Noble Corporation plc — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Figures are in U.S. dollars; financial statement amounts are in millions unless noted. The filing also reports Noble Finance Company, a wholly owned subsidiary. Noble conducts substantially all of its business through Finco and its subsidiaries.
Comparability: Noble applied fresh-start accounting upon emergence from Chapter 11 in February 2021, so successor and predecessor periods are not directly comparable. Noble’s merger with Maersk Drilling became effective September 30, 2022; the tender offer closed October 3. Maersk Drilling’s operating results were not included in Q3 results.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 |
|---|---|---|---|
| Operating revenue | $305.9 | $250.4 | $791.3 |
| Operating income (loss) | $51.6 | ($13.5) | $64.5 |
| Net income (loss) | $33.6 | ($23.7) | $34.0 |
| Diluted earnings (loss) per share | $0.41 | ($0.36) | $0.42 |
| Operating margin | 16.9% | (5.4%) | 8.2% |
| Net margin | 11.0% | (9.5%) | 4.3% |
Q3 contract drilling revenue rose 25% year over year, while total revenue increased 22%. Nine-month revenue grew to $791.3 million from $562.1 million in the comparable 2021 successor period; the periods differ in duration and are affected by fresh-start and acquisition comparability.
- Q3 activity: Average utilization was 80% versus 74% a year earlier. Average dayrate increased to $212,958 from $150,287. Floater dayrates rose 33% and jackup dayrates rose 34%; jackup operating days fell partly because four rigs were sold in 2021.
- Cash flow, nine months: Operating cash flow was $109.8 million; capital expenditures were $109.2 million; investing cash outflow was $93.5 million. Financing cash inflow was $214.0 million, including $220.0 million of revolver borrowings. Cash and cash equivalents were $422.5 million at September 30.
- Liquidity: Working capital was $485.8 million. The $675 million revolving facility had $220 million drawn and $20.6 million of letters of credit outstanding, plus $8.7 million of letters of credit and surety bonds under bilateral arrangements. Borrowing availability remains subject to facility conditions and covenants.
- Debt: Long-term debt was $434.4 million: $220 million under the senior secured revolver and $214.4 million carrying value of second-lien notes. The notes’ stated principal before discounts was approximately $214.4 million and bear interest under elections ranging from 11% cash-pay to 15% payment-in-kind.
- Balance sheet: Total assets were $2.39 billion and shareholders’ equity was $1.55 billion. Assets held for sale were $299.0 million.
Material changes and transactions
- Q3 returned to profitability from a year-earlier loss. Higher floater utilization and dayrates supported revenue and operating income; lower hurricane-related costs also helped. Q3 included $9.3 million of merger and integration costs and $1.9 million of net Hurricane Ida costs.
- For the nine months, operating income was $64.5 million versus an operating loss of $76.4 million in the 2021 successor period. The prior-year comparison included a $64.5 million bargain-purchase gain below operating income; the predecessor period also reflected reorganization-related items.
- Operating costs are rising: management cited inflation and supply-chain disruption affecting supplies, third-party wages, crew rotation and transportation. Nine-month contract drilling costs increased with the larger operating floater fleet.
- On October 3, Noble completed the Maersk Drilling tender offer, acquiring more than 90% of its shares; remaining shares were to be compulsorily purchased. Noble reported approximately $726 million of Maersk Drilling term loans at September 30, and guaranteed the related facilities after closing. Those facilities mature in December 2023.
- On October 5, Noble completed the sale of five jackups and related operations to Shelf Drilling for $375 million cash. These rigs were classified as held for sale at September 30. The sale was a condition addressing UK competition concerns related to the combination.
- Finco distributed $365.1 million to Noble during the nine months, primarily to fund cash consideration for the remaining Maersk Drilling shares. Management expected approximately $70 million of cash consideration for the compulsory purchase, with the balance payable in shares.
Outlook, risks and contingencies
- Management said it was cautiously optimistic about improving offshore drilling markets, particularly ultra-deepwater floaters; it also described stable opportunities in harsh-environment jackups. It cautioned that the industry may not return to historical peak activity.
- Management expected Q4 2022 capital expenditures of $65 million to $85 million. No earnings or revenue guidance was provided.
- Contract backlog was approximately $2.2 billion at September 30, including about 79% of available days committed for the remainder of 2022. This figure includes about $209.8 million tied to the five rigs sold in October and excludes Maersk Drilling. Noble reported combined backlog of approximately $3.9 billion as of October 31.
- Management believed cash on hand, operating cash flow, asset-sale proceeds and revolver borrowings would be sufficient to fund needs for the next 12 months. This is a forward-looking expectation, not a guarantee.
- Backlog and results are exposed to contract early-termination rights, downtime, dayrate resets, customer decisions and operating conditions. The filing also identifies oil-market volatility, the Russia-Ukraine conflict, inflation, supply-chain and labor constraints, weather, regulation and energy-transition pressures as risks.
- Tax authorities have asserted approximately $613.3 million of audit claims in several jurisdictions; Noble disputes them and believes resolution will not materially adversely affect its financial statements. Reserves for uncertain tax positions were $78.3 million.
- Hurricane Ida personal-injury litigation is at an early stage; the company says outcomes and potential losses cannot be predicted. The filing also describes insurance limits and deductibles for storm damage and claims.
- Disclosure controls and procedures were reported effective as of September 30, 2022.
Key facts investors should verify
- How the Maersk Drilling acquisition, final share purchase consideration and assumed debt affect pro forma leverage, interest expense and cash flow.
- Whether the $375 million rig-sale proceeds and planned refinancing of Maersk Drilling’s December 2023-maturity facilities are completed on expected terms.
- Conversion of the reported backlog into revenue, particularly given the Remedy Rig divestiture, customer concentration and contract termination or rate-reset provisions.
- Whether improving utilization and dayrates outpace inflation, repair and maintenance costs, and other operating pressures.
- Developments in the $613.3 million disputed tax assessments, uncertain tax reserves, and Hurricane Ida litigation and insurance recoveries.