Noble Corporation plc (NE) Earnings Call Transcript & Summary

Well, good morning, everyone, and welcome to the Barclays Energy Conference. We're continuing with our offshore theme here on Day 2. I'd like to introduce Mr. Robert Eifler, President and CEO of Noble Corporation. Mr. Eifler was named CEO earlier this year in May, and aside from a brief stint with Hercules Offshore from 2013 to 2015, has been with the company since 2005 in various positions, including SVP of Marketing and Contracts. Robert, I believe this is your very first conference since becoming CEO. So thank you for joining us today.

Eddie, thank you, and thanks for the introduction. Let me share my screen with a short presentation. Hopefully, you can all see right now. Okay. Also, Eddie, wanted to just say thanks to the entire Barclays team for putting the conference on. Obviously, these are challenging times, and a virtual conference has its own set of challenges. I've heard it's gone great, our experience has been great. So thanks to everyone, and well done. So we'll speak with you today about a few different things. I want to speak a little bit about the market. Tell a little bit about Noble's story and then address kind of the obvious about our restructuring right now. We'll save a little bit of time, hopefully, at the end for questions and look forward to hearing your thoughts. Okay. Noble today is a little bit smaller than we're used to in the past. We currently have a mixed fleet consisting 19 rigs that are spread out across jackups and the benign floating sector. We are almost exclusively a premium and ultra-premium rigs. One exception, which is actually pictured in the presentation here is the semisubmersible, it's the Clyde Boudreaux. It's a moored semi. It is currently working -- looking for work in Southeast Asia. I mean I have a little bit more to say about the rigs. But outside of the Boudreaux, we have 6 drill ships, 4 of which are Tier 1 rigs built by Hyundai, which we refer to as HHI commonly and probably will in this presentation, with all the bells and whistles. And we also have 2 Globetrotter class rigs, which are currently working for Shell in the U.S. Gulf of Mexico, both of -- all of which are extremely competitive designs in the current market. On the jackup side, we have the Noble Lloyd Noble, which is a CJ-70 design. It's the tallest jackup in the world, one of the largest jackups in the world generally. Currently working on the Mariner platform for Equinor. We have some news there. And then we have 6 JU-3000 class jackups, which are distributed around the world and 3 JU-2000 class rigs which are in the North Sea in Saudi. And lastly, 2 additional CJ46 class rigs in Saudi, and I'll talk a little bit more about our contracts and contract coverage in a minute. We're not listing on here our cold stacked rigs. We said in our last earnings call that we are evaluating opportunities for those rigs. Those opportunities are continuing to be under evaluation. And we'll update when we can on what we plan to do with those rigs. We're looking at a number of different options, but we do anticipate that they would likely come out of Noble's fleet. We're big believers in putting rigs to their highest and best use. And part of that is being positioned well regionally. And we think that we're very well positioned globally right now as a fleet. And as I mentioned, I'll go through our contract coverage and give some details on that in just a moment. Our revenue is split very evenly between jackups and floaters. We've got $1.4 billion of backlog as of June. We've listed our customers across the bottom, and I'll have some more to say about customers in a minute. But one thing you'll hear me talk about kind of over and over through this presentation is our focus on customers, that's one thing. At Noble, we have a long history and a long history of focusing hard on our customers, and that's not going to change here. We've built a great brand over 100 years, and we're very proud of what we have. Likewise, you can see, our revenue is pretty evenly distributed globally across a number of different regions. And one thing I'll say is we're particularly pleased about visibility of follow-on work in each of these regions where the rigs are located. And I'll say a little bit more about that. But in a world with very poor visibility and utilization, I do think that we've got the right rigs in the right places, and that's a mantra for us at Noble and something that we've worked to execute over the last few years. And it's something that we're proud of today, where we think we can get the rigs into their highest and best use with customers that will use them to their maximum efficiency, which will be a really key driver going forward, we think, in what's obviously a pretty soft market. So anyone following our story knows that we filed for and are currently in Chapter 11 protection. We -- it's not a proud moment in our company's history, of course. But we are proud to have reached the deal that we reached. We have a very highly consensual deal and its backed by a restructuring support agreement, and it represents very broad support across our creditor classes. It eliminates over $3.4 billion worth of debt, and it really paves the way for the future of the company. We have a $675 million revolver that will replace our existing revolver with the same banking group. And we're also adding $200 million of new second lien notes from our existing bondholders. So I've spoken a little bit about the importance of relationships our company -- in our company in the context of our customers. But it doesn't stop there. And I think our restructuring agreement demonstrates that priority at our company. We've reached a good deal for the company and a good deal for our creditors. As I mentioned, it's highly consensual. We'll keep the banks' hold, we'll pay our vendors and employees in full. And it's our hope and my belief that we'll emerge in 2020 and be well positioned for the future with our long-built relationships in place and ready to face the market in front of us. So on emergence, we project that we'll have a net debt of approximately $350 million, with no maturities for 5 years. I mentioned a reduction in -- of $3.4 billion in debt, and this will translate into a 90-plus percent reduction in annual cash interest. Needless to say, that frees up the company to do a whole lot more and to provide a whole lot more flexibility in this soft market in terms of our operations, our people, our contracting. So we're very pleased with the deal. We'll also have over $500 million in liquidity. And in just a minute, I'll go through our prospects for utilization here in the near term. We'll turn 100 in April of 2021. And we're really, really well positioned to start that second century of operations. So I've mentioned our customers and our backlog a couple of times. On the slide, we have our floating fleet shown. As I mentioned earlier, the Clyde Boudreaux at the bottom is the 1 rig looking for work right now in Southeast Asia. But with the rest of the floaters, we have excellent contract coverage. And not only that, but we also have a view towards additional work that's not shown on the slide. If you followed our story, you may know about our commercial enabling agreement with ExxonMobil. We currently have 4 rigs listed with ExxonMobil, 1 of them I'll go through in a minute. One of them is actually with Apache currently but will be moving to ExxonMobil. So we have 4 contracts with Exxon, all in the Guyana Basin. And so as a part of that, we signed this commercial enabling agreement, which we call the CEA, which provides Exxon flexibility in contracting and gives us a great view towards utilization. So we keep performing for Exxon, and we have a great view towards utilization in what is one of the premier basins in the world. In the U.S. Gulf of Mexico, we have our 2 Globetrotters, I mentioned earlier, both contracted long-term with Shell. Many of you know, we have a very deep and long-lasting relationship with Shell through our alliance there. And we continue to share that great relationship with Shell in the U.S. with the Globetrotters where the rigs are performing fantastically. And may move regions, don't know. But the contracts provide for flexibility with Shell to use those rigs in a couple of different -- a number of different regions worldwide. So we're extremely pleased with the pipeline of work that we can see. The floater customers that we have all have additional work. And more focused on executing, so that we can keep the customers happy and hopefully win some more of that -- some more of the work we see. The Clyde Boudreaux, I'll just close with. We're marketing the rig. It's a moored semi, which is a bit of a niche market. That market has seen a lot of attrition and a lot of cold stacking. And so there is -- we do have some visibility in its current region in Southeast Asia. So we're chasing some work there. And we'll obviously update you if we have some news to share there. If we're unsuccessful down the road, we will address decisions we'll have to make around perhaps stacking that rig. But for now, we are chasing some work we see. Let me just quickly touch on Guyana-Suriname. I mentioned our CEA with Exxon. I mentioned Apache. And I think it's worth highlighting just how exciting this play is. Apache has hit 3 or 4 wells in Suriname. And Exxon, most of you may have seen, just announced 2 additional discoveries earlier this week. So I mentioned, we've got 4 rigs in the region, 3 are in Guyana today, 1 in Suriname with Apache and then that 1 in Suriname will be moving over to Guyana at the end of this year to work for Exxon. We've drilled a number of the discoveries there and are in line to drill some of the -- we're drilling some of the development, but also hopefully in line to drill some additional development work. We've announced that upon FID with Payara in Guyana that we anticipate receiving some additional term from Exxon to do some of that development work. So I think our main takeaway here is that the world is obviously uncertain on the benign floater side and utilization is very uncertain to state, really an understatement. But we think our fleet is very well positioned, and we're very pleased to have been chosen to be one of the premier contractors in the region. And so we're focused on executing, and we're very hopeful that our positioning is going to lead to additional work in the region. Switching over to the jackup sector. We have a great relationship with Saudi Aramco. We currently have 4 rigs on long-term contract in the kingdom. We are working through, as we've announced, some standby time on a couple of the rigs. That's something that has become necessary because of Aramco's plans in relation to their gas drilling. We're 1 of 2 contractors that are qualified to drill these deeper gas wells in the kingdom, and some of the focus has moved off the gas drilling. So they put the rigs on standby. But we work with them to reach a decent conclusion there. And we're hopeful that the rigs would come off of standby and go back into drilling as they firm up their plans in late 2020 and 2021. Outside of Saudi Arabia, all of our jackups are very high spec. We do have -- they're spread out globally, but we do have a concentration in the North Sea. We just announced an additional option on the Tom Prosser in Australia, and there's some additional work in Australia and in the Southeast Asia region that we're chasing. We've got the Mick O'Brien in the Middle East, where we see a pipeline of work, but don't really have anything to talk about there under the existing contract. And then, as I mentioned, we've got a concentration in the North Sea. So we've seen since last year and have been talking about since last year that the North Sea may end up being somewhat of a soft market in 2020. And we were somewhat unfortunately positioned in terms of contract rollover where we had a number of rigs rolling over at the beginning -- at the same time at the beginning of this year, which we prefer to avoid, but it's just the way it worked out with the way options were exercised, et cetera. So COVID came at a terrible time for everyone, but also for our North Sea fleet, which all rolled kind of in the first half of this year. And then the Lloyd Noble was set to roll here just in August. So we've been doing a lot of work and focused a lot on the customer base in the North Sea, where we have a strong brand and a long history. We always knew it's going to be tough. We have announced 3 fixtures, and we're very proud of those in such a tough market. One, on the Lloyd Noble, I'll get to in just a minute that we announced yesterday. But we've also reactivated. In the U.K., we've reactivated 2 JU-3000s, which I think is a big deal in this market, put them back into work. And we do have a number of ongoing conversations with customers in the North Sea for short and long-term work alike. Too early to say what will happen there. But we do think that we've demonstrated some success and are hopeful to replicate that in the North Sea, and hopeful that we can add to our fixture list there. The last rig, the Regina Allen in the Western Hemisphere, is moving from Canada down to Trinidad and Tobago with BHP, where we think the JU-3000 class rig is particularly well suited for the environment down there. So we're very pleased. We've not worked a rig there in the recent past, and certainly not a JU-3000. And we're really excited to prove that rig design down in Trinidad and Tobago with an important customer. Okay. So just yesterday, we announced a contract for the Noble Lloyd Noble, our CJ-70 with Equinor in Norway with the start in 2021. So we've been developing a relationship with Equinor in the Mariner platform in the U.K. And we really couldn't be happier that they've chosen us for the Valemon field in Norway. So to take the rig to Norway, the rig was built to what, at that time, was a Norwegian specification. As many of you know, to enter Norway, you do have to upgrade the rig to the most recent Norwegian regulations. And so we'll undertake that process starting when we finish the Mariner platform either late this year or early next year. And we'll have to invest between $35 million and $45 million, net of some recovery from Equinor, into the rig. That's basically the price of entry to Norway, but it puts the rig in an environment to earn revenues that are substantially different from the revenues that the rig could earn elsewhere in the world. And it's our belief that the utilization picture in Norway is significantly better than it would be also elsewhere in the world for a rig class like the CJ-70. So we're very pleased to have won the work. We are focused on execution, getting the AOC for the rig, getting the rig into Norway. And would just like to thank Equinor for their trust and support in giving us the contract. It's a great deal for the rig. Norway is the natural home for CJ-70 and for the Lloyd Noble. And we're pleased that it's headed in that direction. Okay. I've mentioned a couple of times and I warned you that I was going to mention several times about our customer relationships. But I thought we'd put a little data up on the screen. That, I think, tells a powerful story about our ability to put rigs to work. So in the graph, you can see where we've compared 6th and 7th generation drillships and all jackups, and how we've performed versus the broader market since the downturn began. So we've outperformed market by kind of an average of around 25%. We're proud of this record to say the least. I would just like to say thanks to the men and women of Noble. It's been a collective effort as a team that made this happen. And I think it's really one of the most important stories of Noble in our modern era here, where I feel strongly that we've differentiated ourselves in being able to keep customers happy and find additional work for the rig in what has been, as everyone knows, a very difficult downturn and in an environment today, where we see some additional time of very soft markets. So we plan to repeat this performance. We are, as I've already mentioned and will mention again later, extremely focused on our customer and on operational efficiency, and that's not going to change. We've signed 9% of the contracted days year-to-date, and we only have about 4% of the marketed fleet of comparable rigs to offer. So I think that speaks for itself. I think the graph speaks volumes and none of that even includes our announced fixture yesterday with the Lloyd Noble. So I'm very proud of our team, as I mentioned before. Okay. So let me speak just briefly about the floater market more generally. We're proud, as I mentioned, of our positioning regionally and globally in our contracting success. The slide here really shows that the market has a lot of work to do to balance. That's the reality. We're obviously not denying that, can't deny that. This graph shows -- excuse me, this slide shows just benign floaters -- excuse me, it shows all floaters, and we're just operating in the benign segment there. But it shows very clearly that there's a lot of work to do on the supply side here. And so -- to balance supply and demand. So we're fond of saying that this is going to need to be a supply-driven recovery in the near term. We do think demand will pick up. I think it's -- demand is pushed out 18 months to 2 years. But in the meantime, we need supply to react to the current market reality. We've seen supply already react to the current market reality. We've seen 15 rig retirements last I counted since COVID hit. And we expect that there's actually a pretty big pipeline of additional rigs that are set to be retired in the not-too-distant future. So the supply line has to come down for this to work in the near term. Eventually, demand will catch up. But I'll go through in just a second a few of the industry trends that we see, that we think actually provides some catalyst for supply reductions, particularly really in the benign floater market. So industry trends. Just a couple of quick notes. I think the balance sheet restructuring really speaks for itself. It's happening around the world. I've spoken a little bit about ours. You've seen others that have been announced. You've heard rumors about additional still that could be announced. Won't speculate on anything, because I think everyone is well aware. But suffice to say that it's going to have a meaningful impact on our industry in a number of different ways. One thing that I think happens irregardless of balance sheet restructuring, but that could be bolstered by it, is we expect drillers to manage the cash flow going forward. So no one has the legacy contracts to support lower day rates. And we don't have the cash or the investor support really as an industry to make reactivation edgy, I'll say, reactivation investments or to support hot stacked idle units for long periods of time. So I think you'll see people managing to cash flow. I think you'll see people making conservative decisions towards reactivation and towards retirement. And as I said earlier, I think that all of this really will drive additional fleet attrition here in the near term. So look for attrition to be a story over the next year and more. But I think the kind of last driver on that point really is consolidation. A lot of people are talking about it. Our market today is extraordinarily fragmented. We've got 20 drilling contractors with more than 1% market share, 107 contractors have less than 1% market share. And you've got 55 contractors that operate 3 rigs or less. I mean, in their world, is that a business that supports healthy day rate environment. And so I think people recognize the need for consolidation. Obviously, we've said for a long time that we're believers in consolidation. Our history has been a -- offshore, particularly has been a history of consolidation. And we expect that to be a really meaningful trend in our business. I won't speculate about how that may play out. But I do think it will drive meaningful and important cost synergies, perhaps some economies of scale. And as I mentioned earlier, it should facilitate some additional rig retirements, which really, in the benign floating world, is really a key piece of the story that we see some supply-driven recovery. Today, balance sheets have really prevented M&A, particularly in the more near past. That's being -- that's changing as we speak, as everyone knows. And as people emerge and have cleaner balance sheets, we, frankly, expect that to be a meaningful industry trend. So we have a world full of change. So where is Noble going to focus? One thing I would just point out at the top of this slide, I won't belabor it. But we've had a lot of change at Noble. Eddie mentioned this is my first participation in Barclays. We've had a lot of change in our management. We've had a lot of change in our rig fleet. We're currently going through a restructuring and massive change to our capital structure. We, like everyone, have had some gruesome and unfortunate reductions in workforce, which has been the reality of our industry. But I want to point out that one thing that won't change are our core values. I've mentioned a couple of times, we have a 100 years of history. And I'm very focused on making sure that we maintain what makes Noble, Noble. That's important to us. We have a rich, an important culture. And all of that, really, it sits on the foundation of our core values. It's what drives our decisions. And ultimately, that's what keeps our customers happy, which I believe is a hallmark of ours. So that won't change. I believe in the coming years, you've seen -- in the past years, you've seen a shift towards operational efficient -- focus on operational efficiency among customers operating offshore. You've seen unbelievable efficiency gains in the unconventional play in North America. And with the current outlook on oil prices, I think the focus on our customer base and operational efficiency will become even more enhanced. I could perhaps put that as an industry trend. But certainly, at Noble, it's a place that we're focused, and I believe that customers are increasingly going to look to contractors to deliver on operational efficiency. We have to work together with our customers to make our offshore business viable against other alternatives that are out there, and that's going to be a trend in our industry going forward. It's something that we are laser-focused on at Noble that we have been and will continue to be. We have -- I keep talking about our customer relationships. This won't be the last time I talk about it, but we're going to continue to be focused on our customer relationships. We hope to deepen the ones we have. I think the announcement yesterday is a great representation of deepening our relationship with Equinor, and we intend to stay focused on our customers. We're going to invest in our people. I've given thanks earlier to our people at Noble. People have been a hallmark of our company. It's people that drive all of the good things that we do and ultimately drive the customer satisfaction. And so we will continue to invest in our people and ensure that we have the best people because that's ever important to all of our goals elsewhere, operational efficiency, et cetera. And then lastly, growth will come. So we're focused on being smart about our growth. We always have been. We have to get through -- it's really too early to talk about growth right now. We're in the middle of the restructuring. We have to get through that. We have to fix our balance sheet. We have to execute. And we think growth will come. And we hope with the -- with our current fleet utilization, that we'll have opportunities to protecting that growth in a way that really is in concert with the needs of our customers, so that we can continue our utilization story. So lastly, we're in restructuring right now, but we want to start talking a little bit about the investment thesis in Noble and why invest in Noble. So I've talked some about our modern fleet. I've talked ad nauseam, probably in your minds about our history and our brand and our culture. But I do think it's very important to our operation. And then I've talked about our customer relationships, which we'll continue to focus on and really has given us access to this continuing stream of work that we see. We've delivered on our operational excellence. And as I mentioned, we'll continue to be laser-focused on our operations, and that's given us more than our fair share of work. Lastly, as I mentioned in our restructuring, we plan to emerge with a lean and competitive cost structure. So what does that mean? We'll be well positioned to withstand near term volatility. We all know it's going to be a soft market for some time. I believe that we'll be very well positioned to perform and compete as that plays out. And then we'll be in a great position to generate cash flow and grow as the market supports it. That was all I had here today. So I appreciate anyone who listened in, and I'll turn it over to Ken -- to Eddie, excuse me, to ask any questions.

Well. Great. Well, thank you so much, Robert, for that presentation. We have about 7 minutes here to ask a couple of questions. So I guess just to start, just bigger picture on the floater market. I mean, we peaked at about 260 rigs in 2014. End of last year, it was about 130. Since then, it's -- last I checked, it was about 100 to 105 floating rigs today. Just curious on your expectations of the trajectory going forward. And where we bottom out in terms of the floater rig count? Is that sometime by the end of this year or end of next year? Just your thoughts on the trajectory of the floater recovery.

Sure. Thanks. And good question. I think it's difficult to tell right now. We're starting to see -- we're seeing indications of where budgets for our E&P customers may be next year. Not a great answer. I think most people know. So we think we'll bottom out next year. And we think that generally, back to your reference to kind of early -- where we were early this year, we think for 18 months to 2 years kind of pushed out to get that back to that point of around 130 rigs. That's -- that number is benign and harsh. The harsh kind of sits in its own little separate world. It's been a strong market for a while, continues to be a relatively strong market. And so really, we're focused and where we really think the story will be told is in the benign market and when we see a recovery there. So let's pretend I'm right. Let's pretend that next year is kind of a trough in terms of budgeting. And then that 2022 starts to look better perhaps on the back of $55 to $65 oil, perhaps a spike slightly above that. I think that in mid- to late next year is where you will start to see contracting efforts by our customers. And we'll start to get a view of what a recovery or that, I guess, kind of journey back to the 130 might look like. I will just repeat what I said earlier, too. We think that this is a crucial era right now, booked between now and late next year, to see where supply reacts. There's -- it's so fragmented, the market is not set up well for supply to react well or to reduce at present. But I've also mentioned a few reasons why we think the trend will be towards additional attrition, we've seen some. And we think a number of different factors that I mentioned will drive some additional attrition. But that's going to be a really important story just to see how benign floater numbers react to this downturn.