, we feel much more positive about the market today than we did on our last call. The increase in oil price from the mid-80s to over $100 a barrel, driven by geopolitical events in the Middle East and North Africa as well as the unfortunate tragedy in Japan, has in turn incentivized our customer base to increase activity. In addition, a number of predicted contracting events have come to fruition during the quarter.

In Mexico, we have been awarded contracts to seven of our jackups and extensions on an additional two. That means that 75% of our fleet is either working or expected to return to work shortly. There is also a two-year opportunity outstanding for which we believe the Roy Butler will be well-suited. If successful, the rig would come off its current extension, be legged up to 300 foot capability, and be ready to commence the new contract in August. As for the final two rigs available in Mexico, the Eddie Paul and Sam Noble, Pemex published four fast-track tenders on Tuesday, two of which are targeting these units. If we are successful, they would be employed through year-end and are well positioned to bid on longer term work. With a little luck, our fleet will be fully employed by mid to late summer.

We believe there is reason to be optimistic longer term in Mexico. Recently, Carlos Morales Gil, head of exploration and production at Pemex, stated publicly that the company intends to operate around 40 jackups, which clearly signifies an intention to add new supply. And last week, Pemex published tenders for one 1,000-foot semi, six 300-foot jackups, two of which have the 10-year age restriction, and three 350-foot jackups, none of which have an age restriction. We think we have a good indication that Pemex’s plans will not only create opportunities for rigs to mobilize to Mexico from outside the western hemisphere, it will lead to day rates moving higher both in Mexico and in other areas as demand tightens.

One such area might well be the Middle East, where Noble is approaching full employment of its jackup fleet. It has been well publicized that Saudi Aramco intends to ramp up its activity level both onshore and off, and we are all awaiting the results of an ongoing 11-rig jackup tender. As you know, the Roger Lewis recently commenced its three-year contract focused on drilling high pressure gas wells for Aramco, and the Scott Marks is expected to begin its contract in July; so Saudi is growing in terms of its importance for us.

We’ve bid a number of units into the current oil rig tender and believe that we are very well positioned to secure some of this long-term work. We also believe there are times that Aramco could take more than 11 rigs. This, combined with the increasing activity by other operators, could tighten supply in the region where the current industry utilization rate is about 74% and Noble’s current utilization is about 86%.

Another area where Noble is essentially 100% contracted through the end of 2011 is the North Sea. Despite the recent implementation of a tax increase in the U.K., we continue to see growing interest from customers both there and throughout the rest of the region. We believe that we’ll see day rates increase and shortly break 100,000, and we are poised to begin adding to our 2012 contracted days.

The only area where we are seeing difficult conditions for jackups is Nigeria. On our most recent fleet status report, we disclosed that we were unable to come to terms on a contract with a customer with whom we had a letter of intent. It had nothing to do with commercial or technical issues; rather, it was our ability to meet newly imposed local content laws in Nigeria that would have required Noble to assume more risk than we felt prudent. Although we believe Nigeria is a hydrocarbon-rich country with significant potential opportunity, we anticipate these difficulties will continue particularly as Nigeria works through its election season. We also disclosed that we experienced a fire aboard the Percy Johns, which has taken the rig out of service; but we are currently in the process of discussing a rig swap with our customer and expect to have that concluded shortly.

Turning to the deepwater, we are certainly feeling more positive now that we have commenced drilling an exploration well on the Jim Thompson. This is a significant milestone with respect to putting the Gulf of Mexico fleet back to work, and we believe we’ll see more of our rigs return to work in the next several months, whether performing workovers, P&As, sidetracks, or drilling new wells. We are optimistic about day rates for ultradeep water assets, and we believe that the recent 1,500 meter tender in Brazil is a very good example that contractors are maintaining discipline around the bidding process and that rate expectations on our side have not diminished. We are not at all concerned that this particular tender was cancelled as there is a 3,000 meter tender still outstanding and we expect a second 3,000 meter tender to commence shortly.

Day rates on the 1,500 meter tender were in the mid to upper 400,000s, and those rates combined with other recent fixtures suggest to us that day rates for ultradeep water rigs are not only stable but may be starting to rise. Overall, both Noble and the industry are in a better place than when we conducted our fourth quarter call. While activity in the Gulf is nowhere close to pre-Macondo levels, it is moving in the right direction. Jackup activity is strong, and it’s our view that the quality of Noble’s fleet and relationships will continue to serve us well.

I’ll be happy to address any specific questions, so let me turn the call back over to Lee. Thank you.

Lee Ahlstrom

Thanks, Roger. Regina, we’re ready to start the Q&A portion of the call, and we’d just like to remind everyone of our one question with one follow-up rule so we can get everybody in. Thank you.

Question and Answer Session

Operator

At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from the line of Omar Nokta with Dahlman Rose.

Omar Nokta – Dahlman Rose

Thank you, good morning. Just wanted to follow up on your Pemex comments. They’ve obviously been very aggressive recently. You announced—you discussed the nine jackup tender, also the four jackups, and it looks like they’re close to tendering for seven more. With the strength that you’re seeing there and then the weakness you just highlighted off of Nigeria, do you see a situation arising where you’d be pulling rigs from that region or potentially others into Mexico?

Roger Hunt

You know, pre-this current falloff in activity, Pemex has averaged over 30 jackup rigs probably for the last four or five years. They allowed that supply to drop down to as low as 14 rigs. Current rig count is probably around 20. With Senor Gil saying publicly that they need around a 40-rig fleet to not only sustain production but there’s a view that they want to increase production from 2 to 3 million barrels a day, one’s got to argue that more rigs will move into Mexico.

When you look at the specifications and the contract requirements that Pemex is attaching to the new tenders, then the physical impediment for getting a rig into Mexico is greater than it was on past bids. So I think all of that is going to add up to—there’s probably not a lot of jackups in the Gulf of Mexico that comply with Pemex specifications, whether it has an age restriction or not. So yes, I think there is a view that you’ll see rigs move from other sectors into Mexico, which will have a resultant positive effect on those markets.

Omar Nokta – Dahlman Rose

Okay, thank you. And just a follow-up also at Pemex, you mentioned the floater tender. Do you know if that 1,000-foot tender, if that’s incremental to what’s currently outstanding, or do you think that’s against the Max Smith?

Roger Hunt

Well, the Max Smith water depth capability is far greater than 1,000 feet. They’re using it in much deeper water. Quick answer – no, it’s not against the Max Smith, and it is incremental.

Omar Nokta – Dahlman Rose

Okay. And just one more regarding that, do you see a situation where you may reactivate the Bouzigard for that opportunity?

Roger Hunt

Good question. Early days. We’re still studying the specifications of Pemex’s requirement; and yes, clearly we would be looking at the Bouzigard to see whether it complies with those specifications.

Omar Nokta – Dahlman Rose

Okay. Thank you very much.

Operator

Our next question comes from the line of Ian Macpherson with Simmons & Company.

Ian Macpherson – Simmons & Co.

Thank you. David, I wanted to ask you about your comments on contemplating alternatives for some of your jackups, if it’s strategic sale, spinoff or—I don’t know exactly what you might have in mind, so I was hoping you could just expand on some of the options that might make sense. And then also discuss whether you think some sort of bilateral or multilateral combination of older jackups would make sense in terms of consolidating that part of the market, which maybe would benefit from some rationalization of the excess capacity.

David Williams

I don’t want to say too much about it. Clearly, consolidation makes sense, you know, if valuations are right, so it depends on what else is out there. I will tell you that our jackup fleet is in very, very good condition. We have either tenders out our dialogues going on for just about every rig in the fleet I could think of, except for possibly the 150-footer in West Africa. So we don’t have the problem that some of these other folks have that they have a bunch of issues with their jackups, so for us it’s purely strategic. And so we’re going to take our time, we’re going to take a long view of it. The fact that, as Roger pointed out, our utilization is improving and is high, there are customer issues and employee issues around talking about this too much. So no, I don’t want to say too much more about it.

We run, I think, the best operation out there. We have the best safety culture out there. We’re doing dramatic things with our floater fleet. We’re starting to work on the jackup fleet. We recognize that some of the other existing assets are getting a little long in the tooth and the question for us is where do we want this fleet to go in the next five to ten years? And so we acknowledge that that’s something that some investors are concerned about, so we’re going to take a look at it and see what the best way forward for us is. And beyond that, we’re going to have to let you know as the process develops.

Ian Macpherson – Simmons & Co.

Okay. Thanks, and then the separated unrelated follow-up would be if you could just update us on the process for—I think you have arbitration proceedings pending for the contract disputes last year with the Homer Farrington and the Jim Day. Can you just update us on where those stand and what your expectations are in terms of how that process unfolds this year?

David Williams

There’s not a whole to tell you, unfortunately. We’re in the legal process of whether it’s an arbitration or it’s a proper court. Both those processes move at whatever pace the judicial authority wants it to, so it’s not moving at the pace we want to, it’s moving at the pace whatever jurisdiction it’s in wants it to. So it’s slow. Again, we don’t see any reason to believe, particularly in the case of the Farrington, that we—you know, the question in our mind is not if but who pays us. But how long it’s going to take, I don’t have any idea. The other process, we feel very good about our positions on the other positions that we’re litigating; but we’re in the court system. I don’t know how long it’s going to take, and as I’ve said before, the OJ jury is still out there so you don’t really know what the outcome is going to be. But we don’t undertake these processes lightly. We’re not doing it just because we want to beat our chests. We’re doing it because we think we have a position that’s defensible, and so we’ll see how the process works out.

Ian Macpherson – Simmons & Co.

Okay, thanks.

David Williams

Yes, I wish I could tell you more but that’s really all I’ve got.

Ian Macpherson – Simmons & Co.

Good enough.

Operator

Our next question comes from the line of Collin Gerry with Raymond James.

Collin Gerry – Raymond James

Hey guys. I think this is—I might have missed it, but I didn’t hear the word bifurcation this call. So I’m wondering if that means that maybe we’re starting to see the higher end pull maybe the standard jackup market up a little bit. We’re certainly seeing it in some of the rates recently. It’s hard to really make heads or tails of that, so maybe just some color around that. And then relay that over to the Florida market – are we seeing maybe the same dynamic?

Roger Hunt

Well, we’ve never understood the meaning of bifurcation, but I’ll sidestep that for a bit. If you take a look at the 300-foot index right now that ODS publishes, I think it’s just—it shows that the rates have moved from something like 79,000 to over 100, so a 25% gain quarter to quarter. So we like a lot what we’re seeing in this market; and as I said in the prepared remarks, you’re going to see a lot of award activity and there’s going to be more of it in Mexico. I think us and others will probably have an opportunity to be bidding, quote, free-market rates as opposed to rate caps. Not sure if that will prevail much longer in Mexico. You’re going to see a lot of awards in the Middle East. You’re going to see rates in the North Sea start to move quite nicely. We’re noticing that the tendering activity in the North Sea, I think I can say fairly that the rate of tenders for 2012, i.e. for the next spring/summer season, we’re seeing more than we’ve seen in the last couple years. So all of these places—and particularly in Southeast Asia, there’s going to be a lot of tender activity. So I think you’ll see rates on all classes of jackups move.

Shall we see it in the floating market? I think on the ultradeep water fixtures, there’s reason to believe that the numbers that you’ve seen recently in Brazil and in the Gulf of Mexico and elsewhere, we would hope that those numbers may actually start to increase. In lesser water depth capabilities, and interestingly enough particularly in some areas where moored rigs may be available, I don’t think it’s near term; but medium to long term, I think you’re going to see some possible rate increases to there. I saw a statistic here recently where 42 out of 74 discoveries in 2010 were in water depths of less than 4,500 feet. So you know, there is life, as David said, in the moored area.

Long answer. Not sure if I answered your question.

Collin Gerry – Raymond James

No, you did. It sounds like the answer is yes, but timing is different between the two markets and that the jackup market seems to be tightening faster, and so you’re seeing maybe some of the older equipment get pulled up faster, and for the mid-water market that seems to be on the come but not maybe in the same time frame, maybe a little bit longer term.

Roger Hunt

Yeah, as David said, we’re careful of the word older equipment. As I mentioned, Pemex’s specifications are getting sneaky hard. You know, they went out and looked for new equipment and didn’t have much success in terms of having people meet their price expectations. So I think that’s almost dead on arrival, and so they’re quietly upping specifications embedded in the rigs that don’t have to be new. So you’ve got to meet that standard, so careful of the word old.

Collin Gerry – Raymond James

Okay, fair enough. And then the last one from me is—just got off Schlumberger’s conference call, and you know, they’re kind of talking about a re-acceleration of international spending and just a more buoyant, I would say, outlook as you go across the globe. I wonder – does that fit with what you’re seeing relative to tendering activity now versus even three months ago, I guess, given what’s happened in Libya and so on around the world and with oil over 100? Have you seen a re-acceleration – are things getting meaningful better?

Roger Hunt

Yeah, the word accelerate, you’ve always got to be careful because it’s different styles of drivers. But the answer is unequivocally yes. There is an uptick in activity, and we look for it to improve.

Collin Gerry – Raymond James

Great color, guys. Thanks a bunch.

David Williams

Thank you, Collin.

Operator

Our next question comes from the line of Dave Wilson with Howard Weil.

Dave Wilson – Howard Weil

Good day, guys. With regards to the option that you guys just exercised on the two high-spec jackups a month or so ago, what did you see incremental to the previous two orders that resulted in getting those options exercised? Then as a follow-on to that, I’ll go ahead and ask it now, what are you going to have to see going forward for the remaining two options on the jackups and the related option on the drill ship as well?

David Williams

Well, what we’ve saw was just what Roger’s been describing, was the strength of the jackup market around the world, the continuing improvement in the utilization and the outlook for our existing jackups, and where we’re priced. We think we got into the yards very early on the jackup side and on the floater side, and so we had four options on jackups, two on the ships. We executed half of them. We’re still very well priced, and so we like where we were priced. We like where the market was headed. We still like where we’re priced. We’ll see where the market—what the outlook looks like for the market when our next options come due, but we feel very good about where we’re sitting today.

Dave Wilson – Howard Weil

Great, thanks David. And just a real quick follow-on to that – with regard to these new high spec jackups being built, obviously you’re seeing the visible demand in traditional areas for the rigs. Are there any newer areas where you’re seeing demand surface, or is it just kind of the general same area of the fleet?

Roger Hunt

Well, when we say new area or traditional area, Aramco is putting rigs like the Roger Lewis and the Scott Marks, and a couple of our competitors’ rigs, on projects that require specifications that heretofore were not available to them. So it required a significant upgrade of ours and our competitors’ assets to meet those specifications. Our new class of jackups meets or exceeds those specifications without any modifications. There are other areas that will access those specifications, and that might be areas like central North Sea, Vietnam, other areas out in Southeast Asia, Australia. But we also believe that once our customers see that they’ve got access to that kind of specification, then that in turn will generate demand. So it’s a two-part issue.

Dave Wilson – Howard Weil

Okay, thanks for that, Roger. That’s it for me.

Operator

Our next question comes from the line of Arun Jayaram with Credit Suisse.

Arun Jayaram – Credit Suisse

Good morning gentlemen. Roger, I’m intrigued about some of your commentary around the North Sea standard jackup market. Are you indicating that perhaps some of the leading-edge bid rates are in the low 100s, and do you think that’s going to be a sustainable number going forward?

David Williams

You know, AJ, there’s still—how about I answer that? Our fleet is 100% booked through 2011. Then when you look at who has availability in the spring of 2012, gosh, it comes right back to Noble. So we have a view that based on the intake of inquiries that rates are in effect already at that level. And so if there’s discipline, patience, a good chance that 100% will be seen in the rear view mirror.

Arun Jayaram – Credit Suisse

As you know, one of your competitors has, what, four or five cold-stack rigs or warm-stack rigs. Are they representing being pretty disciplined being transitioned in that market?

Roger Hunt

AJ, I can’t comment what the—kind of what the tact or strategy or readiness of those assets might be.

Arun Jayaram – Credit Suisse

Okay, fair enough. Couple other quick questions – you know, we’ve seen some slight improvements in demand in Qatar, you know, a market where you guys have done really well historically. Are you seeing some increases there, and could it be meaningful in terms of demand?

Roger Hunt

Yeah, good question. Most of the inquiries we see in that sector and neighboring countries for relatively short-term oil projects. Fair to say that, you know, most of the long-term projects are going to be driven by Aramco, and that’s today’s situation. But with these kind of commodity prices, we do see more noise out there. So gosh, in the space of order, we’re going from less than around 70% utilization on that fleet to mid-80s, and I expect it to be higher pretty shortly.

Arun Jayaram – Credit Suisse

Okay. If I could sneak one in, Roger and Lee, regarding Aramco, obviously we’ve all been hearing about the 11-rig tender. Can you comment on your participation in that tender, how many rigs, and what exactly are they looking for from an incremental perspective versus rigs that are already there?

Roger Hunt

You know, the exact answer to the incremental, AJ, I don’t think anybody knows. Everybody has a guess. We have to be very well positioned. You know, we’ve got two very high-spec units. Aramco likes the idea of a company like Noble having a larger footprint. We’ve got available assets that meet the specification, the timing – everything looks like a nice fit. As to the total number, if you want a guess from Roger, it would be three to four more than the 11 on this tender.

Arun Jayaram – Credit Suisse

On this tender, okay. Thanks a lot, gentlemen.

Roger Hunt

You’re welcome.

David Williams

Thanks, AJ.

Operator

Our next question comes from the line of Judd Bailey with Jefferies & Company.

Judd Bailey – Jefferies & Co.

Thank you. Roger, I wanted to follow up on the North Sea question from a second ago. If we were to see rates go over $100,000 for North Sea jackups, I presume the timing would be sometime—it sounds like you’re saying sometime maybe in early ’12 when you could maybe recognize those types of rates. Is that fair?

Roger Hunt

There might be an announcement of a rate before then, but probably the actual time that the rate would apply is going to be late 2011, early 2012. And let’s be absolutely clear here – we’re talking about southern North Sea jackups. We’re not talking about central North Sea work, which is going to be a totally different pricing bracket.

Judd Bailey – Jefferies & Co.

Okay, thank you. And on the 1,500 meter tender that was recently cancelled by Petrobras, we understand they’re going to probably re-tender that. Do you have an understanding of if they’re going to modify the specs on that tender because they basically only got six generation rigs bid for a 1,500 meter tender?

Roger Hunt

Yeah, you’re probably reading the same thing that I’m seeing, is that Petrobras probably was a little shocked at the pricing they got on a 1,500 meter bid; and yes, a lot of high-spec equipment was offered. So it would be absolutely predictable for Petrobras to lower those specs in hopes that they get lower pricing.

Having said that, is there going to be more demand behind these tenders? Absolutely.

Judd Bailey – Jefferies & Co.

All right. Great, thanks.

Operator

Our next question comes from the line of Joseph Triepke with Guggenheim.

Joseph Triepke – Guggenheim

Thanks, guys. Good morning, or good afternoon rather. David, you guys have obviously done a great job of getting very aggressive on construction and transforming the company pretty dramatically here. My question is really on the rest of the fleet. I was wondering if you could elaborate a bit more to your approach to strategically carrying the assets, maybe what equipment specifications you or your customers are looking at as more important now, and maybe how that’s different than in prior cycles.

David Williams

Well, again there’s not a whole lot I can elaborate on on that process. Each of our rigs fits within a niche in where it’s placed. That’s why our utilization is so high and that’s why our utilization is climbing. The fleet’s in good shape and we operate the rigs in a place where they’re very well suited. The question for us is what can you do to them? As this company was built, as this fleet was built over the last 15 years, the practice was to go out and buy existing hulls and spend a lot of money on them and do the necessary upgrades on the front end and then maintain them so that they were taken up to a level of specification at the top of the market at the time they were acquired and maintained at that level. The fact is, as Roger correctly points out, the specification of what the operators see available now has outrun the existing fleet, and so we, having taking much of our existing rigs to their technical limit, while they are in great shape, they’re not going to operate at the highest end. So the question for us is where do we think the demand is going to develop over the next five to 10 years, what is our availability to be able to participate at the top end of that, and once we identify the assets what is the cleanest and best way for the shareholders to extricate those assets from the fleet. And so that’s—I mean, that’s a non-answer to a good question, but we’re so early in the process and this is a complex issue, and it’s becoming more complex and more complicated just by virtue of the fact that we keep putting rigs to work. So, you know, it’s hard to bid a rig and then turn around the next day and tell the customer that you just bid the rig to that, oh, by the way, we’re fixed to sell it.

So this is not something we’ll do in the next two weeks. This is something that may take some time, and we’re going to take our time and do a good, strategic evaluation of our fleet.

Joseph Triepke – Guggenheim

Understood. Thanks for the color, very helpful. Just as a follow-up, kind of on the same front, you mentioned earlier in the call that the operating condition of even some of the older assets in your fleet is sort of best in class if we look across the industry. Can you remind us of your sort of philosophy on spending for these assets and maybe provide a little bit of color around your perception of how Noble’s assets stack up against some others that may be hitting the secondary market this year?

David Williams

I can only tell you what—I have not inspected anybody else’s rigs. I’ve inspected a lot of rigs in my history, and some intimately; but I would argue that our fleet on the margin is top class for what it is. I mean, again, the way this fleet was built, we didn’t build a lot of rigs from the keel up for a long time. We acquired a lot of rigs and spent a good bit of CAPEX on it at those times. I mean, I can remember when Jim was CEO and I was on another side of the fence and looking over, and looking at Noble spending 20 to $30 million to buy an asset and spending 20 to $30 million to upgrade it, and they upgraded it to a very high specification at the time. And those rigs have been maintained to that specification. So what we have is in top-notch condition. I’m not embarrassed to take anybody to any rig we’ve got. The fleet is in very good shape.

How that compares with the rest of the world, I don’t have a clue except that we can look at what we spend and compare it to what we could see in other published data and what we hear from customers, so I think our fleet would be very attractive in the open market to people who want to enter that part of the business.

Joseph Triepke – Guggenheim

Thanks, Dave, really helpful. I’ll turn it back.

Operator

Our next question comes from the line of Max Barrett with Tudor, Pickering, Holt.

Max Barrett – Tudor, Pickering, Holt

Thanks. Good morning, guys. As it relates to kind of industry-wide new builds, David, you mentioned on the last call that if there were a shipyard slot available to the 2013, 2014 time frame, that it would likely be taken. We’ve seen a couple of your peers push out some of the option expirations a little bit, and I was wondering if you had any change to that thesis.

David Williams

If I’m not mistaken, they pushed out their option notice. They have not pushed out their slots. I can tell you that when we negotiated our slots, our slots were defined and our options were for specific slots, so if we push out our option notice, we are not pushing out the delivery of that particular rig. So as we are, and I can’t speak for everybody, but as we are, as we pushed our options out, the slots have maintained that position, particularly for the ships. So my—so no, I don’t really change my view. I think the best pricing is on the earliest slots, and the earliest slots are being picked up.

Max Barrett – Tudor, Pickering, Holt

Okay, that’s helpful. And then I guess switching gears, the FPSO that you picked up with the Frontier acquisition, prospects for that asset. Is it suitable to work in Brazil, and if so, what kind of maintenance requirement does it have?

David Williams

The rig—the ship came from Brazil so clearly it’s suitable to work there. It’s laid up right now. It’s in great shape. There are a number of different prospects for it. The challenge with that business is it’s a little slower moving business than the drilling business, so it’s frustrating for us just at the pace of play. But we’re not disappointed in the number of prospects we’ve got for it; it’s just a little slower process to develop. But yes, it’s well suited for Brazil and I think it’s suited for other markets, and there are some other market opportunities for it.

Max Barrett – Tudor, Pickering, Holt

Great, thanks a lot, guys.

David Williams

Sure.

Operator

Our next question comes from the line of Matt Beeby with Global Hunter Securities.

Matt Beeby – Global Hunter Securities

Thank you. Good morning. As it relates to the drill ships in Brazil, can you give a little progress update on the Segerius; and also secondly, timing for approval by the Petrobras Board for the Muravlenko/Phoenix rig swap.

David Williams

The progress on Brazil with the drill ships is going well. The aft sections are coming along very well. The Segerius entered the shipyard, and of course, there’s always challenges of when you finish a prospect and when you—or when you finish a drilling program and when you go into a shipyard, it’s never a specific date. But the Segerius is in the yard. The demolition of what we’re working on is coming along just fine, so the progress on the drill ship upgrades is actually just fine. Our program is to do the work between Mardi Gras and Christmas. You never want to be in the shipyard either through Mardi Gras or through Christmas because Brazilian shipyards are notoriously slow.

In terms of the approval of the—I’ll let Roger talk about the Phoenix.

Roger Hunt

Yeah, I’ll take that question. I mean, for all intents and purposes, our view is that we have commitment from Petrobras. So both Petrobras and Noble are working towards mobilizing the Phoenix to Brazil.

Matt Beeby – Global Hunter Securities

Okay, that’s great. One more real quick one. You all mentioned increasing positively outlook for the U.S. Gulf deepwater. Does that suggest that the Paul Romano is more likely to stay in the Gulf, and maybe your outlook for the Amos Runner as well that rolls off in a couple of months.

David Williams

I’m having trouble hearing. It depends on how it goes. I think that the prospects in the U.S. Gulf of Mexico are good. Interestingly, there are number of one and two-well operators who are historically active operators in the Gulf of Mexico who may have one or two wells they want to drill, and as they sit today they don’t necessarily have a rig available and so there’s actually a good bit of dialogue with smaller operators, or other operators, I would say, who are not properly rigged about opportunities for those rigs in the Gulf of Mexico. So I can’t put odds on whether or not the Runner and the Romano stay in the Gulf of Mexico. I would say that my view is that they are more likely—my view today is that they have a better opportunity in the U.S. Gulf of Mexico than my view would have been last quarter. I still think the odds are probably pretty close to evenly split whether they go to work domestically in the U.S. or internationally, outside of the U.S. Which one they’d get first, I think that’s still a good question. But as the permit process becomes more clearly defined and as more permits are coming out, you know, the BOEM has now said that they’re no longer going to put out press releases on new permits because it’s becoming rope for them. You know, the excitement’s dying but the permits are still flowing. So I think as operators see the permits coming, I think the opportunities for our rigs in the Gulf are actually pretty good. So we’ll just have to see how it continues to develop.

Matt Beeby – Global Hunter Securities

Okay, that’s helpful. Thank you.

Lee Ahlstrom

Regina, we’re going to take two more questions.

Operator

Our next question comes from the line of David Smith with Johnson Rice.

David Smith – Johnson Rice

Hi, good morning. Thanks for taking my question. Sorry if you all mentioned this already – was wondering if you could provide an outlook for the Duchess and the Muravlenko?

Roger Hunter

The Muravlenko – not sure I understand the question. That—

David Smith – Johnson Rice

Well, after the rig swap with the Phoenix.

Roger Hunter

Yeah. Muravlenko – there is potential follow-on work. It could be in a different form in terms of not using the full water depth capability of the asset in Brazil. So that is a current discussion, and we like what we see there. On the Duchess, for sure it’s a challenge on the Duchess. Right now, we are looking at prospects, probably non-West Africa regions. It’s more likely to be in the India/Southeast Asia-type regions.

David Smith – Johnson Rice

Great, thank you.

Roger Hunter

You’re welcome.

Operator

And our final question comes from the line of Jay Frank with Deutsche Bank.

Jay Frank – Deutsche Bank

Hey, good morning, guys. Seeing as the company is undervalued and moving in the right direction, would you be willing to entertain any offers for the company? There’s a lot of consolidation going on in the industry.

David Williams

Well, I mean, by definition we’re for sale every day, but the only—bring your checkbook. We’re a public company. We like what we’re doing. The company runs very well. There’s a lot of things that we think we do better than our peer group, or our competitors – I’m not sure we really have peers. So you know—no, the company is not for sale. We like what we’re doing. We like the track we’re on. Last year was a tough year for us. It seemed like every time something happened, there was a follow-on thing to happen. Right now, all of that junk is behind us. There’s a lot of good things going on here. We’ve had a few things happen but we think we have a lot more room to run this year. We will deliver three ships this year. Our utilization is outrunning the market. Our rates are coming up. Our operations are strong. I think we are in great shape, so if you want to take a shot, you better bring your checkbook. The company is in great shape.

Jay Frank – Deutsche Bank

Thanks, guys.

David Williams

All right. Thank you.

Lee Ahlstrom

All right ladies and gentlemen, thank you very much for joining us today. We appreciate your attention and your time, and we look forward to joining you when we report our second quarter earnings in July. If you have any questions, Brook and I will be in the office to follow up later in the day.

Operator

Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating, and you may now disconnect.

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