Noble Corporation (NE) CEO and President Robert Eifler joins Yahoo Finance to discuss the outlook for his company as energy stocks lead market gains in 2024.
Eifler emphasizes that Noble Corporation's long-term activity is "driven by oil price" (CL=F, BZ=F), stating that the company is "a long-term business" where its customers create "decade-long plans" when it comes to offshore drilling. Due to this, he says that short-term oil price movements have little to no effect on the company's operations.
Eifler notes that the current market dynamics "are in really good shape," setting the company up for "several years of spending" among its customers. He explains that during the "shale boom", a backlog for the company's services was created due to an increase in offshore drilling demand as consumers turned to "longer-term planning," which has driven activity in the post-COVID period.
"I like to keep people focused on where we've come from and where we're headed," Eifler told Yahoo Finance, adding, "which is a tremendous ramp-up in our services— and obviously that's coming through in rising EBITDA year-over-year."
JULIE HYMAN: Energy stocks have led the way on Wall Street this year amid strong demand and production levels. Our next guest leads a key player in the sector, Noble Energy. It's a leader in the offshore drilling industry. Joining us now, Robert Eifler, Noble Corporation CEO and President, fresh off ringing the closing bell at the New York Stock Exchange to celebrate the company's 100th anniversary. There he was just a few-- about a half hour ago.
Robert, thanks for being here. We have been talking a lot about rising oil prices and how that affects both the industry and American spending. But when you're talking about offshore drilling rigs, where you're signing long-term contracts, what's the relationship between the price of oil and the money that you guys make?
ROBERT EIFLER: It's a great question. And it's actually I'm glad you asked it, because it is sometimes misunderstood. Of course, through the long run, our activity is driven by oil price. But I would say that probably our stock trades more correlated to short-term oil price moves perhaps than it should, because our business is a long-term business. And in the offshore market, our customers are making decades-long plans. And normally, short term moves in oil price don't affect our specific service as quickly as some think.
JOSH LIPTON: And, Robert, you know, for a period of time, the oil companies were very focused, obviously, on lower cost US shale. Has that shifted? I mean, how is the business of deepwater drilling going right now?
ROBERT EIFLER: Yeah. Well, the offshore business has changed dramatically since just a few short years ago. And the market is actually in a really good shape right now. Our customer spending has gone up sequentially for several years in a row now. And their forward plans, which we call an industry jargon, FIDs, look to be going up for the next several years as well, which should drive several years of spending for our services.
During the shale boom, our customers were highly focused on the short cycle nature of shale plays. I think during that time, there were certain customers that would have liked to drill more offshore than they did. And that created a little bit of a backlog for our services as we've come out of COVID, and I think our customers are now taking a bit of a longer-term view of drilling and production. We're seeing some longer term planning, which is really driven activity in our sector.
JULIE HYMAN: And talk to us a little bit more short term, I guess, or if this year, next 12 months, middle term call it, because although I mentioned that energy stocks are up this year, shares of Noble are, in fact, not. They're down about 2%. You guys came out with perhaps an outlook for the year that had been below what some analysts had been looking for. So talk to me about how this year is going to look for you guys.
ROBERT EIFLER: Yeah. So this year's a little bit interesting. We have perhaps lost, and some of that is that we have a very strong year in front of us. We produced a little bit over $800 million of EBITDA last year. And our guidance this year is right around $1 billion. So we are up sequentially.
But really importantly, what we've got in on a-- guided in our last earnings call is an exit year run rate of somewhere from 1.2 to $1.4 billion of EBITDA. And that's kind of following the shape of the ramp up in the offshore market. It is this year a little bit non-linear however. We've got a little bit of white space, unoccupied space on some of our assets that we're working through the middle of this year. And that's probably slightly below where some of the analyst reports were.
I like to keep people focused on where we've come from and where we're headed, which is really a tremendous ramp up in activity for our services. And obviously, that's coming through in rising EBITDA year-on-year.
JOSH LIPTON: I'm just curious, Robert, how much does it cost to build a new rig? And how long does it take, and how long a contract do you need to generate meaningful returns?
ROBERT EIFLER: Yeah. Well, it's actually-- you've asked probably the perfect question, because that hits at the heart of what I think is interesting for investors and in our stock right now. We've come off of a major bill cycle and kind of the 2010 through 2014, 2015 era. And at this point, there is no new supply-- new build supply in sight. No one's really priced a new build rig.
What we like to say is that a new build drill ship would probably cost at least $750 million to build. Some people use $1 billion. We don't really know because we haven't priced it. But we would need a contract of at least $600,000 to $650,000 per day for at least 10 years in order to support that type of investment. And it would take about four years to build that rig.
So really, what you're looking at is about a 14 to 15-year horizon of a belief in day rates of $600,000 or $650,000 a day or higher. And that's against a market today, which is perhaps just below $500,000 a day with an average contracted term of just about a year, maybe just over a year. So there's a big discrepancy between new build economics and where we are today.
That said, we have a dividend. We're producing a great deal of cash. We've got, I think, better the-- best cash flow in the business. And so at these types of economics, we can make-- we can make money for our shareholders and continue to provide a great service for our customers.
JULIE HYMAN: And you guys are, what, I think the third largest fleet is what you all own right now. You've done that in part by making-- not just building your own rigs, but acquiring other companies that own fleets. Are you done with acquisitions for now?
ROBERT EIFLER: Well, we are just closing the books on the integration from our transformative merger with Maersk drilling, which we closed in late 2022. And so we're proud to say that that integration has gone extremely well. We've prioritized the customer experience through all that. And we've gained a lot of operational abilities through our new scale that we didn't have before. So we're very pleased with the outcome.
Where we sit today, we have I think the scale that we need to compete globally as we do in work for many of the largest oil companies in the world. But we'll always look for opportunities. If something makes sense to our shareholders to grow, that's something that we would consider as well.
JULIE HYMAN: And finally, Robert, I was curious, you all have a contract with-- a long-term contract with Exxon off the Coast of Guyana in South America. And there's a little bit of a kerfuffle, I guess you could call it right now, because Chevron is attempting to buy Hess, which is Exxon's partner in that development. Exxon challenging that. Any risk for you all because of that sort of conflict that's going on?
ROBERT EIFLER: No, not really. We have long-term contracts that are secure there. We have an excellent operating relationship with Exxon who's the operator there. We-- whatever happens there, below the surface of the sea there is one of the world's greatest oil plays with some of the lowest lifting costs in the world. And with those volumes, they translate into a low carbon footprint as well.
And so we're highly confident that all of those reserves will be drilled. And we're there to support our customer and continue to provide a safe and efficient operation. We see whatever possible outcome, we can manage with whatever outcome comes out of this.
JOSH LIPTON: Robert, thank you so much for joining the show today. Appreciate your time.
ROBERT EIFLER: That's great. Thank you very much for having me.
