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Noble Corp.: Complete Fleet Analysis On December 18 And Commentary
- Noble Corp, released its new fleet status on December 18, and it is time again to look at what has changed.
- Noble is a well-managed company with a good contracted rig fleet, which will weather the company against any negative surprises next year.
- NE has dropped nearly 45% since January 2014, and may have factored in already the worst of this oil bear cycle. The stock is attractive.
- With no capital expenditure in 2015 and $500 million capital expenditure in 2016, Noble is well positioned financially.
- The company intends to use its 2015 free cash flow to continue paying dividends and repurchase significant amount of shares outstanding.
- A 69% contract coverage for 2015 implies a revenue backlog of $3.2 billion with a high percentage of the backlog coming from Shell (quality credit rated company).
- I expect the stock to trend higher once the bigger share repurchase is authorized on December 22, 2014.
- The company's MLP plan is unlikely in 2015. However, it is another value unlocking opportunity in the next 2-3 years.
- 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".
Tue, Dec. 23, 5:42 PM
- Three of the five worst performers in the S&P 500 this year are offshore rig contractors Transocean (NYSE:RIG), Noble Corp. (NYSE:NE) and Ensco (NYSE:ESV) - plus non-S&P company Hercules Offshore (NASDAQ:HERO), the largest provider of shallow-water rigs in the Gulf of Mexico, has plunged 84% YTD - and analysts say next year may be worse with “grievous” cuts coming for exploration plans.
- Earnings for the world’s five biggest offshore rig contractors are expected to fall an average of 18%, and only Seadrill (NYSE:SDRL) is seen increasing profit in 2015, since 75% of its rigs are backed by contracts next year, highest among the five.
- To preserve cash, rig owners already have begun scrapping older rigs to balance supply and demand; Bloomberg says ~140 older rigs would need to be culled to make way for new vessels scheduled for delivery by 2020, double the number scrapped in the previous six years.
- If the industry is to return to a healthy state, older rigs will have to be scrapped, not spun off into separate companies as has been the case, SDRL CEO Per Wullf says.
Fri, Dec. 19, 5:25 PM
- Transocean (NYSE:RIG) shares finished sharply higher today (+7.9%), but it’s hard to ignore the largely negative December fleet status report that came out late yesterday.
- In lowering his stock price target to $17 from $20, Cowen analyst J.B. Lowe said RIG secured one attractive contract this month, not enough to fill much needed ultra-deepwater floater availability; while RIG was able to put two idle floaters back to work, it had four additional rigs go idle, including one where the customer canceled the contract.
- Lowe believes falling oil prices will put increased strain on dayrates and utilization during 2015.
- Most offshore drilling service contractors racked up strong gains today as crude oil prices rebounded: NE +9.5%, ESV +9.5%, RDC +5.9%, DO +0.5%, ATW +7.1%, PACD +14%.
Tue, Dec. 16, 7:21 PM
- "Low oil prices cure low oil prices,” meaning that low oil prices will take supply off line - primarily shale oil production in North America - and eventually prices will recover; if that maxim becomes reality, then it could be time pick up select energy stocks today at cheap prices, some analysts say.
- U.S. Global Investors' Brian Hicks, who believes oil is oversold, favors Devon Energy (NYSE:DVN) for its low-cost Eagle Ford acreage purchased earlier this year, solid cash flow, and significant hedges in place on 2015 production; he also likes oil services companies Noble Corp. (NYSE:NE) and Helmerich & Payne (NYSE:HP).
- Hodges Capital's Michael Breard likes North American oil producers that have the flexibility to shift to natural gas - where prices are more likely to hold up, he says - such as Matador Resources (NYSE:MTDR), Comstock Resources (NYSE:CRK) and Panhandle Oil and Gas (NYSE:PHX).
- Deutsche Bank analysts like companies with the balance sheet strength to survive, but also the budget flexibility, asset quality and performance record to suggest they can return to growth when energy prices go back up, including Anadarko (NYSE:APC), EOG Resources (NYSE:EOG), Cimarex (NYSE:XEC) and Concho Resources (NYSE:CXO).
Wed, Dec. 10, 12:58 PM
- Energy stocks are slammed across the board as oil prices take another nosedive (I, II), with the losses heaviest on shares of small, U.S.-based oil and gas producers.
- “Financial leverage is being thrown out the window, and everything else is being purged as well,” says Simmons analyst Bill Herbert, who adds that cuts to production budgets in the coming year likely will mean more pain for oil service companies.
- Among the hardest-hit shares: TPLM -15.2%, CRK -12.4%, GDP -11.9%, NOG -9.5%, AREX -8.6%.
- Investors have been less quick to dump shares of integrated oil companies, but today they have been smacked too: XOM -2.8%, CVX -2.9%, COP -2.3%, BP -2%, RDS.A -2.2%, TOT -2.3%.
- Today's worst performers on the S&P 500 include OKE -8.2%, DNR -7.4%, NE -5.6%.
- Service companies also are down: SLB -2.6%, HAL -2.7%, WFT -6.6%, BHI -2%.
- ETFs: XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, XES, IEZ, PXI, FENY, PXJ, RYE, FXN, DDG
Mon, Dec. 8, 4:59 PM
- Noble Corp. (NYSE:NE) says it reached a $12.2M settlement with the U.S. Justice Department related to safety violations on a rig used in Arctic waters off Alaska in 2012.
- The Noble Discoverer was contracted by Royal Dutch Shell (RDS.A, RDS.B) to work on Shell leases in the remote Chukchi Sea off northwestern Alaska.
- The deal is fodder for environmentalists who oppose Arctic drilling, even as Shell seeks to persuade regulators it is ready to resume work in the area next summer.
Wed, Dec. 3, 2:53 PM
- Offshore drillers are rising modestly today after suffering a beating this year, but Jefferies cautions against seeing a buying opportunity in the beleaguered group.
- The firm says neither fundamentals nor valuation paint a compelling enough picture of the group; "more importantly, current softness masks the evolution of deepwater drilling to where specifications matter."
- Transocean (RIG +1.6%), which Jefferies says has the biggest contracting challenges both near-term and in the longer-run given a disproportionate mix of older UDW/UK floaters, is the least favorite name, while the firm sees relative value in Atwood Oceanics (ATW +0.7%) and Rowan (RDC +1.2%).
- Among other offshore drillers: DO +3.1%, PACD +3.1%, ESV +1%, NE -0.7%, SDRL -0.7%.
Mon, Dec. 1, 3:19 PM
- A bit late, Guggenheim analyst Darren Gacicia downgrades Seadrill (SDRL -5.5%), Transocean (RIG -4.5%) and Diamond Offshore (DO +3.3%) to Neutral from Buy, finally admitting that downward pressure on oil prices and a potential for capital markets to become shy to fund newbuild deliveries has undercut the tenets of his previous bull thesis.
- SDRL and RIG remain the most levered to deteriorating offshore market conditions, he says, believing SDRL shares may also suffer from an ownership transition from income to value investors and RIG perhaps sharing the same fate, with a 2015 dividend cut likely amid the potential for further asset writedowns.
- At DO, Gacicia sees risk of a dividend cut, rig retirements and deteriorating offshore market fundamentals as negative near-term catalysts; the firm also downgrades Seventy Seven Energy (SSE -16.2%), Cameron (CAM -2.8%), Frank's International (FI -0.1%) and FMC Tech (FTI -0.1%).
- In the space, the analyst prefers drillers with high-quality assets, solid contract coverage and a lack of funding needs, such as Noble Corp. (NE -0.2%) - which also has a buyback catalyst - Atwood Oceanics (ATW -0.1%) and Pacific Drilling (PACD -3.7%).
Thu, Nov. 27, 5:11 AM
- Oil/energy and consumer-goods underperformers lead the way.
- Total return takes into account all distributions.
- Table of S&P 500's biggest total-return losers YTD
Wed, Nov. 26, 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.
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