Noble Goes Naked

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If you've been following the deepwater dance for some time now, Noble's (NYSE: NE) announcement may not seem so notable. After all, competitors like Transocean (NYSE: RIG), Pride International (NYSE: PDE), and ENSCO International (NYSE: ESV) have been busily ordering up new floating rigs over the past couple years.

So why does this particular drillship order grab my attention?

Front and center is the fact that there is no drilling contract attached to this order. In other words, Noble is spending today with the expectation of signing a multi-year drilling deal with an operator like Chevron (NYSE: CVX) or BHP Billiton (NYSE: BHP) sometime before the rig gets delivered. This isn't unusual in and of itself. Many operators have gone naked on these newbuilds.

The interesting thing is that Noble's CEO spoke quite forcefully about his aversion to building on spec just a few months ago. In fact, he likened it to driving off into a ditch. So something must be pretty compelling about this opportunity.

The first thing that's interesting about this drillship is that it's slated for a second-half 2011 delivery. At the end of July, Noble management said the shipyards were quoting 2012. So this is a fairly short lead time. More important is the price tag. If the yards' projections are accurate (yes, yards plural -- we'll get to that), this is a stunningly low-cost option.

OK, at $585 million, this rig isn't exactly being given away. But consider the estimated cost of some competitors' drillships over the past year or so:

Contractor	Date of Order	Estimated Cost
Transocean	June 2007	$640 million
Pride	July 2007	$680 million
Transocean	May 2008	$730 million
Pride	August 2008	$745 million

Data from company press releases. All cost estimates exclude capitalized interest.

Noble has completely sidestepped the cost creep in this part of the business. A lot of it must have to do with the novel step of dividing the work between two shipyards -- one in South Korea, and one in The Netherlands. If this floater is just as formidable as the rigs featured above, Noble has rewritten the economics of newbuild rigs.

The company has options on three additional rigs of this design. If an operator steps in with an offer in the next few months, expect Noble to order up another. And another. And another.

Related Foolishness:

• It was time for Noble to make a move.
• It's certainly made moves in Brazil.
• Rigs continue to reap record rates.