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- Noble's newbuild program is practically finished.
- The company will generate a significant amount of free cash flow for the next several years.
- Share repurchases and dividends will return over 26% back to shareholders over the next 18 months.
Key Takeaways From Ensco's And Noble's Third Quarter Earnings
- Ensco Plc and Noble Corp Plc beat expectations.
- The two companies put forward some interesting views on the market.
- Noble looking to unlock value while Ensco is changing its fleet dynamic.
Noble Corp Beats On Earnings And Revenues But Faces Tough Sailing In 2015
- NE earned $0.49/share, beating consensus estimates by $0.04/share (excluding costs of PGN spin-off).
- In 2015, 15 existing rigs will need to be re-contracted.
- Management is taking pro-active steps, such as considering an MLP and increasing share buybacks, to add shareholder value.
- Other drillers may offer a more attractive risk/reward profile.
- Noble stock is down 40% from the beginning of the year, management's plans to enhance shareholder value are a positive.
- An MLP, similar to SDLP or RIGP, could help shareholders but remove the best assets from NE.
- Moody's quickly expressed concern about a share buyback, highlighting the weakening outlook for NE's cash flow.
- Long Noble Corp for 50% Upside.
- Mispricing derived from a falling oil price and concerns relating to over-capacity in the industry.
- Further mispricing due to poor understanding of the financial implications of Noble’s recent spin-off.
- Sustainable 7.2% dividend yield.
Noble Corp.: Complete Fleet Analysis And Commentary
- Noble Corp. announced its new fleet status on October 9, 2014, amid ultra-bearish investor sentiment for the offshore drillers.
- Noble Corp.'s fleet status is showing a slowdown in the industry. Not much happened since the last fleet status released on September 11, 2014.
- The offshore drilling industry is experiencing a bearish cycle, exacerbated by a sudden, strong weakness in crude oil pricse for the past few weeks.
Noble Corp.: Safest Offshore Driller With Sustainable 7% Dividend Yield
- The offshore drilling industry has been absolutely devastated over the past few weeks, with nearly the entire industry at 52-week lows.
- Noble Corp will see significantly reduced expenses during 2015 and 2016, which will allow the company to easily sustain their dividend.
- Strong contract backlog sets Noble up to weather this market downturn better than most offshore drillers.
Noble Corp. Fleet Analysis: After The Paragon Offshore Spin-Off
- Noble Corp. is a top-tier offshore drilling company based in London, with a large rig fleet operating around the world.
- Noble spun off 43 rigs of its fleet under a new company, called Paragon Offshore Plc., in August. The company now owns 34 rigs and just released a new fleet status.
- Noble now has a more competitive fleet and presents a good growth prospect in this challenging environment. The 11 semi-submersibles are still an issue for 2015.
- NE aggressively pursuing new contracts, day rates troubling.
- Expected continued contracting did not expect such strong declines in day rates.
- Continue to be long-term bullish; negatively modify my short-term view to "Avoid" for the risk averse.
Paragon Offshore: Can This 'Bad Bank' Yield Returns?
- Noble Corporation dumped its old, poorly contracted rigs in Paragon Offshore.
- Paragon Offshore faces a 50% drop in EPS during the next twelve months.
- Stock has dropped so far, a high-reward situation has developed.
Noble Corp.'s Contract Status Could Have An Adverse Impact On Revenues In The Near Term
- Offshore drilling giant Noble Corp. has a number of drilling rig contracts that will be expiring prior to the end of 2014.
- The expiration of these contracts will put downward pressure on revenues, should the company fail to secure new contracts.
- There are signs that Noble will be able to secure new contracts for at least some of these rigs prior to the end of the year.
- Lower dayrates on the new contracts may still put pressure on revenues.
- Noble still has the potential for growth throughout 2015.
- Noble Corp. has beat EPS estimates for 5 of the last 6 quarters.
- Capital expenses are expected to decrease by nearly $2 billion in 2015, which could result in increased dividends.
- While the latest fleet report doesn't have any major updates, it shows Noble Corp as a leaner company poised to benefit from higher margin rigs.
Update: Noble Corp.'s Fleet Report: Long-Term Strength, Weakness In The Short-Term
- NE's first post-Paragon Fleet Report reflected a much stronger contracting profile.
- Fleet Report was in-line, but lack of progress on short-term contracting continues to concern.
- Continue to be long-term bullish on NE.
- Noble Corp. saw its second-quarter revenue and earnings adversely affected by scheduled rig downtime due to maintenance and other scheduled shipyard projects.
- The negative impact was mostly offset by the startup of new rigs.
- These new rigs, combined with two others will be the driver of forward growth.
- The spin-off of Paragon Offshore will reduce the company's forward earnings so the growth prospects need to be considered with this in mind.
- Noble Corp. will continue to grow following the spin-off.
- Noble Corp. reported 2Q2014 revenue of $1.2 billion and net income of $235 million, or $0.91 per diluted share.
- Total backlog fell from $14.3 billion in 1Q2014 to $13.4 billion in 2Q2014 due to a reduced pace in customer activity.
- My previous article covering Noble Corp forecasted Noble would continue to weather the downturn in the offshore drilling market while maintaining consistent revenue and earnings growth.
Update: Noble Corp. Earnings OK, Outlook Not Optimistic; Paragon To Spin Off Aug. 1
- Noble reported Q2 earnings of $0.91/share and a sequential decline in utilization.
- Earnings were in line with my expectations, but outlook has not improved.
- Still bullish on Noble and sector due to geo-political factors; Paragon spin-off creates modern, "pure-play".
A Look At Noble's Current Industry Position And Its Forward Prospects
- Noble Corp. is one of the largest offshore drilling contractors in the world, boasting a fleet of 77 offshore rigs.
- Noble Corp.'s large fleet grants it significant amount of international diversification, protecting the company from adverse governmental policies or decisions.
- Noble has one of the oldest fleets of all the major companies in the industry but it is seeking to change this through a spin-off.
- Noble has a strong contract backlog which should allow it to maintain its dividend and generate stable revenues, although its dependence on Royal Dutch Shell is a concern.
- Noble has significant growth prospects due to its newbuild rigs and should generate growing free cash flow.
Noble Corp.: Complete Fleet Analysis After Paragon Offshore Spin-Off And Commentary
- Noble Corp. is a top-tier offshore drilling company based in London, with a large rig fleet operating around the world.
- Noble Corp. decided to spin off a large part of its fleet under a new company called Paragon Offshore Plc., with a distribution date of August 1, 2014.
- Shareholders of Noble Corp. will receive one share of Paragon for three shares of Noble.
Update: Noble Corp. Announces Fleet Report And Timing Of Paragon Offshore Spin-OffAnthony Ruben • Mon, Jul. 14
- Fleet report highlights short-term issues already priced into stock.
- Paragon Offshore spin-off dates and share ratio finalized.
- Fleet report disappointing, but not unexpected.
- NE still recommended due to long-term change in secular demand driven by geo-political events.
Today, 5:11 AM
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- Table of S&P 500's biggest total-return losers YTD
Yesterday, 10:42 AM
- Seadrill (SDRL -19.2%) shares are plunging after the drilling contractor suspended dividend payments due to "significant deterioration" in the broader markets, and North Atlantic Drilling (NADL -13.8%) suspends its dividend because of the delay of its agreement with Rosneft as well as the weaker market.
- The move is slamming the entire sector, and Wells Fargo says that although SDRL is the first driller to cut its dividend, Diamond Offshore (DO -8.3%) and Transocean (RIG -4.7%) will "ultimately have to follow suit."
- Also: SDLP -6.6%, ESV -4.8%, ATW -4.3%, RDC -3.3%, NE -3.2%, PACD -6.5%, ORIG -2.7%, HP -1.1%, RIGP -2.5%.
- ETF: OIH
Wed, Nov. 5, 3:31 PM
- Rowan (RDC +4.4%) leads offshore drillers higher after easily beating Q3 earnings estimates and forecasting revenues to rise in 2015 despite its own predictions for a soft rig market next year; it certainly doesn't hurt that oil prices are higher today.
- FBR Capital says it likes RDC as both a near-term idea on a sentiment snap-back and as a longer-term investment opportunity for patient investors; the firm believes the risk in RDC is mitigated by the company's fully locked-up ultra-deepwater newbuild fleet, whose contract starts account for the entirety of net earnings growth it foresees from 2014 to 2016, as well as concentrated exposure to high-spec jackups, which make up 93% of 2015 jackup earnings and should see fundamentals hold up better than the other classes.
- Also: RIG +5.2%, SDRL +4.5%, ESV +3.6%, DO +5.7%, NE +5.4%, ATW +2%.
Tue, Nov. 4, 1:45 PM
- November is just two days old, but offshore drillers Transocean (RIG -4.7%), Seadrill (SDRL -7.2%), Diamond Offshore (DO -3.6%), Atwood Oceanics (ATW -2.6%) and Noble Corp. (NE -5.2%) are down more than 8% so far this month.
- The Zephirin Group thinks plunging oil prices are already beginning to impact demand for offshore drilling platforms, and the current dayrate range for ultra-deepwater drillships of mid $400-500/day is not helping the outlook.
- The latest piece of evidence of the weakness is ATW's six-month postponement of the delivery of two drillships under construction, which Zephirin expects will cost the company an additional $40M-$45M per rig.
- The firm also foresees a high possibility that the 2015-16 market and contract renewals rates could shift below expectations when energy companies start announcing 2015 capex budgets late this year.
Mon, Nov. 3, 2:58 PM
- Offshore drillers are broadly lower after Atwood Oceanics (ATW -5.2%) discloses in its latest fleet status report that it is delaying two deliveries in its fleet, and Diamond Offshore (DO -4.7%) is downgraded to Strong Sell from Sell at Nordea.
- The damage is minimal at Ensco (ESV -0.9%), however, as Johnson Rice analysts offer positive commentary on the "top-tier producer" after ESV's Q3 results displayed impressive operational execution while management made several positive moves during the quarter to improve the company’s financial flexibility.
- While management continues to expect further floater utilization and dayrate challenges through 2015, the jackup market was described as a potential near-term offset to floater headwinds as ESV cited record backlog within the jackup fleet and expected incremental Middle East jackup demand in H1 2015.
- Also: Caledonia deal not likely to held Transocean (RIG -2.8%) shareholders, analyst says.
- Also: RDC -2.8%, SDRL -3.1%, NE -1.1%, PACD -2.4%.
Thu, Oct. 30, 3:09 PM
- It's another down day for offshore drillers, with two notable exceptions, as better than expected earnings from Ensco (ESV +3.3%) and Noble Corp. (NE +1.9%) spark strong gains today.
- ESV's Q3 earnings finished well ahead of estimates, driven by higher than expected revenues as the company likely earned more bonus payments than anticipated; lower than expected costs also contributed, as ESV was successful in containing cost inflation in the quarter.
- NE's Q3 earnings came in slightly above consensus, and the company says it will pursue the development of an MLP subject to market conditions and final board approval.
Wed, Oct. 29, 5:03 PM
Tue, Oct. 28, 9:13 AM
Tue, Oct. 28, 8:33 AM
- Noble Corp. (NYSE:NE) +8.3% premarket after announcing it will pursue development of an MLP to be comprised of interests in select rigs chosen from the company's existing fleet.
- NE says an MLP could enhance its capital allocation strategy, and that alternatives surrounding the uses of cash flow are evolving with the significant reduction in newbuild capex to be realized after 2014.
- NE expects to file for an IPO in the MLP during Q2 2015.
- The company’s board also plans to seek shareholder approval for a plan to authorize the buyback of as much as 15% of its stock.
Tue, Oct. 21, 3:42 PM
- A 2015 deepwater market recovery is not the cards as oil companies head into budgeting season amid a shaky oil price outlook, with no reversal of negative news flow soon although it is already well appreciated by Wall Street, Morgan Stanley’s Ole Slorer and Jacob Ng say.
- The firm views a group inflection boiling down to an improving oil price outlook, and recommends sticking with premium asset exposure via Seadrill (SDRL +6.1%) and Atwood Oceanics (ATW +4.1%) in the meantime.
- The market already appears to be pricing in dividend cuts, with current yields now well above historical trading ranges, Stanley says while still seeing relative safety in yieldcos Transocean Partners (RIGP -0.5%) and Seadrill Partners (SDLP +4.1%), which should continue to offer strong distribution growth profiles driven by parent need for funding.
- While retaining Equal Weight ratings on both Noble (NE +3.9%) and Ensco (ESV +3.1%), Stanley sees higher total return upside in NE (~25%) vs. ESV (~10%) over the next few months.
Mon, Oct. 20, 6:14 PM
- Seadrill (NYSE:SDRL) was downgraded to Neutral/High Risk from Buy today at Citigroup, which cited a combination of disappointing exploration, further investment decision delays and increased oil price uncertainty as leading to a 10% reduction in its medium-term rig demand forecast.
- Citi believes the decline, combined with significant supply added in 2015, likely will extend the current market weakness into 2016, which could materially affect SDRL’s ability to sign and thus finance the next wave of its newbuilds; it also sees increased risk of dividend cuts to maintain the leverage ratio within covenants.
- SDRL finished flat today but most offshore drillers rose even as the firm lowered its growth estimates across the sector to reflect a slowdown in investment: ATW +3.4%, HP +3.3%, RDC +3.2%, DO +2%, RIG +1.8%, NE +1.7%, PACD +1.2%, ESV +1%.
Thu, Oct. 2, 3:42 PM
- Offshore drillers such as Diamond Offshore (DO +3.9%), Transocean (RIG +1.5%), Ensco (ESV -0.5%) and Noble Corp. (NE +0.4%) are oversold, FBR Capital says, but the analysts are not moving in to buy the shares because they believe the soaring cost of credit protection, in the form of credit default swaps, suggests their dividends could be at risk.
- CDS spreads have surged over recent weeks, FBR notes, approaching heights last hit in the wake of the 2010 Gulf of Mexico oil spill; spreads for DO and RIG closed yesterday a respective 175% and 97% higher than a year ago and just 28% and 22% below their global recession highs.
- DO has managed to defend its total dividend payout by leveraging its balance sheet, but FBR believes it will need to cut the recurring special dividend at some point in the current downturn.
Mon, Sep. 29, 3:39 PM
- Jefferies sees little hope in the near term for offshore drillers such as Transocean (NYSE:RIG), Diamond Offshore Drilling (NYSE:DO) and Noble (NYSE:NE), as continued negative trends show an industry "continuing to die by 1,000 cuts."
- Despite some apparent progress in Gulf of Mexico demand creation from softer rates, the firm is not convinced the improvement can carry into 2015 after current small-scale exploration programs conclude; West Africa "feels worse, as the contract roll-off schedule is picking up."
- As such, Jefferies looks for a rise in idle rigs, with RIG suffering most; it has already suggested that fifth generation UDW ship GSF Jack Ryan may not work in 2015, and similar risk is seen for near-term rolloffs Deepwater Discovery and Sedco Express as both also due for multi-month yard visits in 2015.
- The firm's preferences in the sector are Atwood Oceanics (NYSE:ATW) and Rowan (NYSE:RDC).
Wed, Sep. 24, 12:27 PM
- Offshore drillers continue their dramatic recent slide, as rigs go idle and analysts cut their ratings, and Wells Fargo piles on with a new report explaining why it’s still too early to buy into the group.
- The firm sees offshore spending facing a structural slowdown, the offshore rig count set for anemic growth through 2015, further downside risk In offshore rig utilization and dayrates, and OSV utilization and rates likely to face downward pressure.
- Wells initiates coverage on Transocean (RIG -2.9%), Seadrill (SDRL -1.9%) and Diamond Offshore (DO -2.5%) at Underperform, while Noble Corp. (NE -2.5%), Rowan (RDC -0.5%), Ensco (ESV -1.9%), Atwood Oceanics (ATW -1%) and Pacific Drilling (PACD -3%) are started at Market Perform.
Wed, Sep. 17, 7:07 PM
- Offshore drilling stocks already have dropped 15%-20% since late June, which Societe Generale says likely has priced in much of the risk from a further deterioration in fundamentals, but that doesn't stop the firm from downgrading and/or price cutting several stocks in the group.
- The firm downgrades Noble Corp. (NYSE:NE) to Hold from Buy with a $27 target price, down from $35, cuts Ensco (NYSE:ESV) to Sell from Hold with a $44 price target, off from $52, and slashes Rowan (NYSE:RDC) to Hold from Buy with a $31 target, from $39.
- While adopting a neutral rather than outright bearish stance on the group, the firm sees limited prospects for a near-term rebound in offshore drilling stocks as a result of worsening conditions, and believes offshore drilling could remain the most out of favor oil services subsector for several more quarters.
Wed, Sep. 17, 3:25 PM
- Offshore drilling stocks continue to slide after fleet status reports from Ensco (ESV -1%) and Diamond Offshore (DO -1.8%) confirm that the rig market still has its problems.
- RBC reduces its EPS estimates for ESV based on the September update which featured negative datapoints for stacked floaters, newbuild delays and idle jackups, but the company was able to keep two of its 8500 series rigs working for the rest of the year.
- Susquehanna notes that DO did not report any new notable contracts in its latest fleet status report, and the firm does not expect any new tenders for at least the rest of 2014 and possibly Q1 2015.
- Also: SDRL -0.2%, RIG -1.2%, RDC -2.3%, NE -2.8%, ATW -0.2%, SDLP +0.9%, RIGP +0.4%.
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