Noble Corporation (NYSE:NE) is due to report its Q2 2015 results on July 29th. Wall street estimates that company will post sequentially weaker results compared to Q1 2015. NE earned $0.72 per share on revenues of $804 million in the previous quarter. Consensus estimates were smashed both on top and backside lines and the reason for the beat was higher revenue efficiency compared to company's initial guidance and lower than expected operating costs. My Q1 estimates can be found here.
On revenue side two matters need to be considered. First, jackup rate renegotiations with Saudi Aramco. Several jackups had their dayrates slashed retroactive to January 1st. I'm not sure how NE will account for revenue generated by these jackups in Q2, will it recognize the difference entirely in Q2 or will the company prorate over the remaining three quarters. The difference is quite significant and I suppose prorating has better accounting logic. Total dayrate loss on a prorated basis is around $330k/day or $30 million for the quarter.
The second issue is revenue efficiency. In Q1, NE achieved 96+% fleetwide efficiency and that's a remarkable result, which I don't believe the company will duplicate this quarter. I believe the company achieves 95% efficiency, which is a drop of $9.5 million compared to Q1. The drop in efficiency will be compensated by Q2 having one operating day longer than Q1.
Taking into account all of the above, I estimate NE to accomplish quarterly revenue of $773 million, which is slightly above current consensus.
On the revenue side the company typically provides guidance each quarter and normally this guidance is rather conservative.
I believe contract drilling costs will come under the range due to lower scheduled downtime in Q2 compared to Q1. The rest of the expense lines should fall within ranges provided by the company. I will assume a tax rate of 20% to complete the cost picture.
Net income - $153 million or $0.63 per diluted share based on 242 million shares outstanding. That's $0.12 cents ahead of current consensus.
Additionally, in this current surroundings it makes sense to see at the cash flow. NE looks to earn about $320 million in operating cash flow before changes in working capital. I suppose there should be very little change in company's working capital position based on NE's fleet utilization staying consistent quarter over quarter.
NE estimates it will spend $160 million on capex, primarily on upgrades for Noble Sam Hartley. Additionally, the company have paid its quarterly installment of the currently outsized dividend, which cost about $90 million. Overall cash should therefore increase by approximately $70 million.
The company will burn through approximately $750 million of backlog leaving it with $8.6-8.7 billion. I don't expect much of a reaction to quarterly results one way or another. The market views NE's share price improvement through the prism of either new contracts or higher oil price. Since both are nowhere to be found the shares will continue to languish at the backside of its current price range.
Disclosure: I am/we are long NE. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose inventory is mentioned in this article.
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