Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NE > SEC Filings for NE > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for NOBLE CORP PLC

Form 10-Q for NOBLE CORP PLC


8-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist you in understanding our financial position at June 30, 2014, and our results of operations for the three and six months ended June 30, 2014 and 2013. The following discussion should be read in conjunction with the consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2013 filed by Noble Corporation plc, a company registered under the laws of England and Wales ("Noble-UK"), and Noble Corporation, a Cayman Islands company ("Noble-Cayman").

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and
Section 21E of the U.S. Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this report regarding contract backlog, fleet status, our financial position, business strategy, timing or results of acquisitions or dispositions, repayment of debt, borrowings under our credit facilities or other instruments, completion, delivery dates and acceptance of our newbuild rigs, future capital expenditures, contract commitments, dayrates, contract commencements, extension or renewals, contract tenders, the outcome of any dispute, litigation, audit or investigation, plans and objectives of management for future operations, foreign currency requirements, results of joint ventures, indemnity and other contract claims, construction and upgrade of rigs, industry conditions, access to financing, impact of competition, governmental regulations and permitting, availability of labor, worldwide economic conditions, taxes and tax rates, indebtedness covenant compliance, dividends and distributable reserves, and timing for compliance with any new regulations are forward-looking statements. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "project," "should" and similar expressions are intended to be among the statements that identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. These forward-looking statements speak only as of the date of this report on Form 10-Q and we undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. We have identified factors including but not limited to operating hazards and delays, risks associated with operations outside the U.S., actions by regulatory authorities, customers, joint venture partners, contractors, lenders and other third parties, legislation and regulations affecting drilling operations, costs and difficulties relating to the integration of businesses, factors affecting the level of activity in the oil and gas industry, supply and demand of drilling rigs, factors affecting the duration of contracts, the actual amount of downtime, factors that reduce applicable dayrates, violations of anti-corruption laws, hurricanes and other weather conditions and the future price of oil and gas that could cause actual plans or results to differ materially from those included in any forward-looking statements. These factors include those referenced or described in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2013, our Quarterly Reports on Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission ("SEC"). We cannot control such risk factors and other uncertainties, and in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. You should consider these risks and uncertainties when you are evaluating us.

Paragon Offshore plc Spin-off Transaction

On August 1, 2014, we completed the previously announced plan to reorganize our business by means of a spin-off of a wholly-owned subsidiary, Paragon Offshore plc ("Paragon Offshore"). The spin-off was accomplished through a pro rata distribution by us of all of the ordinary shares of Paragon Offshore to our shareholders. Our shareholders received one share of Paragon Offshore for every three shares of Noble owned as of July 23, 2014, the record date for the distribution. Paragon Offshore's assets and liabilities consist of most of our standard specification drilling units and related assets, liabilities and business. Paragon Offshore's fleet consists of five drillships, three semisubmersibles, 34 jackups and one floating production storage and offloading unit ("FPSO"). Paragon Offshore is also responsible for the Hibernia platform operations offshore Canada. In connection with the spin-off, we received approximately $1.7 billion in cash as settlement of intercompany notes issued by Paragon Offshore to Noble as consideration for the business contributed to Paragon Offshore. Noble used these funds to repay outstanding third-party debt of Noble-Cayman and its subsidiaries.


Table of Contents

In connection with the separation and spin-off, we entered into a master separation agreement and other agreements described in Note 12 to our financial statements in this report.

Because the spin-off distribution was completed after June 30, 2014, the accounts of Paragon Offshore and its subsidiaries are reflected as continuing operations in our consolidated financial statements in this report and are part of our results of operations discussed throughout this report.

Executive Overview

We are a leading offshore drilling contractor for the oil and gas industry. We perform contract drilling services with our fleet of mobile offshore drilling units located worldwide. As of August 1, 2014, our fleet consists of 15 jackups, 11 semisubmersibles and 9 drillships, including three units under construction as follows:

• one dynamically positioned, ultra-deepwater, harsh environment drillships; and

• two high-specification, heavy-duty, harsh environment jackups.

Our fleet is located in the United States, Brazil, Argentina, the North Sea, the Mediterranean, West Africa, the Middle East, Asia and Australia. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since 1921.

Outlook

The business environment for offshore drillers during the first six months of 2014 has been challenging. While the price of Brent Crude, a key factor in determining customer activity levels, remained strong throughout the period, there has been a decrease in contracting activity particularly for ultra-deepwater and deepwater rigs with delays in projects, as operators evaluate development costs. In addition, supply is expected to increase due to a significant number of newbuild units that are forecast to enter the market over the next 12 months and the number of drilling contracts that will roll over during such period, particularly in the deepwater and ultra-deepwater segments. While we believe the short-term outlook has downside risks, we continue to have confidence in the long-term fundamentals for the industry. These fundamental factors include stable crude oil prices, favorable exploration results, geographic expansion of deepwater drilling activities, a growing backlog of multi-year field development programs and greater access by our customers to promising offshore regions, as evidenced by the Australian government releasing 30 oil and gas blocks for bidding and the energy reform legislation in Mexico that could potentially lead to an increase in drilling activity in Mexican waters.

Results and Strategy

Our goal is to be the preferred offshore drilling contractor for the oil and gas industry based upon the following core principles:

• operate in a manner that provides a safe working environment for our employees while protecting the environment and our assets;

• provide an attractive investment vehicle for our shareholders; and

• deliver superior customer service through a diverse and technically advanced fleet operated by proficient crews.

Our business strategy has also focused on the active expansion of our worldwide deepwater and high specification jackup capabilities through construction, modifications and acquisitions, the deployment of our drilling assets in important oil and gas producing areas throughout the world and the divestiture of our standard specification drilling units.


Table of Contents

We have actively expanded our offshore deepwater drilling and high specification jackup capabilities in recent years through the construction and acquisition of rigs. As part of this technical and operational expansion, we plan to continue to evaluate opportunities to enhance our fleet to achieve greater technological capability, which we believe will lead to increased drilling efficiencies and the ability to complete the increasingly more complex programs required by our customers. During the first six months of 2014, we continued to execute our newbuild program, completing the following milestones:

• we commenced operations in the first quarter of 2014 on the Noble Regina Allen, a high-specification, heavy duty, harsh environment jackup, under an 18-month contract in the North Sea;

• we commenced operations in the first quarter of 2014 on the Noble Houston Colbert, a high-specification, heavy duty, harsh environment jackup, under a 22-month contract in Argentina;

• we completed construction of the Noble Sam Turner, a high-specification, heavy duty, harsh environment jackup, which was delivered from the shipyard during the first quarter of 2014 and is scheduled to complete acceptance testing and begin operations under a two-year contract in the North Sea in the third quarter of 2014;

• we completed construction of the Noble Sam Croft, a dynamically positioned, ultra-deepwater, harsh environment drillship, which was delivered from the shipyard during the second quarter of 2014 and is scheduled to complete acceptance testing and begin operations under a three-year contract in the U.S. Gulf of Mexico in the third quarter of 2014;

• we completed construction of the Noble Tom Prosser, a high-specification, heavy duty, harsh environment jackup, which was delivered from the shipyard during the second quarter of 2014. This unit is currently undergoing final commissioning and crew familiarization, and is scheduled to complete acceptance testing and begin operations under an 18-month contract in Australia in the first quarter of 2015;

• we continued construction of the Noble Tom Madden, a dynamically positioned, ultra-deepwater, harsh environment drillship, which is scheduled to be delivered from the shipyard in the third quarter of 2014. The unit will then mobilize to the U.S. Gulf of Mexico where it is expected to begin operations under a three-year contract in the first quarter of 2015;

• we continued construction of the Noble Sam Hartley, a high-specification, heavy duty, harsh environment jackup, which is scheduled to be completed in the fourth quarter of 2014; and

• we continued construction of our CJ70, an ultra-high specification jackup.

While we cannot predict the future level of demand or dayrates for our drilling services or future conditions in the offshore contract drilling industry, we continue to believe we are well positioned within the industry and that our newbuild activity will further strengthen our position.

Contract Drilling Services Backlog

We maintain a backlog (as defined below) of commitments for contract drilling services. The following table sets forth, as of June 30, 2014, the amount of our contract drilling services backlog and the percent of available operating days committed for the periods indicated and, because the Paragon Offshore spin-off occurred after such date, includes backlog of $2.3 billion associated with the Paragon Offshore fleet:

                                                                             Year Ending December 31,
                                            Total        2014 (1)        2015         2016         2017         2018-2023
                                                                            (In millions)
Contract Drilling Services Backlog
Semisubmersibles/Drillships (2) (6)        $ 10,067     $    1,459      $ 2,659      $ 1,956      $ 1,253      $     2,740
Jackups (3)                                   3,286            919        1,204          496          230              437

Total (4)                                  $ 13,353     $    2,378      $ 3,863      $ 2,452      $ 1,483      $     3,177

Percent of Available Days Committed (5)
Semisubmersibles/Drillships                                     72 %         59 %         40 %         24 %              9 %
Jackups                                                         76 %         46 %         13 %          4 %              1 %

Total                                                           74 %         50 %         23 %         11 %              9 %

(1) Represents a six-month period beginning July 1, 2014.


Table of Contents
(2) Our drilling contracts with Petróleo Brasileiro S.A. ("Petrobras") provide an opportunity for us to earn performance bonuses based on reaching targets for downtime experienced for our rigs operating offshore Brazil. Our backlog includes an amount equal to 50 percent of potential performance bonuses for such rigs, or $74 million.

The drilling contracts with Royal Dutch Shell, PLC ("Shell") for the Noble Globetrotter I, Noble Globetrotter II, Noble Jim Thompson, Noble Clyde Boudreaux, Noble Max Smith, Noble Don Taylor and the Noble Jim Day provide opportunities for us to earn performance bonuses based on key performance indicators as defined by the contract. Our backlog includes an amount equal to 25 percent of potential performance bonuses for these rigs, or $162 million.

(3) Petróleos Mexicanos ("Pemex") has the ability to cancel its drilling contracts on 30 days or less notice without Pemex's making an early termination payment. At June 30, 2014, we had 10 rigs contracted to Pemex in Mexico, and our backlog includes approximately $308 million related to such contracts. All Pemex contracts are with Paragon Offshore.

(4) Some of our drilling contracts provide the customer with certain early termination rights.

(5) Percent of available days committed is calculated by dividing the total number of days our rigs are operating under contract for such period, or committed days, by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. Committed days do not include the days that a rig is stacked or the days that a rig is expected to be out of service for significant overhaul, repairs or maintenance. Percentages take into account additional capacity from the estimated dates of deployment of our newbuild rigs that are scheduled to commence operations during 2014 through 2016.

(6) Noble and a subsidiary of Shell are involved in joint ventures that own and operate both the Noble Bully I and the Noble Bully II. Under the terms of the joint venture agreements, each party has an equal 50 percent share in both vessels. As of June 30, 2014, the combined amount of backlog for these rigs totals $1.9 billion, all of which is included in our backlog. Noble's proportional interest in the backlog for these rigs was $927 million.

Our contract drilling services backlog reflects estimated future revenues attributable to both signed drilling contracts and letters of intent that we expect to realize. A letter of intent is generally subject to customary conditions, including the execution of a definitive drilling contract. It is possible that some customers that have entered into letters of intent will not enter into signed drilling contracts.

We calculate backlog for any given unit and period by multiplying the full contractual operating dayrate for such unit by the number of days remaining in the period. The reported contract drilling services backlog does not include amounts representing revenues for mobilization, demobilization and contract preparation, which are not expected to be significant to our contract drilling services revenues, amounts constituting reimbursables from customers or amounts attributable to uncommitted option periods under drilling contracts or letters of intent.

The amount of actual revenues earned and the actual periods during which revenues are earned may be materially different than the backlog amounts and backlog periods set forth in the table above due to various factors, including, but not limited to, shipyard and maintenance projects, unplanned downtime, achievement of bonuses, weather conditions and other factors that result in applicable dayrates lower than the full contractual operating dayrate. In addition, amounts included in the backlog may change because drilling contracts may be varied or modified by mutual consent or customers may exercise early termination rights contained in some of our drilling contracts or decline to enter into a drilling contract after executing a letter of intent. As a result, our backlog as of any particular date may not be indicative of our actual operating results for the periods for which the backlog is calculated. See Part I, Item 1A, "Risk Factors - We can provide no assurance that our current backlog of contract drilling revenue will be ultimately realized" in our Annual Report on Form 10-K for the year ended December 31, 2013.

As of June 30, 2014, we estimate Shell and Freeport-McMoRan Copper & Gold represented approximately 52 percent and 10 percent of our backlog, respectively.


Table of Contents

Results of Operations

For the Three Months Ended June 30, 2014 and 2013

Net income attributable to Noble-UK for the three months ended June 30, 2014 (the "Current Quarter") was $235 million, or $0.91 per diluted share, on operating revenues of $1.24 billion, compared to net income for the three months ended June 30, 2013 (the "Comparable Quarter") of $177 million, or $0.69 per diluted share, on operating revenues of $1.02 billion.

As a result of Noble-UK conducting all of its business through Noble-Cayman and its subsidiaries, the financial position and results of operations for Noble-Cayman, and the reasons for material changes in the amount of revenue and expense items between 2014 and 2013, would be the same as the information presented below regarding Noble-UK in all material respects, except operating income for Noble-Cayman for the three months ended June 30, 2014 and 2013 was $30 million and $18 million higher than operating income for Noble-UK for the same period. The operating income difference is primarily a result of executive costs directly attributable to Noble-UK for operations support and stewardship related services.

Rig Utilization, Operating Days and Average Dayrates

Operating results for our contract drilling services segment are dependent on
three primary metrics: rig utilization, operating days and dayrates. The
following table sets forth the average rig utilization, operating days and
average dayrates for our rig fleet for the three months ended June 30, 2014 and
2013 (dollars in thousands):



                                          Average Rig                             Operating                                       Average
                                        Utilization (1)                            Days (2)                                       Dayrates
                                      Three Months Ended              Three Months Ended                             Three Months Ended
                                           June 30,                        June 30,                                       June 30,
                                      2014             2013           2014           2013         % Change          2014           2013          % Change
Jackups                                     80 %          92 %          3,272         3,594              -9 %     $ 130,851      $ 116,266              13 %
Semisubmersibles                            73 %          76 %            924           970              -5 %       394,605        370,117               7 %
Drillships                                  92 %          78 %          1,001           637              57 %       407,259        311,490              31 %
Other                                        0 %           0 %             -             -                0 %            -              -                0 %

Total                                       79 %          83 %          5,197         5,201               0 %     $ 231,003      $ 187,537              23 %

(1) We define utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold stacked rigs, and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet, excluding newbuild rigs under construction.

(2) Information reflects the number of days that our rigs were operating under contract.


Table of Contents

Contract Drilling Services

The following table sets forth the operating results for our contract drilling
services segment for the three months ended June 30, 2014 and 2013 (dollars in
thousands):



                                            Three Months Ended
                                                 June 30,                     Change
                                           2014            2013             $           %
 Operating revenues:
 Contract drilling services             $ 1,200,406     $   975,455     $ 224,951        23 %
 Reimbursables (1)                           29,291          28,000         1,291         5 %
 Other                                           -               67           (67 )      **

                                        $ 1,229,697     $ 1,003,522     $ 226,175        23 %

 Operating costs and expenses:
 Contract drilling services             $   577,134     $   487,971     $  89,163        18 %
 Reimbursables (1)                           21,481          22,469          (988 )      -4 %
 Depreciation and amortization              249,701         209,082        40,619        19 %
 General and administrative                  26,845          26,378           467         2 %
 Non-recurring spin-off related costs         1,441              -          1,441        **

                                            876,602         745,900       130,702        18 %

 Operating income                       $   353,095     $   257,622     $  95,473        37 %

(1) We record reimbursements from customers for out-of-pocket expenses as operating revenues and the related direct costs as operating expenses. Changes in the amount of these reimbursables generally do not have a material effect on our financial position, results of operations or cash flows.

** Not a meaningful percentage.

Operating Revenues. Changes in contract drilling services revenues for the Current Quarter as compared to the Comparable Quarter was driven by an increase in average dayrates, partially offset by a slight decrease in operating days. The 23 percent increase in average dayrates increased revenue by approximately $226 million, but the slight decrease in operating days decreased revenues by $1 million.

The increase in contract drilling services revenues relates to our drillships, jackups and semisubmersibles, which generated approximately $209 million, $10 million and $6 million more revenue, respectively, in the Current Quarter.

The increase in drillship revenues was driven by a 57 percent increase in operating days and a 31 percent increase in average dayrates, resulting in a $113 million and a $96 million increase in revenues, respectively, from the Comparable Quarter. The increase in both average dayrates and operating days was the result of the Noble Don Taylor, Noble Globetrotter II and Noble Bob Douglas, which commenced their contracts in August 2013, September 2013 and December 2013, respectively. Additionally, the Noble Roger Eason was fully operational during the Current Quarter, after receiving a reduced rate while in the shipyard to undergo its reliability upgrade project during the Comparable Quarter.

The 13 percent increase in jackup average dayrates resulted in a $48 million increase in revenues from the Comparable Quarter. The increase in average dayrates resulted from favorable dayrate changes on new contracts across the jackup fleet, as well as the newbuild jackups operating at favorable dayrates. The 9 percent decline in operating days resulted in a $38 million decline in revenues driven by the Noble Gus Androes, Noble David Tinsley, Noble Gene Rosser and Noble Charlie Yester, which were off contract in the Current Quarter but experienced full utilization during the Comparable Quarter, coupled with increased downtime on the Noble Percy Johns and Noble Scott Marks during the Current Quarter. These decreases were partially offset by the contract commencements of the following newbuilds: Noble Mick O'Brien, Noble Regina Allen and Noble Houston Colbert in November 2013, January 2014 and March 2014, respectively, and the Noble Lewis Dugger, which was sold in July 2013, was fully utilized during the Comparable Quarter.


Table of Contents

The 7 percent increase in average dayrates on our semisubmersibles resulted in a $23 million increase in revenues from the Comparable Quarter. The increase in average dayrates is due to favorable dayrate changes on new contracts across the semisubmersible fleet, as well as the return to work of the Noble Paul Romano during the Current Quarter. The 5 percent decline in operating days resulted in a $17 million decline in revenues driven by the Noble Paul Wolff, which completed its contract during the Current Quarter but experienced full utilization during the Comparable Quarter.

Operating Costs and Expenses. Contract drilling services operating costs and expenses increased $89 million for the Current Quarter as compared to the Comparable Quarter. A significant portion of the increase is due to the crew-up and operating expenses for our newbuild rigs as they commenced operating under contracts, which added approximately $70 million in expense in the Current Quarter. The remaining change was primarily driven by a $12 million increase in labor costs and a $9 million increase in mobilization due to the amortization of certain rig moves and the demobilization of rigs. These increases were partially offset by a $2 million decrease in maintenance and other rig-related expenses.

The increase in depreciation and amortization in the Current Quarter from the Comparable Quarter was primarily attributable to assets placed in service, including the Noble Don Taylor, Noble Globetrotter II, Noble Mick O'Brien, Noble Bob Douglas, Noble Regina Allen and Noble Houston Colbert.

Other
. . .
  Add NE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.