Noble Corp's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Noble Corporation ( NE)

Q3 2011 Earnings Call

October 20, 2011 09:00 am ET

Executives

David Williams – Chairman, President and Chief Executive

Dennis Lubojacky – Vice President and Controller

Roger Hunt – Senior Vice President Marketing and Contracts

Jeff Chastain – Vice President Investor Relations

Analysts

Kurt Hallead – RBC Capital Markets

Dave Wilson – Howard Weil

Judson Bailey – Jefferies and Company

Ian Macpherson – Simmons

Robin Shoemaker – Citigroup

Joe Hill – Tudor, Pickering & Holt

Geoff Kieburtz – Weeden & Co.

Scott Gruber – Bernstein

Mike Urban – Deutsche Bank

Presentation

Operator

Good morning. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the Noble Corp. Q3 2011 earnings call. (Operator instructions.) As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, October 20 th, 2011. Thank you.

I would now like to introduce Mr. Jeff Chastain, Vice President of Investor Relations. Mr. Chastain, you may begin your conference.

Jeff Chastain

Thank you, Regina, and welcome all to the Noble Corporation’s Q3 2011 earnings call. A copy of the company’s earnings report issued last evening along with supporting statements and schedules can be found on the Noble website, and that’s at www.noblecorp.com.

Before we begin this morning I’d like to remind you once again that any statements we make about our plans, expectations, estimates, predictions or similar expressions for the future, including those concerning the drilling business, financial performance, operating results, tax rates, spending guidance, backlog, day rates, contract tenders, extensions or announcements; letters of intent, the outlook for the US Gulf of Mexico and other regions; new build delivery costs and dates, plans and objectives of management for future operations and the outcome of any litigation, dispute, or investigation are all forward-looking statements and are subject to risks and uncertainties. Our filings with the US Securities and Exchange Commission which are posted on our website discuss the risks and uncertainties in our business and our industry and the various factors that could keep outcomes of any forward-looking statements from being realized. Our actual results could differ materially from these forward-looking statements.

Also note that we may use non-GAAP financial measures on the call today. If we do you will find the required supplemental disclosure for these measures including the most directly comparable GAAP measure and an associated reconciliation on our website. I’ll now turn the call over to David Williams, Chairman, President and Chief Executive of Noble.

David Williams

Thanks, Jeff. Good morning and thank you for joining us on the call today. With me in addition to Jeff are Dennis Lubojacky, our Vice President and Controller; and Roger Hunt, our Senior Vice President of Marketing and Contracts is in Geneva with us today. Dennis is stepping in for Tom Mitchell who, as we previously announced, has left the company and that was effective October 10 th to pursue another opportunity. Our search for Tom’s replacement is well underway and we hope to have his successor identified by the end of the year.

I’ll begin today with some brief comments on our Q3 results which were significantly better than Q2 and update you on our ongoing fleet transformation efforts. I’ll then ask Dennis to cover the detailed financial highlights for the quarter and then Roger will follow with a discussion on what has become a very active market for both the jack-up and floating rig sectors. I’ll then make some closing comments before we take your questions.

We began to see a meaningful pickup in client demands for offshore units all over the world during Q2 as we noted on our last call back in July. This improvement in inquiries and activity persisted through Q3 and continues today with a steady flow of new contract rewards throughout the fleet. During Q3 we finalized discussions and secured 21 contracts on five floating units and 15 jack-ups, adding approximately $655 million in fleet backlog, which given the current burn rate per day kept the total backlog number as of September 30 th at about $12.8 billion or basically flat with the June 30 numbers.

Since the conclusion of Q3 we’ve added an estimated $395 million to backlog following the award of seven contracts including contracts for a previously stacked jack-up and a drillship, further indications of an improving business climate. Our financial results for Q3 reflect the higher activity as well as an improvement in average daily revenues, the latter driven primarily by the return of all five active semisubmersibles in the US Gulf of Mexico to their full operating rates, a condition we’ve not experienced since the deep water drilling moratorium was mandated back in 2010.

Improvements in Q3 results were partially offset by downtime in the fleet, a frustrating occurrence that we are continuing to work very hard to correct. The downtime included unpaid repair days on three rigs in Brazil and two in our US Gulf of Mexico division. Each instance was a separate unrelated event that had to be identified and resolved. With few exceptions the downtime was due to required repairs on the subsea control system or the top drive drilling systems.

We are attacking this issue on many fronts. We are partnering with certain suppliers including NOB to improve communications between parties and jointly tackle reliability issues. Further we’ve identified and are following programs of optimal cycle counts for certain subsea components prior to their replacement and we’ve upgraded other components with more robust alternatives. Additionally our worldwide subsea facility is now up and running so we are warehousing more spares, training more people and working smarter. Finally, we’re taking a more active role during equipment refurbishment programs to reinforce the quality assurance control processes. Clearly our Operations Team is being proactive in this area and we’re making progress. This will remain a top priority to the company and it will get better.

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