Noble Corporation

Good morning, everyone. Welcome to Noble Corporation's second quarter 2022 earnings conference call. We appreciate your continued interest in the company. You can find a copy of our 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 CEO, and Richard Barker, our Senior Vice President and CFO. Also joining on the call 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 Q&A. 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 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 OBL 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, and including risks and uncertainties associated with our previously announced business combination with Merce Drilling. 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 can find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation in our earnings report issued yesterday and filed with SEC. With that, I'd like to turn the call over to our CEO, Robert Eifler.

Thank you, Ian, and welcome to Noble. We're very glad to have you with us. Welcome also to everyone joining us on the call today. I'll start with commentary on our business environment and follow with highlights on the offshore drilling market and Noble's global operations before turning the call over to Richard to review our financial results for the quarter. Starting off with some macro context, concerns of inflation interest rates and recession have frequented global headlines, but the view through our lens appears quite positive. The frequency and nature of customer conversations, as well as global tender activity, all point to an improving market for offshore rigs. This year has been far better in our industry than 2021. Next year is shaping up to be better than this year, and we have visibility to continuing improvement from there. Data from RISDAD indicate nearly a trillion dollars of oil and gas project sanctioning to occur over the next five years, the majority of which will be directed offshore. 98 percent of those projects break even at an oil price below 60 dollars per barrel and perhaps more compellingly over 80 percent work sub 40 dollars per barrel the world needs affordable and reliable energy and offshore oil and gas developments represent some of the most economic sustainable and secure sources of energy on the globe over the last two quarterly calls We've stated that Noble's financial results would meaningfully improve as we progress through 2022 and our contracts reset to higher day rates. That step up is evident in our second quarter results with further improvement in sight through the second half of the year. Revenue, EBITDA, and free cash flow all increased materially quarter over quarter as our business benefited from improving day rates, improved utilization, and solid cost management by the Noble team. Richard will give some more detail on our results in a moment, but let me first comment on the current state of the offshore drilling market, where we continue to see improvement across all re-class segments. In the floater space, the global ultra-deepwater market is increasingly tight as we look into 2023 and 2024, with marketed utilization for high-spec drill ships well above 90%. This past quarter saw meaningful drill ship contracting activity in West Africa, with approximately six years of work committed across six ships, signifying a material demand recovery in that important region. Here in the U.S. Gulf of Mexico, there were approximately two rig years contracted during the quarter, mostly comprised of options and extensions for follow-on work, and the region continues to produce leading-edge rates, with UDW rates now in the range of $400,000 per day. Contract activity in South America during the quarter was dominated by our previously announced 7.4-year extension with ExxonMobil, and the announced discoveries in the region continue. Further south, we also expect significant demand growth in Brazil over the coming years. Speaking more specifically about the Noble Fleet, in the Gulf of Mexico, the Noble Faye Kozak was awarded a one-well contract by LLOG at a rate of $420,000 per day, which includes managed pressure drilling services and approximates $400,000 per day on a clean basis. Also in the Gulf, the Noble Globetrotter 1 completed its 10-year contract with Shell in Q2 and is now undergoing routine maintenance, after which the rig will mobilize to Mexico for future contracts with CNOC and Petronas. Moving south, the Guyana Suriname Basin holds unmatched potential and is critical for meeting the world's growing energy demand. Noble is proud to play our role in exploring and developing these prolific fields and will continue to invest in our operational capabilities and the local communities to support our market leading position. Our regional contracting activity in the second quarter included APA Corps exercise of its second option for the Noble Jerry D'Souza in Suriname and the exercise of the first two of six options for the Noble Regina Allen in Trinidad and Tobago. Across the Atlantic, The North Sea Fleet garnered much of our attention throughout the second quarter as the Noble team worked to address the UK Competition and Market Authority's concerns regarding our planned combination with Maersk Drilling. As previously announced, we've entered into an agreement to sell Noble's North Sea Fleet of five jackups to Shelf Drilling for $375 million. The sale agreement is conditioned on the CMA's final ruling on the proposed investment's adequacy in addressing their competition concerns, and we expect their final decision this month. We look forward to closing the Maersk transaction in early October, and I'll share some further thoughts on the transaction after Richard provides an overview of our financial results.

Thank you, Robert, and good morning all. In my remarks today, I plan to provide some brief highlights of our second quarter results and then discuss our outlook for the remainder of the year. Contract drilling services revenue for the second quarter totaled $262 million versus $195 million for the first quarter of 2022. This quarter's revenue was positively impacted by a full quarter of operating days for the Noble Jerry D'Souza, the commencement of the Noble Regina Allen operations in Guyana, and a full quarter impact of the March 1st day rate increases for the four rigs operating in Guyana under the CEA. Adjusted EBITDA for the second quarter was $84 million compared to $27 million in the previous quarter. This translates to an adjusted EBITDA margin of approximately 30% for the second quarter. Net income for the quarter was $37 million, or $0.45 per diluted share. Capital expenditures totaled $31 million in the quarter, which includes $4 million of client reimbursable investments. Free cash flow in the second quarter was positive $56 million. Our balance sheet remains extremely strong, with net debt of just over $50 million and total liquidity of over $800 million. We continue to see increases in our revenue backlog, and as of June 30th, our backlog stood at $2.1 billion. This does not include the two three-and-a-half-year jack-up contracts in the Middle East, which were signed post-quarter end, and it does not adjust for the potential sale of the divestment rigs. Our backlog today is almost double where our backlog stood at the end of last year. The combination of this backlog and ongoing customer discussions give us more visibility and confidence in our financial profile than we have had for a long time. The second quarter was an important inflection for the company as we realized a significant step up in our financial results. As we move into the second half of the year, we expect to see further step ups. The third quarter is expected to benefit from the two Jacobs, the noble Houston Colbert and the noble Sam Hartley returning to work. a pickup in the CEA rate on September the 1st, as well as an increase in the rate for the Noble-Fay-Kozak. We anticipate that this will be partially offset by the Noble-Globetrotter 1 that is undergoing maintenance work before mobilizing to Mexico to start its new contract with CNOC. The fourth quarter is expected to benefit from a full quarter contribution of the two Jacobs returning to work in the third quarter, as well as a full quarter of the higher CEA rate. Turning now to our full year outlook for 2022, we are maintaining our previously disclosed guidance. It is important to note that our guidance does not take into account the divestment rigs or the MRS transaction more broadly. As can be implied by our full year guidance, we expect to average over 100 million of adjusted EBITDA per quarter in the second half of 2022, with the Q4 exit rate above Q3. We continue to be impacted by inflationary pressures and supply chain challenges. Our expectation for the financial impact of these pressures has not changed from last quarter. We expect our total rig-level expenses 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. We remain encouraged by the outlook for our business and the extremely compelling financial profile of Noble after closing the Merce combination. In simple terms, we believe that the company is and will continue to be well positioned to generate attractive levels of cash flow in today's market while also being able to realize cash flow and earnings growth from improving markets without the need to spend meaningful capital expected to support this unique combination will be a conservative balance sheet and real scale diversified across different regions blue chip customers and premium asset classes we look forward to sharing more specifics about the financial qualities of the company after closing of the transaction That concludes my prepared remarks, and I'll now hand the call back to Robert. Thanks, Richard.