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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	4/25/2008 9:05:04 AM
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Noble Corporation (NE): Good combination of solid execution and returning cash - Goldman Sachs - April 25, 2008 What's changed NE reported adjusted 1Q2008 EPS of $1.46, above our $1.29 estimate and consensus of $1.31. We increased our 2008-2010E EPS by 4%/2%/2% to $6.13/$6.92/$7.76 primarily due to lower operating cost estimates. Our 12-month price target of $58 is unchanged (7.2X 2009E DACF). We remain Neutral rated as we see better risk/reward in our Buy-rated names. Implications (1) We like NE’s disciplined approach to generating top quartile ROCE throughout the cycle and new preference for returning cash to shareholders. We see upside to special dividends post 2008 given NE’s 2009/2010E FCF yield of 8%/11% and commitment to not building cash. (2) We are impressed with NE’s return to solid execution. After years of superior execution NE disappointed investors by issuing 2008 cost inflation guidance above peers on the 4Q07 call. The company redeemed itself this quarter, in our view, by reporting costs 10% below our estimate and slightly lowering full year guidance. We recognize that a portion of the lower 1Q costs will be pushed into later quarters. Nonetheless execution was solid especially given that peers reported higher than expected costs. (3) Contract rollovers for 3 jackups in Mexico came in 10-15% below our expectations and 15-30% below the previous rates. Lower than expected demand in Mexico and weakness in the international jackup market likely limited NE’s negotiation leverage. While we have been expecting 1-2 jackups to move to Mexico from the US, these dayrates give us concern that we are over estimating Pemex’s demand for jackups. Valuation NE currently trades at 7.1X/6.0X 2009E EV-DACF/EV-EBITDA, a 6%/3% discount to the peer group. Key risks Risks include capacity additions or a decline in commodity prices.

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