Over the past eight months, a number of articles have appeared on The Rational Walk related to the Deepwater Horizon disaster and related investment opportunities. Value investors know that times of stress and uncertainty create opportunities in the financial markets whether the turmoil is due to natural disasters, political unrest, or the fallout from accidents such as the Deepwater Horizon incident. In this article we revisit our bullish investment thesis for Noble Corporation and explain our decision to sell shares at the current valuation.
Noble reported third quarter 2010 earnings of $86 million, or $0.34 per share, compared to $426 million, or $1.63 per share for the third quarter of 2009. Contract drilling revenues fell precipitously to $584.9 million for the third quarter of 2010, down from $875 million for the third quarter of 2009. Contract drilling revenues were $687.5 million for the second quarter of 2010. Read this article for more information and a forecast of likely Q4 revenues.
Noble Corporation Chairman and CEO David Williams believes that uncertainty in the Gulf of Mexico will continue to impact the offshore drilling industry for some time to come. Mr. Williams, speaking today at the Barclays Capital Energy and Power Conference in New York, updated investors regarding the company’s operations and future prospects in light of continued regulatory uncertainty in the Gulf of Mexico in the aftermath of the Deepwater Horizon disaster involving the blow out of the Macondo well. Read this article for a summary of the presentation.
Barron’s has published a brief article making a bullish case for Noble Corporation. Jay Palmer, writing for Barron’s, believes that Noble is well positioned for a world in which deepwater drilling will account for a growing share of production as China and other emerging countries continue to demand more oil. The article points out that Noble has a solid balance sheet and significant international operations that should mitigate the risk of further disruption in the Gulf of Mexico due to the federal moratorium put in place in response to the Deepwater Horizon disaster. Read this article for more details and links to related article.
Noble Corporation predicts that additional capital expenditures necessary to comply with new regulations for drilling in the Gulf of Mexico should not exceed $10 million per rig. In the company’s second quarter 10-Q report filed with the SEC yesterday, management indicates that the exact amount required for rig retrofits cannot be precisely determined pending the release of final regulations. The amount required for each rig is expected to vary based on its age. It is also possible that Noble may incur similar costs for certain rigs that are presently located outside the Gulf of Mexico. Read this article for more details.