Noble Corporation from Chapter 11 to Market Leader
How a Hardware Store became a Leader in the Contract Drilling Industry
Market Cap: $4,556,680,000
P/B: 0.98x (understated book value)
Net Debt: $1,639,840,000
EV: $6,196,530,000
Shares Outstanding: 158,820,000
Business Overview
Noble Corporation is one of the world’s largest drilling contractors servicing the oil and gas industry today. The business has been engaged in drilling oil and gas wells since 1921 and today has a fleet of thirty-eight rigs in the floater and jack up markets. The business went through a tough time during the downturn of 2014 – 2020 leading to Noble filing for chapter 11 protection.
Post the bankruptcy the business was able to be opportunistic with its balance sheet and has done a handful of extremely value accretive acquisitions to consolidate the industry and allow Noble to enjoy super normal profits as demand grinds higher and the supply response is muted.
Many who follow the offshore services space understand the nature of the supply and demand dynamic where offshore project economics have surpassed onshore shale cashflow break evens and as exploration and development capex grows, that is a direct call on the rigs Noble possesses, in particular their 7G drill ships.
While demand will tick higher, what is unclear is how new drill ship capacity will come to market to meet the demand. To build a 7G vessel will cost you $900-$1B and to build the newest model 8G vessels is more like $1.2 – $1.3B. While the price tag for a new drill ship is steep, day rates currently are not commensurate with industry desired internal rates of return to justify building new capacity.
In addition, even if day rates were at a point where new builds were economic this industry is severely undercapitalized, and shipyard capacity has dwindled since the global financial crisis with Korean and Chinese ship building capacity consolidating substantially. As it stands, Noble sits at the forefront of the contract drilling market that is going to see a significant uptick in demand while building even a single 8G vessel would cost Noble 30% of its current market capitalization. It is important to note that offshore project cycles are inherently slow moving.
The turn will happen and slowly grind higher as 7G/8G drill ships are built with 3 year lead times, Floating Production Storage and Offtake (FPSOs) are built with a price tag of $2-3B and take 3-5 years to build, all the while managing SURF equipment installation 100+ miles off the coast in uncertain operating conditions. With all that said, we think that 2026/2027 will see a material increase in offshore activity and capex spending with Noble being a direct beneficiary.
Historical Overview
Noble Corporation as we know it today began as a hardware store in the 1880s owned by Lloyd Nobles father (Sam) and his uncle (Ed) in Ardmore which was a part of Indian territory for another two decades before being added to the union via Oklahoma. Prior to the death of both Sam & Ed they had received farmland to pay for a debt owed to their hardware store. Hattie (Lloyd Nobles Mother) and her sister-in-law Eva saw little value in the land before oil was discovered on the property when Lloyd was in college, inspiring him to enter the oil business.
Lloyd Noble and Arthur Olson convinced Hattie Noble to co-sign a $20,000 loan used to purchase two steam powered drilling rigs for $14,000. Noble and Olson drilled their first well for Carter Oil Co. which would later be bought out by Exxon Corp. The business, after two years of burning cash began to thrive and provided the base they needed to enter Canada by way of Alberta where they would become some of the first oil drillers in the Turner Valley field in 1928.
After nine years in business together Noble and Olson had accumulated thirty-eight rigs and had built a legitimate oil business. Nevertheless, the two partners decided to part ways and become competitors. For Lloyd Noble, the 1930s would prove to be a decade of expansion into Western Oklahoma, Eastern Texas, Wyoming, Montana, and the Rocky Mountain range eventually leading to the company’s first marine venture in southern Texas with Noble drilled a wild cat well for Amerada Petroleum Co.
Having split from Olson, Noble was looking to diversify his business away from drilling alone and in 1932 started Samedan Oil Corporation as homage to his three children Sam, Ed, and Ann. Leveraging Noble and Olson’s early relationships in the county, Samedan drilled its first wild cat wells in Carter County Oklahoma and later into Texas. Lloyd Noble died in 1950 and much of his ownership and producing properties fell into the ownership of Samuel Roberts Noble Foundation, a charitable organization started by Lloyd Noble prior to his death.
In accordance with tax law, The Noble Foundation’s producing assets were merged into Samedan in 1954 and allowed the business to pick up the pace of its exploration activities from the newly acquired revenue source. Two years after Noble’s properties were amalgamated into Samedan’s, they opened E&P offices in Midland Texas with three more throughout the late 1950s in Lafayette, Oklahoma City, and Calgary Canada.
With Samedan and Noble acting as one massive conglomerate with scale, the business expanded further with the purchase of a controlling stake in oil field trucking company B.F Walker Inc. As Noble and Samedan began to pick up scale and global production ticked up the oil markets by the 1960s hit a period of stagnation and eventual decline. Due to the depressed price of oil and gas 1955 to 1976 saw active rotary drilling rig utilization rates drop 60% from 2,686 units to 976 which disproportionately hurt independent companies like Noble x Samedan.
Noble and Samedan’s redeeming feature came from its ability to be flexible and redeploy assets quickly and its producing assets owned by the foundation allowed them to remain solvent without earning contributions from its oil interest. By 1969, new tax reform was in order and the US Congress stipulated that charitable organizations no longer could own more than 20% interest in any corporation.
This left the board of the Noble Foundation with two options, divest of all their interest in Noble, Samedan, and BF Walker or combine the business into one entity and sell off 80% of the firm to the public markets. The board of the Noble Foundation decided to go public and formed Noble Affiliates Inc that issued its first public stock a few years later.
Throughout the 1970s Noble Foundation trustees sold off their ownership of Noble/Samedan/BF Walker, all the while revenues increased from $38M to $214M on the back of massive growth. Noble Drilling purchased eighteen oil rigs during the decade of the 1970s, Samedan made new discoveries in Texas, Oklahoma, and Alberta and its offshore activities that begin in 1968 grew, expanding from Louisiana to Texas.
For BF Walkers part, it made two acquisitions and by the end of the decade operated in 16 states in the Midwest and sixteen in the west. Noble Affiliates began to focus more intently on Samedan and by 1983 90% of company capex was spent on that subsidiary with 70% of revenues coming from hydrocarbon operations. The focus shift to Samedan was significant as the previous decade saw a 60/40 split by way of capex between Samedan and Noble.
BF Walkers was sold in December of 1983, and Noble Drilling was spun off in 1985 leaving Noble Affiliates with Samedan as its sole business line. By the 1990s Noble Drilling Corporation was trading on the NASDAQ under the ticker NDCO and the stock performed well through 1993 after lean years in the Oil and Gas industry from 1990-1992. In 1994 the stock had been cut in half as earnings fell by two thirds just as Noble had acquired $130M of long-term notes and was added to the S&P Small Cap 600 index.
In 1996 Noble Drilling moved from the NASDAQ to the New York Stock Exchange (NYSE) and began trading under the ticker NE that we know today. While there was excitement about Noble’s relisting the business execution did not match with long term debt growing from 1995-1996 while investors were diluted more than 20%. The year 2000 saw Noble Drilling changed to Noble Corporation and its domicile was moved from the US to the Cayman Islands. In December of 2009, the business was moved yet again from the Caymans to Switzerland.
In June of 2010 Noble Corporation entered into a merger with Frontier Drilling for $2.16B that added net fleet growth of 7 units with 69 total vessels including 5 rigs under construction that were spread out across the world from the Middle East to India, Brazil and the North Sea. In addition to the fleet of sixty-nine vessels Noble Corporation also owned Seillean, a Floating Production Storage and Offtake vessel (FPSO).
By 2013 Noble was incorporated in the UK and began a decade of expansion. The Frontier acquisition added not only fleet growth but added to Nobles robust backlog with an additional $4B in new contracts with Shell. In 2014 Noble shed inferior assets via Paragon Offshore Drilling company by transferring its interest to equity holders. From 2014 and the Saudis output production that tanked the markets in November of that year, Noble underwent its most severe bear market yet, eventually going bankrupt and filing for Chapter 11 protection in July of 2020. Noble’s restructuring agreement eliminated $3.4B of outstanding bond debt via an exchange of debt and equity. On the other side of Chapter 11, Noble had a $675M revolving credit facility through JP Morgan and Chase Bank and $200M of new investment from previous creditors via second lien notes.
With the balance sheet now restructured and the financial position strong, Noble acquired Pacific Drilling (another deep-water oil driller) in March of 2021 via an all-stock deal. The deal closed with no net debt and brought Pacific’s modern ultra deep-water vessels into Nobles operations and established a strong presence in the Atlantic and West Africa.
The deal for Pacific was structured as a stock deal with Pacific investors getting 16.6M shares of Noble equaling 25% of the shares outstanding. The deal was accretive to Noble with $30M in pretax savings via synergies between the two businesses. Pacific Meltem and Pacific Scirocco rigs were sold off after being cold stacked in Las Palmas for some time with Scirocco being off hire for almost 5 years and Meltem for two.
Following the Pacific acquisition, two more acquisitions were done between 2022-2024. First, Noble merged with Denmark based Maersk Drilling in October of 2022, creating the worlds largest and highest spec drilling contractor on the planet. The transaction was an all-share exchange with Noble receiving Maersk’s fleet of mostly jackups. To appease regulators parties agreed to sell five vessels for total considerations of $375M.
The vessels sold were jackups Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert, and Noble Lloyd Noble together called the Remedy Rigs to Shelf Drilling Ltd in October of 2022. The merger led to $125M of synergies and a combined $4B of contract backlog. Finally, Noble simplified its balance sheet taking out Maersk’s debt with two new term loans for $450M in total considerations. Of the $450M two loans made up the facility with $350M via a 3-year term loan to replace the debt from Maersk. The other $150M was a 3-year term loan that replaced Maersk’s loan with Danish Ship Finance. Both loans were term SOFR plus 3.50% with a step up in the SOFR margin in year two.
In 2024, Noble completed its acquisition of Diamond Offshore in an all stock plus cash deal that added four seventh generation duel blow out preventor vessels and five semisubmersibles to Nobles fleet. Diamond brought with it $2.1B of backlog and $100M of cost synergies to Noble and was financed in September 2024 with a $600M bridge loan and assumption of $550M of second lien notes from Diamond. Diamond shareholders received 0.2316 shares of Noble plus $5.65 in cash proceeds per share for each Diamond stock. On the other side of this deal Noble Corporation owned forty-one rigs including twenty-eight floaters (drill ships/semi subs) and thirteen jackups with a $6.5B back log of business.
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