Noble Corporation (NE) clinched a deal under which 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 a rig (Noble Carl Norberg) in Mexico, under which Pemex has agreed to pay $57,000 to $59,000 per day.
At closing, the contracts, which range between 139 and 624 days, will have a dayrate ranging from $57,000 to $101,000. The rigs are scheduled to come online in March and in April 2011. Noble also pointed out that the lease amount may possibly go up if the high end of dayrates are cleared and a few start-ups are earlier than expected.
The Macondo oil spill incident had definitely cracked the basic business fundamentals of most offshore drillers. Since April 2010, drilling has considerably slowed down as an aftermath of production decline in the U.S. Gulf of Mexico (GoM).
Notably, even Noble experienced the bitter effect of the deepwater horizon oil spill and reported disappointing fourth quarter 2010 earnings as it resulted in delayed permits. This ended up in depressed rental revenues for some of the costliest drillships. Again, in January 2011, Noble moved five rigs from Mexico as it failed to acquire a drilling contract from Pemex.
Following the suspension of the moratorium in the U.S. GoM, companies in the offshore oil industry are trying to enhance their deepwater assignments. Additionally, 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 low costs associated with rig construction in recent times, including expansion and upgrade of its ultra-deepwater rig fleet. The present six jackups also comprise four rigs, which were kept idle in the U.S. GoM due to lack of work.
Including the six start-ups in April 2011, the company will have a total of eight rigs operational in Mexico. Barring these, Noble foresees opportunities for up to four additional jackups in the same region.
However, we remain concerned about the far-reaching effects of the GoM drill ban and related U.S. policies that are expected to hit hard going forward. 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 #4 Rank (short-term Sell rating).
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