Hello, and welcome everyone to the Noble Corporation to acquire Diamond Offshore Drilling conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, simply press star one on your telephone keypad. I would now like to turn the conference over to Ian Macpherson, Vice President of Investor Relations for Noble Corporation. You may begin.
Thank you, operator, and welcome everyone to our conference call regarding Noble's announced acquisition of Diamond Offshore. You can find a copy of the press release, as well as a brief slide presentation related to this transaction on our website. This is a joint call, so I will pass it over first to Robert Eifler, President and CEO of Noble, for opening remarks. And then Bernie Wolford, President and CEO of Diamond, will share a few words before we open up the call for Q&A. Also joining on the call is Richard Barker, Noble's Chief Financial Officer. During the course of this call, we may make certain forward-looking statements regarding various matters related to our business and companies that are not historical facts. Such statements are based upon current expectations and assumptions of management and are therefore subject to certain risks and uncertainties.
Many factors could cause actual results to differ materially from these forward-looking statements, and Noble does not assume the obligation to update these statements. Now, I'll turn the call over to Robert Eifler, President and CEO of Noble.
Morning. Welcome everyone, and thank you for joining us on the call today. We're incredibly excited about this combination, which presents an abundance of industrial logic, a great cultural fit between our two companies, and significant and immediate accretion for shareholders on both sides of the deal. Over the past three years, Noble has been very active and purposeful with our M&A strategy to create a leading offshore driller that could credibly aim to become first choice with customers, employees, and shareholders. Bringing Diamond onto this platform is the next logical step in this journey. We have stated consistently that following the successful integration of the transformative Maersk Drilling combination, Noble is now at a sufficient scale that any further M&A would have to be considered highly selectively.
Indeed, this opportunity is uniquely well-aligned with our growth roadmap and our commitment to driving shareholder value through strong execution for our customers, free cash flow generation, and returning capital to shareholders. Hence, an adjacent feature of today's announcement is the 25% increase to our quarterly dividend, up from $0.4- $0.50, effective next quarter. This increase is further supported by the significant accretion to Noble's 2025 free cash flow per share that is expected to arise from the Diamond acquisition. This is a relatively straightforward transaction, with Diamond shareholders to receive 24.6 million Noble shares and $600 million in cash, representing an 11.4% premium to last Friday's close. Subject to normal closing conditions, including regulatory clearances and Diamond shareholder approval, we're targeting to close in the fourth quarter of this year, our first quarter of 2025.
Now I'll cover a few of the key highlights that we think make this such a compelling combination. First, from a fleet perspective, this creates the leading operator of Tier One drillships. Diamond's four black ships, plus Noble's 11 Tier One drillships, all compete at the top echelon with the highest day rates in the industry. Additionally, the Ocean GreatWhite will bring a very high-spec, harsh environment semi into our fleet, which is an attractive segment of the market where we do not currently participate. Behind these five most modern assets, Diamond's remaining five semis possess a variety of niche locations, primarily in the moored segment. These five units have been over 85% utilized over the past three years and have strong forward contract coverage, representing close to $800 milion out of Diamond's $2.1 billion of total backlog.
Second, when we speak to the cultural fit across our two companies in terms of operational excellence, safety, and environmental stewardship, there's perhaps no closer comparison to be found than between Noble and Di- and Diamond. Bernie and I, of course, share a lot of important history over the years, both as colleagues and as respected competitors, and it's safe to say that there's a lot of common ground in the way that our respective companies prioritize and manage operational risk and take care of our employees and customers. Next, our companies enjoy highly complementary positioning of our operations and customer coverage. We have a great deal of customer diversity, with over 80% of Diamond's backlog contracted to customers that are not current Noble customers on the floater side. So we're very excited about the opportunity to serve these additional customers.
Next, there's a very attractive backlog dimension to this transaction, including Diamond's $2.1 billion of backlog. Our combined pro forma backlog extends to $6.5 billion. Diamond's is a high-quality backlog as well. The four black ships average about 2 years at $460,000 per day and closer to $480,000 per day by year two. The remaining $800 million of backlog across the other rigs provides a complementary firm cash flow stream through late 2027. Importantly, this backlog accretion is supportive and intrinsic to the cash component of our transaction structure. Finally, on synergies, we're targeting $100 million of total cost synergies. We aim to realize 75% of this synergy target within the first year.
With active muscle memory and expertise in-house from having recently digested a comparably larger and more complex integration of Maersk Drilling. We are highly confident in executing a successful integration, which of course, is also aided by the aforementioned cultural dimension. As we have in our past integrations, we'll ensure our customers' needs and our own service posture remain the priority through this integration. So that's a quick summary of some of the highlights. We're extremely excited about the value that this transaction can deliver across all stakeholders, and we look forward to the journey ahead in bringing these two fantastic organizations together. With that, I'll pause there and ask Bernie to share his thoughts before we move on to Q&A.
Thank you, Robert. First of all, I couldn't agree more about the importance of the unique fit of these two companies, which I know from personal experience, share a common culture and an uncompromising commitment to service excellence and reliability for our customers. From a Diamond perspective, we've been pretty transparent about the imperative to gain more efficient scale. This combination with Noble is an ideal path to attain that scale, while providing Diamond shareholders access to both immediate and long-term upside potential as part of a larger enterprise with a compelling free cash flow and dividend offering, as well as shared participation in meaningful synergies with through-cycle scale. To all the dedicated Diamond employees who have committed so much to our long and impressive history, I'd like to offer my most sincere appreciation.
The opportunity ahead for this combined company as a leader in deepwater is incredibly promising, and I'm confident that we have the right assets and people to make this a great success. With that, I'll hand it back to Robert.
Thank you so much, Bernie. Sarah, I think we're just gonna go straight to Q&A.
Perfect. Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Gregory Lewis with BTIG. Your line is open.
Hey, thank you, and good morning, Robert and Bernie. Hey, congratulations on getting the deal done. Yeah, I think a lot of people have been waiting for maybe not Noble, but definitely somebody to buy Diamond. Robert, I did have a question. Yeah, obviously, you know, the Maersk or the 1972 Drilling Company acquisition, I think is still fresh in a lot of people's minds. You know, could you talk a little bit about, you know, maybe how the regulatory environment has changed or maybe what is different in terms of, you know, the consolidation landscape?
And really, you know, my question is around the long, windy process of getting the regulatory approvals in the U.K., that really seemed like it was a... You know, it was just a process last time around.
Yeah, yeah. And thanks, Greg, and thanks for your kind words. Yeah, look, the U.K. was really the long pole in the tent with the Maersk Drilling combination. And obviously, in this combination, the only crossover is between floaters and jackups there. So I would characterize the entire regulatory landscape as being much more straightforward, and something that you know, I guess the way to put it would be, we're confident around the timing we've given to close here.
Okay, great. And then one other change, you know, or one other strategy that maybe is different between the two companies. You know, I know Diamond had, you know, previously been a manager of other people's rigs, and I believe there you know is some rig management contracts, maybe for some new builds that aren't owned by Diamond, but Diamond was gonna provide rig management services. Does any existing or... How does that strategy change when the whole entity is consolidated at Noble?
Yeah. Look, I won't speak to specifics on those individual contracts. Bernie, feel free to hop in. I would say, as to the current management on the three, I guess the three newest management contracts, you know, those are excellent rigs. Those are rigs that we've always said will be in the marketplace, and belong in the marketplace, working for customers globally. And so, you know, we don't have any real view other than we expect that those rigs are gonna be out there competing. I think the owners have a fair amount of flexibility, you know, and we'll see if there's a conversation there.
We're not opposed to managing rigs, that's for sure.
Okay, super helpful. Thank you very much.
Hey, Greg, I would just add that Diamond is uniquely positioned to put those units to work with our highly contracted black ships, and we're at a time in the market where there are a number of opportunities coming forward that we don't have our own rigs to put those rigs to work for. And so I think both as marketing rights and future potential management contracts, they represent great upside for Diamond, as well as upside for the combined company going forward.
Okay, great to hear. Thanks, Bernie.
Your next question comes from the line of Kurt Hallead with Benchmark. Your line is open.
Hey, good morning, everybody, and congrats on the transaction.
Thanks, Kurt.
Sure. So I kind of curious, you guys referenced some synergies, $75 million of potential synergies within the first year of closing. Can you just give us some general sense as to are those, you know, what's the mix of that between cash and non-cash synergies? I'm assuming it's all cash, but just wanted to be clear.
Yeah, sure, sure, sure, Kurt, it's Richard here. Yeah, I think the fair assumption is to assume that is all cash. You know, the majority of the synergies are gonna be more on the cost side, on the shore-based side. We do expect to realize some on supply chain side as well, but I think a fair assumption for a modeling perspective is just to assume that all of those are cash.
Okay, that's great. And then just as a follow-up, I also wanted to be just expressly clear in the context of the capital structure. So post-transaction, it looks like you'll be obviously taking on the Diamond debt and taking on another $600 million of, of debt. So pro forma combined, probably, along the lines of $1.7 billion in debt. Do I understand that correctly?
Yeah, that is correct. So we'll have about, you know, if you include the leases, about $1.8 billion of debt on the combined company. So from a net leverage perspective, it will be about just over 1x on a 2024 basis.
Okay. And then maybe just one last follow-up for either Bernie or for Robert. So, you know, in the context of the merger you referenced that it sounds like the management contract that you have to market these other three rigs is gonna remain in place. Were there any triggers in contract language that would change the dynamic as it relates to any kind of change of control provision?
Hey, Kurt, this is Bernie. There are no specific triggers related to change of control, although the owners of those assets have broad discretion as to who they choose to market their rigs. They chose Diamond because, among other things, we've got a great reputation with clients, and we have a drillship fleet that's fully booked, and we're in the market today with a number of opportunities.
That's great. Appreciate that color. Thanks, guys.
Your next question comes from the line of Doug Becker with Capital One. Your line is open.
Thank you, and congratulations. A question for Robert and Bernie, but just want to get your thoughts on why is this the right time to do the deal? The stocks are both down from recent highs, and just want to get a better sense for what stars align to allow this to happen.
Yeah, sure. I'm happy to kick it off. You know, this industry has, you know, consolidation and M&A is, you know, terms that have been associated with this industry for several years now, really the whole post-COVID era. Obviously, we've been meaningful participants there. We have long admired Diamond, their management team, their employees, their way of doing business. And I would say, you know, big M&A like this, a lot of stars have to align. And I think in this instance, all of the things that make this attractive, from Diamond's backlog, obviously, the culture was a constant through all this, but the backlog and outlook, which we hold is very positive, all aligned.
I would say that we are extremely excited about the way this has all worked out. I think it's gonna be a really great combination.
Hey, Doug. In addition to the obvious culture fit and the benefits we'll think that will bring for our employees and the future shareholders of the combined company, we both feel like the companies are respectively undervalued in the market today with 2025 and 2026 EBITDA multiples. Diamond's cash flow really accelerates going into 2025, significant backlog, and just a platform where we can kind of leverage that future backlog and cash flow in a way that's best for our shareholders.
I appreciate that. And maybe this kind of ties into what you mentioned, Bernie, about the undervaluation, but Robert and Richard, just how did you think about the valuation for those five conventional, semis? Obviously highlighting, pretty good utilization there and good backlog. You know, I think it's pretty obvious that the drill ships account for the bulk of the value, but any context you could give for the value you see in those, other five assets?
Yeah, sure. I can give a little bit of color there. I mean, we, you know, obviously, we look at a number of different valuation methods when we're going through something like this. And I think whether you're looking at NAVs, multiples, whatever, looking at the past utilization and success rate for those rigs and the forward contract coverage really, I think justifies all of the current market valuation around Diamond. You know, they're obviously older rigs, but they have, in a couple instances, very loyal customers, and a great operating history. And so, we see it all as very additive to the story going forward.
Outside of obviously the fleet quality piece, since they're older rigs, it's all, all very additive to the story going forward.
Thank you.
Your next question comes from the line of Eddie Kim with Barclays. Your line is open.
Hi, good morning, and congratulations on the deal. Wanted to circle back on the question earlier about regulatory clearances. We know you had to divest some rigs in the North Sea to close the Maersk acquisition. Noble and Diamond do have some overlap in the Gulf of Mexico. Do you foresee any – you know, issues or potential bottlenecks? And what do you see as a probability of the governing authorities forcing you to divest one or maybe more of your assets in the Gulf?
Yeah, Eddie, it's a fair question in light of our last transaction, although, you know, we haven't made the regulatory filings yet. And so we're gonna have to leave some of this as to be updated in the future. Look, I would reiterate that we are very comfortable with the timeline that we've outlined to get to close. And obviously, that's inclusive of our analysis around the various different regulatory frameworks.
Eddie, I would just add, you know, drill ships are the most mobile class of assets on the planet today. And, you know, us and our competitors are regularly able to compete, whether we're in the Gulf of Mexico or outside the Gulf of Mexico, with assets. In the Golden Triangle, location is very fungible when it comes to drill ships.
Yep. Got it, fair point. Yeah, these aren't, these aren't fixed assets, for sure. My follow-up is just on a fleet rationalization. Rob, just, you know, with the addition of Diamond's fleet here, does this potentially change your views on fleet rationalization of some of your fleet or even some of Diamond's rigs?
No, it really doesn't, Eddie. I mean, I think one of the things that's interesting here is the complementary nature of how not only the customers line up, but also the regions. So, you know, we'll add some helpful scale in Brazil and elsewhere. And, you know, I think as you look at the map kind of around the globe, we didn't include a map in the materials, but if you look at a map around the globe, I think really what this does is it gives the combined company better scale and a better ability to serve customers on a global basis. So, look, I don't think it really changes how we might think about any individual asset.
Got it. Understood. Thank you.
Your next question comes from the line of David Smith with Pickering Energy Partners. Your line is open.
Hey, good morning, and congratulations to Noble. First glance, this definitely looks accretive on free cash flow, you know, EV multiples and NAV. And congratulations to DO, you know, it's a nice outcome versus the sub $6 share price when we launched coverage 23 months ago. I did want to ask, you know... Most of my questions were answered, but question for Robert or Richard: Could you share some color on how you settled on the mix of cash versus equity consideration for the merger? And also, whether you think there was more room to raise debt if you had wanted to.
Yeah, I can go, and then Richard fill in. But look, we looked very hard at the leverage multiple, and we're basically got comfortable with where we landed. We obviously run downside scenarios, and we all remember that era which you just referred to. And so we you know, spent a long time thinking about what made sense for the combined company, and just came out with what I think is appropriate leverage for now for the company.
All right, I appreciate it. Thank you.
Your next question comes from the line of Noel Parks with Tuohy Brothers. Your line is open.
Hi, good morning. Just had a couple questions. Just wondering, I don't know if this is something you've, excuse me, dug down in. Sorry, I don't know if this is something you dug down into much before. But in terms of the Diamond drill ships coming into the Noble inventory, is there anything particularly helpful ahead in terms of just maintenance timing that sort of being able to interweave the additional ships, you know, would be favorable for the Noble fleet?
Well.
No.
No, I think... Yeah. Go ahead, Bernie. Go ahead and I can.
No, you know, as you probably know from our fleet status report, we've got, two SPS's this year, one SPS next year, and none in 2026. So, you know, from the Diamond Fleet perspective, certainly comes at a time when our revenue efficiency and available contract days are gonna be very high. And, and you probably know that, the four black ships, were HHI vessels, similar to the, the four rigs that, Noble built in the shipyard and have currently working in Guyana.
Yeah, and I was gonna just add to that, too. Diamond has GE stacks on those rigs, and we've got a number of GE stacks in our fleet already that came through the Maersk merger. So we have a subsea and maintenance group that is very well prepared to take on the equipment from the other side. We've got everything covered.
Great, thanks. I was just wondering for Bernie or for Robert, I'm just wondering if Diamond had stayed standalone, but overnight you were given sort of advantages on cost of capital that would come from a larger organization, anything you could envision having been more aggressive on incrementally, you know, just faced with, you know, if you were faced with just that increased flexibility in capital?
Well, you know, the real advantage we see to this larger platform and obviously what should be a lower cost of capital for the combined entity, it is not only the ability to return significant cash to shareholders, but it's just the through cycle resilience to be here for the long term, continue innovating when it comes to technology, having a larger platform on which to train people and transfer people across the globe. You know, those kind of benefits don't all transfer necessarily to synergies, but when it comes to the customer, those are things they really care about.
Great, thanks a lot.
Once again, if you have a question, it is star one. Your next question comes from the line of Josh Jayne with Daniel Energy Partners. Your line is open.
Thanks. Good morning.
Hey, Josh.
First question is for Robert. Just going after this specific fleet in Diamond, obviously pro forma, much more deepwater focused. Could you just talk broadly from a strategy perspective? Does this signal further confidence in the deepwater floater market as opposed to the jackup market over the next couple of years? And maybe just offer some thoughts there.
Sure. Yeah, happy to. Look, we're very positive in our outlook on the deepwater market, and we've spent, you know, time talking about that in the past. We continue to see a number of very positive forward indicators. We see our customers making longer term plans. We see budgets up, we see FIDs up, and we see a general return of interest to deepwater development and exploration. That's not. That's no comment on the jackup market. We are now, as a percentage basis, a smaller, incrementally smaller, on close here in jackups. And, despite kind of a negative news wave with some of the developments in Saudi, that market's held up great.
It has, it's a very slightly different market, but really has been resilient here recently. So look, we've said in the past that as we grow, we're more likely to grow in deepwater. And of course, this is an indication of that.
Okay, thanks. And then a follow-up. You accelerated your cash return to shareholders in this release. Could you just talk about when, when you were looking at assets to potentially acquire, how important it was to secure something with this level of backlog when considering a target, in order to return more cash to shareholders, and how you're thinking about that going forward would be great. Thanks.
Yeah, absolutely. Good question. You know, we've said that we would return the significant majority of our cash flow to our shareholders, and we've done that. We've returned actually just a bit more than our cash flow over the last year and a half. So we've really stuck by what we said. This deal is highly and immediately accretive to our shareholders, so it's gonna allow us to return more. We've made it, you know, made that immediately obvious with the dividend raise. But looking at the accretion is a critical evaluation in anything we look at. This one screens extremely well, and we're really pleased to be able to demonstrate that with the dividend raise.
We look forward to continuing with our policy of returning the significant majority of that cash flow going forward.
Great. Thanks.
Your next question comes from the line of Sunny Sekhon with Truist Securities. Your line is open.
Hi, good morning. My question relates to the Diamond Offshore bonds and how they fit into the capital structure. Obviously, those bonds are secured bonds with restricted covenants. Do you intend to keep them outstanding and assume those bonds within the whole capital structure or intend to take them out and refi them with new bonds?
Yes, Sunny, a very good question. Our intention is to keep those bonds outstanding. You know, base plan would be to keep them in a separate kind of silo, if you will. And obviously, then, we also have a bridge commitment for the $600 million cash consideration part of the deal. And the intent would be to take that out with an unsecured bond closer to closing.
Okay. Are there any covenants that prevent you from, like, a filing covenants or anything like that, that will be a little bit more restrictive in that case if you intend to keep them in a separate silo?
Yeah, I mean, it's something we'll monitor, but I think, you know, the capital structure, you know, with leverage around one times, we'll have real flexibility in our capital structure. So that's something I wouldn't worry about at all.
Okay, appreciate it. Thank you.
This concludes the question and answer session. I will turn the call to Ian Macpherson.
Thank you, everyone, for your participation and interest, and, we will look forward to speaking with you again soon. Have a good day.