Noble’s strong revenue growth: The hot streak continues

Market Realist

Must-know: An investor's guide to off-shore driller Noble Corp. (Part 8 of 9)

(Continued from Part 7)

How Noble’s revenue grew

Noble’s revenue increased between 2010 and 2012 at a CAGR of 7.51%. This was caused by a number of factors. As Noble’s management described, the increase in revenue was fueled by increasing day rates as well as additional revenue from new rigs with above-average day rates. Plus, fleet utilization improved in 2012 due to new permit issuances in late 2011 and the commencement of new ultra-deepwater, harsh-environment drillship operations in both the U.S. Gulf of Mexico and the Brazilian coast. Also, the specialized nature of these ships allows Noble to charge higher day rates for its services. Day rates for these drillships are roughly $500,000 a day.

Jackups are generating higher day rates and fleet utilization rates

Noble has seen both stabilization and the return of increasing day rates in the jackup market over the past few years. As of the third quarter of 2013, fleet utilization for Noble’s jackups hit a new high of 93%, compared to jackup utilization rates between 75% and 79% in 2010 and 2011. This combination of high utilization rates and increasing day rates is also responsible for Noble’s revenue growth.

How the Macondo incident impacted margins

Upon further analysis of the companies’ earnings reports, it became clear that the Gulf Coast oil spill in 2010 contributed to a temporary reduction in margins for offshore drilling companies. Some customers terminated contracts while the number of drilling permits issued to oil companies decreased significantly during the second half of 2010 and the first half of 2011. As a result, fleet utilization rates and day rates dropped significantly. During this period, Noble saw decreases in revenue as well as gross and operating margins. Fortunately, as drilling permit issuances returned to normal levels near the end of 2011 and throughout 2012, Noble was able to stabilize and stop the decline in its margins. This change was primarily caused by stabilization in jackup day rates and increases in day rates for semi-submersibles and drillships, allowing revenue to grow faster than operating costs.

Continue to Part 9

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