With contract backlog of $4.7 billion, Noble looks forward to ‘sustained long-term upcycle’

Offshore drilling contractor Noble Corporation has reported strong operational and financial performance during the third quarter of 2023, driven by elevated average day rates and rig fleet utilization, primarily due to high contracting activity for floaters. The flames of the rig owner’s hopes for further offshore drilling market improvements are fueled by a further increase in its contract backlog a year after the merger with Maersk Drilling, which enabled the drilling giant to end 3Q 2023 with a total backlog of $4.7 billion.

Thanks to a growing search for more hydrocarbons in the wake of ongoing energy security concerns, offshore drilling players are banking on a multi-year upcycle in rig demand, which will boost day rates and fleet utilization levels further. While Noble disclosed more work for both drillships and jack-ups in its rig fleet, one of the firm’s peers, Transocean, filled its bag of contracts with only drillship assignments during 3Q 2023.

As Transocean expanded its contract backlog for the sixth consecutive quarter to $9.4 billion at the end of 3Q 2023, the rig owner’s outlook for the offshore drilling market remains buoyant. The drilling contractor’s total fleet average revenue efficiency was 95.4% in 3Q 2023 while its total fleet utilization during the same period was 49.4%. Fortune Business Insights’ report, forecasting that this market is set to grow to $65.63 billion by 2030, supports expectations of a further uptick in day rates and fleet utilization.

During 3Q 2023, Noble won new contracts and extensions for six rigs in its fleet, totaling $240 million – including mobilization payments – which brought the company’s total backlog to $4.7 billion. The firm’s backlog at the end of 2Q 2023 was $5 billion. With a sequential increase driven by higher average day rates and utilization, the company’s contract drilling services revenue for 3Q 2023 totaled $671 million, compared to $606 million in the second quarter of 2023 and $289 million in 3Q 2022. The offshore drilling giant’s marketed fleet utilization was 78% in the three months that ended on September 30, 2023, compared to 76% in the previous quarter.

The company’s contract drilling services costs for the second quarter were $354 million, a slight decrease versus $363 million in the second quarter due to lower repair and maintenance expenses. The firm’s adjusted EBITDA for 3Q 2023 increased to $283 million from $188 million in the second quarter of 2023 and $97 million in 3Q 2022. The rig owner’s net cash provided by operating activities for 3Q 2023 was $139 million, capital expenditures were $99 million, and the resulting free cash flow (non-GAAP) was $40 million. The firm’s net income increased to $158 million in the third quarter of 2023, up from $66 million in the prior quarter.

Noble’s balance sheet as of September 30, 2023, reflected a total debt principal value of $600 million and cash – and cash equivalents – of $245 million. Share repurchases totaled $10 million during the third quarter, bringing 2023 year-to-date share repurchases to $80 million, following approximately $86 million of cash used for share repurchases during the fourth quarter of 2022. The company’s board of directors approved an increase of the quarterly interim dividend to $0.40 per share in the fourth quarter of 2023, which will be payable on December 14, 2023, to shareholders of record at the close of business on November 15, 2023.

The drilling player reached 2,172 total operating days in 3Q 2023, compared to 2,091 in 2Q 2023 and 1,398 in 3Q 2022. The company’s average day rates totaled $304,040 in 3Q 2023 versus $275,066 in 2Q 2023 and $212,958 in 3Q 2022. This supports the claims of a tightening offshore drilling market and an ongoing upcycle.  

Robert W. Eifler, President and Chief Executive Officer of Noble Corporation, commented: “Our third quarter results reflect continued strong operational and financial performance and demonstrate the power of the Noble – Maersk Drilling combination where synergy progress and integration are ahead of schedule.

“We recently celebrated the one-year anniversary of the combination and I’d like to extend a special thank you to our employees around the world who have been so critical to the success of the integration which has exceeded all expectations. We remain optimistic about expanding free cash flow potential for Noble in the years ahead. To that end, we are pleased to be able to raise our quarterly dividend to $0.40 per share in the fourth quarter.”

Moreover, Noble’s marketed fleet of sixteen floaters was 92% contracted through the third quarter of 2023, compared with 90% in the prior quarter. According to the drilling giant, the re-contracting visibility for the marketed fleet continues to be “promising, with leading-edge day rates” for working tier 1 drillships in the mid to high $400,000s range, and with moderate utilization inefficiencies caused by gaps between programs and scheduled maintenance-related downtime.

The floater segment saw 1,348 operating days in 3Q 2023, compared to 1,305 in 2Q 2023 and 792 in 3Q 2023. During 3Q 2023, the average day rates for floaters were $403,813, compared to $363,167 in 2Q 2023 and $285,362 in 3Q 2022. Subsequent to last quarter’s earnings press release, three drillships secured new assignments.

The rig owner’s Noble Valiant drillship was awarded a six-month contract with LLOG in the U.S. Gulf of Mexico. This deal is expected to start in January 2024 in direct continuation of the rig’s current contract. The day rate is $470,000, excluding additional fees for the use of managed pressure drilling. The contract contains a six-month unpriced option.

This drillship is slated to complete a one-well contract in the Gulf of Mexico with an undisclosed operator from October 2023 to December 2023 under the day rate of $450,000, prior to kicking off the work scope for LLOG.

The 2014-built Noble Valiant is a high-specification drillship of Samsung 96K design, which can accommodate 230 people. With a maximum drilling depth of 40,000 ft, it can operate in water depths of 12,000 ft. The drillship was previously on an assignment in Suriname with TotalEnergies from March 2021 until May 2023.

The drilling giant also got a one-well extension for the Noble Globetrotter I drillship with Shell in the U.S. Gulf of Mexico at $390,000, extending the duration to late February 2024. The original 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 was expected to begin in July 2023 but has now been moved to November 2023.

The 2011-built Noble Globetrotter I drillship was constructed at STX Shipbuilding & Huisman. The rig’s maximum drilling depth is 40,000 ft and can operate in water depths of up to 10,000 ft and accommodate 180 people.

In addition, Shell exercised a four-month extension with a day rate of $398,500 for the Noble Globetrotter II drillship, extending the assignment in the Gulf of Mexico to early March 2024. The 2013-built rig has the same specifications as the Noble Globetrotter I drillship.

Furthermore, the utilization of Noble’s thirteen marketed jack-ups was 61% in the third quarter, compared with 59% utilization during the second quarter. The company highlights that the contracting activity for the jack-up fleet has picked up “moderately” from recent cyclical lows with “leading edge” fixtures for harsh rigs in the $130,000 to $150,000 range while persisting soft demand in Norway continues to suppress utilization and day rate potential for ultra-harsh jack-ups.

The jack-up segment saw 824 operating days in 3Q 2023, compared to 786 in 2Q 2023 and 606 in 3Q 2022. The average day rates for floaters were $140,775 in 3Q 2023, compared to $128,885 in 2Q 2023 and $118,209 in 3Q 2022. During 3Q 2023, three jack-up rigs won new jobs.

The offshore drilling player’s Noble Regina Allen jack-up rig was booked by TotalEnergies in Argentina for a three-well contract, estimated to take 220 days, plus four one-well options. This contract, scheduled to begin in mid-2024, has an operating day rate of $150,000, excluding additional fees for mobilization and demobilization.

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.

The rig owner’s Noble Reacher jack-up rig landed a fifteen-month extension with TotalEnergies in Denmark, extending the firm duration until July 2025. However, another option to extend the contract by twelve more months remains.

The 2009-built Noble Reacher jack-up rig is of Gusto MSC CJ50 X100 MC design. Constructed at Keppel Fels Shipyard in Singapore, the rig can accommodate 120 people. With a maximum drilling depth of 30,000 ft, the jack-up can operate in water depths of up to 350 ft.

On the other hand, the Noble Resilient jack-up rig was awarded a 120-day contract with Petrogas in the UK North Sea at a day rate of $133,000. The two-well contract is expected to commence in 3Q 2024 and comes with four one-well extension options. This rig was used to spud Shell’s Pensacola gas prospect. The 2009-built Noble Resilient jack-up rig has the same specs as the Noble Reacher rig.

Within its outlook for the full year 2023, Noble is increasing guidance for total revenue to a range of $2.5 to $2.6 billion, compared to the previous one of $2.35 to $2.55 billion. Additionally, the rig owner is raising its adjusted EBITDA to a range of $775 to $825 million from the previous $725 to $825 million. However, the company’s full-year 2023 guidance for capital expenditures – net of reimbursable capex – remains unchanged at a range of $325 to $365 million.

Commenting on Noble’s outlook, Eifler elaborated: “Strong year-to-date operational and financial performance has enabled us to increase full-year guidance and the quarterly dividend. Our outlook for a sustained long-term up-cycle remains well supported by macro factors and customer dialogue. While moderately lower financial results are expected over the next two quarters due to contract sequencing and scheduled downtime, we continue to expect a nice step up in 2024 compared to 2023.”

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