Last year at this time, I opined that Noble's (NYSE:NE) drilling dynasty "ensures a rich and prosperous future." After a ridiculously tumultuous 12 months in the markets, my opinion of this best-in-class operator is unchanged.
For all the havoc unleashed by a more-than-$100 swing in oil prices, Noble's business is remarkably buoyant. Unlike ENSCO (NYSE:ESV), which also struggled to keep its jackup fleet gainfully employed, Noble managed to crank out somewhat higher earnings this time around. Just as important, contract drilling margins widened to 72%, from 70% in the prior quarter. That's the highest quarterly figure I've seen for any driller since I began covering the space.
If you think about it, the latter is not too surprising of a result. The deflationary drag on oilfield suppliers like Baker Hughes (NYSE:BHI) and Schlumberger (NYSE:SLB) makes it a good bit easier to exercise cost control today. But that's not to take away from Noble's accomplishment.
Anyway, drilling operations generated $548 million in net cash, which once again more than doubled capital spending in the quarter. Last year, Noble decided to pay out a special dividend. This time around, the firm focused on paying down its debt, resulting in a svelte sub-12% debt-to-capitalization ratio. Noble also bought back a modest amount of shares under its repurchase program.
The future looks good for Noble as well. The driller's $10.6 billion backlog exceeds that of rig shop National Oilwell Varco (NYSE:NOV). While management pointed out that 2009 will be a "heavy survey year" -- meaning that rigs will experience downtime during inspections -- this work ensures that the fleet will be ready to hit the ground running when a stronger market returns. Meanwhile, shiny new rigs will be kicking off major multiyear contracts with Petrobras (NYSE:PBR) and Royal Dutch Shell (NYSE:RDS-A).
Noble may have swapped sandy beaches for ski slopes in its redomestication from the Caymans to Switzerland, but I'm hardly neutral on this solid stock.
