With $1.1 billion in the bag, Noble looks forward to reaping further benefits of tightening rig market

Offshore drilling contractor Noble Corporation has won new contracts and extensions for multiple rigs in Guyana, Colombia, the U.S. Gulf of Mexico, and offshore Sarawak, Malaysia. Buoyed by its strong operational and financial performance in the first quarter of 2023, the rig owner’s hopes of higher day rates and fleet utilisation are further inflamed by the offshore drilling market’s tightening, as a boost in demand puts the spotlight on limited rig supply.   

Thanks to the new deals totalling $1.1 billion, secured over the past three months, Noble’s total backlog has expanded to $4.6 billion from $3.9 billion on 31 December 2022. The company’s contract drilling services revenue for 1Q 2023 totalled $575 million due to lower utilisation, compared to $586 million in the fourth quarter of 2022 and $195 million in 1Q 2022. The offshore drilling giant’s marketed fleet utilisation was 80 per cent in the three months ended on 31 March 2023, compared to 88 per cent in the previous quarter.

The rig owner outlined that the contract drilling services costs for the first quarter were $362 million, down from $366 million in the fourth quarter of 2022. The firm’s adjusted EBITDA for 1Q 2023 was $138 million, compared to $157 million in the fourth quarter of 2022 and $27 million in 1Q 2022. The drilling contractor’s net cash used by operating activities for 1Q 2023 was $63 million, capital expenditures were $63 million, and the resulting free cash flow (non-GAAP) was a loss of $126 million. The firm explained that its cash flow was adversely impacted by a significant expansion of net working capital in 1Q, which the firm expects to be largely reversed in 2Q.

Furthermore, Noble’s balance sheet as of 31 March 2023 reflected total debt of $521 million and cash – and cash equivalents – of $186 million. Subsequent to the end of the first quarter, the company completed a refinancing, redeeming all existing debt and issuing $600 million in aggregate principal amount of new 8.0 per cent senior unsecured notes due 2030 and securing an amended and restated senior secured revolving credit agreement, which provides for commitments of $550 million and maturity in April 2028. With this streamlined capital structure in place, the offshore drilling player intends to focus its capital allocation framework on returning capital to shareholders.

Noble underlined that its marketed fleet of sixteen floaters was 91 per cent contracted through the first quarter of 2023, compared with 91 per cent in the prior quarter, as the floater utilisation in 1Q 2023 was adversely impacted by the Noble Gerry de Souza drillship’s mobilisation from the U.S. Gulf of Mexico to Nigeria early in the quarter, as well as an extended permitting delay for the Noble Globetrotter I drillship, which is now resolved with the rig expected to commence its contract in Mexico in mid-May.

Originally, the 2011-built drillship was supposed to start its contract with Petronas in Mexico in late January 2023, but the start date was bumped to March 2023. The rig also got a new contract with Shell for 70 days of plug and abandonment work in the U.S. Gulf of Mexico at a day rate of $375,000, which was expected to begin in July 2023 but has now been moved to September 2023.

“Industry-wide, tier 1 drillships remain at or above 95 per cent marketed utilisation, with leading-edge day rate fixtures steadily increasing,” underscored Noble while adding that its recent new contracts and commitments across its floater fleet, include an additional 6.3 years of backlog awarded by ExxonMobil under the Commercial Enabling Agreement (CEA), extending the contract duration for each of the rig owner’s four drillships – Noble Tom Madden, Noble Sam Croft, Noble Don Taylor, and Noble Bob Douglas -operating in Guyana under the CEA from 4Q 2025 to 2Q 2027.

The 2013-built Noble Bob Douglas and Noble Don Taylor drillships are of Gusto P10000 design and were constructed at Hyundai Heavy Industries. The rigs’ maximum drilling depth is 40,000 ft and can operate in water depths of up to 10,000 ft. Each of these two drillships can accommodate 210 people. The 2014-built Noble Sam Croft and Noble Tom Madden drillships come with the same specifications. The Noble Don Taylor drillship recently helped ExxonMobil make another oil discovery off Guyana.

Moreover, the Noble Discoverer semi-submersible rig, which is currently working in Guyana for Frontera Energy and CGX Energy, recently got a one-well contract with Ecopetrol to drill the Orca North-1 exploration well offshore Colombia. The contract is expected to start between November 2023 and January 2024, with an estimated duration of 72 days.

The 2009-built Noble Discoverer is a DSS-21 column-stabilized dynamically positioned, sixth-generation semi-submersible drilling rig, capable of operating in water depths of up to 10,000 ft. The rig’s maximum drilling depth is 40,000 ft. It can accommodate 180 people.

According to Noble, the Noble Valiant drillship has been awarded a contract for one well in the U.S. Gulf of Mexico with an undisclosed operator at a day rate of $450,000. This contract is expected to start in October 2023. The rig is currently on an assignment in Suriname, which is being carried out for TotalEnergies. The 2013-built Noble Valiant is a high-specification seventh-generation drillship, which can accommodate 230 people. The drillship has been operating for TotalEnergies offshore Suriname since March 2021.

The offshore drilling contractor explained that the utilisation of its thirteen marketed jack-ups was 67 per cent in the first quarter of 2023, compared with 85 per cent utilisation during the fourth quarter of 2022, driven primarily by the Noble Regina Allen, Noble Tom Prosser and Noble Invincible rigs, which were highly utilised during the fourth quarter of 2022 and off contract for the majority of the first quarter of 2023.

However, the Noble Tom Prosser rig has recently been awarded contracts with two undisclosed customers for a combined term of 650 days to drill a total of 14 wells offshore Sarawak, Malaysia, in support of a rig-sharing agreement between the two companies. While the first of these contracts is expected to begin early in the third quarter of this year – most likely in July 2023 – the second contract will start in February/March 2024. The contracts come with options to extend the work scope involved.

The 2014-built Noble Tom Prosser jack-up rig is of Friede & Goldman JU3000N design. It was constructed at Jurong Shipyard and can accommodate 150 people. With a maximum drilling depth of 35,000 ft, this rig is capable of operating in water depths of 400 ft.

As previously disclosed, the Noble Regina Allen jack-up rig is undergoing repairs for its damaged leg and jacking system, with estimated marketability expected for early 2024. The 2013-built Noble Regina Allen jack-up rig, which is of Friede & Goldman JU3000N design, was constructed at Jurong Shipyard. This rig can accommodate 150 people and work in water depths of up to 400 ft.

When it comes to Noble’s ultra-harsh jack-up fleet, the Noble Integrator rig’s current work scope with Aker BP has been extended from July to September 2023. The offshore drilling contractor claims that this rig – as well as the Noble Interceptor and Noble Intrepid rigs – remains exposed to soft spot market conditions over the balance of this year, with improving demand expected to start materialising later in 2024.

Robert W. Eifler, President and Chief Executive Officer of Noble Corporation, commented: “Our first quarter results reflect a strong start to the year from an operational, financial, and commercial perspective. The steady tightening of offshore drilling fundamentals is affording attractive opportunities to place our fleet into improving contracts. We are particularly excited to be awarded a significant additional backlog commitment from ExxonMobil Guyana under the CEA, and also to participate in the re-emergence of Colombia as an active exploration basin with two of our deepwater rigs.

“Integration of our business combination continues to progress smoothly thanks to the outstanding and tireless efforts of our fantastic offshore crews and global shore-based team. With our refinancing successfully completed, Noble has a streamlined and efficient capital structure that will further enhance our ability to focus on our priorities, including returning capital to shareholders.”

For the full year 2023, the offshore drilling player has opted to maintain the previous guidance for total revenue in the range of $2.35 to $2.55 billion, adjusted EBITDA of $725 to $825 million, and capital expenditures – net of reimbursable capex – between $325 and $365 million.

“Deepwater fundamentals continue to tighten, with marketed utilisation for all UDW units now approaching the mid-90 per cent while incremental rig reactivations are governed by significant lead-time and capital requirements. Accordingly, the trend of steadily rising day rates and expanding contract duration for UDW units is expected to continue,” added Eifler.

While Noble’s new backlog mostly comes from drillship deals, these are also interspersed with one semi-sub and one jack-up deal. On the other hand, the rig owner’s rival, Transocean, disclosed only deals for semi-submersible rigs in its latest fleet status report. Valaris, in turn, reported both drillship and jack-up deals.

These three along with other offshore drilling contractors –  Vantage Drilling, Shelf Drilling, and Diamond Offshore, –  are anticipating a multi-year upcycle in the market, leading to higher rig demand and a boost in day rates and fleet utilisation.

“We believe Noble’s floater fleet remains well positioned to benefit from positive re-contracting opportunities over the near term, with longer contract durations representing a crucial driver for maximising utilisation. With improving harsh jack-up demand expected in 2024 and beyond, we remain very constructive on the outlook for our business,” concluded Eifler.

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