Noble Corporation

I will now hand today's call over to Ian McPherson. Please go ahead, sir.

Thank you, operator, and welcome everyone to Noble Corporation's third quarter 2024 earnings conference call. You can find a copy of our earnings report along with the supporting statements and schedules on our website at noblecorp.com. This conference call will be accompanied by a slide presentation that you can also find located at the investor relations section of our website. Today's call will feature prepared remarks from our President and CEO, Robert Eifler, as well as our CFO, Richard Barker. Also joining on the call are Blake Denton, Senior Vice President of Marketing and Contracts, and Joey Kawaja, Senior Vice President of Operations. 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 these forward-looking statements, and Noble does not assume any obligation to update these statements. Also, note we are referencing non-GAAP financial measures on the call today. You can find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation and earnings report issued yesterday and filed with the SEC. Now, I'll turn the call over to Robert Eifler, President and CEO of Noble.

Thanks Ian. Good day everyone and thank you for joining us on today's call. I'll begin with a brief update on our acquisition of Diamond Offshore, followed by highlights of our capital return program, third quarter results, recent commercial and operational activities, and some market outlook color. Richard will then discuss our financial results and provide guidance for the fourth quarter. Finally, I will wrap up with closing remarks and open the floor for questions. As most of you know, we closed the acquisition of Diamond Offshore on September 4th, combining two great companies with incredibly rich legacies and leading deepwater capabilities. I want to extend my appreciation to everyone across both organizations who worked tirelessly to close this transaction in just under three months. This highly synergistic combination brings together over 150 years of combined experience, creating a fleet of 41 rigs, including the largest fleet of seventh-generation dual BOP drill ships in the industry, while also adding $2 billion of well-priced backlog. As we pass the 60-day integration mark, we are excited to share some early wins, including meaningful synergies realized that have us on track to achieve our stated targets. Diener Management has visited legacy diamond rigs and customers around the globe. while prioritizing a focused commitment to business continuity through safe and efficient operations. Thus far, everything is proceeding very smoothly according to our well-practiced integration playbook. Next, I'd like to highlight additional progress with our return of capital program. Following the execution of $250 million of share repurchases in the third quarter, We have completed $360 million of repurchases under our original $400 million authorization. And our board of directors has recently approved a second $400 million authorization, while also maintaining our quarterly dividend here in the fourth quarter at 50 cents per share. We recognize that our differentiated return of capital program is a critical factor for investors. And I'm pleased to highlight that we have now eclipsed $800 million in combined dividends and buybacks since we closed the mayor's trillion combination in Q4 2022, inclusive of this quarter's announced dividend. Moving to our financial highlights, in the third quarter, we delivered strong results with continued EBITDA and cash flow expansion. On a consolidated basis, we achieved adjusted EBITDA of $291 million, compared to $271 million in Q2, and free cash flow for the quarter was strong. at $165 million. These results include approximately four weeks of contribution from the diamond acquisition in September. Richard will have additional color on the combined results in a moment, but suffice it to say that the diamond acquisition further enhances our free cash flow profile with significant and immediate accretion. This marks a great start for our combined company. Shifting now to our commercial and operational highlights, First, during the third quarter, we were awarded 4.8 rig years of additional backlog for the four drill ships working under the commercial enabling agreement with ExxonMobil in Guyana, further validating the successful commercial and operational model and extending our visibility in the country through August 2028. We have also recently booked an additional 130 days for the ocean endeavor working for Shell in the UK North Sea between March and July 2025 plus options. As of today, our total backlog currently stands at $6.2 billion. In addition to these most recent fixtures, in July, the Black Rhino was awarded a six-month contract with Beacon Offshore Energy in the Gulf of Mexico at a day rate slightly below $500,000. This program is slated to commence in the first quarter of 2025 following the rigs SPS and MPD upgrade that are underway. Following the Black Rhinos MPD upgrade, we will have 15 rigs equipped with MPD, enhancing our dominant position in this increasingly essential technical domain. In South America, the Fay Cozac successfully commenced its contract with Petrobras in Brazil and set a new pre-salt drilling record on its first well. Hats off to the crews of the Fay Cozac on this impressive accomplishment right out of the gate. In Colombia, the discoverer has successfully drilled its first well for Petrobras, and we look forward to continuing to work on this important gas development for the region. In the UK, Ocean Great White resumed its contract with BP in early July following equipment repairs, and the contract is now expected to continue through April 2025 with priced options following that firm's quote. And finally, the Black Lion in the Gulf of Mexico and the Deliverer in Australia both moved to substantially higher day rate contracts in the mid to high 400s during the quarter. Now I'd like to share a brief word on the market. The core fundamentals of our business remain structurally sound. Global energy demand is increasing, energy security remains a global priority, and offshore supply represents a highly strategic and advantaged resource priority for the upstream industry. Also, over the last several quarters, open demand for floaters continues to track at a historically high level of above 100 rig years of demand from tenders and pre-tenders in the public domain, excluding the substantial additional volume of work that stems separately from direct awards. Against this backdrop, recent contracting activity for deepwater rigs has shown an encouraging uptake. After a slowdown in the second quarter, the industry saw an improvement in backlog booked, with 26 ultra deepwater rig years contracted in Q3, marking a 20% increase over Q2, and in line with the strong contracting level seen in 2022 and 23. While the majority of these recent fixtures have contract start dates in late 2025 or later, leaving the white space of the first half of 2025 unaddressed, we do believe that these are the first of many signs supporting a demand uptick in late 2025 and early 2026. As you can see on our backlog slide on page five of the earnings presentation, We currently have 56% of our total marketed fleet committed for 2025. As you drill a little further into the mix, our marketed floaters are 59% contracted next year, and our Tier 1 drill ships are slightly above 75% committed for 2025. Our higher-end units with near-term availability are the Voyager, Valiant, Jerry D'Souza, and Venturer. And I would say that today we have active conversations and leads behind all of these units. In our 6th Gen fleet, we currently have more active conversations on the discoverer and the deliverer than we have had at any time since we acquired these units. So the contracting outlook there is promising. Meanwhile, the Globetrotters similarly have a number of active leads for 2025 work, almost exclusively for intervention programs as we have previously indicated. The timing associated with these opportunities collectively supports a potentially meaningful ramp in utilization and run rate EBITDA compared to our current level by the second half of 2025, although there's obviously still some work to be done to convert these opportunities to firm backlog. I would also say that the nature of the discussions and negotiations with our customers over the past few weeks has been increasingly active and constructive as 2025 customer budget allocations are beginning to take shape. If the next several months plays out as we currently envision, then we should see a backlog in utilization inflection next year. Given the abundance of active opportunities, we have elected not to stack any rigs at this time. However, if demand does not materialize as expected, then we will move decisively to stack one or more 6G units as the market dictates. On the jack up side, despite some continuing and more recent NOC headwinds, The market has remained quite resilient, with global demand recently eclipsing 410 rigs and marketed utilization at 93%. Noble's jack-up fleet utilization improved from 77% in Q2 up to 83% in Q3, and we currently have 11 of our 13 rigs contracted at an average day rate of approximately $145,000 per day. North Sea operators have generally taken a tentative approach to capital deployment ahead of last week's budget announcement in the UK, which unsurprisingly introduced incrementally higher taxation on the upstream sector. Amid these fiscal and regulatory crosswinds, we expect the North Sea jack-up market to continue to be characterized by relatively constrained demand visibility. But note that early indications of the market reactions to last week's UK budget news are generally neutral, least not significantly negative and that thus far that market has been more stable over the past couple of years than we might have expected against a consistently difficult contextual backdrop with that i'll now pass the call to richard to cover the financials thank you robert and good morning or good afternoon all in my remarks today i will briefly review the third quarter highlights and then touch on the outlook for the remainder of the year and 2025.

Contract drilling services revenue for the third quarter totaled $764 million, up from $661 million in the second quarter. Adjusted EBITDA was $291 million in Q3, up from $271 million in Q2. The adjusted EBITDA margin for the third quarter was 36%. Cash flow from operations was $284 million. Net capital expenditures were $119 million. And free cash flow was $165 million, which was burdened by transaction costs related to the diamond transaction. All of the aforementioned figures reflect the approximate four weeks contribution from diamond in September. For your reference, if legacy diamond had been included in our results for the full quarter, as opposed to just from closing on September the 4th, Q3 adjusted EBITDA would have illustratively been close to $350 million. As summarized on page five of the earnings presentation slides, our total backlog as of November 5th stands at $6.2 billion, which includes approximately $500 million that is scheduled for revenue conversion in the final eight weeks of this year and $2.6 billion that is scheduled for 2025. As a reminder, this backlog does not include reimbursable revenue or revenue from ancillary services. The diamond integration is progressing well. we are on the way to capturing the $100 million of announced energy and continue to expect to have 75% captured within one year of closing. Referring to page 10 of the earnings slide, we are providing guidance for the fourth quarter as follows. Total revenues in the range of $850 to $890 million, which includes approximately $30 to $35 million of reimbursable revenue. Adjusted EBITDA between $275 and $305 million, and net capital additions between 105 and 135 million. The biggest drivers to the reduction in fourth quarter revenue in adjusted EBITDA when compared to a Q3 that includes the diamond rigs for the full quarter is the current shipyard project for the Black Rhiners, as well as the Globetrotter 1 and Voyager finishing up their program. I would note that where we expect full year 2024 adjusted EBITDA to come out based on the midpoint of this Q4 2024 EBITDA guidance would correspond very closely to the midpoint of the guidance range that we put out right at the beginning of the year when adjusting for the diamond acquisition. As Robert previously alluded to, we are reasonably and increasingly constructive about a variety of contracting opportunities over the next few months, which could drive an inflection in our total backlog, as well as support a materially higher level of EBITDA potential in the second half of 2025. However, until these opportunities come to fruition, I think it is reasonable to infer that the fourth quarter run rate EBITDA, the combined Noble and Diamond fleets, represents an approximate indication of where the business is tracking into the first half of 2025. We will look to put out full year 2025 guidance in conjunction with our year-end 2024 results. As an organization, we remain laser focused on maximizing capital returns to shareholders. Despite a near-term outlook that has been negatively impacted by various contracting opportunities moving to the right, we still expect 2025 to represent a nice step up in free cash flow. Supporting this 2025 free cash flow step up is an expected reduction in CapEx. As previously stated, CapEx for both the Legacy Noble and Diamond Fleets should be trending materially lower next year following the peak of the 5e SPS cycle in 2024. For reference, the illustrative combined company's 2024 total capex on a full 12-month basis is expected to be approximately 550 million. And looking ahead to next year, we expect this to reduce by approximately 25 to 30%, which will provide another free cash flow tailwind. And as evidenced by our actions to date, we look forward to returning essentially all of our free cash flow to Shell. With that, I'll turn the call back over to Robert.

Thank you, Richard. Before we turn to Q&A, I'd just like to provide a few closing remarks. First, I'd like to thank our employees for your continued effort and commitment to the highly exacting standards that we hold ourselves to with our first choice ambition. This cuts across HSE, operational excellence, reliability, service posture, integration, buy-in, and a culture of supporting one another in making the right decisions day in and day out. Through our journey over the past two years, you have gone much further than just integrating companies and have created an innovative industry leader. At the same time, we have positioned Noble to deliver differentiated cash flow for our shareholders through variable cyclical conditions. And while the slowdown in contracting velocity that we have witnessed over the past year has created a near-term drag on expected earnings growth for the industry, we remain constructive on the multi-year fundamental outlook. and also optimistic that the next leg up in the cycle will begin to come into focus with contracting developments over the next few months and then build throughout 2025. We will be watching 2025 upstream spending plans closely, but thus far, early indication is that our customers are on average planning for higher offshore spending next year. For Noble, we expect the next few quarters to track relatively flat from an EBITDA perspective before an expected step up in the second half of 2025. Through this progression, we will look to deploy surplus free cash flow above the current $2 annualized dividend towards share repurchases going forward. So, I'll wrap up there, operator. We're ready to open the call for questions.

At this time, if you'd like to ask a question, press star 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star one again. We'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Eddie Kim with Barclays.

Hey, good morning. Just wanted to start with your outlook for the first half of next year and some of the white space concerns. You were one of the first to call out white space across the industry. Could you just expand upon the reasons you're seeing for these utilization headwinds in the first half? Some of your peers have talked about customer capital discipline, delayed FPSOs. Is that what you're seeing as well? And I guess the concern, which is reflected in the stock prices over the past three to four months, is that this white space could linger into the second half of next year, maybe even into 26. So Could you just talk about your confidence level in rigged demand rebounding in 26 after what looks like a pretty big air pocket of demand next year?

Sure. And, of course, that's the question on everybody's mind right now. So I would say you have a little bit of, I think, opposing forces right now. Eddie, you're right. There's obviously white space in the first half of next year. Um, I think that you, you listed a couple of reasons and I think those are certainly explanations for different instances of, of delay. There are other explanations for other instances of delay, but overall there is a general lack of urgency, uh, to drill right now. And that is, I think. driven by this commitment to capital discipline that you mentioned. And I think that explains the multitude of different individual reasons why a project may get pushed to the right very slightly. But on the other hand, we do see this very large data set of open tenders, of FIDs, of subsea tree orders, a number of different, I call them forward indicators that all suggest that the work is there. Analysis is readily available that shows that the wells that are planned to be drilled are all FID at very low breakeven levels. And I would say that just behind the scenes, and we mentioned it in the prepared remarks, but behind the scenes, I would say the level of conversation has picked up significantly here in the last couple of months, certainly in the last month. And so we're seeing a little bit of data we mentioned on the prepared remarks out there around tendering. We're seeing conversations pick up. And then, of course, we've got this, all these things that would suggest that the work is there and coming. So we remain positive and hopeful. around the late 25 and 26 improvement.

Got it. That's great to hear. Thank you. My follow-up is just on your commentary around potentially stacking rigs. You said that if demand doesn't materialize as you expect, you might elect to stack one or more of your 6G units. What are your thoughts at this stage around potentially warm stacking one of your 7G rigs, which we just saw from one of your peers It sounded like, based on your commentary on having active discussions on all your 7G rigs, that warm stacking wasn't in your plans for next year at this point. But if those conversations don't materialize into contracts, could we potentially see one or maybe two of the 7G rigs potentially warm stack next year as well?

So we're back into kind of this sliding scale of definitions around stack. I would say that we certainly will minimize cost when the outlook doesn't support them. That's just rational business. I would not anticipate that we would take um dramatic measures around the seventh generation rig and if we were to define dramatic that might be one that would make us less marketable uh against against other working rigs right now got it okay understood thanks for that color up i'll turn it back thanks eddie your next question is from the line of kurt holland with benchmarks

Hey, good morning, everybody. Good morning. Hey, thanks for all that color. Always appreciate that. So just kind of curious, right? We look out into the back half of next year and into 2026, and things start to look a lot more, you know, constructive in terms of, you know, contract timing and so on and so forth. You indicated an inflection, right, in EBITDA in the back half of the year. Just kind of curious as to what you think that magnitude might might begin to look like without giving, you know, specifics around guidance.

Yeah. Hey, Kurt. It's a good question. Obviously, we haven't provided specific guidance here for 2025. We'll look to do that as we normally do with our year-end results. You know, obviously, we talked about the first half of the year being, you know, somewhat flat, if you will, to Q4. I think one interesting data point uh is is q3 right where if you combine diamond uh with with noble for the full quarter every dollar was closer to 350 uh for for the quarter right and so there's obviously upside to that as well so um you know we we're talking about a kind of a flat first half of next year and then the inflection from there on um you know you know it could could be significant but obviously it's it's subject to winning some of the work that we're going after right now

I'd like to say that one of the reasons we considered putting out guidance here, but one of the reasons we elected not to and to stick with our kind of normal cadence of putting them out or putting it out early next year is because we do have a tremendous amount of work under negotiation right now. And it felt like the cost benefit of waiting on that was worth it, given just what you're talking about. These these. outcomes and on an individual tender, obviously binary for us. And, um, and so we, we think kind of waiting and seeing how some of this plays out is, is, is right before we put any, any more color than we have here on this, this call out there.

That's great. I appreciate that. Um, so, so maybe just kind of another follow-up here, right? You indicated that incremental cash flow will go back to, you know, uh, share buybacks and you have that 400 million authorization. I'm just kind of curious now on capital allocation, now that you have a little bit more debt, you know, on your balance sheet than you've had prior to the acquisition. You know, what's your thought process in terms of, you know, cap structure?

Yeah, we're happy with where we sit today on the cap structure, and we, you know, plan to continue, obviously, dividend, as mentioned, and then from there, We're looking to supplement with share repurchases as there's excess free cash flow.

That's great. Appreciate it. Thank you.

Thanks, Kurt.

Your next question is from the line of Greg Lewis with JPIJ.

Hey, guys. Thanks, and good morning, and hope you're doing well on this fine morning. Did have a question around the jack up fleet. You know, clearly, you know, you guys have a very core position in the North Sea with, you know, the higher end CJ 70s, CJ 50s, you know, and then you kind of have a couple rigs kind of scattered around, you know, you know, the rest of the world. You know, as we think about, you know, the, the, the jacket market, and it seems like, you know, there continue to be buyers and, and, and kind of, you know, companies looking to get more international migrating from kind of Middle East positions abroad. You know, is, is that something where we could see, you know, Noble maybe hunker down at its core North sea market and, and opportunistically, you know, kind of, tear off some of the, you know, hey, they're good quality premium jackups, but maybe they're non-core to the strategy going forward?

Yeah, look, I think we're where we've always been. I would reiterate that while at this point some of the jackups do seem more scattered globally outside of the North Sea, they're certainly not inefficient. They're producing cash flow. And as you say, they're good rigs. with great crews and good customer, great customers. And so we have no urgency or motivation to do something, but I think we've shown through history that we're going to make rational business decision when one comes in front of us there. And so to the extent that that is the right thing for our shareholders, then we of course would consider if if there's a strategic move there.

Okay, and then just following up on the questions around, you know, and you, Robert, you mentioned that there's, I guess, the sliding scale of stacking, you know, and obviously I don't think we're going to cold stack any of the 7th Gen rigs, but, you know, any kind of rough estimates on terms of maybe cost savings around that, i.e., you know, I guess if we were to think about a rig operating, you know, 7-gen costs maybe $150, $160. You know, if we don't see opportunities for work for, I don't, you know, whatever the number is, it's probably not 90 days, but if it's three to four quarters, any, you know, and I don't need a number maybe on a percentage basis, you know, how much can we shave off of that cost just as, you know, we think about you know, those opportunities for, you know, those, you know, not a handful, but those three or four 7-gen rigs that, you know, may not get work until the back half of the year.

Yeah, let me do this, Greg. Let me give you a couple of the points on the sliding scale might be helpful. So, you know, you mentioned kind of full working OPEX, and I would say that that scale slides down to around $40,000 to $50,000 per day. before you need to go into a preservation type stack, a cold stack, to reduce costs from there. And so there's, depending on the region, depending on where you can stack the rig, there's a lot of different variables along that that would kind of determine where you end along that scale. But I think those are probably the end points, if that's helpful.

Super helpful. Thank you very much.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Your next question is from the line of Fredrik Steen with Clarkson Securities.

Hey, Robert and team. Hope you are well and thanks for the detailed prepared remarks. I think it's been slightly touched upon already, but that you're seeing more and more opportunities in the market and that you have I understood, particularly over the last month, a good chunk of discussions that could end up in more work that would help utilization from the latter part of 2025. Are you able to share some additional color in terms of geography? Where are you seeing these opportunities? Are there any regions that you are particularly optimistic about? And also, if you can share some light on key regions, not necessarily only in 2025, but also in 2026 and 2027, to get the perspective of the longevity of it all. Thank you.

Sure. There's, you know, the answer is that there's not a whole lot of interesting color to provide there. There are opportunities globally. They are more abundant in the Golden Triangle. And honestly, not a whole lot has changed from color we've given previously where the U.S. is definitely more flattish. And then we see more growth in South America, particularly CARICOM, and then West Africa with a smattering of other incremental opportunities outside of the Golden Triangle. I think the key regions, honestly, are the same as well. You've got, for 26 and 27 to your question, I mean, you've got Suriname coming online, I think, in earnest. You have a number of opportunities up and down the West African coast, eventually Mozambique on the East African coast in that kind of timeframe. And I guess I should have called out Namibia more specifically on the west, but not a whole lot of change from what we've seen, what we've kind of seen and forecasted. So we're probably more focused on tracking to make sure that these things actually come through in the timeline that we're hoping than tracking any meaningful changes and where they might occur.

No, that helps nonetheless. Also, since you're a mixed player with floaters and jackups, have anything changed lately in how you would rank the different segments against each other? Are you more confident about floaters than you currently are about jackups, etc.? ? thinking you can provide around how you weigh the two on a relative basis, given your market and market output?

Yeah, I mean, you know, we've we've our growth has been more focused on floaters, obviously, and we've seen a lot of upside in that market and certainly continue to see that, particularly at current valuations. The news cycle has been much more negative around jackups here recently than floaters. I don't know if trading has matched that as much, but I would say that there's probably more market concern on the jackup side recently. However, if you look at numbers, numbers have really held up quite well in the jackup space. That may be due to a larger total denominator there. But utilization is still up above 90%, 93% I think we quoted. And so we're looking closely at reactions to the North Sea. Like I said, we have some kind of early indications, but it's a little too early to tell what direction probably 2025 takes in the North Sea. And so we're watching that very closely.

um and um and then we've of course said probably all the color we can and have on on the floater market where we're hopeful yeah no thank you very much just just a final super quick one on the integration work with uh diamond you have a target of of a hundred million dollars i i if i remember correctly 75 done within a year do you see at this point chances that you'll

actually get more synergies out of it than the 100 million dollars you're budgeting yeah frederick yeah there's um you know obviously a a good chance that that's the case obviously in the most transaction uh we announced 125 and then increased that after about a year to 150. so i would say that that integration is progressing as expected and there's definitely opportunities to increase to to achieve more than more than 100 million of total synergies here

Perfect. That's all from me. Thank you and have a good day.

Thank you.

Your next question is from the line of David Smith with Picatinny Energy Partners.

Hey, good morning. Thank you for taking my questions.

Morning.

I was glad to hear about the active conversations for the discoverer and the deliverer. I'm curious about the developer, though, which I think last worked in September 23. Could you talk about your outlook for that rig and what the operating costs look like during this extended idle period? I'm guessing that could be lower than an idle 7-inch drill ship.

Yeah, so we've, and y'all fill in, we have moved to, you know, to minimize costs on there, and I would say as well that we kind of lump all of the D rigs into the same outlook. Uh, and, uh, and so I think we've, we've got a number of leads. Uh, we will continue. We will obviously have white, we have had white space and that will continue and no change around the color we've given around first half of 2025. Uh, but, but from there. There seem to be a number of additional opportunities starting in late 25 and then probably also later in 26.

Yeah, and Dave, from a cost perspective right now, think about that kind of in the $100,000 a day kind of range from an OpEx perspective.

I'm sorry, for the developer? that that operating cost per day is okay well yeah so yeah so essentially think about you know the the the the scale of from from fully operating it call it close to 150 down to the to the more kind of water okay yes yes thank you um and quick follow-up if i if i may just wanted to circle back to your comments about the globetrotter rigs being in active conversations for well intervention work I wanted to make sure I understood correctly. Are you seeing potential demand to keep both rigs working and 25, and would you expect those to stay in the Gulf?

Yeah, so there's work globally. I would say there's probably a higher focus in the U.S. Gulf right now. Yes, we're talking about both rigs. Again, we're not talking about first half 25. But we are talking about active conversations to the extent that historically intervention in P&A tends to be more susceptible to moving to the right even than drilling, which has been obviously shown a propensity for that here recently. But that said, you know, if it becomes obvious that that's more of a one rig market than two, then we've said in the prepared remarks that we'll take appropriate action quickly.

Great. That's all I got. Thank you.

At this time, there are no further questions. I will now hand today's call back over to the presenters for any closing remarks.

Thanks, everyone, for joining us today, and we will look forward to speaking with you again next quarter. Have a good day. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.