In Q1 2007, a quick check of day rates revealed that the average going rate in the Gulf was 9% above estimates. In West Africa, day rates were 40% above estimates, however, this now brings rates in line with other locations. In the North Sea, rates were running 15% above both analyst and previously released company estimates. This all adds up to one thing - margins & profits. Expenses have risen as well; we doubt the industry average has exceeded the 5% mark.
Though Noble (NE) is the third largest offshore driller, we liken NE to ExxonMobil (XOM) as the most consistently profitable company amongst its peers. For the past decade, NE has outperformed all of its competitors in net margins. ROE average is 12.5%! ROE is a full 33% above the industry average, again, for a decade. It takes a well oiled company to produce these figures.
Taking into account additional capacity (new & refurbished rigs) in Q3 2007, we estimate 2007 EPS coming in at $9.25. We anticipate 2008 earnings to increase by 25% to $11.57. Before you get all excited about the new forward looking EOL, posted at $115.60, let us point out that this is very conservative. A P/E of 12.5 is at the low end. NE increased 2006 earnings ($5.33) over 2005 earnings ($2.16) by 146%. 2007 earnings are calculated to increase by ONLY 73%. Taken into account are; moderately higher fixed costs, 43% higher income and 90% utilization, which is already guaranteed for 2007. Every drill bit is money in the bank.
NE 1-yr chart
Disclosure: No conflicts