Noble Stacks 10 More Rigs - Analyst Blog

Noble Corporation (NE), one of the largest offshore drilling contractors, sent 10 rigs to shipyard as they could not secure contracts. This brings the number of out-of-work or stacked rigs to 12 out of its total 65 rigs. The news came a day after its larger rival Transocean Ltd (RIG) stacked four of its older rigs.

The rigs stacked include three shallow-water rigs off the coast of Mexico, where most of the upstream activities are put on hold but drilling is expected to restart next year, and three deepwater units, including two in the U.S. Gulf of Mexico.

Noble also said that one more deepwater rig (Clyde Boudreaux) will be out of contract in the next month as its client decided not to extend the existing contract. The client Noble Energy Inc (NBL) had earlier agreed to continue with the contract at a standby rate soon after the deepwater drilling moratorium started.

Offshore drillers have been active to pull rigs off the market in response to any apparent weakness in demand. We remain concerned owing to the far-reaching effects of the Gulf of Mexicodrill ban and related U.S.policies that are expected to hit hard in 2011 and beyond. Moreover, as of September 30, Noble had 72% available rig days booked in 2010, which has fallen drastically to 49% for 2011. 

Noble shares currently trade at a significant discount, highlighting near-term tentativeness. This forced us to retain our short-term Underperform recommendation for Noble shares with the Zacks #4 Rank (Sell). However, we believe that higher oil prices are inevitable. Consequently, the long-term outlook for oil-oriented deepwater drilling is positive, as reflected in our long-term Neutral recommendation.

 
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