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spk06: Good morning. My name is Chantal, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Noble Corporation first quarter 2022 results conference call. As a reminder, today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. Craig Muirhead, Vice President of Investor Relations and Treasurer, you may begin your conference.
spk01: Thank you, Chantel, and welcome everyone to Noble Corporation's first quarter 2022 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. Also joining are Blake Denton, Vice President Marketing and Contracts, and Joey Kawaja, Vice President of Operations. For today's call, we will begin with prepared remarks, followed by a question and answer session. During the course of this call, we may make certain forward-looking statements regarding various matters related to our business and companies that are not historical facts. Such statements are based upon 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 those 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, including risks and uncertainties associated with our previously announced business combination with Merce Grilling. Investors should carefully read our previous and ongoing disclosure with respect to such business combination, including in our press release issued yesterday and in our other filings with the SEC. 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 recently comparable GAAP measure and an associated reconciliation in our earnings report issued yesterday and filed with the SEC. And with that, I will now turn the call over to Robert Eifler, President and Chief Executive Officer of Noble.
spk04: Thanks, Craig, and welcome to everyone joining us on the call today. I'll start with a commentary on underlying improvements to our business outlook and follow with highlights on our global operations in the rig market before turning the call over to Richard to review our financial results for the quarter. Following dramatic improvement in our business through 2021, we can conclude the first quarter of 2022 with continued momentum supported by a strong oil price environment and an increasing focus on energy security globally. At Noble, our contracted utilization stands at 100% in our marketed fleet with contract visibility on our four seventh generation drill ships in Guyana to late 2025. In the jacked up segment, activity has accelerated to accompany the continuing improvement in the ultra deep water space. Forecasted demand remains strong across market segments for the foreseeable future. With that backdrop, let me now provide some highlights on our global operations in the rig market. In the Gulf of Mexico, UDW day rate appreciation continued, with some rates closing in on $400,000 per day and steadily increasing average fixture duration year over year. Near-term rig availability in the U.S. Gulf of Mexico remains limited, with only four rigs in the region rolling off contract in 2022. In the first quarter, our customer, Quarter North Energy, exercised priced options for the Noble Faye Kozak at $290,000 per day. Additionally, Noble was awarded two contracts for the Noble Globetrotter 1 for work in Mexico at $275,000 and $325,000 per day following the demobilization from the long-term Shell contract. These two contracts, alongside other sixth-generation fixtures over $300,000 per day elsewhere in the industry, are a particularly strong market signal. The pace of improvement in U.S. Gulf of Mexico has been rapid, and we expect stable UDW demand growth in the coming years. Moving to South America, the Petrobras long-term strategy of growing production and increasing capex deployment continued through Q1, as they awarded four new contracts for a total of approximately seven rig years. And just this past Thursday, Petrobras launched additional tenders for up to eight rigs, starting as early as Q4 this year. The South America region is beginning to exhibit the same limited rig availability currently seen in the Gulf of Mexico, and we expect increasing contract opportunities and improving rates through the remainder of 2022. In the Guyana-Cernan Basin, Our market-leading position continues to grow. The Noble Jerry D'Souza arrived in Suriname following the recent installation of an MPD system and a second BOP. The upgraded rig has begun its program for APA Corp., and we are working intensely to achieve their project goals. We are also pleased to report the Yellowtail project was approved in Guyana on April 1st, satisfying all conditions of the previously announced 7.4 years of additional work under the commercial enabling agreement with ExxonMobil. That work is reflected in our revenue backlog as of April 1st. Lastly, the noble Regina Allen secured additional work in Trinidad and Tobago this quarter at a rate of $102,000 per day. Tender activity in West Africa has increased with 10 tenders and two pre-tenders outstanding for drill ship requirements. ENI is the latest operator to come to the market with requirements for up to two drill ships in Angola commencing in the second quarter 2023. In addition to that tender, we currently see incremental demand with multiple operators in Gabon, Angola, the Democratic Republic of Congo, Ghana, and Nigeria. The awards announced this quarter include some significant updates for Nobles North Sea Jackups. The Noble Sam Hartley received a one-well commitment from Total Energies with a contract value of approximately $18 million plus two one-well options. Our other ready-stack jackup in the region, the Noble Houston Colbert, also secured long-term work during the quarter. The rig will mobilize for Qatar gas and join sister rig, the Noble Mick O'Brien, for three and a half years of primary term each. In a broader context, the North Sea jackup demand remains stable with increased activity on the horizon. In Norway, based on the latest schedule, the Noble Lloyd Noble will continue to support Equinor into the second quarter of 2023, with priced or indexed options carrying the work into 2024. Noble remains confident in the commercial opportunities to create long-term value in Norway as Europe transitions to a secure and sustainable energy supply and Norway responds to the compelling tax incentives to produce. Increased jack-up requirements in the Middle East had a meaningfully positive impact on both global supply demand and rates as contractors in the region fought to secure rigs to compete for new contract requirements. Overall, firm demand in the Middle East has remained positive throughout the quarter, accounting for 55% of the 78 rig years of term awarded globally so far this year. To sum it up, we are in an exciting phase for the industry, but in particular for Noble. We have worked hard to position the company to take full advantage of this upturn, and I'm pleased to see the market develop in this way. I'll now turn the call over to Richard to provide an overview of our financial results and guidance, before taking back over to address our merger with Maersk and conclusions.
spk02: Thank you, Robert, and good morning all. In my remarks today, I plan to provide some brief highlights of our first quarter results and then discuss our outlook for the remainder of the year, including our revised guidance for 2022. Contract drilling services revenue for the first quarter totaled $195 million versus $192 million for the fourth quarter of last year. This quarter's revenue was positively impacted by a full quarter of operating days for the Noble Faye Kozak and Noble Lloyd Noble, the commencement of the Noble Jerry D'Souza operations in Suriname towards the end of the quarter, and day rate increases for the rigs operating in Guyana. This increase was partially upset by the sale of our four jackets in Saudi Arabia during the fourth quarter, as well as the divestment of the Noble Clyde Boudreau. Contract drilling services costs for the first quarter were $166 million, down from $183 million in the fourth quarter of 2021. The lower costs were primarily driven by the divestiture of the four jackups in Saudi Arabia, the retirement of the noble Clyde Boudreau, and the completion of leg repairs on the noble Hans Duell during the fourth quarter. Adjusted EBITDA for the three months ended March 31st was $27 million, compared to $12 million in the fourth quarter of 2021. Capital expenditures totaled $45 million in the first quarter, which includes $11 million of client reimbursable investments. The largest driver of capital spending during the quarter was the completion of our upgrades on the Noble Jerry D'Souza, which was outfitted with a second BOP and an MPD system. As a reminder, this rig came into our fleet as part of the Pacific Drilling acquisition with limited contract backlog. We have now upgraded the rig and put it to work with an important customer in a core region for Noble. Our free cash flow was negatively impacted in the first quarter by timing of cash receipts. We expect this to be transitionary and to reverse over the coming couple of quarters. During the first quarter, we recognized $17 million in Hurricane Ida related expenses. As we have disclosed before, we have insurance coverage for property damage with a $10 million deductible and coverage for P&I with a $5 million deductible. We have seen a meaningful increase in revenue backlog, increasing over $700 million from $1.2 billion at the end of 2021 to $1.9 billion as of April 1st. Our backlog does not include the seven years of firm term associated with the LOA from Qatar Gas. Per our backlog disclosure practice, we carry any unpriced work under the CEA at the most recently negotiated rate. We are still in discussions for setting the rate that will go into effect on September 1st, 2022. As I mentioned in the last call, we anticipate significant sequential quarterly improvements throughout this year, especially from the first to the second quarter. While there are several contributing factors to this step up, three key drivers are the following. Firstly, our four drill ships in Guyana received their biannual day rate adjustment on March 1st, which positively impacted the last month of the first quarter. The current rate, which was set during the fourth quarter of 2021, compares favorably to the previous rate that was set in early 2021. The second quarter will benefit from a full three-month contribution of this higher rate. Secondly, we expect a full quarter contribution from the noble Jerry D'Souza in Suriname. Thirdly, we expect the noble Regina Allen to commence its contract in mid-May. Turning now to our full year outlook for 2022, we are revising guidance this quarter. It is important to note that our guidance does not take into account any potential divestment of remedy rigs or the Maersk transaction more broadly. Adjusted revenue and adjusted EBITDA ranges are increased to 1.13 to 1.18 billion and 320 to 350 million respectively. This increase is primarily driven by improved real shift activity and day rates with adjusted EBITDA partially offset by expected inflationary pressures, which I will address more shortly. As evidenced by our fleet status report that was released yesterday, excluding our two cold stack rigs, we have visibility to all our rigs operating in the fourth quarter. Including the LOA with Qatar gas, we currently have approximately 94% of the projected operating days required to realize our guidance for the rest of the year under contract, or approximately 98% if you include the current options on the drill ships in the Gulf of Mexico and South America. For the year 2022 capital expenditure guidance range, net of client reimbursables increased by 15 million to 145 to 160 million. This increase is primarily driven by contract preparation investments required by recent commercial awards on the Nobel Globetrotter I and Nobel Houston Colbert. We always weigh capital investments against contracting opportunities, and we remain committed to investing at the right time. Both of these recently awarded contracts provided the right contract economics to invest in the rigs. To the noble Houston Colbert, our capital investment is being reimbursed through the mobilization fee. Clearly, an important topic impacting all industries globally right now is that of inflation and supply chain challenges. We are no different. We are being impacted as well. We are working closely with suppliers and customers to mitigate issues related to the lack of availability of materials and general supply chain issues. We expect our total rig-level expenses, our handrail costs, to increase on average in the high single-digit range in the second half of this year as compared to the second half of 2021. This is incorporated in our guidance. We currently do not project any major reactivations or capital projects which we believe could have the potential to be challenged by supply chain and inflationary issues for both the cost and timing perspective. The outlook for our business continues to improve, and we have visibility towards exiting the year at a quarterly adjusted EBITDA run rate of 125 million. Supporting this run rate is our recent contracting success and ongoing customer discussions, which results in an expectation for all of our rigs, excluding our cold-stack rigs, to contribute to the top line during the fourth quarter. That concludes my prepared remarks, and I'll now hand the call back to Robert.
spk03: Thank you, Richard.
spk04: Before we close and move to Q&A, I want to provide a quick update on our business combination with Maersk Drilling. We remain extremely excited about the combination of Maersk and bringing together our two historic companies. While we are eagerly awaiting the closing of the transaction, we are using this pre-closing time to prepare for a seamless integration. I know that both companies are committed to making sure it is successful in order to continue to offer both sets of customers world-class service and to maximize value to all stakeholders. In relation to closing the transaction, we currently have three remaining steps. Firstly, as you might have read, we are currently working with the UK Competition and Markets Authority, the CMA, to address the agency's concerns over lessened competition in its jurisdiction. As previously disclosed, we have a path that we are working and will continue to provide updates as appropriate. In addition to the ongoing UK regulatory review, Noble shareholders will vote next week on the transaction. And thirdly, We anticipate the tender offer for Maersk Drilling shareholders to commence later this month. We look forward to closing the transaction mid this year and creating a leading offshore driller stronger than the sum of our parts. In closing, I'm extremely excited about Noble's positioning in the current market. Our focus remains on generating cash flow by delivering operational excellence, safety, and customer service across our high spec fleet, all of which are driven by our exceptional workforce. We have industry-leading utilization and excellent exposure to improving market day rates, where in many cases this exposure comes without any downtime between contracts. Importantly, our growth does not require significant reactivation capital. In a world that is structurally short of the supply of hydrocarbons, we believe that Noble represents an attractive financial proposition of both growth and yield. We remain committed to being good stewards of capital and believe we will be well-positioned to put in place a sustainable return of capital policy, when appropriate, after closing of the Mears Combination. I would like to thank all Neville employees, offshore and onshore, across the globe, for their dedication to operating safely and to serving our customers. I look forward to sharing our achievements throughout the remainder of 2022, and thank you for participating in our call today. I'll turn it back over to the operator for Q&A.
spk06: At this time, I would like to remind everyone, in order to ask a question, press star 1. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Greg Lewis with BTIG. Your line is open.
spk05: Hey, thank you and good morning, everybody. Good morning, Greg. Robert, I was hoping you could provide a little bit more color around the revenue guidance, which was super helpful, by the way, so thank you for that. Realizing that, I guess I'll ask it this way, realizing that, you know, clearly we're sensitive around the disclosure of rates. You know, we mentioned that the pricing is higher. As I think about that reset, I guess it's going to be in another six months. As I think about full year guidance, does that imply an additional increase in that pricing? on those four rigs?
spk04: Yes, it does, Greg. So the price resets on September 1st, as we mentioned in the prepared comments. It has not been set. But the last price was set last fall. And so markets have moved since then. And so all that's baked into the numbers we've announced.
spk05: Okay, great. And then I was looking at the remedy rigs. Interesting. Thank you for that. I'm not going to debate what the CMA is doing, but I did notice that one of those rigs, the Colbert, actually has, I guess, an LOI for work in Qatar, which congratulations, by the way. Is that specific to that rig, or in the event that that's sold, is that something where there could be some sort of swap?
spk03: Yeah, so...
spk04: No, look, we anticipate that rig going to Qatar and fulfilling its three-and-a-half-year contract. You know, we don't want to get deep at all into our process, but, you know, we would anticipate the rig packages being one of the two that we announced previously.
spk05: Okay, and then I'll just squeeze one more in, and I don't think it matters, but I noticed along with the remedy rigs, there's a Maersk rig, and then there's two CJ70s, one owned by Maersk, one owned by Noble. Regardless of which one is sold, that shouldn't change any terms around the deal, should it? Or could it?
spk03: No, that's right. Okay, perfect. All right, hey, thank you very much for the time, everybody. Okay, thanks, Greg.
spk06: Again, if you would like to ask a question, press star 1. Our next question comes from Samantha Hall with Evercore ISI. Your line is open.
spk07: Hey, good morning, guys. Congrats on a great quarter. I wanted to maybe delve in a little bit, Robert, about your commentary on improved Middle East day rates. I think you said it meaningfully increased. And I was just wondering if you could maybe, you know, elaborate a little bit on that. I'm assuming the day rate on, you know, your rig in Qatar there is moving higher with this new contract.
spk04: Yeah, sure. So I can get some color just around timing on that and in the region more broadly. You know, we've said for quite some time that we see the jack-up market a bit behind the recovery in the floater market recently. with the somewhat flattish outlook and a large supply overhang. The crisis in the war in Ukraine, I think, changed that market more dramatically than any other. And so, and in particular in the Middle East, where, you know, ramp up is a bit more short cycle, it's more NOC driven, and seems to be the most quick to have responded post post-Ukraine. So we think that there are two very different markets, pre and post-Ukraine. And I'll say, you know, our our contracts there in Qatar were were pre-Ukraine. And that market has moved a little bit. And and I would say it's hard to predict exactly where that market goes. But we do think with the number of open tenders and a great deal of visibility on demand in that region, that particularly the players that are highly focused there are likely to probably push pricing. There's been a change in supply-demand, and so we think that's probably a meaningful piece of the story post-Ukraine.
spk03: That's really interesting.
spk07: Okay, so my other question then has to do with just the commentary around, you know, the challenges that you foresee in any sort of major reactivation. I'm assuming that's just coming from actual conversations that you're having with the, you know, companies that we are certified and provide equipment. Can you maybe just kind of give us a little bit more information? Is that just Are those conversations kind of coming from your existing projects where you might have to upgrade an equipment or two, or are you guys having conversations about potentially reactivating the two cold stack rigs, maybe not later this year, but potentially next year or the year after?
spk04: Yes, it's a good question. So, no, we don't have any news on the two cold stack rigs. You know, we've said previously what it would take and kind of how we think about the thresholds for reactivating those rigs, which has not changed. And I said last quarter that, you know, we think the market probably moves a little bit further before we get interested in those rigs. And so we'll see, you know, we see improvement and we'll see what the world brings going forward. But speaking more specifically to inflation we're seeing and the reference to reactivations, You know, I think we kind of take the opposite approach that included in our guidance for this year. We don't have any more major reactivations. We did have the Jerry D'Souza, which is now back to work. And the other rigs that are going into contract don't involve any reactivation or survey or anything like that. They're hot, recently working rigs that just require mobilization is all. So we're not waiting on or beholden to to delivery. So that's really our point. But on the supply chain side, you know, we are seeing kind of across the board, we're seeing higher prices, as Richard mentioned, you know, oftentimes in the kind of 20 to 25% range. And we're seeing longer lead times and oftentimes doubling or more on lead times. So as that works through just our normal maintenance capex and our operating costs year to year, we're doing planning, we're managing it. You know, I think because of COVID, we were already managing a lot of this. So everything that I've just mentioned is baked into our guidance and is foreseen going forward. But I do think it gets more complicated the bigger the project you have.
spk07: And I'm sorry to belabor this point, but the $15 million in incremental CapEx for the Globetrotter 1 and Houston Cobert, So that's not for any sort of equipment upgrade like MPD or, I mean, obviously not second DLP, but just I'm kind of wondering if you can kind of, you know, identify specific upgrades for those two projects.
spk02: Yeah, Sam, it's Richard here. Yeah, that's not for specific stuff on the rig. It's more on the GT1, I mean, candidly, if you go back, six, nine months ago, the visibility around that rig working beyond its current contract was low. And so obviously we were careful around how we invested in that rig. So I think with the improved outlook, obviously the contracts that we've received, I think we're obviously now putting in the capital required for the upcoming contracts.
spk03: We may have lost you. And did we lose you?
spk07: Oh, yeah. Sorry about that. I'm sorry. I guess I'll have to go take you to the replay. I don't want you to have to repeat that. Yeah, something happened with my connection there. Thanks for your time today, guys.
spk03: Thank you. Thanks, Anne.
spk06: There are no further questions at this time. I'll turn the call back over to Craig for closing remarks.
spk01: We thank you all for your participation on today's call and your continued interest in Noble. Chantelle, we appreciate your time coordinating today's call. Good day, everyone.
spk06: This concludes today's conference call. You may now disconnect.
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