What is a backlog?
Each company in the offshore drilling industry has a backlog, which is a record of future revenues the company will earn through new and current long-term drilling contracts. Backlogs and their durations vary between companies, and they’ll often grow as companies acquire new contracts.
For example, Transocean’s Backlog covers $29.8 billion through 2027, while Diamond Offshore’s Backlog covers $8.57 billion between 2014 and 2019. Noble sits between these companies, with a Backlog of $15.042 billion between 2014 and 2023. Generally, a company’s backlog is relative to its fleet size as well as its fleet utilization rate.
Why Backlogs help with risk management
Day rates can fluctuate dramatically based on a plethora of factors, including current oil prices, water depth, fleet age, or needs for high-specification or harsh-environment capabilities—and it’s often difficult for customers and operators to predict day rates in advance. So investors can also view the backlog as a measure of risk management. For oil producers, these contracts allow them to hedge against risks of higher rates. For off-shore rig operators, these backlogs reduce the risk of lower rates or possible lack of demand.
How to assess the quality of a backlog
Given these factors, companies with larger backlogs are more likely to have stabler revenue than companies with smaller backlogs. It’s also worth noting that 82.97% of Noble’s $15 billion backlog is held by contracts with its submersibles and drillships that operate in midwater, deepwater, and ultra-deepwater environments—key territory for its competition. Noble’s backlog effectively manages competition while the company itself focuses on a different drilling direction.