<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER: 0-13857
NOBLE DRILLING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 73-374541
(State of incorporation) (I.R.S. employer identification number)
10370 RICHMOND AVENUE, SUITE 400 77042
HOUSTON, TEXAS (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 974-3131
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No. [ ]
Number of shares of Common Stock outstanding as of
November 11, 1997: 131,314,093
<PAGE> 2
FORM 10-Q
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................... $ 118,244 $ 149,632
Restricted cash ............................................. -- 2,000
Investment in marketable equity securities .................. -- 2,533
Investment in marketable debt securities .................... 16,313 19,296
Accounts receivable (net of allowance of $722 and $1,494) ... 115,399 101,619
Costs of uncompleted contracts in excess of billings ........ 17,237 18,505
Inventories ................................................. 7,312 3,287
Deferred income taxes ....................................... 6,259 39,248
Prepaid expenses ............................................ 24,964 19,572
Other current assets ........................................ 46,373 32,785
----------- -----------
Total current assets .......................................... 352,101 388,477
----------- -----------
PROPERTY AND EQUIPMENT
Drilling equipment and facilities ........................... 1,299,216 1,176,145
Other ....................................................... 24,237 27,924
----------- -----------
1,323,453 1,204,069
Accumulated depreciation .................................... (236,482) (247,035)
----------- -----------
1,086,971 957,034
----------- -----------
INVESTMENT IN AND NOTES RECEIVABLE FROM AFFILIATES ............ 33,285 9,188
DEFERRED INCOME TAXES ......................................... 8,488 2,296
OTHER ASSETS .................................................. 16,634 10,412
=========== ===========
$ 1,497,479 $ 1,367,407
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current installments of long-term debt .. $ 10,807 $ 3,622
Accounts payable ............................................ 105,945 66,906
Taxes payable ............................................... 18,369 20,304
Other current liabilities ................................... 41,547 60,668
----------- -----------
Total current liabilities ..................................... 176,668 151,500
LONG-TERM DEBT ................................................ 140,230 239,506
DEFERRED INCOME TAXES ......................................... 76,199 50,331
OTHER LIABILITIES ............................................. 2,252 821
----------- -----------
395,349 442,158
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $0.10 par value ............................... 13,311 13,219
Capital in excess of par value .............................. 923,243 916,004
Retained earnings (accumulated deficit) ..................... 210,939 (1,205)
Treasury stock at cost ...................................... (43,700) (1,852)
Other ....................................................... (1,663) (917)
----------- -----------
1,102,130 925,249
----------- -----------
COMMITMENTS AND CONTINGENCIES ................................. -- --
=========== ===========
$ 1,497,479 $ 1,367,407
=========== ===========
</TABLE>
See accompanying notes to the interim financial statements.
2
<PAGE> 3
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Contract drilling services ....................... $ 111,569 $ 110,928
Labor contract drilling services ................. 14,910 8,542
Turnkey drilling services ........................ 41,086 35,056
Engineering and consulting services .............. 540 1,042
Other revenue .................................... 3,531 2,504
--------- ---------
171,636 158,072
--------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ....................... 39,000 64,659
Labor contract drilling services ................. 9,958 6,087
Turnkey drilling services ........................ 41,171 25,329
Engineering and consulting services .............. 141 591
Other expense .................................... 1,009 1,849
Depreciation and amortization .................... 18,674 14,621
Selling, general and administrative .............. 18,036 14,420
Minority interest ................................ -- (33)
--------- ---------
127,989 127,523
--------- ---------
OPERATING INCOME .................................... 43,647 30,549
OTHER INCOME (EXPENSE)
Interest expense ................................. (1,595) (6,562)
Interest income .................................. 2,621 2,652
Other, net ....................................... 28 934
--------- ---------
INCOME BEFORE INCOME TAXES .......................... 44,701 27,573
INCOME TAX PROVISION ................................ (11,220) (2,352)
--------- ---------
NET INCOME .......................................... 33,481 25,221
PREFERRED STOCK DIVIDENDS ........................... -- (1,509)
--------- ---------
NET INCOME APPLICABLE TO COMMON SHARES .............. $ 33,481 $ 23,712
========= =========
NET INCOME APPLICABLE TO COMMON SHARES PER SHARE .... $ 0.25 $ 0.19
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .......... 133,672 123,755
</TABLE>
See accompanying notes to the interim financial statements.
3
<PAGE> 4
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Contract drilling services ................................. $ 339,768 $ 238,891
Labor contract drilling services ........................... 34,133 24,247
Turnkey drilling services .................................. 140,087 98,782
Engineering and consulting services ........................ 1,894 4,084
Other revenue .............................................. 9,461 6,511
--------- ---------
525,343 372,515
--------- ---------
OPERATING COSTS AND EXPENSES
Contract drilling services ................................. 132,687 142,634
Labor contract drilling services ........................... 23,527 17,474
Turnkey drilling services .................................. 135,087 70,394
Engineering and consulting services ........................ 1,373 2,625
Other expense .............................................. 3,184 3,910
Depreciation and amortization .............................. 55,556 32,904
Selling, general and administrative ........................ 49,514 38,517
Gains on sales of property and equipment,
net of impairments........................................ (197,676) 73
Minority interest .......................................... 505 (101)
--------- ---------
203,757 308,430
--------- ---------
OPERATING INCOME .............................................. 321,586 64,085
OTHER INCOME (EXPENSE)
Interest expense ........................................... (11,690) (12,906)
Interest income ............................................ 7,670 4,030
Other, net ................................................. 1,567 2,447
--------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE ........... 319,133 57,656
INCOME TAX PROVISION .......................................... (100,304) (5,456)
--------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ............................ 218,829 52,200
EXTRAORDINARY CHARGE, NET OF TAX .............................. (6,685) --
--------- ---------
NET INCOME .................................................... 212,144 52,200
PREFERRED STOCK DIVIDENDS ..................................... -- (4,529)
--------- ---------
NET INCOME APPLICABLE TO COMMON SHARES ........................ $ 212,144 $ 47,671
========= =========
NET INCOME APPLICABLE TO COMMON SHARES PER SHARE:
Income before extraordinary charge ......................... $ 1.63 $ 0.45
Extraordinary charge ....................................... (0.05) --
--------- ---------
Net income applicable to common shares per share ........... $ 1.58 $ 0.45
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .................... 134,217 104,968
</TABLE>
See accompanying notes to the interim financial statements.
4
<PAGE> 5
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................... $ 212,144 $ 52,200
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................................ 55,556 32,904
Gain on sale of assets ................................................... (197,676) (8,334)
Deferred income tax provision ............................................ 52,665 --
Asset impairments ........................................................ -- 7,600
Extraordinary charge, net of tax ......................................... 6,685 --
Other .................................................................... 512 446
Changes in current assets and liabilities:
Accounts receivable .................................................... (14,356) (18,103)
Proceeds from sale of marketable equity securities ..................... 2,353 4,945
Other assets ........................................................... (1,616) (162)
Accounts payable ....................................................... 34,772 (10,268)
Other liabilities ...................................................... (12,395) 34,128
--------- ---------
Net cash provided by operating activities .............................. 138,644 95,356
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ........................................... (251,638) (131,485)
Acquisition of Neddrill, net of cash acquired ................................ -- (284,199)
Proceeds from sale of property and equipment ................................. 268,818 56,544
Proceeds from sale of (investment in) marketable debt securities ............. 3,033 (10,444)
Investment in unconsolidated affiliates ...................................... (23,875) --
--------- ---------
Net cash used by investing activities .................................. (3,662) (369,584)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt ................................................. -- 124,744
Payment of long-term debt .................................................... (128,242) (4,135)
Dividends paid on preferred stock ............................................ -- (6,038)
Issuance of common stock ..................................................... 4,503 270,479
Purchase of shares returned to treasury ...................................... (42,309) (2,052)
Payment of short-term debt ................................................... -- (6,122)
--------- ---------
Net cash (used) provided by financing activities ....................... (166,048) 376,876
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ........................................ (322) (114)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................... (31,388) 102,534
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 149,632 41,307
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 118,244 $ 143,841
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ................................................................. $ 19,961 $ 6,242
Income taxes ............................................................. $ 41,786 $ 1,389
Noncash investing and financing activities:
Neddrill acquisition with common stock ................................... $ 50,000 $ --
Insurance financing agreement ............................................ $ 26,063 $ --
</TABLE>
See accompanying notes to the interim financial statements.
5
<PAGE> 6
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
NOTE 1 - BASIS OF ACCOUNTING
The accompanying condensed consolidated financial statements of Noble
Drilling Corporation ("Noble Drilling" or, together with its consolidated
subsidiaries, unless the context requires otherwise, the "Company"), have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all disclosures required by
generally accepted accounting principles for complete financial statements. All
significant transactions among Noble Drilling and its consolidated subsidiaries
have been eliminated. The condensed consolidated financial statements have not
been audited. However, in the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
financial statements have been included. Results of operations for interim
periods are not necessarily indicative of the results of operations that may be
expected for the entire year. These interim financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
On July 1, 1996, the Company completed the acquisition from Royal
Nedlloyd N.V. ("Nedlloyd") and its wholly owned subsidiary, Neddrill Holding
B.V., of Nedlloyd's offshore drilling division, Neddrill ("Neddrill"). The
Company's condensed consolidated financial statements include the results of
Neddrill from July 1, 1996.
Certain reclassifications have been made in prior year condensed
consolidated financial statements to conform to the classifications used in the
1997 condensed consolidated financial statements. These reclassifications have
no impact on net income or loss.
NOTE 2 - ACQUISITIONS AND DISPOSITIONS
On July 1, 1996, the Company completed its agreement with Nedlloyd to
acquire the assets utilized in the offshore contract drilling and accommodation
businesses of Neddrill.
The following table provides selected consolidated financial
information for the Company on a pro forma basis assuming that the Neddrill
acquisition had occurred on January 1, 1996. The pro forma information set forth
below is not necessarily indicative of what the Company's results of operations
would have been had the transaction been consummated as of January 1, 1996, nor
is such information necessarily indicative of the Company's future results of
operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
---------------
(Unaudited)
<S> <C>
Operating revenues..............................................$ 454,352
Net income applicable to common shares..........................$ 58,779
Net income applicable to common shares per share................$ 0.47
</TABLE>
On May 7, 1997, the Company completed the sale to Pride Petroleum
Services, Inc. of its 12 mat supported jackup rigs, including the hull of one
former mat supported jackup rig (Linn Richardson), which had all drilling
machinery and equipment removed. The sales price was $268,818,000 in cash. The
Company recognized a pre-tax gain of $197,676,000 in connection with the sale
which has been included in "Gains on sales of property and equipment, net of
impairments" in the accompanying Condensed Consolidated Statements of Operations
for the nine months ended September 30, 1997.
6
<PAGE> 7
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - (Continued)
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
NOTE 3 - INVESTMENT IN AND NOTES RECEIVABLE FROM AFFILIATES
At September 30, 1997, the Company's investments in affiliates
consisted of a 41 percent interest in Arktik Drilling Ltd., Inc., ("Arktik") and
a 50 percent interest in Noble Kvaerner Drilling Inc. ("Noble Kvaerner"). The
Company accounts for these investments using the equity method. Arktik is a
Bahamian joint venture company that owns and operates the drillship Neddrill
Muravlenko. Noble Kvaerner is a Bahamian joint venture company that operates an
offshore jackup rig, the Kolskaya. The total investment balance at September 30,
1997 was $610,000 and equity in earnings was $222,000 for both the three months
and the nine months ended September 30, 1997.
The Neddrill Muravlenko refurbishment has been completed, with the
exception of installing a blowout preventer, and it is available to operate as a
workover unit in the fourth quarter of 1997 for Petroleo Brasiliero S.A.
("Petrobras"). Upon installation of a blowout preventer, the Neddrill Muravlenko
will begin drilling operations with Petrobras under a five-year contract, with a
one-year option to Petrobras. The total cost of the refurbishment is expected to
be approximately $52,500,000. As of September 30, 1997, the Company had funded
$37,600,000 to Arktik, of which $12,800,000 had been paid on behalf of one of
the other Arktik joint venturers. Such amount is included in "Other current
assets" in the accompanying Condensed Consolidated Balance Sheet at September
30, 1997. Of the remaining $24,800,000 funded by the Company for the upgrade of
the Muravlenko, approximately one-half is payable from Arktik with the proceeds
obtained in a bank financing, which is currently being negotiated. Any amount
remaining to be collected once the bank financing is completed will be repaid by
Arktik over the term of the Petrobras contract.
The Kolskaya was converted from accommodation mode into drilling mode
during the second quarter of 1997, and it began working under a three-year
contract in July 1997. The total cost of the conversion was approximately
$18,000,000. As of September 30, 1997, the Company had funded $12,750,000 to
Noble Kvaerner, of which $4,875,000 had been paid on behalf of one of the other
Noble Kvaerner joint venturers. Such amount is included in "Other current
assets" in the accompanying Condensed Consolidated Balance Sheet at September
30, 1997. Of the remaining $7,875,000 funded by the Company for the upgrade of
the Kolskaya, Noble Kvaerner is currently negotiating a credit agreement to
provide for a $10,000,000 loan the proceeds of which will be used to repay the
Company.
NOTE 4 - DEBT
During the first quarter of 1997, the Company purchased $29,555,000
principal amount of its 9 1/4% Senior Notes Due 2003 (the "9 1/4% Senior
Notes"), which resulted in an extraordinary charge of $1,704,000, net of taxes
of $918,000. On May 14, 1997, the Company announced a tender offer to purchase
for cash all $84,445,000 principal amount then outstanding of its 9 1/4% Senior
Notes. Pursuant to the tender offer, the Company purchased $81,330,000 principal
amount of 9 1/4% Senior Notes during the second quarter of 1997, which resulted
in an extraordinary charge of $4,981,000, net of taxes of $2,682,000. The
extraordinary charge represents the difference between the acquisition price and
the net carrying value of the notes, including unamortized debt issue costs.
After giving effect to the purchases, the Company had $3,115,000, principal
amount of 9 1/4% Senior notes outstanding at September 30, 1997.
On March 31, 1997, the Company redeemed the remaining $1,026,000
principal amount of U.S. Government Financing Sinking Fund Bonds.
The Company capitalizes interest costs related to construction in
progress on qualifying upgrade projects. The Company capitalized $2,073,000 of
interest during both the three months and the nine months ended September 30,
1997.
NOTE 5 - CREDIT FACILITIES
The Company entered into a credit agreement dated August 14, 1997 (the
"Credit Agreement") with a group of banks. The Credit Agreement provides for a
five-year unsecured revolving credit facility in the amount of $200,000,000.
Loans under the Credit Agreement bear interest, at the option of the Company, at
either a base rate or LIBOR plus a margin (0.40 percent currently) that varies
depending on the Company's public senior secured debt rating or its funded debt
to capital ratio. The Credit Agreement requires compliance with various
covenants, including minimum consolidated net worth, interest coverage ratios,
leverage ratios and fleet coverage ratios.
7
<PAGE> 8
FORM 10-Q
NOBLE DRILLING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - (Continued)
(Dollar amounts in tables are in thousands, except per share amounts)
(Unaudited)
NOTE 6 - SHAREHOLDERS' EQUITY
On May 12, 1997, the Company announced that its Board of Directors has
authorized the repurchase of up to 10,000,000 shares of the Company's common
stock, or approximately eight percent of its outstanding common stock. The
common stock purchases, if any, will be made from time to time on the open
market or through privately negotiated transactions at prices determined by the
Company. As of September 30, 1997, the Company had purchased 1,857,000 shares of
its outstanding common stock for $42,309,000 pursuant to the repurchase program.
NOTE 7 - ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("FAS 128"), which established new guidelines for computing and presenting
earnings per share and is effective for financial statements issued for periods
ending after December 15, 1997. If FAS 128 had been in effect for the three
months and nine months ended September 30, 1997 and 1996, net income per common
share would be unchanged.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130") and No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). FAS 130 established standards for reporting and displaying comprehensive
income and its components in general-purpose financial statements. Comprehensive
income includes net income and several other items that current accounting
standards require to be recognized outside of the Statement of Operations. FAS
131 requires public business enterprises to report certain information about
their operating segments; report certain enterprise-wide information about their
products and services, their activities in different geographic areas, and their
reliance on major customers; and disclose certain segment information in their
interim financial statements. These statements are effective for fiscal years
beginning after December 15, 1997 and will not have an effect on the Company's
results of operations or financial position.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has entered into long-term drilling contracts for two of
its Economic Value Advantage ("EVA-4000(TM)") design semisubmersible rigs, and
has a commitment for a third unit. The total cost of these conversions is
expected to be approximately $400,000,000. The Company is currently marketing
several of its submersible rigs for conversion into EVA-4000(TM) semisubmersible
rigs. Because any such conversion would require substantial capital
expenditures, such projects will not be completed except in connection with
entering into a long-term drilling contract with an operator. However, given the
strong demand for drilling rigs and related services, increasingly heavy
backlogs for equipment and services required to complete the conversions could
constrain the Company's ability to complete the conversions on a timely basis.
In order to preserve its ability to expedite the conversion of the rigs once
drilling contracts are awarded, the Company has entered into purchase
commitments for certain key equipment components and construction services with
several vendors. As of September 30, 1997, the Company has made payments of
approximately $36,000,000 toward these commitments and the total commitments
remaining under these agreements are approximately $138,000,000.
8
<PAGE> 9
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy, demand for the Company's
assets, commodity prices and industry conditions, fleet enhancements, turnkey
activities, capital expenditures, sufficiency of liquidity and capital
resources, and indebtedness covenant compliance, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations include, but
are not limited to, volatility of oil and gas prices, increasingly heavy
backlogs for equipment and services required to complete on schedule major
shipyard refurbishment and conversion projects which are either planned or in
progress, potential decrease in demand for drilling services in the U.S. Gulf of
Mexico ("U.S. Gulf") where the Company has a concentration of drilling rigs
(which could also result in competitors moving their rigs to other markets where
the Company has drilling rigs), risks associated with turnkey drilling
operations, intense competition in the drilling industry, political and economic
conditions in international markets (including Nigeria, Venezuela and India),
risks of natural disasters (hurricanes), operational risks (such as blowouts,
fires and loss of production), early termination provisions generally found in
the Company's drilling contracts, limitations on insurance coverage, and
requirements and potential liability imposed by governmental regulation of the
drilling industry (including environmental regulation).
GENERAL
The following discussion is intended to assist in understanding the
Company's financial position as of September 30, 1997, and its results of
operations for the three months and nine months ended September 30, 1997.
Reference is also made to the Condensed Consolidated Financial Statements and
the Notes thereto, included elsewhere herein, which should be read in
conjunction with the discussion.
As used herein, unless otherwise required by the context, "Noble
Drilling" refers to Noble Drilling Corporation and the "Company" refers to Noble
Drilling and its consolidated subsidiaries.
OUTLOOK
Since 1995, demand for the Company's drilling rigs has increased and
resulting dayrates have risen significantly. The improvement in the markets has
been in part due to favorable commodity prices and also to technological
advances that have expanded the opportunities for offshore exploration,
particularly in deeper water depths. The increased activity levels have resulted
in demand sufficient to absorb virtually all rigs in working condition which are
being actively marketed. Demand for certain types of deepwater equipment
currently exceeds the existing capacity, and several of the Company's
competitors have announced plans to construct new rigs to service this demand.
The Company believes that the worldwide demand for drilling rigs should
remain strong enough to support the current level of offshore drilling activity
for the remainder of 1997, particularly in international markets, assuming that
oil prices and the respective political environments remain stable.
Historically, though, the offshore contract drilling market has been highly
competitive and cyclical, and the Company cannot predict the future level of
demand for its drilling services nor the future conditions in the offshore
contract drilling industry. As a result of the increased demand for drilling
rigs and related services, exploration and development costs have risen steadily
over the past two years. Recent favorable trends in commodity prices have helped
offset the higher costs, but adverse fluctuations in the prices of oil and
natural gas may affect the demand for drilling equipment and related services.
Any decrease in drilling activity may impact the utilization of the Company's
assets and the dayrates earned on the equipment.
9
<PAGE> 10
FORM 10-Q
The Company has maintained a strategy in recent years to selectively
expand its international and deepwater drilling capabilities through fleet and
individual asset acquisitions, rig upgrades and enhancements, and redeployment
of assets in important geological areas. The Company expects to continue with
this strategy in the foreseeable future to the extent that expansions,
enhancements and redeployments are economically justified.
In response to the growth in worldwide demand for drilling rigs capable
of operating in water depths greater than 5,000 feet, the Company is upgrading
several of its shallow water submersible rigs into Economic Value Advantage
("EVA-4000(TM)") design semisubmersible rigs. The first EVA-4000(TM) conversion,
the Noble Paul Romano, has been contracted to Shell Deepwater Development, Inc.
("Shell"), an affiliate of Shell Oil Company, for four or five years, at Shell's
option. The Noble Paul Romano is expected to be available for work in the second
half of 1998. The second EVA-4000(TM) conversion, the Noble Paul Wolff, will be
capable of operating in 8,900 feet of water and has been contracted to Petroleo
Brasiliero S.A. ("Petrobras") for six years. The Noble Paul Wolff is expected to
be available for work in late 1998. The Company has also announced a commitment
to convert a third submersible rig into an EVA-4000(TM) semisubmersible rig. The
term of the commitment would be five years, and the conversion is expected to be
completed in 1999.
The Company is also actively marketing other submersible rigs for
conversion into deepwater EVA-4000(TM) design semisubmersible rigs. In addition,
the Company is mobilizing the Shelf 4, a semisubmersible rig hull purchased in
late 1996, back to the U.S. Gulf of Mexico to secure a long term drilling
contract. If the Company is successful in negotiating a contract for this unit,
the Company would have to make significant capital expenditures to refurbish and
upgrade the Shelf 4.
Some of the other significant upgrades include the Noble Bill Jennings
and Noble Leonard Jones, which are being upgraded from independent leg slot rigs
to cantilever drilling units with proprietary extended reach cantilever design
and water depth ratings of 390 feet. These rigs are scheduled to be available
for work in the fourth quarter of 1997. In addition, the refurbishment of the
Noble Al White (formerly the Neddrill Trigon) for an 18-month contract in the
Norwegian sector of the North Sea is expected to be completed in the fourth
quarter of 1997. The Company has completed the reactivation of two idle
submersible rigs, the Noble Joe Alford and Noble Lester Pettus, and a third
submersible, the Noble Fri Rodli, is anticipated to be completed by the
beginning of 1998. The installation and testing of blowout preventers and
related control systems on the Noble Roger Eason (formerly the Neddrill 2) and
the Neddrill Muravlenko have been delayed pending the delivery of key equipment
components. The Company anticipates at least one of the two rigs' equipment will
be delivered before the end of 1997, and the other equipment package is expected
to be delivered in 1998.
The Company experienced a net loss on its turnkey drilling operations
in the third quarter of 1997 as a result of losses recorded on two wells. One of
the wells was not yet completed at September 30, 1997. The Company anticipates
the well will be completed in the fourth quarter of 1997, and has fully accrued
for the estimated loss upon completion of this well at September 30, 1997.
Results of operations for turnkey drilling services for the three months and
nine months ended September 30, 1997, were net losses of $2,262,000 and
$2,412,000, respectively. Through the first nine months of 1997, there were 27
turnkey well completions compared to 28 completions for the year ended December
31, 1996.
RESULTS OF OPERATIONS
SIGNIFICANT 1997 EVENTS
The consolidated results of operations for the three months and nine
months ended September 30, 1997, reflect several significant transactions and
events. Management believes these events reflect the Company's efforts to
enhance its position within the offshore contract drilling services industry.
On May 7, 1997, the Company completed the sale of its 12 mat supported
jackup rigs to Pride Petroleum Services, Inc. for $268,818,000 in cash,
resulting in a pre-tax gain of $197,676,000, which is included in "Gains on
sales of property and equipment, net of impairments" in the accompanying
Condensed Consolidated Statements of Operations for the nine months ended
September 30, 1997. Revenues, gross margin and operating income generated from
the mat rigs were $35,155,000, $18,585,000 and $15,231,000, respectively, for
the period from January 1, 1997 through May 7, 1997.
10
<PAGE> 11
FORM 10-Q
The Company purchased $110,885,000 principal amount of its 9 1/4%
Senior Notes Due 2003 ("9 1/4% Senior Notes") during the nine months ended
September 30, 1997, resulting in an extraordinary charge of $6,685,000. The
extraordinary charge represents the difference between the acquisition price and
the net carrying value of the notes, including unamortized debt issuance costs.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net income applicable to common shares for the third quarter of 1997
(the "Current Quarter") was $33,481,000, or $0.25 per share, on operating
revenues of $171,636,000, compared to net income applicable to common shares of
$23,712,000, or $0.19 per share, on operating revenues of $158,072,000 for the
third quarter of 1996 (the "Comparable Quarter"). The increases in operating
revenues and net income were attributable to higher domestic and international
average dayrates, higher labor contract revenues and gross margin due to
improved dayrates and the startup of the Hibernia project in Canada, and
contributions from the Noble Gus Androes, Noble Chuck Syring, Noble Kenneth
Delaney and Noble Jimmy Puckett jackup rigs, which were acquired during 1996 and
placed into service in the fourth quarter of 1996. The Current Quarter's results
were negatively impacted by the Company's turnkey operations, due primarily to
two wells which incurred losses during the Current Quarter as a result of
unexpected drilling difficulty.
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization rates,
operating days and average dayrates for the Company's offshore rig fleet for the
three months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATES
---------------------- ------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
International ..... 94% 95% 2,366 2,251 $36,815 $30,974
Domestic ......... 95% 99% 614 1,430 $39,845 $24,187
</TABLE>
- --------------
(1) Information reflects the policy of the Company to report utilization
rates based on the number of actively marketed rigs owned in the fleet.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
for the Company's international operations for the three months ended September
30, 1997 and 1996:
<TABLE>
<CAPTION>
OPERATING REVENUES GROSS MARGIN
------------------------ --------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services
Offshore ......................... $ 87,104 $ 69,723 $ 52,805 $ 27,702
Land ............................. -- 2,630 -- 1,110
--------- --------- --------- ---------
Total contract drilling services .... 87,104 72,353 52,805 28,812
Labor contract drilling services .... 14,910 8,542 4,952 2,455
Turnkey drilling services ........... 6,752 -- (3,101) --
Engineering and consulting services . 540 1,042 34 451
Other revenue ....................... 2,512 1,345 1,980 686
-------- --------- --------- ---------
Total ...................... $ 111,818 $ 83,282 $ 56,670 $ 32,404
========= ========= ========= =========
</TABLE>
11
<PAGE> 12
FORM 10-Q
OPERATING REVENUES. Offshore contract drilling services revenues
increased $17,381,000 for the Current Quarter as compared to the Comparable
Quarter. The increase is primarily attributable to higher average international
dayrates, which increased from approximately $31,000 per day in the Comparable
Quarter to approximately $36,800 in the Current Quarter. The remaining
increase is attributable to the Noble Jimmy Puckett, Noble Kenneth Delaney,
Noble Gus Androes and Noble Chuck Syring jackup rigs, which were acquired in
1996 and placed into service in the fourth quarter of 1996. All of the Company's
land assets were sold in December 1996. Labor contract drilling services
revenues increased $6,368,000 in the Current Quarter as compared to the
Comparable Quarter, due to the startup of the Hibernia project offshore
Newfoundland, Canada and to higher average dayrates on the North Sea platform
contracts. Turnkey drilling services revenues increased $6,752,000 as a result
of one well completion in the North Sea in the Current Quarter, as compared to
no international wells completed in the Comparable Quarter. There was one
international turnkey well in progress at September 30, 1997, offshore Mexico in
the Bay of Campeche.
GROSS MARGIN. International offshore contract drilling services gross
margin increased $25,103,000 in the Current Quarter as compared to the
Comparable Quarter. The increase is primarily attributable to higher average
international dayrates and contributions from the Noble Jimmy Puckett, Noble
Kenneth Delaney, Noble Gus Androes and Noble Chuck Syring, which were acquired
in 1996 and placed into service in the fourth quarter of 1996. The increase in
gross margin for labor contract drilling services in the Current Quarter as
compared to the Comparable Quarter is attributable to the contribution of the
Hibernia project offshore Newfoundland, Canada and to higher average dayrates on
the North Sea platform contracts. The negative results from international
turnkey drilling services are attributable to unexpected drilling difficulties
on a well in progress offshore Mexico. At September 30, 1997, the Company has
fully accrued for the estimated loss of the well in Mexico upon completion.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
for the Company's domestic operations for the three months ended September 30,
1997 and 1996:
<TABLE>
<CAPTION>
OPERATING REVENUES GROSS MARGIN
------------------------ -------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services
Offshore ............................ $ 24,465 $ 34,587 $ 19,764 $ 19,670
Land ................................ -- 3,988 -- 1,245
--------- --------- --------- ---------
Total contract drilling services ....... 24,465 38,575 19,764 20,915
Turnkey drilling services .............. 34,334 35,056 3,016 6,269
Engineering and consulting services .... -- -- 365 --
Other revenue .......................... 1,019 1,159 542 (31)
--------- --------- --------- ---------
Total ......................... $ 59,818 $ 74,790 $ 23,687 $ 27,153
========= ========= ========= =========
</TABLE>
OPERATING REVENUES. Domestic offshore contract drilling services
revenues decreased $10,122,000 in the Current Quarter as compared to the
Comparable Quarter. The decrease is primarily attributable to the sale of the
Company's mat supported jackup fleet, which reduced the number of rig operating
days in the Current Quarter as compared to the Comparable Quarter. The decrease
in rig operating days was partially offset by the significant increase in the
average domestic contract drilling dayrate. The average domestic dayrate
increased from approximately $24,200 per day in the Comparable Quarter to
approximately $39,800 in the Current Quarter. All of the Company's land drilling
assets were sold in December 1996. There were five turnkey wells completed in
the Current Quarter as compared to ten in the Comparable Quarter and the average
revenue per completed well was higher in the Current Quarter.
12
<PAGE> 13
FORM 10-Q
GROSS MARGIN. Domestic offshore contract drilling services gross margin
was relatively flat in the Current Quarter as compared to the Comparable
Quarter, due primarily to higher average domestic dayrates offset by the sale of
the Company's mat supported jackup fleet on May 7, 1997. The decrease in turnkey
drilling services gross margin was attributable to fewer turnkey well
completions in the Current Quarter as compared to the Comparable Quarter. At
September 30, 1997, the Company had one domestic turnkey well in progress.
OTHER OPERATING ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $4,053,000 in the Current Quarter as compared to the
Comparable Quarter. Of this amount, approximately $2,320,000 relates to the
Noble Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck
Syring, which were acquired in 1996 and placed into service in the latter part
of the year. The remaining increase is attributable to rig refurbishments
subsequent to the Comparable Quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $3,616,000 in the Current Quarter as
compared to the Comparable Quarter. The majority of the increase is attributable
to costs of a stock-based employee compensation plan, which costs are based
solely on changes in the market price of the Company's common stock.
INTEREST EXPENSE. Interest expense decreased $4,967,000 in the Current
Quarter as compared to the Comparable Quarter due to the repurchases of
$121,885,000 principal amount of the Company's 9 1/4% Senior Notes in the fourth
quarter of 1996 and in 1997. See "Results of Operations - Significant 1997
Events." In addition, the Company capitalized $2,073,000 of interest costs in
the Current Quarter related to construction in progress on qualifying upgrade
projects.
INCOME TAX PROVISION. The effective income tax rate in the Current
Quarter increased to approximately 25 percent from approximately nine percent in
the Comparable Quarter. The Comparable Quarter was favorably impacted by the
recognition of deferred tax benefits related to net operating loss
carryforwards.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net income applicable to common shares for the nine months ended
September 30, 1997 (the "Current Period"), was $212,144,000, or $1.63 per share,
on operating revenues of $525,343,000, compared to net income applicable to
common shares of $47,671,000, or $0.45 per share, on operating revenues of
$372,515,000 for the nine months ended September 30, 1996 (the "Comparable
Period"). See "Results of Operations - Significant 1997 Events" for information
on non-recurring transactions and their impact on the results for the Current
Period. Excluding the effects of non-recurring items, net income applicable to
common shares increased 89% to $90,340,000, or $0.67 per share, for the Current
Period compared to the Comparable Period.
The increases in operating revenues and net income are attributable to
significantly higher domestic and international average dayrates, the
contributions from the Noble Gus Androes, Noble Chuck Syring, Noble Kenneth
Delaney and Noble Jimmy Puckett, which were acquired during 1996 and placed into
service in the fourth quarter of 1996, and higher labor contract revenues in the
North Sea and offshore Newfoundland, Canada.
13
<PAGE> 14
FORM 10-Q
RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES
The following table sets forth the average rig utilization rates,
operating days and average dayrates for the Company's offshore rig fleet for the
nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
AVERAGE RIG
UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATES
--------------------- --------------------- ---------------------
NINE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
International .. 94% 94% 7,183 5,066 $35,198 $26,045
Domestic ....... 99% 97% 2,617 3,955 $33,221 $22,410
</TABLE>
(1) Information reflects the policy of the Company to report utilization
rates based on the number of actively marketed rigs owned in the fleet.
During the periods presented, the Company sold certain drilling rigs.
Utilization rates for the periods prior to sales of such rigs have not been
adjusted.
INTERNATIONAL OPERATIONS
The following table sets forth the operating revenues and gross margin
for the Company's international operations for the nine months ended September
30, 1997 and 1996:
<TABLE>
<CAPTION>
OPERATING REVENUES GROSS MARGIN
------------------------ -----------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services
Offshore ................................ $252,828 $131,942 $146,416 $ 53,053
Land .................................... -- 7,446 -- 2,195
-------- -------- -------- --------
Total contract drilling services ........... 252,828 139,388 146,416 55,248
Labor contract drilling services ........... 34,133 24,247 10,606 6,773
Turnkey drilling services .................. 36,302 -- 1,459 --
Engineering and consulting services ........ 1,894 4,084 521 1,459
Other revenue .............................. 6,687 3,252 5,166 2,287
-------- -------- -------- --------
Total ............................. $331,844 $170,971 $164,168 $ 65,767
======== ======== ======== ========
</TABLE>
OPERATING REVENUES. Offshore contract drilling services revenues
increased $120,886,000 during the Current Period as compared to the Comparable
Period. The increase is primarily attributable to the acquisitions of the
Neddrill fleet, higher average international dayrates and the revenues
attributable to the Noble Jimmy Puckett, Noble Kenneth Delaney, Noble Gus
Androes and Noble Chuck Syring jackup rigs. All of the Company's land assets
were sold in December 1996. Labor contract drilling services revenues increased
$9,886,000 in the Current Period as compared to the Comparable Period due to
higher average dayrates on the North Sea platform contracts and the startup of
the Hibernia project offshore Newfoundland, Canada. Turnkey drilling services
revenues increased $36,302,000 resulting from five completions in West Africa
and two in the North Sea in the Current Period, as compared to no international
wells completed in the Comparable Period. There was one international turnkey
well in progress at September 30, 1997, offshore Mexico in the Bay of Campeche.
14
<PAGE> 15
FORM 10-Q
GROSS MARGIN. International offshore contract drilling services gross
margin increased $93,363,000 in the Current Period as compared to the Comparable
Period. The increase is primarily attributable to the contributions from the
Neddrill fleet; higher average international dayrates and contributions from the
Noble Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck
Syring. The increase in gross margin for labor contract drilling services in the
Current Period, as compared to the Comparable Period, was attributable to higher
average dayrates on the North Sea platform contracts and the start up of the
Hibernia project offshore Newfoundland, Canada. The increase in gross margin for
turnkey drilling services in the Current Period as compared to the Comparable
Period was attributable to increased turnkey well completions.
DOMESTIC OPERATIONS
The following table sets forth the operating revenues and gross margin
for the Company's domestic operations for the nine months ended September 30,
1997 and 1996:
<TABLE>
<CAPTION>
OPERATING REVENUES GROSS MARGIN
----------------------- ----------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Contract drilling services
Offshore ................................ $ 86,940 $ 88,632 $ 60,665 $ 46,712
Land .................................... -- 10,871 -- 2,683
-------- -------- -------- --------
Total contract drilling services ........... 86,940 99,503 60,665 49,395
Turnkey drilling services .................. 103,785 98,782 3,541 20,002
Engineering and consulting services ........ -- -- -- --
Other revenue .............................. 2,774 3,259 1,111 314
-------- -------- -------- --------
Total ............................. $193,499 $201,544 $ 65,317 $ 69,711
======== ======== ======== ========
</TABLE>
OPERATING REVENUES. Domestic offshore contract drilling services
revenues decreased $1,692,000 in the Current Period as compared to the
Comparable Period. The decrease was due primarily to the sale of the Company's
mat supported jackup fleet, which reduced the number of rig operating days in
the Current Period as compared to the Comparable Period. The decrease in rig
operating days was offset by a significant increase in the average domestic
contract drilling dayrate. All of the Company's land drilling assets were sold
in December 1996. The increase in turnkey drilling services revenues is
primarily attributable to a higher average revenue per well in the Current
Period as compared to the Comparable Period.
GROSS MARGIN. Domestic offshore contract drilling services gross margin
increased $13,953,000 in the Current Period as compared to the Comparable
Period. The increase is primarily attributable to higher average domestic
dayrates, which was partially offset by the sale of the Company's mat supported
jackup fleet during the Current Period. The decrease in turnkey drilling
services gross margin was attributable to several wells which incurred losses
during the Current Period as a result of unexpected drilling difficulty.
OTHER OPERATING ITEMS
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $22,652,000 in the Current Period as compared to the
Comparable Period. Of this amount, $13,675,000 represents depreciation
attributable to the Neddrill fleet, and approximately $7,870,000 relates to the
Noble Jimmy Puckett, Noble Kenneth Delaney, Noble Gus Androes and Noble Chuck
Syring, which were acquired in 1996 and placed into service in the latter part
of the year. The remaining increase is attributable to rig refurbishments
subsequent to the Comparable Period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
$10,997,000 in the Current Period as compared to the Comparable Period. The
increase is attributable to the Neddrill acquisition combined with other general
increases resulting from higher activity levels, and the costs of a stock-based
employee compensation plan, which costs are based solely on changes in the
market price of the Company's common stock.
15
<PAGE> 16
FORM 10-Q
GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. The
Company sold its mat supported jackup fleet in the Current Period, resulting in
a pre-tax gain of $197,676,000. See "Results of Operations -- Significant 1997
Events." In the Comparable Period, the Company sold two posted barge rigs,
resulting in pre-tax gains of $7,527,000, which were offset by the recognition
of impairment charges totaling $7,600,000.
INTEREST EXPENSE. Interest expense decreased $1,216,000 in the Current
Period as compared to the Comparable Period due primarily to the capitalization
of $2,073,000 of interest costs related to construction in progress on
qualifying upgrade projects.
INTEREST INCOME. Interest income increased $3,640,000 in the Current
Period as compared to the Comparable Period due to higher average cash balances
resulting primarily from proceeds received in May 1997 from the sale of the
Company's mat supported jackup fleet. The higher average cash balances were also
partially attributable to increased operating cash flow in the Current Period as
compared to the Comparable Period.
INCOME TAX PROVISION. The effective income tax rate in the Current
Period increased to approximately 31 percent from approximately 9 percent in the
Comparable Period. Income taxes of $69,187,000 were recorded in the Current
Period in connection with the gain on the sale of the mat rigs. The Comparable
Period was favorably impacted by the recognition of deferred tax benefits
related to net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company had working capital of $175,433,000 and $236,977,000 as of
September 30, 1997 and December 31, 1996, respectively. Long-term debt as a
percentage of long-term debt plus shareholders' equity was 11 percent at
September 30, 1997, compared to 21 percent at December 31, 1996.
At September 30, 1997, the Company had cash, cash equivalents and
marketable debt securities of $134,557,000 and had $202,603,000 of funds
available under various lines of credit. The Company expects to generate
positive cash flow from operations for the remainder of 1997, assuming no
material decrease in demand for contract drilling and turnkey drilling services.
The Company will continue to have cash requirements for debt principal and
interest payments; for the remainder of 1997, cash requirements for currently
outstanding debt principal and interest payments are estimated to be
approximately $3,961,000. The Company expects to fund these payments out of cash
and short-term investments as well as cash provided by operations.
Capital expenditures totaled $251,638,000 and $131,485,000 for the
Current Period and Comparable Period, respectively. Capital expenditures for the
remainder of 1997 are expected to total approximately $175,000,000, of which the
majority relates to upgrades of existing equipment. This amount includes
approximately $75,000,000 for the conversions of submersible rigs into
EVA-4000(TM) semisubmersible units. The Company has entered into contracts for
two of these EVA-4000(TM) semisubmersibles, the Noble Paul Romano and Noble Paul
Wolff, and has a commitment for a third unit. The total cost of these conversion
projects is expected to be approximately $400,000,000. Further, the Company is
marketing the balance of its submersible rigs for conversion into EVA-4000(TM)
semisubmersible units. Because any such conversion would require substantial
capital expenditures, such projects will not be completed except in connection
with entering into a long-term drilling contract with an operator. However,
given the strong demand for drilling rigs and related services, increasingly
heavy backlogs for equipment and services required to complete the conversions
could constrain the Company's ability to complete the conversions on a timely
basis. In order to preserve its ability to expedite the conversion of the rigs
once drilling contracts are awarded, the Company has entered into purchase
commitments for certain key equipment components and construction services with
several vendors. As of September 30, 1997, the Company has made payments of
approximately $36,000,000 toward these commitments and the total commitments
remaining under these agreements are approximately $138,000,000. These
expenditures will be funded from operating cash flows, existing cash balances,
available lines of credit and possibly from other sources of project financing.
The Company is currently reviewing several proposals from financial institutions
to provide project financing for the EVA-4000(TM) semisubmersible conversions.
The Noble Paul Romano and Noble Paul Wolff conversions are not expected
to be available for work until at least mid 1998 and late 1998, respectively.
The third EVA-4000(TM) semisubmersible unit is not expected to be completed
until 1999. Certain conversion projects currently under consideration could
require, if they materialize, capital expenditures or other cash requirements
not included in the above estimate. Factors that could cause actual capital
expenditures to exceed materially the planned capital expenditures include
delays and cost overruns in shipyards, shortages and delays in the delivery of
key rig equipment necessary for conversion projects, latent
16
<PAGE> 17
FORM 10-Q
damage or deterioration to hulls, requirements for equipment and machinery in
excess of engineering estimates and assumptions, and changes in design criteria
or specifications during repair or construction.
On May 12, 1997, the Company announced that its Board of Directors
authorized the repurchase of up to 10,000,000 shares of the Company's common
stock, or approximately eight percent of its outstanding common stock. As of
September 30, 1997, the Company had repurchased 1,857,000 shares of common stock
at a total cost of $42,309,000. Additional purchases, if any, would be made from
time to time on the open market or in private transactions at prices determined
by the Company.
CREDIT FACILITIES AND LONG-TERM DEBT
The Company entered into a credit agreement dated August 14, 1997 (the
"Credit Agreement") with a group of banks. The Credit Agreement provides for a
five-year unsecured revolving credit facility in the amount of $200,000,000.
Loans under the Credit Agreement bear interest, at the option of the Company, at
a base rate or LIBOR plus a margin (0.40 percent currently) that varies
depending on the Company's public senior secured debt rating or its funded debt
to capital ratio. The Credit Agreement requires compliance with various
covenants, including minimum consolidated net worth, interest coverage ratios,
leverage ratios and fleet coverage ratios. At September 30, 1997, the Company
had lines of credit totaling $205,000,000 to support letters of which $2,397,000
had been used to support outstanding letters of credit. Additionally, at
September 30, 1997, $12,295,000 of outstanding letters of credit had been
supported through a combination of unsecured letter of credit facilities and
surety bonds.
On May 14, 1997, the Company commenced a tender offer to purchase for
cash all the $84,445,000 principal amount then outstanding of its 9 1/4% Senior
Notes. During the Current Period, the Company acquired $110,885,000 principal
amount of its 9 1/4% Senior Notes, of which $81,330,000 was purchased pursuant
to the tender offer. After giving effect to the purchases, the Company had
$3,115,000 principal amount of 9 1/4% Senior Notes outstanding at September 30,
1997.
The Company believes that its cash and cash equivalents, cash generated
from operations, borrowings under its lines of credit and access to other
financing sources will be adequate to meet its anticipated short-term and
long-term liquidity requirements, including scheduled debt repayments.
17
<PAGE> 18
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The information required by this Item 6(a) is set forth in the
Index to Exhibits accompanying this quarterly report and is
incorporated herein by reference.
(b) One report on Form 8-K was filed by the Company during the
quarter ended September 30, 1997. A report on Form 8-K dated
September 3, 1997, which reported an amendment to the Company's
stockholder rights plan, was filed on the date thereof.
18
<PAGE> 19
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBLE DRILLING CORPORATION
DATE: November 13, 1997 /S/ JAMES C. DAY
-----------------------------------
JAMES C. DAY, Chairman, President
and Chief Executive Officer
DATE: November 13, 1997 /S/ BYRON L. WELLIVER
-----------------------------------
BYRON L. WELLIVER,
Senior Vice President-Finance,
Treasurer and Controller
(Principal Financial and Accounting
Officer)
19
<PAGE> 20
FORM 10-Q
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 118,244
<SECURITIES> 16,313
<RECEIVABLES> 116,121
<ALLOWANCES> 722
<INVENTORY> 7,312
<CURRENT-ASSETS> 352,101
<PP&E> 1,323,453
<DEPRECIATION> 236,482
<TOTAL-ASSETS> 1,497,479
<CURRENT-LIABILITIES> 176,668
<BONDS> 140,230
0
0
<COMMON> 13,311
<OTHER-SE> 1,088,819
<TOTAL-LIABILITY-AND-EQUITY> 1,497,479
<SALES> 0
<TOTAL-REVENUES> 525,343
<CGS> 0
<TOTAL-COSTS> 295,858
<OTHER-EXPENSES> (92,101)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,690
<INCOME-PRETAX> 319,133
<INCOME-TAX> 100,304
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (6,685)
<CHANGES> 0
<NET-INCOME> 212,144
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
