Noble Corp. led a decline among offshore deep-water drilling contractors after saying the industry may be experiencing a “pause in the cycle” after years of growth fueled by oil and natural gas discoveries.
Noble fell 8.6 percent at $33.13 at the close in New York, the most since August 2011. Transocean Ltd. declined 3 percent, while Ensco Plc and Diamond Offshore Drilling Inc. lost 4.4 percent and 5.2 percent, respectively.
Rig contractors responded to rising demand in the past few years with the biggest batch of orders for rigs since the advent of deep-water drilling in the 1970s. Noble, the second-worst performer in the Standard & Poor’s 500 Energy Index during the past six months, is seeing fewer contract opportunities than a year ago, the London-based company said yesterday in a statement.
“There really is an execution phase that is going on right now where the customers are trying to swallow the proverbial pig,” Roger Hunt, Noble’s senior vice president of contracts and marketing, told analysts and investors today on a conference call. “Our customers really have had an extraordinary increase in activity over the past three years.”
The pace of customer spending growth is expected to be lower this year compared with last year, according to Hunt. There are a total of 38 ultra-deep-water rigs around the world looking for work, up from 22 a year earlier, Hunt said.
Oil and gas producers will have to control investment to appease shareholders, creating a challenge for service companies, Petrofac Ltd. chief executive officer Ayman Asfari said.
“Our industry is facing a huge amount of cost pressure,” Asfari said in an interview in Davos, Switzerland today. “More is being spent to produce less. Our clients are seeing the rate of return on capital dropping and they’re being challenged by investors who want them to be more disciplined.”
Separately, Hercules Offshore Inc. slumped the most in more than three years after saying yesterday in a fleet status report that it suspended plans to reactivate a shallow-water rig in the Gulf of Mexico. Hercules dropped 15 percent to $4.88.
Hercules investors are nervous about the demand outlook for shallow-water rigs in the Gulf of Mexico, where the Houston-based drilling contractor carries out most of its work, Byron Pope, an analyst at Tudor, Pickering, Holt & Co., said today in a phone interview.
Noble has fallen 18 percent in the past six months. Houston-based Diamond Offshore has dropped 26 percent in the same period.