Noble’s CEO sees ‘highly encouraging’ signs ahead for its fleet thanks to surge in rig demand

Offshore drilling contractor Noble Corporation is anticipating a further boost to its contract backlog over the next two years, as the current offshore drilling market fundamentals indicate that the ongoing upcycle will continue to push fleet utilization and day rates upward, with the rig demand on the rise. The company got a hold of more than $500 million in new contract awards since November 2023, thus, its total backlog currently stands at $4.6 billion.

Noble is not the only offshore drilling player feeling buoyant by the offshore drilling upcycle, since its peers, Transocean and Valaris, are just as optimistic about the current rig demand boom. These expectations are in line with Fortune Business Insights’ forecast that the offshore drilling market will reach $65.63 billion by 2030.

As a result of the upcycle, Valaris increased its contract backlog by nearly 60% compared to the sum from twelve months ago. Thanks to a batch of new contract awards and extensions for its rigs, with an associated contract backlog of about $1.2 billion, excluding lump sum payments such as mobilization fees and capital reimbursements, the company’s total contract backlog jumped to $3.9 billion.

On the other hand, Transocean secured a $3.2 billion boost in contract backlog during 2023, enabling its total backlog to jump to approximately $9.1 billion. The firm’s fleet status report from February 2024 shows that the rig owner got its hands on an aggregate incremental backlog associated with new deals and extensions of around $326 million since October 2023. These awards entail both drillship and semi-submersible rig assignments.

After the announcement of its 3Q 2023 earnings, Noble won new contracts for its rig fleet with a total contract value of approximately $530 million, including mobilization payments. The firm’s Noble Discoverer semi-submersible rig was awarded a 400-day contract with Petrobras in Colombia. This deal is expected to begin in early June 2024 and includes an option to extend the duration by 390 days.

The Noble Voyager drillship won a one-well contract, plus one option well, with Petronas in Suriname, which started in February 2024 with an estimated firm duration of 130 days excluding option. On the other hand, the Noble Gerry de Souza drillship received a nine-month extension with TotalEnergies in Nigeria, continuing the program out to November 2024.

The Noble Valiant drillship was awarded a six-month contract extension by LLOG in the U.S. Gulf of Mexico. This is expected to commence in July 2024 in direct continuation of the rig’s current contract. The day rate for this contract is $470,000, excluding additional fees for the use of managed pressure drilling.

Harbour Energy had exercised an option for the Noble Intrepid jack-up rig to undertake a well intervention program in the UK North Sea, which began in January 2024 at a day rate of $120,000.

The Noble Innovator jack-up received a one-well extension, with an estimated 90-day duration, from BP at a day rate of $140,000. This is scheduled to start in September 2024. The Noble Resolute jack-up rig received a 60-day extension, beginning from March 2025, with Petrogas in the Dutch North Sea.

Robert W. Eifler, President and Chief Executive Officer of Noble Corporation, commented: “Our fourth quarter results brought full year 2023 revenue and Adjusted EBITDA toward the upper end of our guidance range and capped a year of strong operational performance and Free Cash Flow generation.

“The Maersk Drilling integration, which is now substantially complete, has been extremely successful, and I would like to congratulate and thank our employees for this exceptional team performance during 2023 which demonstrated the value and the exciting potential of the new Noble.“

The company’s contract drilling services revenue for the fourth quarter of 2023 totaled $609 million, compared to $671 million in the third quarter, with the sequential decrease driven by lower utilization. The firm’s marketed fleet utilization was 68% in the three months ended December 31, 2023, compared to 78% in the previous quarter while the contract drilling services costs for the fourth quarter were $374 million, a slight increase versus $354 million the third quarter.

Noble’s net income decreased to $150 million in the fourth quarter, down from $158 million in the third quarter, and adjusted EBITDA decreased to $201 million in the fourth quarter, down from $283 million in the third quarter. The offshore drilling player’s net cash provided by operating activities in the fourth quarter was $287 million, net capital expenditures were $123 million, and free cash flow (non-GAAP) was $165 million.

The rig owner’s balance sheet as of December 31, 2023, reflected a total debt principal value of $600 million and cash and cash equivalents of $361 million while total capital returned to shareholders between share repurchases, including the Maersk Drilling squeeze-out, and dividends from the fourth quarter of 2022 through the fourth quarter of 2023 equaled $283 million.

The offshore drilling giant’s marketed fleet of sixteen floaters was 75% contracted through the fourth quarter, compared with 92% in the prior quarter due to downtime between contracts. Recent backlog additions have substantially reduced the percentage of uncommitted days across its marketed floater fleet in 2024 to approximately 20%, with most of Noble’s remaining availability for this year attributable to the Noble Globetrotter I, Noble Globetrotter II, and Noble Developer rigs.

With similarly limited industry capacity available in 2024, Noble claims that floater day rates have held firm in the mid-to-high $400,000s range for tier-1 drillships and low-to-mid $400,000s range for sixth-generation units. The bidding pipeline for 2025 contract commencements appears supportive of a continuing upward trend in rates for high-spec rigs, according to the rig owner.

Furthermore, the utilization of Noble’s thirteen marketed jack-ups was 61% in the fourth quarter, consistent with 61% utilization during the third quarter. The firm anticipates that jack-up utilization will improve progressively through 2024 with contracts scheduled to begin this summer for the Noble Regina Allen and Noble Resolute rigs, following shipyard stays, while the near-term visibility for the warm stacked jack-ups, Noble Interceptor and Noble Highlander, remains limited at this time.

The offshore drilling giant has announced a guidance range for total revenue of $2.55 to $2.7 billion, adjusted EBITDA in the range of $925 to $1,025 million, and capital additions – net of reimbursements – between $400 to $440 million for the full year 2024.

Commenting on Noble’s outlook, Eifler highlighted: “We expect to realize improving financial results in 2024 compared to 2023, with mid-year contract start-ups for several floaters and jackups expected to drive stronger financial performance in the second half of the year. 

“Meanwhile, commercial visibility for 2025 and 2026 is highly encouraging based on recent months’ step-change increase in open demand, which is a positive indicator for future backlog development. Against this favorable backdrop, we look forward to growing our return of capital to shareholders as free cash flow improves over the course of the cycle.”

Noble is set on slashing the carbon footprint of its drilling operations. To this end, the firm is employing many different tools, including sustainable diesel, which the rig owner uses in its fuel mix for drilling operations in Dutch waters.