A contract drilling service provider, Noble Corporation (NE) has exercised options with a subsidiary of Sembcorp Marine Ltd, the world’s second largest rig builder, for the construction of two jackup rigs.
Noble will incur a cost of $235 per unit for the new rigs, including project management, spares and start-up costs. However, the costs exclude capitalized interest. With the addition of two high-specification heavy duty, harsh environment JU3000N jackup drilling rigs, Noble will have four specified jackup rigs under construction. The company also sees such ultra-premium units to be in high demand.
The units are scheduled for delivery in the third quarter of 2013 and the first quarter of 2014. This still leaves Noble options to exercise up to two additional rigs by January 1, 2012.
The new units that would join the rig fleet are Friede & Goldman JU3000N designed high-specification jackups, which are capable of operating in water depths of up to 400 feet and drilling to subsea depths of 30,000 feet. Each unit will have a 75 foot cantilever, 2.5 million pounds of hook load capacity and crew accommodations of up to 150.
Earlier this month, Noble announced that six of its shallow-water drilling rigs have been leased by Petroleos Mexicanos (aka Pemex), Mexico’s state-owned oil company. Additionally, the company has extended the contract for Noble Carl Norberg rig in Mexico, under which Pemex has agreed to pay $57,000 to $59,000 per day.
Offshore drillers are experiencing improved market conditions with an uptrend in oil prices and better bidding activity. Likewise, as a contract drilling company, Noble is also making constant efforts to take advantage of the scenario. Noble remains our favorable pick in the drilling space given its long-term growth strategy, geographically diversified fleet, potential acquisition and newbuilding.
However, we remain cautious on account of a number of headwinds that all offshore drillers face, including lack of pricing power and the widespread effects of the Gulf of Mexico drill ban and related U.S. policies.
Tough competition from its larger peers such as Transocean Ltd. (RIG) and Diamond Offshore Drilling Inc. (DO) is also a concern. Our long-term Neutral recommendation for the stock remains unchanged and the company holds a Zacks #3 Rank (short-term Hold rating).
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