Offshore oil driller Noble will get 'ever pickier' on M&A after Diamond deal, CEO says

Summary

Noble Corporation's CEO, Robert Eier, discusses the company's recent acquisition of Diamond Offshore for $1.6 billion, aiming to expand offshore rig operations and leverage economies of scale. Eier highlights the importance of scale in the energy sector and the company's journey of consolidation through major mergers and acquisitions. He expresses confidence in the deal's regulatory approval and addresses the wide range of predictions for global oil demand, emphasizing Noble's preparedness for various market outcomes. The conversation also touches on the potential for increased demand in offshore drilling, especially in the deep water segment, as Noble's backlog of tenders indicates a resurgence in the industry.

Takeaways

• 📈 Noble Corporation is actively pursuing acquisitions to increase its scale in the offshore drilling industry.
• 💰 The acquisition of Diamond Offshore is valued at $1.6 billion, aiming to enhance Noble's offshore rig count and global reach.
• 🔍 Scale is emphasized as crucial for meeting the needs of sophisticated customers and spreading investments in technology and innovation.
• 🛠️ Noble has undergone three major mergers and acquisitions in recent years, with Diamond being the latest and significant addition.
• 🚀 The company is confident about the regulatory process and expects the deal to close in the first quarter of the following year.
• 🔎 Despite previous acquisitions, Noble remains selective and strategic in its approach to further deals for shareholder value.
• 🌐 The energy sector, including offshore drilling, is expected to see market expansion for at least the next five years.
• 📉 Predictions beyond 2030 for oil demand vary widely, with some suggesting a peak by 2029 followed by a decline.
• 🛳️ Noble is observing an increase in demand, particularly in the deepwater segment, with leading indicators and customer budgets on the rise.
• 📊 The offshore rig count has rebounded but remains lower than pre-pandemic levels, indicating potential for further industry expansion.
• 💼 Noble's CEO, Robert Eier, highlights the company's strong position with a large fleet and a robust backlog of tenders, signaling a positive outlook for offshore drilling.

Q & A

What recent acquisition has Noble Corporation announced?

Noble Corporation has announced an acquisition of Diamond Offshore Drilling, with a cash and stock deal valued at $2.6 billion.

What is the expected outcome of the acquisition for Noble Corporation's offshore rigs?

The acquisition is expected to increase the number of offshore rigs that Noble Corporation has, enhancing their economies of scale in the business.

Why is scale important in the offshore drilling industry according to Robert Eier?

Scale is important because it allows Noble Corporation to meet the global needs of their large and sophisticated customers by spreading investments in technology and innovation across a larger base.

How many major mergers and acquisitions has Noble Corporation made in recent years?

Noble Corporation has made three major mergers and acquisitions in recent years, including the acquisition of Diamond Offshore Drilling.

What was the significance of the Maersk Drilling acquisition for Noble Corporation?

The Maersk Drilling acquisition in 2022 was described as a transformative merger for Noble Corporation, significantly increasing their scale and capabilities.

What is Noble Corporation's approach to future acquisitions?

Noble Corporation will continue to look at deals that are accretive for shareholders but will be increasingly selective, ensuring that any future deals are the right fit.

What is the expected regulatory risk for the Diamond Offshore acquisition?

Noble Corporation is confident about the regulatory approval process, expecting to close the deal in the first quarter of the next year, with compliance with a handful of regulators around the world.

How does Robert Eier view the predictions about global oil demand peaking by 2029?

Robert Eier acknowledges the difficulty in predicting energy demand past 2030, noting a wide range of forecasts and emphasizing that Noble Corporation is positioned for a variety of outcomes.

What is Noble Corporation's strategy for dealing with the potential decline in oil demand?

Noble Corporation is prepared for a range of outcomes, focusing on maintaining a scale that can last through the cycle and having some of the best assets in their fleet.

What trends does Noble Corporation see in the offshore drilling industry?

Noble Corporation sees an increasing demand, especially in the deepwater segment, with leading indicators such as customer budgets, FIDs, and subsea orders showing positive signs.

How does the current offshore rig count compare to pre-pandemic levels according to Baker Hughes?

The offshore rig count has rebounded but is still lower than pre-pandemic levels, suggesting potential for further expansion in the industry.

Outlines

00:00

🏢 Acquisition and Scale in the Offshore Drilling Industry

Noble Corporation's CEO Robert Eier discusses the company's recent acquisition of Diamond Offshore Drilling for $6 billion, which is aimed at increasing the number of offshore rigs and achieving economies of scale. Eier highlights the importance of scale in the energy sector and the benefits of having a global presence with sufficient assets to meet the needs of large, sophisticated customers. He also addresses the company's journey of three major mergers and acquisitions, including the Diamond acquisition, which has provided a new level of scale and enabled the company to innovate and expand its services. Regarding regulatory risks, Eier expresses confidence in the acquisition's timeline and the company's compliance with global regulators, emphasizing the competitive and fragmented nature of the business.

05:02

📈 Future Outlook and Growth in the Offshore Drilling Sector

The conversation with Robert Eier continues as he shares insights on the future of the offshore drilling industry. Eier acknowledges the difficulty in predicting oil demand beyond the next five years, given the wide range of forecasts and the unique features of the energy industry. However, he is confident in Noble Corporation's position to adapt to any outcome due to its scale and high-quality assets. Eier also discusses the potential for increased demand in offshore exploration and production as the growth in the shale region in the U.S. begins to slow. He notes the positive indicators for the industry, such as increasing customer budgets, project sanctions, and a rise in subsea orders, which suggest a return to offshore drilling and a particular focus on the deepwater segment. Eier concludes by expressing optimism about the industry's expansion and the company's preparedness for future opportunities.

Keywords

💡Deal Making

Deal making refers to the process of negotiating and finalizing business agreements or transactions. In the context of the video, it highlights the trend of mergers and acquisitions within the oil and gas industry, indicating a period of significant business activity and strategic growth.

💡Offshore Oil Drilling

Offshore oil drilling is the process of extracting crude oil from beneath the seabed. It is a critical component of the energy sector and is mentioned in the script to emphasize the industry's active involvement in deal making, suggesting a renewed focus on expanding capabilities in this area.

💡Noble Corporation

Noble Corporation is an offshore drilling contractor mentioned in the script as being involved in an acquisition. It represents one of the companies driving consolidation within the energy sector, aiming to increase its scale and market presence.

💡Acquisition

An acquisition is the purchase of one company or entity by another, often to expand the acquiring company's market presence or capabilities. In the script, Noble Corporation's acquisition of Diamond Offshore Drilling is a key event, illustrating the company's strategy for growth and scale.

💡Economies of Scale

Economies of scale refer to the cost advantages that a business experiences when it expands its scale of operation, allowing for more efficient use of resources and potentially lower costs per unit of production. The script discusses how the acquisition helps Noble Corporation achieve economies of scale, enhancing its ability to meet customer needs globally.

💡Consolidation

Consolidation in a business context refers to the merging of companies to form larger entities, often for strategic or financial benefits. The script mentions consolidation as a significant trend in the energy sector, with Noble Corporation being a part of this trend through its acquisitions.

💡Regulatory Risk

Regulatory risk is the potential for a company's operations or plans to be affected by government regulations or legal challenges. The script briefly touches on this concept, with the CEO expressing confidence in the acquisition's timeline despite the need for regulatory approval.

💡Market Demand

Market demand refers to the quantity of a product or service that consumers are willing and able to purchase at a given price. The script discusses the fluctuating predictions of global oil demand, which is central to understanding the strategic decisions of companies like Noble Corporation.

💡Deep Water Segment

The deep water segment of the oil and gas industry involves drilling operations in deeper parts of the ocean, which can be more challenging and costly but also potentially more rewarding. The script indicates that Noble Corporation sees growth in this segment, suggesting a strategic focus on deep water drilling.

💡Backlog of Tenders

A backlog of tenders refers to the amount of work that a company has been offered but has not yet started. In the script, Noble Corporation's CEO mentions a high backlog of tenders as an indicator of strong market demand and a positive outlook for the company.

💡Global Oil Demand Forecast

A global oil demand forecast is a prediction of how much oil will be consumed worldwide in the future. The script references a forecast predicting a peak in global oil demand by 2029, which is a significant consideration for companies planning their long-term strategies.

Highlights

Noble Corporation is pursuing an acquisition in the offshore oil drilling sector, aiming to acquire Diamond Offshore Drilling in a cash and stock deal.

The acquisition is valued at $2.6 billion and will increase Noble's offshore rig count, enhancing economies of scale.

Noble Corporation's CEO, Robert Eier, discusses the importance of scale in the energy sector and the benefits of their recent acquisitions.

The company has undergone three major mergers and acquisitions in recent years, including the Diamond acquisition, to meet global customer needs.

Eier expresses confidence in the regulatory approval process, with an expected closing date in the first quarter of the following year.

Noble's previous acquisition of Maersk Drilling in 2022 was transformative, and the company is selective in future deals for shareholder value.

The energy sector, including offshore drilling, is expected to see market expansion for at least the next five years.

Predictions for oil demand post-2030 vary greatly, with some suggesting an increase of 10-15% and others a decrease to 25% of current levels.

Noble is positioned with a global scale and high-quality assets to adapt to a wide range of energy market outcomes.

There is potential for increased demand in offshore exploration and production as onshore growth in the US begins to slow.

The offshore rig count has rebounded but remains lower than pre-pandemic levels, indicating potential for industry expansion.

Noble anticipates growth in the deepwater segment of their business, with leading indicators such as customer budgets and FIDs on the rise.

The company's backlog of tenders and open tenders is at a 10-year high, signaling a return to offshore drilling.

Eier emphasizes the company's focus on deepwater drilling and expects this trend to continue.

The interview concludes with a discussion of Noble's positive outlook following the announcement of the Diamond acquisition.

Transcripts

[Music]

the oil and gas industry has seen a wave

of deal making now the offshore oil

drilling sphere is getting in on the

action Noble Corporation among the

latest names eyeing and acquisition the

offshore drilling contractor putting in

a cash and stock deal to acquire Diamond

offshore drilling and Noble Corporation

CEO Robert eier is joining us now for a

closer look at consolidation in the

energy sector Robert thank you for being

here it's great to be here thank you so

much for having me so you guys recently

announced this acquisition .6 billion um

to buy Diamond Offshore um and this

would bring up the number of offshore

rigs that you guys have talk to me about

sort of economies of scale in your

business and this is not the first

acquisition you've made in the past few

years why it has been a good idea to try

to get

bigger yeah it's great thank you very

much um look scale is really important

right now uh and I think throughout all

of the energy space uh as well as as in

Services investors are rewarding SC

in our business specifically in offshore

drilling um we have uh a a large number

of very sophisticated customers across

the globe so we drill for some of the

largest companies in the world uh and

they have a lot of needs and uh in order

to meet those needs globally we need to

have enough assets so that we can spread

our investments uh around technology uh

and Innovation across a bigger base and

so we've been on a journey here for the

the last few years where we've made uh

three major mergers and Acquisitions

culminating this week with with the

diamond acquisition uh that really has

given us uh a a new level of scale

that's letting us uh do a lot of really

interesting things for our customers

across the globe Robert I I am curious

with this acquisition any concern for

regulatory risk in your

opinion well we we've announced a

closing date uh of first quarter next

year and and perhaps even a little bit

quicker than that uh and so we're very

confident around that timeline of course

we will uh apply with uh a handful of

regulators around the world uh but uh

this is still a very competitive uh

business uh it remains fragmented and uh

we're very confident around around the

path forward um as I mentioned earlier

Robert this is not the first acquisition

you've made it's not even the biggest

one you bought a mar drilling back in

2022 um after Diamond you done is there

still room to to grow after that well

look what what we said when we did the

mayor steel is uh we said that this is

the transformative merger for us uh and

it really has been and I think I think

the results have proved that but we also

said that if we were to do a deal after

that uh that we would be very picky uh

and we would make sure uh that it was

the exact right deal uh for for our

shareholders uh among a number of

potential deals out there uh and so I

think when we announced this deal

earlier this week uh we've been

extremely pleased uh with the results

from that in fact I think the entire

sector traded up the day we announced it

uh and and including ourselves of course

uh so I guess what I would say is um

like like any company we will continue

to look at things that are accretive for

our shareholders but we will get ever

pickier each time Robert I want to get

your take on a headline uh that made

some news here from the Ia saying Global

oil demand they they forecast going to

Peak by 2029 and that's it's going to

begin a cont track the following year

they say as the US other non OPEC

countries add to supply is that what you

see Robert is that sound accurate to you

yeah look what what I would say is that

uh for sure we see an expanding Market

uh for the next five plus years uh and

then uh from there it is extremely

difficult to predict that's one of the

unique features I think of the energy

industry right now is that the range of

predictions past around 2030 in

particular L when you get out to 2045 or

2050 is massive you've got everything

from OPEC and others uh predicting that

uh that that oil demand could be up by

10 or 15% from today uh to uh other

outcomes where it could be down at 25%

of current uh and so look we're a

service business um we uh have a scale

to to to last through cycle uh and uh we

have some of the best assets uh in the

world in our Fleet so we're positioned

uh for whatever range of outcomes might

come uh but it is it is uh remarkable

just uh how wide the the set of

predictions is and there are some

predictions as well that as we see

growth in um the shell region in the US

start to taper a little bit that we'll

see more demand for offshore um

exploration and production you know I

was taking a look at the offshore uh rig

count just globally as tracked by Baker

Hughes and you know it's rebounded but

we see lower than where it was pre

pandemic do you think that in general

you're going to see more of an expansion

in your industry as we see the demand

for oil and gas persist and the need to

look in different places to get it kind

of persists as

well we do we think we think we'll see

demand increase particularly in in the

deep water segment of our business uh

all of the leading indicators for our

business are up so our customers budgets

have been increasing year onye uh fids

which is kind of a predictor you know

sanction projects which is a predictor

of a future years are up and are

predicted to continue to go up you've

got uh things like subc tree orders that

that show positive signs for the future

and just looking more specifically at

our own business our backlog of tenders

our open tenders uh I think is the

highest than it's been in 10 years so we

are seeing a return uh to offshore

drilling uh and we are seeing deep water

uh incre get increased Focus here uh and

and we expect that to continue Robert

thanks so much for your time I

appreciate it well it's great to be here

thank you very much uh for having me

back uh and especially on a really nice

occasion like this week for us yeah well

we'll catch up with you again maybe when

the deal closes thanks a lot sounds

great thank you