Fitch Affirms Noble Corp.'s IDR at 'A-'; Special Dividend Not to Impact Ratings

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Rating (IDR) and senior unsecured ratings for Noble Corp. (Noble; NYSE: NE) at 'A-' following the announcement that the company's board of directors voted to pay a special dividend of 0.56CHF/share (approximately $136 million) and increase the regular dividend from 0.20CHF/share to 0.52CHF/share. The Rating Outlook remains Stable.

The rating affirmation reflects Noble's robust credit profile, high-quality, diverse fleet of offshore drilling rigs, the company's history of maintaining a strong balance sheet throughout industry cycles and the current contract backlog which is estimated at $8.1 billion. The Stable Rating Outlook is based on Fitch's expectation for management to continue to maintain a conservative balance sheet as Noble looks to make future rig acquisitions to expand its fleet and/or reward shareholders through higher dividends or share repurchases.

Credit metrics were extremely robust at Dec. 31, 2009 with interest coverage of 47.1 times (x) and debt-to-EBITDA of 0.3x. Free cash flow (cash from operations less capital expenditures less dividends) was positive $593.7 million in 2009 despite sizable capital expenditures associated with the company's newbuild activities. While dividend payments are expected to rise from $48 million in 2009 to $224 million in 2010 if shareholders approve the board's recommendation, Noble is still expected to be free cash flow positive in 2010.

Cash flows in 2010 will benefit from reduced capital spending (estimated to fall from $1.4 billion to just under $1 billion), as well as benefiting from all but one of the company's newbuilds leaving the shipyard and going to work. Noble's revenue backlog of approximately $8.1 billion is expected to significantly limit downside risk to the company despite the pullback in industry conditions including lower utilization levels and dayrates.

Longer-term risks to Noble's credit profile stem primarily from weaker industry conditions (particularly for jackup rigs as a result of the increase in supply of speculative newbuild rigs in 2010 and beyond), and the potential for additional debt to fund acquisitions, asset purchases or shareholder friendly activities. Noble's Board of Directors has authorized share repurchases for which 12.9 million shares ($516 million) remain available for repurchase; however, Fitch would expect management to fund repurchases out of excess cash flows and therefore not result in additional balance sheet debt.

It is important to note that a key risk for the sector remains falling oil prices. Oil prices have rallied from the early 2009 lows and currently trade above Fitch's long-term expectations for the commodity ($60/barrel). Based on the current global economic environment and the resulting supply/demand fundamentals, Fitch believes prices have room to pull back from current levels which could result in reduced oil drilling activity and further pressure the outlook for the drilling and service sector. Additionally, natural gas remains susceptible to lower prices in 2010 as a result of further weakening in economic conditions, mild winter weather or upon signs of additional supply strength. Fitch will continue to monitor both individual company performance and industry conditions for rating implications should either oil or natural gas prices fall significantly below Fitch's long-term price expectations.

Noble maintains liquidity from cash and equivalents ($735.5 million at year-end 2009), its $600 million credit facility (fully available at year-end 2009) and operating cash flows ($2.1 billion for the latest 12 months ending Dec. 31, 2009). Noble has no maturities until the June 2013 maturity of the company's 5.875% senior notes. The company's senior unsecured credit facility, while currently undrawn, matures in March 2013. The company's only financial covenant is a 60% limit on maximum debt-to-total tangible capitalization which is in its senior unsecured credit facility. Limitations on additional liens are restricted to a maximum of 10% of consolidated tangible net worth. None of the company's senior unsecured notes contain financial covenants.

Capital expenditures are expected to be approximately $1 billion in 2010, which is composed of $275 million for the company's newbuild program, $190 million related to the upgrade of the company's Brazilian drillships, $300 million for major upgrade projects, $160 million for sustaining capital expenditures and $75 million for capitalized interest and other. Noble is expected to remain free cash flow (FCF) positive in 2010.

Noble is a leading provider of diversified services for the oil and gas industry. Contract drilling services are performed with the company's fleet of 62 mobile offshore drilling units located in key markets worldwide. This fleet consists of 13 semisubmersibles, four dynamically positioned drillships, 43 jackups and two submersibles. The fleet totals include one newbuild semisubmersible rig (Noble Jim Day) and one newbuild drillship still under construction (Globetrotter). The fleet is predominately deployed in international markets, including the Middle East, Mexico, the North Sea, Brazil, western Africa, and India.

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