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As Noble Takes Delivery of Newbuild, What About Free Cash Flow?

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Noble’s newbuild delivery

Noble (NE) took delivery of its newbuild—Noble Lloyd Noble—in July 2016. The company now has no newbuilds to be delivered. Noble’s fleet now stands at 30, which includes eight drillships, eight semisubmersibles, and 14 jackups.

Unlike Noble (NE), most of its peers, including Transocean (RIG), Seadrill (SDRL), Atwood Oceanics (ATW), and Ocean Rig (ORIG), have all postponed newbuild deliveries.

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Noble’s capex

Since Noble has taken delivery of the Noble Lloyd Noble, capex (capital expenditure) for the third quarter and capex for 2016 are bound to rise. Noble expects its 2016 capex to be $0.67 billion, which is higher than 2015 capex of $0.42 billion. Since the company has no more newbuilds, its 2017 capex is expected to fall around $0.25 billion.

Free cash flow

Noble’s capex requirement for the third quarter is high with the delivery of its newbuild. So analysts expect its free cash flow, which is calculated as cash from operations less capex, to be -$376 million in 3Q16. In 4Q16, they expect free cash flow to be $53 million.

For 2016, Wall Street analysts expect positive free cash flow of $418 million. They also expect the company to have positive free cash flow in 2017.

Dividends

Noble is one of the few offshore drillers (XLE) that continues to pay dividends in this downturn. In 2Q16, Noble slashed its quarterly dividend 86.0%, from $0.15 to $0.02. Analysts don’t expect another dividend cut for at least the next two quarters. However, the consensus estimate for 2017 dividends is $0.07.

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