Key Takeaways From Noble Corp's Earnings

Strong earnings from Noble Corp are suggestive that offshore drillers with solid contracts in hand are set to generate strong profits.

Apr 21, 2014 at 2:47PM

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.

Another way to profit from offshore drilling
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

 

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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers