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Last year at this time, I opined that Noble 's (NYSE: NE) drilling dynasty
"ensures a rich and prosperous future." After a ridiculously tumultuous
12 months in the markets, my opinion of this best-in-class operator is
unchanged.
For all the havoc unleashed by a more-than-$100 swing in oil prices, Noble's business is remarkably buoyant. Unlike ENSCO (NYSE: ESV), which also struggled to keep its jackup fleet gainfully employed,
Noble managed to crank out somewhat higher earnings this time around.
Just as important, contract drilling margins widened to 72%, from 70%
in the prior quarter. That's the highest quarterly figure I've seen for
any driller since I began covering the space.
If you think about it, the latter is not too surprising of a result. The deflationary drag on oilfield suppliers like Baker Hughes (NYSE: BHI) and Schlumberger
(NYSE: SLB) makes it a good bit easier to exercise cost control today.
But that's not to take away from Noble's accomplishment.
Anyway, drilling operations generated $548 million in net cash,
which once again more than doubled capital spending in the quarter.
Last year, Noble decided to pay out a special dividend. This time
around, the firm focused on paying down its debt, resulting in a svelte
sub-12% debt-to-capitalization ratio. Noble also bought back a modest
amount of shares under its repurchase program.
The future looks good for Noble as well. The driller's $10.6 billion backlog exceeds that of rig shop National Oilwell Varco
(NYSE: NOV). While management pointed out that 2009 will be a "heavy
survey year" -- meaning that rigs will experience downtime during
inspections -- this work ensures that the fleet will be ready to hit
the ground running when a stronger market returns. Meanwhile, shiny new
rigs will be kicking off major multiyear contracts with Petrobras (NYSE: PBR) and Royal Dutch Shell (NYSE: RDS-A).
Noble may have swapped sandy beaches for ski slopes in its redomestication from the Caymans to Switzerland, but I'm hardly neutral on this solid stock.
© 2009 UCLICK, L.L.C.
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