If you've read my coverage of the offshore drillers, you know I like Noble (NYSE: NE) a whole lot. You might ask how I can remain steadfast, given the seriously spooky state of affairs we suddenly find ourselves in. Even if you don't ask, I'll tell you anyway.
The shortest answer may be that the world still needs oil -- and lots of it. But that's not a remotely satisfactory explanation. There are plenty of oil stocks I wouldn't touch with a 200-foot derrick. There's more to the Noble story than peak oil platitudes and "drill, baby, drill."
The main point here is Noble's quite reliable revenue. Whereas a landlubber like Patterson-UTI (Nasdaq: PTEN) can see its fortunes turn quite quickly, things are rather different offshore.
Granted, the mature Gulf of Mexico can be a harsh mistress for firms like Hercules Offshore (Nasdaq: HERO), but Noble doesn't have a single jackup here at home. Its shallow-water assets have all been carted off to work for folks like Total SA (NYSE: TOT) in much tighter markets like the North Sea and the Arabian Gulf.
As these rigs roll over to new contracts, leading-edge dayrates very well may ease from here, but they're not going to play dead. This quarter, jackup rates only lifted 19% compared to the prior year, so there's arguably a lot less air in these rates than there was in the oil price itself.
Getting back to the company's cash stream, I want to point out that Noble, like Ensco International (NYSE: ESV), is steadily shifting its asset base toward deepwater rigs. Each year you look out between now and 2012, the revenue mix gets closer and closer to a 50/50 split between shallow and deepwater assets. The greater the proportionate contribution from the latter vessels -- which generally operate on longer-term contracts -- the less subject Noble is to volatility in market rates.
Lately, Noble has traded down to a price that seems to suggest the bottom is falling out. Given the contract backlog (particularly the Petrobras (NYSE: PBR) prize), the tight focus on drilling margins (just stunning at 70% this time around), and the beautiful balance sheet (13% debt-to-capitalization at quarter's end), I believe this corporate vessel is as seaworthy as ever.
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