Noble Corp. (NE) has recently published a presentation and an 8-K update in which it outlined some of the recent developments. The update contains interesting news, so let’s get straight to its content.
Unlike other drillers, Noble Corp. used to publish its fleet status reports on a monthly basis. However, as the fleet is almost fully contracted except for the stacked rigs, we haven’t heard about the changes in the company’s contracts for a few months - the previous fleet status report was published on April 18. In this light, the update comes in handy. Here’s what Noble disclosed:
- Drillship Noble Sam Croft will work until November 2019. As per the latest fleet status report, the rig is scheduled to start working in early July 2019 in Suriname for an undisclosed operator at an undisclosed dayrate. The estimated contract expiration date was not published, but the report mentioned that the contract had 1 firm well and three 1-well options. Apparently, the undisclosed operator is willing to use options.
- Drillship Noble Tom Madden will work until August 2020. Previously, the rig was expected to work in Guyana until late April 2020, but the contract had two 1-well options. It is interesting that these options were apparently declared well before the work is scheduled to begin. In my opinion, it highlights the growing strength of the demand for higher-end drillships.
- Semi-sub Noble Clyde Boudreaux will work until April 2020. There’s almost no change here - the previous estimate was mid-March 2020.
- Jack-up Noble Hans Deul will work until December 2019. The rig was previously scheduled to work in the UK until late July 2019. This is hardly a surprising development - a modern jack-up working in the North Sea and coming from a reputable company should not have any material problems getting work nowadays.
Noble Corp. maintains solid contract coverage. The active drillship fleet (only Noble Bully I is not active and is a primary scrapping candidate) is fully booked for the year, and Noble Sam Croft remains the only moving part for the first half of 2020. No surprises on the semi-sub side - Noble Jim Day and Noble Danny Adkins remain cold-stacked, while Noble Paul Romano, which is warm-stacked, still tries to find work. Among jack-ups, only Noble Mick O’Brien, whose contract ends in mid-September 2019, is available this year, as Noble Corp. had previously disclosed extensions for Noble Sam Hartley and Noble Joe Beall.
The dayrate commentary was rather short so, I’ll quote it in full:
Jack-up dayrate increases for leading dayrates recently experienced by the company and industry compared to those experienced during the fourth quarter of 2017 are (A) 80-90% in the North Sea, (B) 50-70% in the Middle East, (C) 15-25% in Australia.
- From October 2018 to April 2020, the contractual dayrate for Noble Don Taylor increased 49%.
The improving situation on the jack-up side of the offshore drilling market is not a secret. At the end of May, I highlighted improving fundamentals in an article about this market segment. Also, cherry-picking Q4 2017 as the base does not help investors assessing the industry - yes, dayrates are improving and have risen from the lows, but they are still below where they should be to make offshore drilling a stable and prospering business.
The second part of the dayrate commentary is more interesting.
Source: Noble Corp. presentation
Noble Don Taylor had a legacy contract with Shell (RDS.A) at a dayrate of $420,000. Shell idled the rig while still paying the dayrate, and Noble Don Taylor found another contract with Talos. Its duration is from early November 2018 to early June 2019. After this, the rig will work for Esso (Exxon Mobil (XOM)) from early October 2019 to early October 2020.
Bassoe Offshore originally estimated that the Talos contract had a $140,000 dayrate. That’s logical: the rig was still receiving legacy dayrate from Shell when it started to work for Talos, so it could easily bid low to keep working. The next contract with Exxon Mobil was estimated at $175,000 per day.
Let’s assume that the original dayrate estimate of $140,000 was a correct one. In this scenario, the March 2019 dayrate is $167,000, April 2019 dayrate is $178,000, and April 2020 dayrate is $209,000. The numbers fit in perfectly. The 49% increase looks very big due to the low base which was reached, because Don Taylor was in a position when it could bid low to stay hot. The rig is still crossing the $200,000 mark in 2020 - something that, in my opinion, will happen for practically all competitive rigs. The dayrate is still low, but the trend is clear - to the upside.
It’s no secret that the market has been very negative on offshore drillers in recent months. In my opinion, it is too early to make a final call on the industry, which has plenty of time before the big debt wall starts showing itself in 2023. The dayrates are obviously not at the levels required to provide good life for offshore drillers, but they are heading in that direction. I maintain my view that Noble Corp. is oversold in the short term. As always, I reiterate that the whole industry is very speculative, provides plenty of volatility and is a very difficult buy-and-hold choice.
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Disclosure: I am/we are long NE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may trade any of the above-mentioned stocks.