We reaffirmed our Neutral recommendation on Noble Corporation (NE) on Jan 31, 2013, reflecting its commitment to modernize its fleet, accompanied by revenue efficiency through lower fleet downtime. The company holds a Zacks Rank #3, which is equivalent to a short-term Hold rating.
The rig contractor is likely to continue making profits from the high demand in the ultra-deepwater market. Many of its semisubmersibles were contracted at higher dayrates. The drillships Noble Don Taylor, Noble Globetrotter II, Noble Bob Douglas, the Noble Sam Croft and another newbuild were contracted during 2012.
The international jackup market is expected to witness incremental demand in the Middle East (Saudi Arabia and throughout Asia), the North Sea and West Africa. We expect additional reactivations for piled jackups, particularly in the Middle East, West Africa, and Asia, based on the current demand trends.
Noble’s earnings and cash flow visibility can be viewed from the company’s strong backlog position ($14.3 billion), which is expected to increase in the near to medium term.
Currently, the company’s expansion includes 5 ultra deepwater drillships and 6 jackups under construction, with deliveries expected through 2015. These are likely to be accretive to earnings over the next three years as the company looks to lock these in term contracts at higher dayrates.
However, Noble’s fourth quarter profits, announced on Jan 23, 2013, were adversely affected by the extended downtime on various newbuilds added in the ultra-deepwater and deepwater rigs as a result of considerable enhancement and maintenance programs. The company’s initial operations on 5 high-end drilling ships were lower than expected due to some critical mechanism. The 5 rigs accounted for 33% of the company's downtime during the fourth quarter.
Other Stocks to Consider
While we prefer to remain on the sidelines for Noble, there are other stocks in the sector that appear rewarding. These include Helmerich & Payne, Inc. (HP), Vantage Drilling Company (VTG) and Patterson-UTI Energy Inc. (PTEN), which are expected to perform impressively over the next few months and carry a Zacks Rank #2 (Buy).
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