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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (38846)	1/31/2005 9:52:33 AM
From: Dennis Roth	Respond to of 206084

Noble (IL/A): $2.00 never felt like a transition year before Goldman-Sachs January 31, 2005 We are lowering our 2005E EPS to $2.01 from $2.28 due to higher shipyard time, tax rate + opex, and we are raising our 2006E EPS to $3.15 from $2.88 due to higher day rate assumptions for the deepwater US Gulf and N. Sea + W. Africa jackup markets. We are also raising our fair value estimate to $64 (12x 2006 EBITDA) from $56 and maintain our IL/A rating. NE's strong focus on returns often necessitates trading short-term for long-term profitability. The company's decision to incur greater shipyard time in 2005 and take the EPS hit described above is designed to minimize downtime in 2006+ when day rates are likely to be higher. Every offshore driller faces the challenge of timing shipyard time to minimize lost revenue on a full cycle basis, with important competitive implications in the long run. We believe NE continues to manage this balance as well as anyone in the business. VALUATION REMAINS REASONABLE. On EV/EBITDA, NE is trading at 13.5x/ 9.9x our 2005/ 2006 EBITDA estimates of $544 mm/ $742mm, a 14%/ 2% premium to the peer group average of 11.8x/9.8x. NE has traded closer to 10.5x on average during prior upcycles. On EV/ replacement value, NE is trading at 91% versus the peer group at 80% and a high/ low for NE historically of 132%/64% versus the peer group at 109%/53%. NE is +5% YTD vs +7% for its offshore driller peer group and +3% for the OSX. In 2004, NE was +39% versus +41%/ +32%. IMPLICATIONS FOR THE INDUSTRY. (1) Management is not concerned about the prospects for extensive offshore drilling rig newbuilding and sees potential for public contractors to purchase rigs being built on speculation. (2) NE sees Brazil deepwater dayrates needing to move significantly higher on upcoming contract rollovers in order to stem rigs from migrating out of the region for stronger markets. (3) CEO Jim Day believes the current offshore drilling market is the strongest he has seen in almost 40 years in the industry. WHAT TO WATCH FOR. (1) NE is likely to implement a dividend following its upcoming board meeting. (2) Contract announcements on NE's unfinished hulls - a contract on the "Dave Beard" semisubmersible is expected before year end. (3) NE continues to target additional rig acquisitions and/or opportunistic share repurchase. (4) Upcoming rollovers on NE's floating rigs - particularly the US Gulf fleet - at significantly increased dayrates. KEY SOURCES OF ESTIMATE REVISION. Key changes to 2005 include: (1) Increased operating income from management services (+$0.01) offset by (2) Lower utilization of deepwater semis Romano, Eason, and Wolff and jackup Burns as well as higher shipyard-related expenses (-$0.06), (3) higher depreciation (-$0.07), (4) increased interest expense (-$0.05), (5) higher tax rate (-$0.06), and (6) increased share count (-$0.02). Key changes to 2006 include: (1) Higher day rates for (A) NE's five 6,000' semis in the US Gulf - to $166k from $144k, and (B) two 4,000' semis to $94k from $73k = (+$0.49), (2) semi Clyde Boudreaux coming on-line in 4Q06 (+$0.05), and (3) increased operating income from management services (+$0.01), offset by (4) increased depreciation (-$0.02), interest (-$0.09) + tax expense (-$0.13) as well as (5) increased share count (-$0.06). I, Terry Darling, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.