Noble Shows Strong Signs for Offshore Drilling


Demand for drilling rigs is still strong, but Noble's fourth quarter fell a bit short of expectations because of rig downtime. The company reported a nice 18.6% jump in revenue from a year ago to $966 million, but profit was flat at $128 million, or $0.50 per share.

Revenue was actually better than the $957.6 million analysts had expected. Noble added three ultra-deepwater drillships in 2012 and upgraded another two, which helped, but when those ships aren't working it doesn't get paid. Management said that a third of the downtime experienced in the fourth quarter was due to these rigs, which had a huge drag on results.

The good news for Noble is that there's a lot of upside if it can improve performance. Ultra-deepwater rigs have commanded around $600,000 per day for rig owners; considering the considerable downtime in the fourth quarter the upside is tremendous.

Day rates continue to rise
The good news for the industry is that day rates are still strong and oil prices are rising again. Noble's jackup rigs, semi-submersibles, and drillships all saw day rate increases year over year, and all but drillships saw sequential day rate bumps as well. Seadrill and Transocean are both adding ultra-deepwater and high specification rigs to their fleets. There is concern that overcapacity may be reached in the drilling market, hurting results across the board; so far, that doesn't appear to be the case.

Oil is trading up above $96 again, another bullish sign for the drilling industry. When oil fell during the fall and early winter the number of onshore rigs in operation dropped, but the advantage of owning offshore drillers is that the contracts are much longer in duration. It looks like drillers have weathered the short-term storm in oil prices and will maintain long-term profits as a result.

Reading between the lines in drilling earnings
Seadrill and Transocean haven't released earnings yet, but Noble's results, particularly on the revenue side, show some optimistic terms in drilling. Analysts are expecting a drop in Seadrill's earnings to $0.65 per share from $0.73 a year ago, and for Transocean's to jump from $0.24 per share to $0.82. I think both have the opportunity to beat estimates if they didn't suffer similar operational setbacks as Noble did.

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