Noble Q4 Misses on Earnings & Revs

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Leading contract drilling company, Noble Corporation (NE) reported fourth-quarter 2013 adjusted earnings of 82 cents per share. The bottom-line results failed to meet the Zacks Consensus Estimate of 83 cents but rose 64% year over year.
 
Total revenue in the quarter rose 20.8% to approximately $1,167.0 million from $966.4 million in the comparable quarter last year but missed our expectation of $1,182.0 million. Contract Drilling Services contributed $1,124.8 million to the total revenue, reflecting a year-over-year increase of 22.0% buoyed by contributions from three ultra-deepwater drillships and the first of its six JU3000N high-specification jackups.
 
Full-year 2013 earnings registered a 48.8% jump from the year-earlier level to $3.05 per share. Total revenue increased 19.4% year over year to $4,234.3 million.
 
Fourth Quarter Operating Highlights
 
Noble's total operating income increased 19.7% to $259.5 million from the year-ago level of $216.7 million. Operating income from the Contract Drilling segment soared 22.5% year over year to $260.1 million from $212.3 million.
 
Total rig utilization declined to 82% from the year-earlier level of 83%. The overall average dayrate increased 21.8% to $212,019 from $174,065 in the year-ago quarter.
 
The average dayrate for semisubmersible rigs registered about an 11.7% year-over-year rise to $402,358. Average capacity utilization was 84% versus 85% in the year-ago quarter.
 
The average dayrate for Drillships increased about 36.4% year over year to $348,702. Average capacity utilization was 85% versus 82% a year ago.
 
The average dayrate for Noble’s jackups was $115,749 compared with $100,356 in the year-ago quarter. Average capacity utilization decreased to 86% from the year-ago level of 89%.
 
Noble has 73% of all rig days committed for 2014, including 78% of floating rig days and 75% of jackup rig days. For 2015, 44% of the rig days are booked, comprising 61% of the floater time and 38% of the jackup rig days.
 
Overall total backlog at the end of the fourth quarter was approximately $15.4 billion versus $16.2 billion at Sep 30, 2013. The decline partly reflects the change in the bonus realization assumptions relating to contracts with Petrobras and Shell. The new bonus assumptions reveal the company's recent history of bonus realization, more strict regulatory requirements, especially in the U.S. Gulf of Mexico, and changing customer expectations.
 
Financials
 
At the end of the fourth quarter, the company had a cash balance of approximately $114.5 million and long-term debt of $5,556.3 million, with a debt-to-capitalization ratio of 38.0% (versus 37.5% in third-quarter 2013). In the reported quarter, Noble invested $763.0 million in capital projects. 
 
Zacks Rating
 
Noble currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
 
We expect the deepwater market segment to deliver strong growth in the foreseeable future. With Noble’s strong backlog position ($15.4 billion), its earnings and cash flow visibility will likely increase in the near-to-medium term.
 
However, Noble remains highly leveraged to the North Sea, where tax regime changes could have a significant impact on future demand. Moreover, its high dependence on a few customers may also pose a risk.
 
Meanwhile, there are better-ranked oil and gas drilling firms that offer value. These include Pembina Pipeline Corp. (PBA), Matrix Service Co. (MTRX) and Swift Energy Co. (SFY), all with a Zacks Rank #1 (Strong Buy).
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