Noble Corporation

Thank you and welcome everyone to Noble Corporation's first quarter 2021 earnings conference call. We appreciate your continued interest in the company. You can find a copy of Noble's earnings report issued yesterday evening along with the supporting statements and schedules on our website at noblecorp.com. Joining me today are Robert Eifler, President and Chief Executive Officer, and Richard Barker, Senior Vice President and Chief Financial Officer. For today's call, we will not be hosting a question and answer session at the end of the prepared remarks. During the course of this call, we may make certain forward-looking statements regarding our various matters related to our business and companies that are not historical facts. Such statements are based on current expectations and assumptions of management and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially from these forward-looking statements, and Noble does not assume any obligation to update these statements. Please refer to our SEC filings for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Also, note we are referencing non-GAAP financial measures in the call today. You will find the required supplemental disclosure for these measures, including the most directly comparable gap measure and an associated reconciliation on our website. And with that, I'll now turn the call over to Robert Eifler, President and Chief Executive Officer of Noble.

Thanks, Craig, and thanks to everyone who joined our call today. On April 1st, Noble celebrated its 100th anniversary as a drilling contractor. In the century since our founding, Noble has evolved from a land driller in North America to one of the premier offshore drilling contractors with operations across the globe. We have seen many highs and lows in our cyclical industry, but the past several years have been some of the most challenging and disruptive our company and our industry have faced. The men and women of Noble have risen up to meet each challenge. Our 100th anniversary is an important milestone for our company, and I cannot be more proud to be a part of the Noble team. Thank you to all noble employees, past and present, for your support of our company in achieving this milestone. We are pleased with our first quarter results and the accomplishment of a number of important strategic objectives in the first part of 2021. In early February, we completed our financial restructuring transactions and emerged with a much stronger financial foundation. In March, we announced the acquisition of Pacific Drilling and expeditiously closed the transaction on April 15th. Pacific Drilling represents a highly strategic acquisition which enhances our position in the ultra-deepwater market segment. I'll begin my operational and market commentary with a focus on this segment. The Noble Drill Ship Fleet has been fully contracted for some time, and our newly acquired drill ships allow us to bid, for the first time in a while, on various opportunities we see upcoming. One of our marketing priorities is to find work for the drill ships that we have rolling off contract this year. We expect the Santa Ana to complete its contract with Petronas in Mauritania in August and are primarily bidding the Santa Ana into an improving opportunity set in West Africa as well as the Mediterranean regions. The constant contract with Petronas in Mexico runs into October and also has options for up to four additional wells. The rig has additional opportunities in the U.S. Gulf of Mexico as well as Guyana Suriname where we have an extensive presence already. In April, the Noble Sam Cross began work under the CEA with Exxon in Guyana, and we now have four of our seventh generation drill ships on contract in Guyana. Lastly, in April, the Schirra began its 14-month contract with Murphy in the U.S. Gulf of Mexico. The U.S. Gulf of Mexico deepwater market is strengthening, and there have been numerous inquiries in the past month for 2022 work. The programs that have been deferred are beginning to move ahead, and we expect this trend to continue. However, contract duration remains short as the vast majority of opportunities are for one to two well programs. The South America deepwater market has been mostly flat over the quarter. However, there are signs of increasing demand. Brazil is continuing to see more non-Petrobras activity, and we expect a few incremental rigs going to IOCs. However, Petrobras continues to be the leading source of incremental long-term demand. We expect local contractors to be the first choice for the Petrobras work. which could keep rates depressed in the region for the near term but will provide helpful demand nonetheless. West African deepwater activity is set to rise as work deferred during the downturn gets sanctioned on the back of confidence in oil price. We expect several incremental jobs for multi-year work in Nigeria, Mauritania, and Angola. Looking at global supply for deepwater rigs, there have been 63 floating rigs retired since the beginning of 2018 including seven retirements announced year-to-date Excluding cold-stacked rigs and new builds, there are 184 floating rigs being marketed today, of which 130, or 71%, are committed to contracts. In addition, there are 16 Tier 1 drill ships that are either cold-stacked or stranded in shipyards. Reactivation costs for cold-stacked rigs can vary widely, depending on how long a rig has been stacked and what work is needed to bring it back into service, but can easily be well over $50 million for a stacked drill ship. Rigs coming out of a shipyard could cost even more, as they will need to purchase drill pipe and spare equipment as well as undergo commissioning. In general, we think capital constraints in our industry will drive discipline in bringing these rigs back to market. Now, turning to global floating rig demand, Bristad recently published their view that floating rig demand actually cropped in 2020. Our conversations with customers corroborate this, and we anticipate a moderate upward trend continuing. Further, based on currently visible tenders and client discussions, we expect a more pronounced market improvement for the best floating rigs, particularly drill ships with two BOPs and dual activity. This view is supported by the dozen or so incremental drill ship opportunities coming to market in the back half of this year, with customer preferences for the best rigs. In fact, demand for Tier 1 rigs is close to the level of demand we saw in late 2019 and early 2020. which is obviously encouraging. Additionally, there is an important and positive difference in today's drill ship market recovery compared to the past. In 2017, we had to recover from spot day rates around $150,000 per day. During COVID, rates held relatively flat in the high 100s and today spot prices are already above $200,000 per day. We are cautiously optimistic that we will continue to see upward movement in day rates as we move into next year. Turning now to the jack-up market. There are a handful of open tenders in the North Sea for work starting this year, but we are not expecting additional new tenders for 2021 starts. Today, two of our four jack-ups in the UK sector are working, with two rigs warm-stacked. We are chasing new work for our idle rigs, but it is a highly competitive region and we anticipate at least one of the rigs remaining idle into 2022. Norwegian tax incentive measures to encourage investment in the oil and gas sector will cease in November 2021, so we expect to see additional commitments prior to this date. Noble Lloyd Noble is currently in the shipyard preparing for its maiden contract in Norway with Equinor, which is scheduled to commence in July. This is one of the highest spec rigs in the world and is well suited for work in Norway, and we expect to have good opportunities for future work in the country. There has been significant contracting activity in the Middle East, but mostly for incumbent rigs with rollover pricing. Generally, demand may return to pre-COVID levels by the end of 2021, but we do not expect much upward movement for rates or contract duration this year. The Noble Roger Lewis had a short standby period on zero day rate from mid-February to mid-March for rig maintenance and well planning. It is now back on day rate working on a gas well for Aramco. We are preparing the Noble Scott Marks to return to drilling operations with Aramco later this month after its one-year standby period. And we are optimistic the Noble Mick O'Brien will be able to secure follow-on work in Qatar after its current firm term. In Trinidad and Tobago, the noble Regina Allen completes its firm term in June. It is one of the more capable jackups in the Americas and has follow-on opportunities in and around the region, but will likely see some downtime between jobs. The nobletown processor in Australia recently began its current contract with Santos that will take it into early next year. The rig has performed very well and is well positioned to capture the additional available work in the region in 2022. Speaking to the overall supply and demand balance for jackups, there have been 76 rigs retired since the beginning of 2018, including 10 retirements announced year-to-date. There are 433 jackups being marketed today, excluding stranded new builds and cold stack rigs, with 316, or 73%, contracted. Of the working jackups, 76 rigs are 25 years old or older. These rigs will eventually be replaced by newer rigs, but in the near term some older jackups continue to find new work. We currently see a stabilizing market on the jackup side with rates and utilization roughly flat in the regions where we operate. So in summary, we see positive market indicators for floaters and a stable outlook for jackups. An important difference in our story today is that a couple years ago we needed day rates well into the $300,000 for drill ships. That's not the case anymore. We have brought our fully burdened breakeven day rate down significantly, not only because of our restructuring, but also through reductions in our operating expenses. Today, our fully burdened breakeven day rates are well below $200,000 per day for drill ships and less than $100,000 per day for jackups. This is key to our value proposition. I'll now turn the call over to Richard to give an update on our financial results.

Thank you, Robert. I will give a brief review of our combined first quarter results and our current capital structure before discussing some details related to the Pacific Drilling acquisition. But before I begin to review the quarter, I want to provide a baseline with respect to the significant accounting changes in our financial statements resulting from the company's recent restructuring. Upon emergence from bankruptcy on February 5th, we adopted Fresh Start Accounting with our operating results split between a predecessor period from January 1st through February 5th and a successor period from February 6th through March 31st. Fresh Start Accounting requires that fair values be established for the company's assets, liabilities, and equity. as of the date of emergence, and therefore certain values and operational results will not be comparable for the predecessor and successor periods. Further detail around our application of fresh start accounting will be included in our Form 10-Q, which will be filed later this week. Thank you very much. Turning to our quarterly results, contract drilling services revenue for the combined first quarter totaled $159 million versus $195 million for the fourth quarter. The decrease is related to a number of rigs that had lower operating days in the combined first quarter, including the Lloyd Noble, Sam Croft, Tom Prosser, and Roger Lewis. Contract drilling services revenue for the combined first quarter also reflects a reduction of approximately $8 million as a result of non-cash amortization of contract intangible assets specific to the two globe projects. These intangibles stem from the revaluation of our balance sheet when adopting fresh start accounting. Going forward, we expect to recognize monthly amortization of approximately $2.4 million for Globetrotter RIG through the remainder of the related RIGS contract periods, which run to July 2022 and September 2023. The contracted day rates we earned remain the same, however. Post-emergence, we now reduced revenue recorded by the amortization of the intangible assets. Again, the amortizations are non-cash. Adjusted EBITDA for the combined first quarter was $28 million, down from $57 million in the fourth quarter. Capital expenditures for the combined first quarter were 33 million. We anticipate full-year capital expenditures to range between 180 and 200 million, which includes amounts anticipated to be spent on the Noble Lloyd Noble as it is preparing for work in Norway, approximately 25 million for the billable CapEx that will be reimbursed by our customers, as well as CapEx for our newly acquired rigs from Pacific Drilling. Our capital structure consists of a $675 million first lien revolving credit facility maturing in 2025, of which $178 million was borrowed at quarter end and $216 million outstanding second lien notes due in 2028. Our second lien notes have a pick-toggle feature. Our liquidity of March 31st was approximately $600 million. Upon closing of the Pacific Drilling acquisition on April 15th, we received over $30 million of cash, net of transaction, and integrated related costs. We are keeping the acquired assets from Pacific Drilling in a separate credit silo to the Noble assets, and these Pacific Drilling assets will remain fully unencumbered. At emergence, we issued 50 million shares to our former bondholders. After issuance, a portion of the initial shares were converted to penny warrants so that at quarter end there were 44 million ordinary shares outstanding and 6 million penny warrants. Each penny warrant is economically equivalent to an ordinary share, so we show the full 50 million shares as outstanding for purposes of our per share calculations for the successor period. Subsequently, at closing of the acquisition on April 15th, We issued 16.6 million shares to former Pacific Drilling equity holders. We also have three tranches of warrants which were issued to our legacy note holders and legacy equity holders as part of the Chapter 11 process. Detail on these warrants can be found in our Emergence 8K filed on February the 8th and our recently filed 10K. We are working expeditiously to integrate Pacific Drilling. We expect at least 30 million in annual synergies and are currently on track to be at full run rate before the end of the year. In addition, we are moving to dispose of the Borer and Mistral as quickly as possible and expect to eliminate approximately 10 million of annual stacking costs on those two rigs once disposed. The Melton and Scirocco will remain cold stacked in the near term. In order for these rigs to be operational, we estimate that the capital investment required for the Meltem and Scirocco would be approximately $50 million and $35 million respectively. We are committed to capital discipline and will not begin a reactivation without an appropriate contract that will justify the capital investment. Lastly, while we are encouraged by the recent improvement in the market, we recognize the importance of continuing to focus on maintaining a highly efficient cost structure. We continue to evaluate alternatives for generating further cost efficiencies and in so doing driving down our fully burdened great even day rate without sacrificing the safety and operational performance that our customers demand. I will now turn it back to Robert. Thanks, Richard.

We are excited about our future. Our industry does face a number of challenges and we'll see a lot of change over the next few years. However, oil and gas will remain a major component of the world's energy mix. Since our beginnings 100 years ago, Noble has been an important part of the energy value chain, providing access to resources that power the world. Noble supports a sustainable energy future through our operational efforts to protect the environment and safely deliver reliable and efficient drilling services. We are a global company with employees who are from many different countries, who practice many different religions, and have many different ideas. We believe this diversity from our boardroom to our rig floors is a strength. Noble kicked off a much anticipated consolidation phase in our industry through the purchase of Pacific Drilling. Additional consolidation is essential for our industry and will not only provide meaningful cost synergies to the participants, but also allow the best companies to offer a broader range of drilling units and services to more customers. To the extent that a deal is in the best interest of Noble shareholders, we are well positioned to be a leader in further consolidation. We've accomplished a lot in the past several months. Our balance sheet is strengthened, our fleet is enhanced with new high spec assets, and our cost structure is improved. All of this was accomplished while maintaining our focus on delivering safe and efficient operations to our customers. But we have more work to do. We will continue to push in each of these areas to be better than we are today. And I am confident that our efforts will lead to many years of sustained success for Noble. Thank you for your participation in our call today, and I'll now turn it back to the operator to close the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.