Noble Adjoins Two New Jackups - Analyst Blog

Noble Corporation (NE) has decided to add two new rigs to its jackup portfolio. It will spend approximately $440 million for the construction of these heavy-duty, harsh-environment jackup drilling rigs. The new rigs bring Noble's jackup size to 45 and the total fleet to 65 offshore drilling units.

Each unit will cost $220 million. The first unit is expected to come online in the fourth quarter of 2012 and the other one in the second quarter of 2013. The jackups will be able to operate in water depths up to 400 feet and drill to depths of 30,000 feet.

The builder of the rigs is Sembcorp Marine's Jurong Shipyard, Singapore. The contract also has options for up to four further units. Noble said the options must be exercised by January 1, 2012. The options include an escalation clause with future deliveries scheduled in six month increments beginning in late 2013.

Apart from the organic development of rigs, Noble also acquired four deepwater and two midwater floaters, and an FPSO (Floating, Storage, Production, and Offloading) unit in its July  purchase of closely held rival, FDR Holdings Limited.

Offshore drillers had been experiencing improved market conditions with an uptrend in oil prices and better bidding activity. We see long-term earnings and cash flow visibility with the company's solid backlog position, which was further enhanced by the recent acquisition and agreement for newbuilds.

However, we remain cautious as the offshore drillers face a number of headwinds, including a lack of pricing power and tight regulations following the Gulf of Mexico spill. A tough competition from its larger peers such as Transocean (RIG) and Diamond Offshore (DO) is also a concern. The short-term recommendation for the stock is Underperform with the Zacks #4 Rank (Sell) but our long-term Neutral recommendation remains unchanged.

 
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