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Morningstar | Noble Closes Out 4Q on High Note, but Still in Red; Maintaining Our FVE

Following nine consecutive quarters of net operating losses, no-moat Noble posted an adjusted operating loss of $12 million in the fourth quarter, an improvement from the $22 million loss in the third quarter and its best result in 2018. Revenue increased 11% sequentially. The top-line and bottom-line sequential improvement were driven by increased rig activity, particularly from the drillship and semisubmersible segments.

Noble’s continual improvement in utilization rates (75% in the fourth quarter, up from 69% in the prior quarter) has been impressive. Its drillship utilization of 72% leads peers and the overall market utilization rate of about 50%, although this could be a temporary anomaly, given the company’s relatively small fleet size. Additionally, in Noble’s case this may pose a challenge, as most of the recent obligations are at low day rates well into 2020.

Noble’s balance sheet and capital expenditure guidance also point to limited upside in 2019 through acquisition or investment. While competitors like Transocean have taken advantage of low valuations to purchase additional rigs, Noble does not have the same capabilities going into 2019; its cash balance declined 43% from the fourth quarter of 2017 to the fourth quarter of 2018, and the company would have to pile on more debt to be able to finance any growth. Additionally, management’s guidance for flat 2019 capex ($150 million) reveals that the company may be concerned more about boosting poor performance in the short term than long-term investment.