Noble Corp. is working with authorities on investigations related to Royal Dutch Shell plc’s Alaska offshore drilling program, but it also is preparing a vessel for Shell to use this summer, the CEO said Thursday.
Noble faces questions in part because of some drillship maintenance issues related to Shell’s long-delayed offshore drilling program in Alaska. Also, Noble’s Kulluk drilling rig, which was used last year by Shell, separated on New Year’s Eve from a tow vessel on its way to port. The Department of Interior has since launched an “expedited, high-level assessment” of Shell’s program (see NGI, Jan. 14).
“We can’t offer more information, but we continue to support Shell’s Alaska program,” CEO David Williams said. Noble expects to provide drillships for Shell if it ramps up its Alaska drilling program this summer.
“We have put tremendous effort into addressing these [drillship] issues,” and the company has an “ongoing dialogue with the Coast Guard.” Noble “is participating in the Coast Guard and Department of Justice investigations…We hope to have an opportunity to apply our experience learned in the near future…I can assure you that every effort is being made by both companies to prepare a vessel for ’13 in some format.”
Noble had a “disappointing” fourth quarter because increased downtime for its deepwater rigs offset higher average dayrates, Williams said. The Swiss-based operator reported flat quarterly profits of $128 million (50 cents/share), versus year-ago earnings of $127 million (50 cents). In 3Q2012 Noble earned $115 million (45 cents/share). Revenues totaled $966 million, compared with $751 million a year ago and $884 million in the previous quarter.
“A company transformation as extensive as we are undertaking can be challenging, and as we saw in the fourth quarter, can produce inconsistent operating performance,” Williams said. The company last year launched an extensive — and expensive — makeover of its global drilling suite to meet the needs of its clients (see NGI, May 28, 2012). Capital expenditures in 4Q2012 totaled $423 million, including $146 million related to the fleet expansion program. For the full year, spending amounted to $1.7 billion, including $587 million associated with the expansion.
“Although Noble added three state-of-the-art, ultra-deepwater drillships to its fleet during 2012 and placed two other drillships into service following significant enhancement and maintenance programs, initial operations on these five rigs have not been as seamless as we had hoped, particularly with respect to certain critical components,” said Williams. “Approximately 33% of the downtime days in the fourth quarter were attributable to these five rigs. In 2013, we are heavily focused on improving results from these rigs, our incoming newbuilds and the revenue efficiency of our entire fleet.
Contract drilling margin was up slightly from 3Q2012 to 47.5% from 46.1%. The total backlog stood at $14.3 billion at year-end 2012, up slightly from $13.7 billion in 2011. Close to three-quarters of the available rig operating days are committed for this year, including 81% of the floating rig days and 75% of the jackup rig days. For 2014, an estimated 50% of the available rig operating days already are committed. It has seven active rigs in the U.S. Gulf of Mexico under contract through late 2013. The average contract duration on three conventionally moored rigs exceeds one year, while four dynamically positioned rigs have an average contract duration of more than four years.
Noble may consider spinning off some assets into a master limited partnership (MLP), a financial structure traditionally used by midstreamers that has been gaining momentum for offshore operators.
“You can never have too much on your plate to make shareholders money,” said Williams. “Looking at MLPs, I don’t know what others might have said about it, but we have not condemned the idea, and we haven’t blessed the idea. It’s an interesting strategy…and we are watching the Seadrill model.”
Seadrill Ltd. in July submitted a draft registration to the Securities and Exchange Commission to launch an initial public offering of its MLP, Seadrill Partners LLC, which was finalized late last year. The MLP has a stake in two semi-submersible drilling rigs, one drillship and one semi-tender rig from Seadrill Ltd.’s rig fleet.
“I don’t think we have today the right assets to drop into [an MLP],” Williams said. “We will continue to examine it. The question is the benefits that unitholders might derive if they outweigh the capital that’s gone forevermore. It creates a good bit of value in that part that you actually distribute, but…we have a lot to consider. There are a lot of interesting features to MLPs and there’s some limitations.”
Susquehanna Financial Group LLC analysts said offshore drilling MLPs are picking up “considerable momentum,” with Transocean Ltd. also weighing one. Noble could add $15/share from pursuing such a structure, said analyst Charles P. Minervino.
The “potential loss of cash flows may be overly dramatized…Based on our calculations, we expect [Seadrill’s MLP] to pay 80-85% of its distributable cash flow in 2013 back to its parent, whether via cash to minority interest or distributions…Meanwhile, the parent has been able to recognize immediate monetization of the 15-20% of cash flows it will not receive.”
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