Noble Nourishing Relationship With Shell

The recent announcement that Noble will purchase privately-held FDR Holdings further cements its relationship with Shell in the process because:

  • Frontier was in a 50% joint venture with Shell for two newbuild Bully-class drillships (currently under construction). Noble will replace Frontier at the table once the deal closes.
  • Over 95% of Frontier's backlog (approximately 23 rig years under contract) is with Shell.
  • Subject to closing the Frontier deal, Noble inked two separate 10-year agreements with Shell for Noble's Globetrotter newbuild (currently under construction) and a second newbuild unit of similar capability.

Highlights of the Transaction

  • Cash consideration to Frontier based on $2.16 billion enterprise value.
  • Noble assumes remaining construction obligation for two Bully rigs and $311 million project financing (i.e. 50 percent portion of Bully I & II JV credit facilities).
  • In addition to the two newbuilds, Noble will get Frontier Phoenix (+5000' Drillship with contract to mid-2015 @ $306k/day), Frontier Driller (5000' Semisub with contract to 2Q12 @ $383k/day), Frontier Duchess (1500' Drillship with contract to 3Q10 @ $308k/day), Frontier Discoverer (1000' Arctic-class Drillship with contract to 3Q11 @ $165k/day, and the Frontier Seillean (6500' DP FPSO about to start a 100-day contract at $304k/day).
  • Bully rigs each will earn $800MM over the first five years of each contract plus mobilization costs. This puts the dayrates for each at ~$438k/day excluding mobe. Both rigs are anticipated to begin drilling in 2011.

Key Points from Conference Call

During the conference call, the company mentioned that the commencement of a suspension agreement between Noble and Shell was contingent upon the Frontier transaction announcement. The agreement allows Shell to suspend contracts for units operating in U.S. waters (i.e. the Jim Thompson, Danny Adkins, and Frontier Driller) during the current imposed restriction period set in place by the Interior. In exchange for contract suspensions, Shell will pay a reduced suspension and operating support rate for each unit while agreeing not to invoke the force majeure clause of its contracts. Contract terms will not be impacted by suspension and will resume at original dayrates once operations are again able to commence. The benefit of this arrangement to Noble is that it alleviates risks associated with its backlog of affected rigs.

Noble is upgrading the Noble Jim Thompson with a fifth engine, new mud pumps, and an additional riser to accommodate a contract extension with Shell. The cost of upgrades will be tacked on to 3-year contract extension which starts March 2011. The current contract resets to $336k/day plus eligibility for 15% bonus at Frontier’s closing.


Collectively we view the news between Noble, Frontier, and Shell as quite constructive and bullish for long-term dayrates. Essentially, by agreeing to set the back half of the new 10-year contracts to an index, Noble is betting that rates will trend higher. Furthermore, Shell's willingness to lock-in contracts for 10-year terms suggests that they are unwilling to speculate that ultra-deepwater rates will drop much further in the near-term. Both aspects point to a stronger outlook for the deepwater offshore drilling industry.

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