RBC Capital on NE
Earnings analysis
Investment Opinion
Yesterday, NE reported 1Q05 EPS of $0.33, in-line with consensus and a penny shy of our estimate.
EPS differential relative to our estimate related to a higher tax rate and share count.
The core contract drilling business exceeded our revenue and margin forecast but was largely offset by higher depreciation.
Conference call scheduled for Friday, 11am EST, dial-in (212) 271-4560, pass-code 21236327.
Stock Action
Upside earnings revisions over the next few days should provide a tailwind for the stock.
With that said, broad market action will be the primary determinant of near-term stock price direction, in our view.
Stock Opinion
NE is rated Outperform with Average Risk and is among the top picks within our Asset Intensity Theme.
12-month price target remains $74, or 18x our new 2006 estimate.
EPS Estimates
Raising our 2006 EPS estimate to $4.08, up from $3.79, and maintaining our 2005 of $2.30.
We believe current 2006 consensus of $3.49 will continue to gravitate higher toward our estimate.
Outlook
Pricing continued to move higher in 1Q05 with international and domestic dayrates increasing 4% and 5%, respectively, versus 4Q04.
Contract coverage remains strong with 86% and 28% of our estimated contract drilling revenue booked for 2005 and 2006, respectively.
Revenue exposure in 2006 should provide upward bias to estimates given our expectations of continued strong supply/demand dynamics in the offshore drilling market.
Similarly, in its press release, NE stated that "near-term inquiries for rigs remain brisk."
Business Trends
Gulf of Mexico Semisubmersibles (Four 6-6,600' semis; Two 4,000' semis; One 10,000' upgrade)
Currently all six of NE's marketed semis in the region are operating with the upgrade of Clyde Boudreaux ongoing with a two-year contract with Shell beginning in 3Q06.
We estimate the company has approximately 92% of its GOM semi revenue booked for 2005 and 19% for 2006.
In its press release, NE announced a six-month extension for one of its 6,000' semis, the Noble Jim Thompson, at a rate we estimate at $175,000/day. This is up from recent contract signings for the company's other 6,000' semis in the low-to-mid $150's.
Our estimates assume roll-over pricing for the Thompson and NE's other three 6,000' semis of $185,000/day, which could prove conservative. Current contract expirations are: Thompson (December 2005); Paul Romano (mid-January 2006); Amos Runner (December 2005); Max Smith (October 2005).
NE's two 4,000' semis are locked into contracts with dayrates escalating from the low $70's range to the low $100's to the low $ 120's.
Mexico Jackups
In its press release, NE announced that the Lewis Dugger received a two-year contract from PEMEX at $64,250/day beginning in May 2005. The Dugger had been in Mexico through January 2005 when its contract expired and is currently undergoing repair/upgrades. Pricing for the rig compares to current dayrates for NE's seven jackups in the region ranging between $39-$52,000/day (please, note these contracts were signed in the 2002/03 period).
Our estimates assume the seven rigs in the region will remain in Mexico and receive a similar dayrate to the Dugger when contracts roll.
Specifically, of the seven rigs, three contracts expire in June 2005, two in July 2005, one in September 2005 and one in August 2006 (currently, NE has received tenders for five of the rigs).
Brazil (3 drillships; 1 semi)
NE's semi, the Paul Wolff, is under contract through October 2007. Through May 2005 pricing is between $138-$140,000/day, increasing to $154-$156,000, plus a 20% performance bonus, through October 2007. The rig will be in the shipyard for +/- 150 days beginning in September 2005 for its periodic special survey.
The company's three drillships in the region are under contract:
Leo Segerius through June 2006 at a dayrate of $93-$95,000/day.
Noble Muravlenko through March 2007 at $81-$82,000/day, plus a 10% performance bonus.
Roger Eason through March 2007 at a dayrate between $95-$97,000/day.
North Sea (8 jackups; 1 semi)
NE currently has eight jackups in the region, all operating, with seven contracts set to expire in 2H05 (five in Nov/December time-frame) and one in 1Q06.
Our estimates assume roll-over pricing to range between $75-$90,000/day, which is in-line with recent contract signings.
The company's one semi in the region, the Ton van Langeveld, is on contract through October 2005 with a six month extension which would take the rig through April 2006. Extension dayrate is between $114-$116,000/day versus $84-$86,000/day through October.
West Africa (6 jackups; 1 semi)
NE has all six of its West Africa jackups operating with one contract set to expire in June 2005; four in 1H06 and one in 2H06.
Our estimates assume contract roll-over pricing between $65-$70,000/day, which is up from current pricing for NE's rigs in the mid $40's to the low $50's.
NE's one semi in the region, the Homer Ferrington, is on contract through June 2006 at a dayrate between $128-$131,000/day.
Arabian Gulf Jackups (14 jackups; 6 in the UAE and 8 in Qatar)
Of NE's 16 jackups in the region 15 are currently operating with one, the Mark Burns, undergoing an upgrade/refurbishment in preparation for a contract commencing at the end of August.
Contract coverage remains strong for 2005 with 97% of our estimated revenue booked. For 2006, we estimate coverage at 49%.
Looking into next year, we expect to roll-over pricing in the low $60,000/day range, which is up from current contracts ranging between the low to high $50's. |
