After warnings from a number of sources highlighted the current pause in the offshore drilling sector, Noble Corp. (NYSE:NE) reported solid first-quarter earnings that smashed estimates. The stock wasn't so upbeat, however, trading slightly down.

The offshore driller continues to transition the fleet to a more modern one with high specification ultra-deepwater drillships and high-specification jackups. Also, Noble is in the midst of spinning off the old standard specification rigs into a new firm called Paragon Offshore via an IPO later this year.

With the company and the market in flux, the first quarter earnings report provided some interesting insights for the stock and the offshore drilling sector.

Strong margins
Noble Corp crushed analyst estimates by producing earnings per share of $0.99 for the first quarter with expectations sitting at only $0.71. The $0.28 per share earnings beat was a result of higher margins and a market that isn't nearly as weak as the analyst community expected.

The company generated contract drilling margins of 54%, up from only 50% in the fourth quarter of 2013. The gains came from improved operating efficiency with less rig downtime at only 4.5%, operating expenses held in check despite adding new rigs, and higher bonus revenue in Brazil. The combination squeezed profits much higher than expected despite a slowdown in new contracts.

Again, these numbers highlight that the slowdown in new contracts only impacts those rigs lacking contracts. The offshore drillers with modern rigs can power through the weak period with strong profits.

Environment already improving
The company was quick to point out that the pause in offshore contracts is already turning into higher customer inquiries. In addition, the strong Gulf of Mexico auction back in March was suggestive of a strong drilling market in the future. Companies don't spend $870 million on leases for 320 tracts without planning on drilling on those sites.

To that point, Freeport-McMoRan Copper & Gold (NYSE:FCX) was a substantial winner in that auction. Noble Corp. has two ultra-deepwater drillships still under construction with delivery dates in 2014 that are going to Freeport-McMoRan. First, the Noble Sam Croft will complete construction in May and depart for the Gulf of Mexico for a contract start time of August. Second, the Noble Tom Madden will finish construction in October and depart for the Gulf of Mexico for a contract start time of next February. Both ultra-deepwater drillships are under three-year contracts for $610,000.

For its part, Freeport-McMoran was the high bidder on 20 tracts in the Central Gulf of Mexico. Considering the company spent $330 million on those assets, the company will most certainly plan on drilling on the 106,000 acres acquired.

Reluctant to order more rigs
Noble sits in the middle of the bifurcated market with a spinoff unit of 42 rigs facing obsolescence and cold stacking and a remaining unit of mostly modern rigs. Management appears bullish on the long-term aspects of the offshore drilling market, yet it is pausing to order new rigs that wouldn't complete construction until maybe 2017 at the earliest.

At the end of this year, the company will only have one jackup rig under construction. The delivery date for this rig isn't until mid-2016.

Bottom line
The key takeaways from Noble Corp's report are that the operating environment remains strong and should continue that way for rigs with contracts. The offshore drillers without contracts still face high risks of not obtaining acceptable contract terms in the short term, but operators like Freeport-McMoRan willing to spend big on new Gulf of Mexico leases suggests the future remains bullish for offshore drilling.

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Mark Holder has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.