Noble Corp (Cayman Island)

NYSE:NE

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Noble Corporation plc Third Quarter 2020 Results Conference Call. [Operator Instructions].

I would now like to turn the call over to Craig Muirhead, VP of Investor Relations and Treasurer. Please go ahead.

[Craig Muirhead, VP, IR & Treasurer]

Thank you, and welcome, everyone, to Noble Corporation's Third Quarter 2020 Earnings Conference Call. We appreciate your continued interest in the company. You can find a copy of Noble's earnings report issued yesterday evening, along with the supporting statements and schedules on our website at noblecorp.com.

Joining today are Robert Eifler, President and Chief Executive Officer; and Richard Barker, Senior Vice President and Chief Financial Officer. For today's call, we will not be hosting a question-and-answer session at the end of the prepared remarks.

Before I turn the call over to Robert, I'd like to remind everyone that we may make statements about our Chapter 11 filing, restructuring activities or plans, operations, opportunities, plans, operational or financial performance, the drilling business or other matters that are not historical facts and are forward-looking statements that are subject to certain risks and uncertainties.

Our filings with the U.S. Securities and Exchange Commission, which are posted on our website, discuss the risks and uncertainties in our business and industry and the various factors that could keep outcomes of any forward-looking statements from being realized, including resolution of our Chapter 11 cases, our ability to consummate our restructuring as contemplated, the impact of the COVID-19 pandemic on Noble's operations, the price of oil and gas, customer demand, operational and other risks.

Our actual results could differ materially from these forward-looking statements, and Noble does not assume any obligation to update these statements. Also note, we are referencing non-GAAP financial measures in our call today. You will find the required supplemental disclosures for these measures, including the most directly comparable GAAP measures and an associated reconciliation on our website.

And with that, I'll now turn the call over to Robert Eifler, President and Chief Executive Officer of Noble.

[Robert Eifler, President, CEO & Director]

Thanks, Craig. Following our July 31 filing for protection under Chapter 11 of the U.S. Bankruptcy Code, We've made steady progress towards finalizing our process and emergence. As a reminder, we filed with a prearranged agreement with our largest creditors for a comprehensive restructuring that would convert all of our outstanding bond debt to equity, provide for $200 million of new capital from our existing bondholders and provide a new $675 million credit facility from our existing bank group.

In addition to the great progress with our creditors, we've cleared a critical element of uncertainty by reaching a settlement with the Paragon Litigation Trust. While the timing of several regulatory approvals remains unknown and outside of our control, and could be affected by COVID shutdowns in certain jurisdictions, we maintain our target of emerging prior to year-end or soon thereafter.

Our decision to pursue a comprehensive restructuring was reached after a thorough review of several potential alternatives. We believe that this path will best position Noble to navigate what remains a very challenging environment, and we are grateful for the broad support we have received from our creditors, customers, vendors and employees.

Due to the ongoing court process and related activities, we will not be holding a question-and-answer session on today's call. Richard will give some more details on our restructuring in a moment. But first, I would like to give an operational update. Our industry continues to endure one of the most difficult environments we have seen in decades.

Timing of any industry recovery remains entirely uncertain. Our crews and operation support teams still face significant quarantine and travel restrictions that have become an unfortunate part of our business in the time of COVID-19. Despite the challenges, the Noble team continues to deliver safe and efficient operations to our customers around the world. We have increased our backlog from $1.4 billion at the end of the second quarter to almost $1.7 billion at the end of the third quarter. Having achieved those commitments from our customers during such uncertain times is a testament to the hard work of our crews, and shore-based personnel, who have maintained focus under challenging conditions.

Since the end of the second quarter, we have been awarded 7 years of additional work with ExxonMobil in Guyana, 6 months of this work is on the Noble Sam Croft, which is expected to commence in the first quarter of 2021. 6.5 years of this work has been awarded to the Noble Tom Madden. This would extend the Tom Madden's contract into 2030. However, the terms of our Commercial Enabling Agreement, or CEA, allow Exxon to shift this backlog to other rigs at their option. So we may see this contract term spread over multiple rigs under the CEA. The multiyear commitment allows us to further realize economies of scale and supports additional investment by Noble in our operations, including further developing our local Guyanese workforce.

We are extremely pleased to extend our relationship with ExxonMobil and their partners, offshore Guyana, and continue our participation in one of the world's premier offshore exploration and development opportunities. In the U.S. Gulf of Mexico, drillship demand has remained relatively flat for the majority of 2020 with 15 drillships contracted at the end of Q3. Two of those are our Globetrotter I and Globetrotter II, which remain under contract with Shell into 2022 and 2023, respectively. The Noble Clyde Boudreaux is currently warm stacked in Malaysia. We are bidding into numerous opportunities and are hopeful we will be able to get back on day rate in the first half of 2021.

On the jackup side, we are very proud of the previously announced contract with Equinor, which will take the Noble Lloyd Noble to Norway in 2021. The Lloyd Noble is one of the most technologically advanced jackup rigs in the world and has been performing very well for Equinor on the Mariner platform. There will be some shipyard time to bring the rig into compliance with current Norway regulations and to add contract-specific equipment at the request of our customer. We expect a net project cost of $35 million to $45 million before contract commencement in mid-2021. Norway is a natural market for rigs of the CJ70 design like the Lloyd Noble, and we expect we will have good opportunities for future work in the country. The North Sea has been a challenging market this year. Of 38 high-spec jackups in the region, there are currently 18 under contract. Excluding the Lloyd Noble, 2 of our 4 other jackups in the region are uncontracted in bidding on jobs.

There are several -- there are a number of programs with start dates in 2021, including several P&A opportunities. And while the market remains extremely competitive, we believe our fleet measures up well against the other available rigs and hope to have some additional contracting news to you soon. We continue to have 4 rigs on contract with Saudi Aramco, although the Noble Scott Marks is on standby at 0 day rate until May 2021, and the Noble Roger Lewis has just been put on a similar suspension framework, which allows Aramco to put the rig on standby for up to 12 months at 0 rate. We expect the standby period to begin in late November.

Elsewhere for our jackups, we have been awarded a contract extension on the Noble Mick O'Brien, which will keep it in Qatar with its current customer into August 2021. The Noble Regina Allen has commenced its contract with BHP in Trinidad and Tobago. And in Australia, the Noble Tom Prosser is currently warm stacked, but chasing several opportunities for work starting in 2021.

Overall, the drilling market continues to suffer from oversupply. At the end of Q3, worldwide floater demand stood at 99 rigs versus the total supply, including rigs and shipyards of 249 units for a total utilization of 40%. This is not sustainable. Of the uncontracted floaters, there are 48 cold-stacked rigs, which will require significant additional investment in order to bring them back to the market. On the jackup side, the numbers are different, but the story is the same. Even cold-stacked rigs require daily cost to maintain. And with the widely held expectations of a delayed recovery, it is becoming harder for the industry to justify even modest costs on cold-stacked rigs.

The market outlook and company's financial positions no longer support the cost of maintaining currently uncompetitive rigs for option value. Year-to-date in 2020, 37 rigs have been retired from service, which already exceeds the full year 2019 attrition. We expect further retirements as drilling contractors continue to update their expectations of future cash flows based on market conditions. Restructuring activities at a number of drilling contractors may facilitate further attrition. At Noble, we have taken a hard look at our fleet as well. Hence, our recent announcement to dispose of our 5 cold-stacked rigs. These rig retirements further high-grade our already high-spec fleet and bolster our efforts towards cost efficiency.

I'll now turn the call over to Richard to give an update on our financial results and more details on our restructuring process.

[Richard Barker, SVP & CFO]

Thank you, Robert. Good morning, everyone. I would also like to welcome each of you on today's call. I will start my comments with some brief highlights of our third quarter results and then give an overview of where we are with our restructuring process. As announced yesterday, Noble generated total revenue of $242 million in the third quarter, which translated into a net loss to the company of $51 million or $0.20 per diluted share.

Adjusted EBITDA in the third quarter was $76 million after adjusting for various restructuring items related to our Chapter 11 filing. This compares to adjusted EBITDA of $58 million in the second quarter.

Our Contract Drilling Services revenues were up slightly to $227 million in the third quarter versus $220 million in the second quarter. We continue to remain highly focused on managing our cost structure. Our third quarter Contract Drilling Services costs were $137 million, a 5% reduction from the second quarter. In the third quarter, we fully realized on a run rate basis our previously announced shore-based and G&A cost savings. Additionally, as Robert discussed, we have decided to dispose of our five cold-stacked floaters. This is the right economic decision given the carrying costs and reactivation costs, coupled with the current market outlook for these assets.

While significant market uncertainty exists, we are committed to maintaining an industry-leading cost structure and minimizing any free cash flow burn. Our cash balance at the end of September was $325 million. This increase over the prior quarter is primarily related to the receipt of cash tax refunds of $153 million we received in July as a result of the CARES Act provisions as well as the closures of certain prior year tax audits. We still anticipate collecting approximately $18 million in additional CARES Act refunds in the near future.

Our capital expenditure estimate for the full year 2020 is now expected to range between $150 million and $160 million, of which we anticipate reimbursement from our customers of between $45 million and $55 million. While we expect to spend this amount, it is possible that some of this spending could push into 2021 as the timing of projects is adjusted towards the end of the year. We are pleased with the progress we are making in our restructuring process. Our plan of reorganization filed with the Court provides for the full equitization of all of our outstanding bonds, which total over $3.4 billion today. The plan currently has the support of over 86% of holders of the guaranteed notes and over 62% of holders of the legacy notes. We have executed a backstop commitment agreement with these supporting holders to contribute $200 million of new capital in the form of second lien notes with a 7-year maturity.

We will have the option to pay interest in kind on these notes, which will provide us further flexibility around managing our liquidity and cash flows. We also have now signed commitment agreements with each of our bank lenders for a 5-year $675 million revolving credit facility, which will provide Noble meaningful liquidity at an attractive cost of capital.

At emergence, we will use the proceeds from the second lien bond and any remaining excess cash to pay down borrowings under our credit facility from the currently $545 million of borrowings to approximately $200 million drawn. We anticipate having available liquidity of approximately $550 million at emergence with a multiyear maturity free runway. Both the new first lien credit facility and the second lien notes are scheduled to become effective upon emergence. These agreements are not currently final as they still require additional documentation and approval by the court. Our confirmation hearing is scheduled for later this month on November 20. If our restructuring plan is approved at this hearing, we will move as quickly as possible towards emergence as a restructured company.

As Robert mentioned, we are grateful to have the support of our creditors, customers, suppliers and employees in our consensual restructuring. The comprehensive deal we have structured with our stakeholders will provide significantly reduced leverage and corresponding interest expense, an enhanced liquidity position and improved cash flow after financing costs, which will create a sustainable capital structure for us as we navigate the current market conditions.

I will now turn it back to Robert.

[Robert Eifler, President, CEO & Director]

Thanks, Richard. We face a number of challenges in our industry today. Some are familiar like the depressed market outlook, and others have gained more attention recently, like the effects of COVID and investor sentiment turning away from fossil fuels. Regardless, we will continue to maintain our focus on delivering operational excellence and world-class safety performance for our customers as we have done as a company for almost 100 years.

We will also continue our efforts to address environmental, social and governance issues and manage the company effectively for cash flows. We are pleased to have received the support of our noteholders and lenders in a consensual restructuring.

I am especially proud of the men and women at Noble who continue to deliver operational excellence for our customers every day. And I'm confident that on emergence from Chapter 11, the strength of our operations combined with a solid financial platform will position Noble to lead the industry.

That concludes our prepared remarks. Thank you for your participation in our call today, and I will now turn it back to the operator to close the call.

[Operator]

This concludes today's conference call. You may now disconnect.