Noble Corporation - Commentary On The Fourth-Quarter And Full Year 2015 Results, What's Next?

| About: Noble Corporation (NE)

Summary

NE released its 4Q'15 and full year 2015 on February 3, 2016. Total revenues for 4Q'15 was $857.7 million with a net loss of $152.2 million or ($0.63) per share.

NE has retired the Noble Discoverer and the Noble Charles Copeland, reducing its fleet count to 30 units. Impairment charge in 4Q'15 was $418.3 million.

2016 will be a very tough year for the Offshore industry and NE as well. However, NE will survive the downturn. Thus, I recommend to accumulate on any weakness.

Source: Drillship Noble Bob Douglas

Noble Corporation PLC. (NYSE:NE)

This article is an update of my preceding article published on October 30, 2015 about the third-quarter results.

Complete Fleet Analysis and Fleet Status as of January 14, 2016. (Updated as of February 3).

1. Class: Drillships

# Name

Year

Built

Upgraded

Spec.

K feet

Contract

End

Current

Day rate

K$

Location

(0-rate)

1 Noble Bob Douglas 2013 10/40 mid 2/17

636

Day rate includes mob. fee

[Anadarko]

GOM

(30d) 4Q'15

2 Noble Bully I 2011 8.2/40 mid 3/17

494

[Shell] GOM

0-rate 4Q'15(13d)

5-Y survey 9/16

1Y priced option

3 x 1Y option unpriced

3 Noble Bully II 2011 8.25/40

early 4/22

458

[Shell]

Brunei

(17d)4Q'15

4 Noble Don Taylor 2013 10/40 Late 2/19 489

[Shell]

US GOM

15% bonus eligible

5 Noble Globetrotter I 2011 10/40 mid 7/22 449 (For 1st 5 years)

[Shell]

US GOM 15% bonus eligible

6 Noble Globetrotter II 2013 10/40

Early 9/23

460 (Fixed for first 5 years)

[Shell]

Gabon

15% bonus eligible

7 Noble Sam Croft 2014 10/40

Late 7/17

643 Started 11/21/14

Day rate include mob. fee

[Freeport-McMoran]

US GOM

Renegotiation in Process/Idle 98%

8 Noble Tom Madden 2014 10/40

Late 11/17

637

Day rate include mob. fee

[Freeport-McMoran]

US GOM

Renegotiation in Process/ Idle 98%

Click to enlarge

2. Class: Semi-Submersibles

# Name

Year

Built/upgraded

Spec.

K feet

Contract

End

Current

Day rate

$ k

Location
1 Noble Dany Adkins

1989

1999/2009

8/32.5

mid 2/16

206

[Talos]

US GOM

2 Noble Dave Beard 1986/2008 10/35 late 4/16 235

[Petrobas]

Brazil

15% bonus eligible

3 Noble Paul Romano 1981/1998 6/25

mid 9/16

302

[Hess]

USGOM

(24d)4Q'15

Click to enlarge

4. Class: Jack-Ups

# Name

Year Built

+ upgrades

Spec.

Feet/K feet

Contract

End

Current

Day rate

Location
1 Noble Alan Hay 1980/2005 300/25

Late 12/17

85

Arabian Gulf

0-rate 2Q'16(60d)

2 Noble LLoyd Noble

2Q'2016

($460 million final payment)

492/32

2Q'16

3Q'16-3Q'20

Transit

447 (including mobilization revenue)

[Statoil] UKNS
3 Noble David Tinsley

1981/

2004/2010

300/25

12/17

85

Arabian Gulf

0-rate 4Q'15(21d)

4 Noble Gene House 1981/1998 300/25

Mid 11/18

TBD

[Aramco] Arabian Gulf
5 Noble Hans Deul 2009 400/30

Early 8/16

235

[Shell]

UK North Sea

6 Noble Houston Colbert 2014 400/35

Early 4/16

4/16- Early 6/16

243

175

[Total] Argentina

2-months priced option

7 Noble Joe Beall 1981/2004 300/25

Mid 11/18

TBD

[Aramco] Arabian Gulf

8 Noble Mick O'Brien 2013 400/35

Shipyard

(3/16-6/16) to (4/17-7/17)

Available

150

UAE

NE can substitute another rig.

9 Noble Roger Lewis 2007 400/30

Early 3/17

TBD

[Aramco] Arabian Gulf

0-rate 4Q'15(51d) 4Q'16(30d)

10 Noble Sam Hartley 2014 400/35

Mid 1/19

111

[Total]

Brunei

11 Noble Sam Turner 2014 400/35

Late 6/16

Late 6/16 -6/18

197

96.5

[Maersk]

Denmark

12 Noble Scott Marks 2009 400/30

Early 7/17

TBD

[Aramco] Arabian Gulf

(30d)4Q'16

13 Noble Tom Prosser 2014 400/35

Early 4/17

203

[Apache

Quadrant En.]

Australia

Click to enlarge

Rigs available, ready stacked or cold stacked, idle.

# Rig name/shipyard date Type Year built Status Location
1 Noble Homer Ferrington (1/14) SemiSub 1985/2004 Cold Stacked Italy
2 Noble Charles Copeland (9/15) JU 1979/2001 Retired Sharjah
3 Noble Max Smith (10/14) SemiSub 1980/1999 Available Singapore
4 Noble Discoverer (12/15) Drillship

1976/2009

Gen 4

Retired Singapore
5 Noble Regina Allen (12/15) JU 2013 Ready Stacked Denmark
6 Noble Clyde Boudreaux (12/15) SemiSub 1987/2007 Idle Singapore
7 Noble Amos Runner SemiSub 1982/1999 Ready stacked GoM
8 Noble Jim Day SemiSub 1989/1999/2010 Idle? GoM
Click to enlarge

The Company has decided to retire the drillship Noble Discoverer and the jackup Noble Charles Copeland, reducing its fleet count to 30 units.

Noble Fleet Snapshot

Total Drill-ships Semi-submersibles Jack-ups
Noble Corp. 24 8 3 13
Cold-stacked - Idle - Not contracted 6 0 5 1
Total 30 8 8 14
Fleet age average in year - 3 25 5
Click to enlarge

Backlog

Noble Corp. can be proud of its impressive contract backlog totaling approximately $7.04 billion in February 2016. I commented recently about the backlog remaining as of January 2016 and details.

Noble Sam Turner was awarded a two-year contract extension, placing the rig under contract through late-August 2018. As part of the extension, the rig's dayrate was reduced to $197,000 effective December 3, 2015, from a previous dayrate of $218,000 and the two-year extension will begin in late-June 2016 at a dayrate of $96,500.

Noble Corp., Q4'15 results and full year 2015, on February 3, 2016. (five consecutive quarters).

Full year 2015 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014

Total Revenues in

$ Million

3,352.3 857.7(712) 896.7 793.9 803.9 804.7

Net Income

$ Million

511.0 (152.2)/126 325.8/147 159.0 178.4 119

Special Items/lump sumin

$ million

317 140 Discoverer

177 Ferrington

- - -

After-Tax Impairment Charge

$ million

418.3

418.3

2 rigs

- - - 745.4
Earnings Per Share in $ 2.06 (0.63) 1.32 0.64 0.72 0.47

Shares Outstanding Basic

In million

242.146 241.974 241.970 241.966 242.685 249.650
Dividend per Quarter/Share 1.05 0.15 0.15 0.375 0.375 0.375

Cash and Cash Equivalent

in $ Million

512.24 512.24 164.4 247.7 82.20 68.51

Liquidity: Cash + Revolving

$ Billion

2.8 2.8 2.8 2.9 2.7 1.8

Capital Expenditure

$ Million

450 170 110 81 89 -

Long-Term Debt

$ Billion

4.189 4.189 4.189 4.589 4.86 4.87
Debt-to-Capital Ratio 35% 35% 37% 40% 40% 40%

Net-debt

$ billion

3.677 3.677 4.025 4.342 4.04 4.19
Click to enlarge

Commentary:

Noble Corp Plc reported its 4Q'15 and full year 2015 results on February 3, 2016. Mr. David Williams, CEO, said:

We face a challenging offshore fundamental outlook in 2016 But Noble has successfully adapted to difficult cycles over its 95-year history and 2016 will be no different.

Our focus in 2016 will continue to center around operating our fleet in a safe and efficient manner, while capitalizing on contract opportunities that develop across our regions of operation.

Excluding the one time payment for the Noble Discoverer the revenues were down to the low $700's million.

Fleet utilization remains high at 83%, whereas the daily revenues declined 6% to $304.4k/d from $325.5k/d last quarter. This trend is more likely to continue through 2016 and 2017.

On a positive side, Noble is reducing contract drilling costs by 3% this quarter and said "Ongoing cost control measures are likely to result in further reductions in 2016".

In fact, the situation in the offshore drilling sector is quite simple, unfortunately for most of the equity investors and it is why.

Oil prices have crashed to a record low, and are hovering between $27 to $37 a barrel, well below what is needed for the oil industry to make a profit.

Thus, big oil operators are cutting CapEx at a fast pace, to survive this cycle and wait for a turn around, maybe by 2017, thereby, the offshore industry is left with an oversupply of rigs that cannot find work anymore, or if they do? At a day rate so low that it is basically below the break even point. What does it mean?

In short, the rigs are working at a negative return, and the offshore company is paying its clients to work. Look at Noble recent contract for the Noble Sam Turner, "lucky" to find a 2-year contract with Maersk at a day rate of $96.5k/d from the initial $218k/d, a whopping 56% discount for the same drilling work.

Now, comes the question of survival, and what is the meaning of this question for us, investors?

This is an interesting topic, because it is a problem only at the shareholder's level, in my opinion. If the market is not improving by the end of 2016, many offshore drillers will be faced with a dead end financial situation (breach, lack of cash...), that will force them to restructure their large debt.

The offshore drilling business is somewhat different than the gold miners situation for example, because drilling is a service that goes from existing to vanishing whereas the long-term debt, which is one of the highest due to the complexity of the rigs, will remain. The gold miner have still the gold in the ground that doesn't age and doesn't really cost to maintain.

This restructuring process has already been started, and we can see its dire effects on Hercules Offshore (NASDAQ:HERO) and Vantage Drilling (OTCPK:VTGDF), which are the two companies that went through a bankruptcy proceedings so far.

Other companies may follow soon, such as, Paragon Offshore (PGNPF) and Pacific drilling (NYSE:PACD) in 2016. This "financial cleansing" process, eliminates the long-term debt, by converting debt into equity at often a discount, and thus, wipe out the common shareholders, because the debt is much higher than the value of the assets, simple right?

However, the company involved in this "restructuring" process, will not be affected at all, and will regain a brand new financial health -- after emerging from bankruptcy by a simple Lazarus effect -- that will allow the "new" company to compete again, and even more fiercely.

Management will stay at the command, same pay, same benefits, and business will be conducted as usual.

Then, as an investor, it is of a paramount importance to understand this vicious paradigm and choose very carefully the companies that can be considered as "survivors", in this sector.

It is a life and death sentence for us, and again, not at all, for the company.

When I look at Noble Corp., I see a manageable debt with a strong backlog that gives me confidence. I believe that the company will be more likely a survivor the next two years, without the need of a restructuring. It is what makes NE special and attractive, albeit the stock may well go further down, especially the next couple quarters, especially if NE is forced to suspend the dividend and it should in my opinion.

I believe NE has not found a bottom and may drift lower. Maybe $6 or lower? How far down is not possible to forecast with accuracy. However, if you are convinced that this company will survive this bear cycle, then, the question of whether or not it makes sense to accumulate the stock is really futile.

Disclosure: I am/we are long NE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.