Noble plc(NE) - 2023 Q4 - Annual Report

PART I Business Noble Corporation plc is a leading offshore drilling contractor with a 32-rig fleet, focusing on ultra-deepwater markets following its 2021 emergence from bankruptcy and 2022 merger with Maersk Drilling - Noble is a leading offshore drilling contractor with a fleet of 32 drilling rigs, comprising 19 floaters and 13 jackups as of December 31, 2023[19] - The company emerged from Chapter 11 bankruptcy on February 5, 2021, becoming a new entity for financial reporting purposes after applying fresh start accounting[20][26] - Noble completed a major business combination with Maersk Drilling, which became a wholly owned subsidiary in November 2022[21]22 - The business strategy is centered on efficient, reliable, and safe offshore drilling, with a focus on technically advanced units for ultra-deepwater and harsh environment markets[27][28] Significant Customer Revenue Contribution | Customer | 2023 Revenue % | 2022 Revenue % | 2021 Successor Period % | 2021 Predecessor Period % | | :--- | :--- | :--- | :--- | :--- | | Exxon Mobil Corporation | 24.5% | 32.3% | 39.1% | 29.8% | | Shell plc | 13.6% | 12.0% | 13.3% | 30.0% | | TotalEnergies | 10.5% | 9.7% | 3.3% | —% | - As of December 31, 2023, the company had approximately 3,600 employees, with about 79% located offshore[60] Risk Factors The company faces significant risks from its operations, the Maersk Drilling integration, the regulatory environment, and its financial structure Risks Related to Our Business and Operations The business is highly dependent on the cyclical oil and gas industry, facing risks from competition, customer concentration, operational hazards, and supply chain disruptions - Business success is heavily dependent on the level of activity in the oil and gas industry, which is significantly affected by volatile oil and gas prices[76][77] - The offshore drilling industry is highly competitive and cyclical, with intense price competition and pressure from an over-supply of rigs, including newbuilds stranded in shipyards[82][84] - A substantial portion of business and contract backlog is concentrated with a few key customers (ExxonMobil, Aker BP, Petrobras) and in specific geographic areas (Guyana, Gulf of Mexico, North Sea), increasing risk[93] - Operations are subject to numerous hazards, including loss of well control, fires, collisions, and adverse weather, which could lead to personal injury, environmental damage, and suspension of operations[94][95][96] - The company faces risks from international operations, including political instability, currency fluctuations, and complex local regulations, as well as expensive and time-consuming rig mobilization[105][111] - Cybersecurity threats to the company's or its service providers' systems could disrupt operations, result in data loss, and lead to significant financial and reputational damage[124][128] Risks Related to the Business Combination with Maersk Drilling The integration of Maersk Drilling presents risks including failure to realize expected synergies and higher-than-anticipated integration costs - The integration of Maersk Drilling may not be successful and could cost more than estimated, potentially preventing the company from achieving the intended benefits and synergies[150][151] - The company expects to realize run-rate annual cost-synergies of $125 million within two years of the closing, but achieving this is subject to risks and uncertain assumptions[152] Regulatory and Legal Risks Operations are subject to extensive global laws, including environmental, anti-corruption, and trade regulations, which can increase costs and create legal liabilities - The business is affected by numerous laws and regulations related to the energy industry, environment (including climate change and GHG emissions), health, and safety, which could add costs or limit drilling activity[154][155][162] - Increasing attention to ESG matters may lead to additional costs, increased scrutiny from investors, and potential limitations on access to capital if the company's performance and disclosures are not managed effectively[168][170] - Violations of anti-bribery or anti-corruption laws, such as the FCPA and the UK Bribery Act, could result in substantial fines, sanctions, and damage to the company's reputation[171] Financial, Tax, and Governance Risks The company faces risks from a material weakness in internal controls, debt covenants, tax disputes, and potential shareholder dilution from outstanding warrants - A material weakness in internal control over financial reporting has been identified related to IT general controls, specifically concerning program change management and user access controls[178][180] - The company's debt agreements, including the 2023 Revolving Credit Agreement and the indenture for the 2030 Notes, contain restrictive covenants that limit management's operational and financial discretion[185] - A loss in a major tax dispute or a successful challenge to the company's operating structure could result in a higher effective tax rate and materially affect financial results[190] - Future sales of ordinary shares or the exercise of a substantial number of outstanding warrants could have a dilutive effect on existing shareholders and adversely affect the stock's trading price[200][201] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[206] Cybersecurity Cybersecurity risk is managed through an enterprise program with board oversight, and no material threats have been identified - Cybersecurity risk is managed as part of the company's Enterprise Risk Management Program, with oversight from an Information Security Team reporting to the Chief Information Officer (CIO)[206] - The Board of Directors reviews cybersecurity as part of its quarterly enterprise risk management update and also addresses it as a standalone agenda item periodically[213][214] - The company utilizes third-party partners for assessments and collaborates with industry groups like ONG-ISAC and government agencies such as the FBI and US Coast Guard for threat intelligence[209][210] - Noble is not aware of any current or potential cybersecurity risks that have materially affected or are reasonably likely to materially impact the company's business strategy, results of operations, or financial condition[212] Properties The company's primary properties are its mobile offshore drilling fleet, supplemented by leased and owned administrative and operational facilities globally - The company's main properties consist of its rig fleet and it also leases its corporate headquarters in Sugar Land, Texas, and owns or leases various other operational and administrative facilities globally[217] Legal Proceedings The company is involved in ordinary course legal matters not expected to have a material adverse effect on its financial condition - The company is involved in a number of lawsuits and claims arising in the ordinary course of business, but does not expect any resulting liability to have a material adverse effect on its financial condition[218] Mine Safety Disclosures This item is not applicable to the company - Not applicable[220] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's shares trade on the NYSE and Nasdaq Copenhagen, with an active share repurchase plan and dividends subject to English law - The company's shares are listed on the NYSE under the symbol "NE" and on Nasdaq Copenhagen under "NOBLE" with 142,766,794 ordinary shares outstanding as of February 15, 2024[222] - A share repurchase plan was announced on November 2, 2022, authorizing up to $400 million in purchases of shares or warrants, and during Q4 2023, the company repurchased 329,069 ordinary shares[224] - The declaration and payment of dividends are at the discretion of the Board of Directors and must be paid from Noble's "distributable reserves" in accordance with English law[225] [Reserved] This item is reserved - This item is reserved[230] Management's Discussion and Analysis of Financial Condition and Results of Operations Financial performance improved significantly in 2023 due to the Maersk Drilling acquisition and higher dayrates, with a strong backlog and liquidity position Executive Overview Noble is a leading offshore drilling contractor that achieved strong revenue, net income, and operating cash flow in 2023 FY 2023 Key Financial Results | Metric | Value | | :--- | :--- | | Operating Revenues | $2.6 billion | | Net Income | $481.9 million | | Diluted EPS | $3.32 per share | | Net Cash from Operating Activities | $574.3 million | | Year-End Cash Balance | $360.8 million | - The offshore drilling industry has seen increased global rig demand since 2021, driven by supportive oil prices, a focus on energy security, and underinvestment in hydrocarbon exploration, which has positively impacted utilization and day rates[240][241] Outlook and Backlog The market outlook is positive, particularly for ultra-deepwater floaters, supported by a contract backlog of approximately $4.8 billion - The market outlook is encouraging, particularly for the ultra-deepwater floater market, though the global jackup market has also seen a demand increase, led by the Middle East[244] - The overall market remains characterized by shorter-term contracts, which can lead to lower overall fleet utilization due to more idle time between contracts[246] Contract Drilling Services Backlog as of Dec 31, 2023 | Category | Total Backlog | 2024 | 2025 | 2026 | 2027 | | :--- | :--- | :--- | :--- | :--- | :--- | | Backlog (in thousands) | | | | | | | Floaters | $3,708,272 | $1,745,695 | $991,472 | $715,577 | $255,528 | | Jackups | $1,116,860 | $465,463 | $269,159 | $205,598 | $176,640 | | Total | $4,825,132 | $2,211,158 | $1,260,631 | $921,175 | $432,168 | | % of Available Days Committed | | | | | | | Floaters | | 61% | 34% | 24% | 9% | | Jackups | | 70% | 32% | 18% | 14% | | Total | | 65% | 33% | 22% | 11% | - As of December 31, 2023, the backlog was concentrated with ExxonMobil (42.5%), Aker BP (15.3%), and Petrobras (12.9%)[254] Results of Operations Revenues and operating income more than doubled in 2023, driven by the expanded fleet and higher average dayrates despite increased operating costs Key Operating Metrics (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Average Rig Utilization | | | | Floaters | 73% | 77% | | Jackups | 64% | 77% | | Total | 69% | 77% | | Operating Days | | | | Floaters | 5,067 | 3,654 | | Jackups | 3,272 | 2,751 | | Total | 8,339 | 6,405 | | Average Dayrates | | | | Floaters | $382,041 | $273,500 | | Jackups | $128,161 | $119,251 | | Total | $282,392 | $207,240 | - Contract drilling services revenue increased by 85% to $2.46 billion in 2023 from $1.33 billion in 2022, driven by the addition of the Maersk Drilling fleet and higher average dayrates[259][260] - Contract drilling services costs rose 62% to $1.45 billion in 2023 from $897.1 million in 2022, primarily due to the operating costs of the acquired Maersk Drilling fleet and increased costs across the legacy fleet[259][263][264] - Merger and integration costs decreased to $60.3 million in 2023 from $84.7 million in 2022, mainly due to lower professional fees and severance costs related to the Maersk Drilling combination[267] - Interest expense increased to $59.1 million in 2023 from $42.7 million in 2022 due to additional debt assumed in the Maersk Drilling acquisition, which was subsequently refinanced[270] Liquidity and Capital Resources The company strengthened its capital structure through debt refinancing, maintained strong liquidity, and returned capital to shareholders via dividends and buybacks - In April 2023, the company issued $600.0 million of 8.000% Senior Notes due 2030 to refinance debt, including borrowings from the Maersk acquisition and to redeem its Second Lien Notes[278] - As of December 31, 2023, the company had no borrowings outstanding under its $550.0 million 2023 Revolving Credit Facility[279][282] Cash Flow Summary (Year Ended Dec 31) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $574.3 million | $281.0 million | | Net cash (used in) provided by investing activities | ($366.5 million) | $375.8 million | | Net cash used in financing activities | ($325.8 million) | ($367.8 million) | - Capital additions totaled $454.3 million in 2023, consisting of $258.9 million for sustaining capital, $166.7 million for major projects, and $28.7 million for rebillable capital, with the 2024 forecast between $400.0 million and $440.0 million[294][300] - During 2023, the company paid dividends of approximately $98.8 million and repurchased 2.3 million of its Ordinary Shares for $94.8 million[293][296][301] Critical Accounting Estimates Financial statements rely on critical estimates for asset impairment, income taxes, claims reserves, and business combination accounting - Key estimates include the recoverability of assets, income taxes, claims reserves, and accounting for business combinations[308] - Property and equipment impairment is assessed using estimates of future market conditions, dayrates, costs, and utilization, and no impairment charges were recognized in 2023 or 2022[309][310] - Income tax estimates involve significant judgment regarding uncertain tax positions, and as of December 31, 2023, the company had $202.3 million in long-term reserves for unrecognized tax benefits[313][314] - Business combination accounting requires significant use of unobservable (Level 3) inputs to estimate the fair value of acquired assets like drilling units and contract intangibles[318][321] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign currency fluctuations, and equity market impacts on its pension plan assets - The company is exposed to interest rate risk on its variable-rate 2023 Revolving Credit Facility, although no borrowings were outstanding at year-end 2023[323][324] - Foreign currency risk exists as a portion of expenses are incurred in local currencies, and the company periodically uses forward contracts to manage this exposure[325][326] - The company's pension plan assets are exposed to market price risk; as of December 31, 2023, the pension fund value was $216.0 million, and a hypothetical 10% decrease would reduce its value by $21.6 million[331] Financial Statements and Supplementary Data This section contains the audited financial statements, which received an unqualified opinion, and the auditor's adverse opinion on internal controls due to a material weakness - The independent auditor, PricewaterhouseCoopers LLP, issued an opinion stating the company did not maintain effective internal control over financial reporting as of December 31, 2023, due to a material weakness[337] - The material weakness relates to the design and maintenance of IT general controls for an information system relevant to financial statement preparation, specifically concerning program change management and user access controls[337] - The auditor identified Uncertain Tax Positions as a critical audit matter, noting the significant management judgment involved in interpreting complex tax laws across multiple jurisdictions[347][348] - The financial statements reflect the application of fresh start accounting as of February 5, 2021, upon emergence from bankruptcy, making periods before and after this date not directly comparable[339][383] - The Business Combination with Maersk Drilling, completed in October 2022, was accounted for as an acquisition, with Maersk Drilling's assets and liabilities recorded at fair value, resulting in a $5.0 million gain on bargain purchase[469][475] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[648] Controls and Procedures Management concluded that disclosure controls were ineffective as of year-end due to a material weakness in IT general controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to a material weakness in internal control over financial reporting[649] - The material weakness identified involves ineffective design and maintenance of IT general controls for a key financial information system, specifically related to (i) program change management and (ii) user access controls to ensure proper segregation of duties[653] - The material weakness did not result in a misstatement to the annual or interim financial statements, but it could potentially lead to one in the future[654] - A remediation plan has been designed and implemented, but the new controls have not operated for a sufficient period to be considered fully remediated as of December 31, 2023[656][657] Other Information The company reports no other information for this item - None[662] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[663] PART III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's 2024 proxy statement - Information is incorporated by reference from the proxy statement for the 2024 Annual Meeting of Stockholders[665] Executive Compensation Required information is incorporated by reference from the company's 2024 proxy statement - Information is incorporated by reference from the proxy statement for the 2024 Annual Meeting of Stockholders[666] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Required information is incorporated by reference from the company's 2024 proxy statement - Information is incorporated by reference from the proxy statement for the 2024 Annual Meeting of Stockholders[667] Certain Relationships and Related Transactions and Director Independence Required information is incorporated by reference from the company's 2024 proxy statement - Information is incorporated by reference from the proxy statement for the 2024 Annual Meeting of Stockholders[668] Principal Accounting Fees and Services Required information is incorporated by reference from the company's 2024 proxy statement - Information is incorporated by reference from the proxy statement for the 2024 Annual Meeting of Stockholders[669] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements and exhibits filed with the Form 10-K report - This item lists the financial statements, notes that financial statement schedules are omitted, and provides an index to all exhibits filed with the annual report[671][673] Form 10-K Summary The company has not provided a summary for this item - None[672]