Noble Corp’s plan to resume dividends is a “major sign of confidence” in the offshore rig market, according to analysts at Barclays.
Last week, the US-listed rig owner announced the initiation of a quarterly dividend of $0.30 per share — representing $40m per quarter and a 2.5% yield.
This is thought to be the first such dividend by an offshore driller since 2015, according to Barclays’ US energy services and technology analysts Edward Kim, J David Anderson and Derek Podhaizer.
Noble Corp chief executive Robert Eifler said the company’s strategic priorities over the past two years have been focused on consolidation and establishing an industry-leading free cash flow (FCF) generation and return of cash platform.
“Following year-to-date share repurchases of around $70m, this initial quarterly dividend represents the next logical step in our strategy for maximising shareholder value,” he said.
“Going forward, we will remain committed to returning the significant majority of free cash flow to shareholders over time via dividends and share repurchases, with an intention to scale both of these instruments higher as cash flow generation continues to grow.”
The Barclays analysts said in a note to investors: “Not many (including ourselves) were expecting this announcement until some time next year, so we believe this commitment to a regular quarterly dividend is a strong sign of confidence in the offshore outlook.
“Moreover, we note that the commitment to return ‘the significant majority of FCF to shareholders over time’ is even higher than targets put out by larger diversified energy services peers, which have ranged from 50%-80% of FCF with most toward the lower end of this range.”
The analysts said Noble’s recent contract announcement for the 60,900-gt Noble Faye Kozack (built 2013) at $490,000 per day was not an outlier but in fact the beginning of an upward trend.
“We continue to believe a rig contract will be announced before year-end with a five-handle given market tightness as utilisation,” they said.
Noble now has seven floaters coming off contract in the next 12 months, five this year, which the analysts said represents “a significant repricing opportunity”.
The five floaters coming off contract before the end of the year are the seventh-generation, 60,700-gt Noble Voyager (built 2015) and Noble Valiant (built 2014) and the sixth-generation, 60,500-gt Gerry de Souza (built 2011), 34,400-gt Globetrotter I and Globetrotter II (both built 2012).
Noble Corp filed for Chapter 11 bankruptcy protection in August 2020, emerging in February 2021. It subsequently acquired Pacific Drilling in April 2021 and agreed on a merger with Maersk Drilling in October 2022.
In a report released on Monday, Maritime Strategies International said the improving rig market is incentivising the reactivation of cold-stacked tonnage, but operators remain “disciplined in their approach”.
It said an improvement in energy market conditions has driven up rig demand against a backdrop of inelastic supply, supporting utilisation, earnings and newbuilding prices for mobile offshore drilling units.
There are notionally 41 cold-stacked floaters as of May 2023 — 22 of which are sixth or seventh-generation assets and would be deemed most competitive.
“Rig owners differ materially in their approach and attitudes towards their stacked fleets,” said Pradip Adhikari, data and markets analyst at MSI.
Transocean has the largest fleet of cold-stacked units and hence lays claim to the most operational leverage within its peer group, according to MSI, which added: “For Valaris, reactivation will only be considered where a meaningful return can be made on reactivation costs under a firm contract.
“This strategy is evident in its most recent reactivation, the Valaris DS-8, which secured a three-year contract with Petrobras at a $430,000-per-day rate.”
For the likes of Diamond Offshore and Socar, MSI expects little appetite for reactivation of first to fourth-generation units, but there is growing interest in assets that can command higher rates.
Diamond recently reactivated the 43,900-gt Ocean GreatWhite (built 2016) and has given no indication of any such plans for the three remaining units.
“Noble Corp and Seadrill have four cold-stacked high-spec drillships between them which have been actively marketed in recent tenders — we think these are likely to join the active fleet soon given the current demand-side momentum,” Adhikari said.
