Noble Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 4, 2023

There are 7 speakers on the call.

Operator

Morning. My name is Brianna, and I will be the conference operator today. At this time, I would like to welcome everyone to Noble Corporation First Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, There will be a question and answer session.

Operator

Thank you. I would like to turn the conference over to Ian Mac Pershing, Vice President of Relations.

Speaker 1

Thank you, Brianna, and welcome everyone to Noble Corporation's Q1 2023 earnings conference call. You can find a copy of our earnings report along with the supporting statements and schedules on our website atnoblecorp.com. This conference call will be accompanied by a slide presentation that you can also find located at the Investor Relations section of our website. Today's call will feature prepared remarks from our President and CEO, Robert Eifler as well as our CFO, Richard Barker. Also joining on the call are Blake Denton, Senior Vice President of Marketing and Contracts and Joey Kawaja, Senior Vice President of Operations.

Speaker 1

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 any obligation to update these statements. Also note that we are referencing non GAAP financial measures on the call today. You can find the required supplemental disclosure for these measures, including the most directly comparable GAAP measure and associated reconciliation in our earnings report issued yesterday and filed with the SEC.

Speaker 1

With that, I'll now turn the call over to Robert Eifler, President and CEO of Noble.

Speaker 2

Thank you, Ian. Good morning. Welcome, everyone, and Thank you for joining us on the call today. I'll begin with some opening remarks on recent progress with our operations and contract awards and then provide some broader market outlook commentary before turning the call over to Richard to review the financial results and outlook. After our prepared remarks, we'll be happy to take your questions as always.

Speaker 2

Starting on page 3 of our earnings slides, 2023 is off to a great start as we continue to make steady headway with our business integration and continue to find exciting opportunities for re contracting our fleet into an improving market. Q1 was our 2nd full quarter as a combined company and I would again like to take a moment to express my profound appreciation to all of our fantastic offshore crews and Global Shore Based team who have embraced this integration and placed Noble on such solid footing at the outset Asset of the exciting future ahead of our industry today. Richard will speak more to the financials, but our Q1 adjusted EBITDA of $138,000,000 was in our view a good start to the year and a building block for what we expect to be progressively improving earnings over the course of the year as the contracted status of our fleet improves and we continue to realize integration synergies. As an aside, we did encounter some additional slippage with the start up of the Globetrotter One's contract in Mexico due to the permitting delays that we described on last quarter's call. Fortunately, we have resolved that permit issue and the Globetrotter One's contract with Petronas is now expected to commence within the next 1 to 2 weeks.

Speaker 2

So considering the subtraction of that contract's previously expected contribution during the month of March, which was not insignificant, we feel great about the results for the Q1 overall and would like to commend our offshore and onshore teams for the excellent operational performance. We're pleased to announce several new contract awards that are shown in Earnings Press Release and Updated Fleet Status Report. 1st, on the jackup side, the Noble Tom Prosser has been awarded new contracts from 2 operators in Malaysia for a combined estimated duration of 6 50 days starting in July. So the processor will be idle through most of the first half of this year as we had previously indicated, but with full utilization, a modest day rate uplift and a lower operating cost profile in Malaysia compared to its prior contract in Australia. This rig is now well placed for an improved margin contribution over the next couple of years.

Speaker 2

Next, we've recently secured several new contracts and commitments across the floater fleet. First, The 6th gen semisubmersible Noble Discoverer has received a contract with Ecopetrol in Colombia for one well priced at an undisclosed rate. Columbia is a reemerging exploration basin with several incremental drilling campaigns under evaluation in addition to this one. The Ecopetrol contract is expected to commence in Q4 and we are cautiously optimistic about filling more time on the Noble Discoverer between the conclusion of current contract this month and the start up window for the Ecopetrol contract. Additionally, the Noble Valiant, which is currently finishing a program in Suriname has been awarded a contract for one well in the Gulf of Mexico with an undisclosed customer at $450,000 per day and is expected to commence in Q4 2023.

Speaker 2

Prior to that well, the Valiant will mobilize back to the U. S. Gulf of Mexico to drill the Kosmos well that had previously been assigned to the Fay Kozak. And then this newly awarded one well contract will follow in direct continuation of the Kosmos contract, which creates a nice sequence for the Valiant into the 4th quarter. We have ample opportunities for the Valiant in 2024 both in the U.

Speaker 2

S. Gulf of Mexico and elsewhere and would expect this rig to participate in the improving day rate environment as we contract its 20 24 days. The rig swap on the Kosmos well was to accommodate some potential long term work for the Fay Kozak starting in the Q4, which we hope to finalize and announce soon. Last but not least, we're very happy to announce that ExxonMobil has committed an additional 6.3 years of backlog under the commercial enabling agreement in Guyana. This additional term will be distributed evenly across our 4 drillships in Guyana, thus extending each of them from Q4 2025 into Q2 2027.

Speaker 2

The unique combination of long term engagement and collaboration plus market pricing has proven to be an incredibly productive and mutually beneficial commercial model for the Guyana development and we believe that this new additional backlog commitment speaks directly to the success of this model. We are pleased to have been entrusted with further work and honored to continue to play our small part in that world class project. With these signings, our backlog as of May 1 has increased to $4,600,000,000 up from $3,900,000,000 at the beginning of the year. In addition to these recent contracts and commitments, we're optimistic that we should have some additional UDW contracts finalizing over the coming weeks, which could further bolster our backlog and could also potentially resolve some of the near term variability around white space that still appears on our fleet status sheet as of today. So we appreciate your patience as we work to get some more of these contracts over the finish line and look forward to updating you.

Speaker 2

So with that, I'd like to turn now to a broader market outlook. Last quarter, we provided a detailed geographic description of incremental UDW rig demand, and concluding that an estimate of 10 to 15 incremental units in the near term on top of the low 90s contracted rig count that prevailed then as well as now. As we roll that outlook 2 months forward, nothing has fundamentally changed and we remain highly optimistic that tightness will sale going into 2024. Oil price volatility immediately ensued from the jolting news of bank failures in March and continues with recent news, where our customers' underlying economics remain robust, and we have observed no pause or change in customer sentiment or forward planning. Contracted utilization of the marketed UDW fleet has increased to 92 out of 99 rigs or 93% effective utilization, up very slightly from last quarter.

Speaker 2

With this steadily creeping tightness in the existing marketed fleet, there is now as expected increasing bidding momentum behind the dozen or so sidelined premium deepwater rigs that are either cold stacked or stranded in shipyards. As previously stated, we continue to expect a near term dynamic in which some of this idle capacity is reactivated into the market at below average pricing. While the scarcity premium for hot rigs that have near term availability will continue to push leading edge rates toward $500,000 per day. Demand growth for UDW units over the near term is primarily expected across South America and West Africa, with Petrobras representing the largest component demonstrated by outstanding tenders for 8 floaters, including 7 for Brazil and 1 outside Brazil versus only 2 incumbent floating rigs coming off contract. We also expect an additional tender for 1 to 2 more units coming up.

Speaker 2

This indicates a need for 6 to 8 additional rigs for Petrobras in the near to medium term. These tenders have recently been subject to customary delays and wider delivery windows for some of these start dates extending into late 2024 are seen as an inducement to attract reactivations into the bidding as can be observed in the most recent tender results. Turning back to the Noble fleet, as it stands today, we currently have approximately half of our marketed floater fleet exposed contract rollovers over the next year. In addition to the 4 rigs operating under the CEA and Guyana, which reprice every 6 months. This affords us a great deal of attractive repricing leverage with the partial offset being the short term utilization inefficiencies that arise from a backlog structure that for now still holds a meaningful amount of short term contracts.

Speaker 2

As previously stated, contract gaps and relatively high number of 10 year SPSs are weighing on the utilization rates of our floater fleet over the near term Despite the exceptionally tight underlying supply demand, the periodic surveys for our floater fleet will peak in 2024 before normalizing significantly lower thereafter. This leaves backlog composition as the other area where we have an opportunity to pursue some utilization side moving forward. A key question is whether customers are willing and motivated to start contracting on a longer term basis. We see indications that some are. Up to this point, apart from our unique arrangement in Guyana, Petrobras has been the main customer that has been taking a significant volume of multi year floater contracts.

Speaker 2

If you look at the average duration of new floater contracts awarded Excluding Exxon, Guyana and Petrobras, Brazil, the average duration of all other floater contract awards year to date has been 12 months, which is an increase of more than 50% compared to the average of under 8 months per fixture during the comparable period a year ago. So, term has already begun to expand and we would expect this trend to continue because contractors and operators are generally aligned around the motivations to reactivate the dozen or so high spec sideline rigs. And it simply won't be possible to satisfy implied demand of 10 to 15 additional deepwater rigs without an acceleration of reactivations. And these reactivations require multiyear contract support. We are continuing to evaluate interesting opportunities to reactivate our cold stacked 7th generation drillship Meltem with appropriate contract coverage and we'll maintain our previously outlined disciplined approach with this rig.

Speaker 2

As a reminder, we estimate the Meltem would require at least $100,000,000 total capital in a year or longer to reactivate. Now on the jackups. Our outlook here is essentially the same as what we described last quarter. The Tom Prosser's new contracts for a combined 6.50 days are a welcome addition to our jackup backlog. Leading edge jackup dayrates outside of Norway and the North Sea are now in the $125,000 to 100 and $1,000 range.

Speaker 2

And while we do have bidding activity underway that could provide additional backlog for this year, These are generally more incremental in nature and we continue to see improving demand possibilities for 2024 and beyond. This includes the ultra harsh jackups Noble Interceptor and Noble Intrepid, which are continuing to muddle through very soft spot market conditions over the balance of this year. Additionally, the Regina Allen is undergoing repairs to its leg and jacking system with marketability into jobs starting in early 2024. So no change to our prior view that jackups will contribute no more than about 10% of our total EBITDA this year, But there should be ample headroom for improvement beyond this year. As of today, excluding the Regina Allen and the warm stacked Noble Highlander, The remaining 11 jackups are approximately 70% contracted over the balance of this year at an average day rate in the $120,000 range.

Speaker 2

So when we frame the future revenue and EBITDA potential for our jackup fleet is from a fairly low baseline as of today relative to forward indicators for day rates and utilization. Obviously, a recovery in Norway is an important driver for us and the tightening harsh semi market is a constructive leading indicator. In addition to the incremental Equinor jackup demand for 2024 work, which is important to restoring a more balanced supply demand situation for Norway jackups. For now excuse me, for our non Norway class jackups, there continue to be global opportunities for some of these rigs that may provide Better near and long term visibility than the U. K.

Speaker 2

And Southern North Sea. Since these are more geographically fungible than CJ70s, Our strategy is to deploy these assets wherever it's appropriate to capture the best returns. To summarize, we still have a somewhat and Exchange. We have a very strong dedicated outlook for the Deepwater and jackup fleets, but the re contracting trajectory for both remains very promising from where we stand currently. We've had a few nice contract wins recently for our deepwater fleet, and we're optimistic about signing up some additional high quality backlog in the near term.

Speaker 2

With that, I'd like to pause now and turn the call over to Richard to go over the financials.

Speaker 3

Thank you, Robert, and good morning or good afternoon all. In my remarks today, I will go over some brief highlights of our Q1 results, our recently completed refinancing and then discuss the outlook for the rest of the year. Contract Drilling Services revenue for the Q1 totaled $575,000,000 down slightly from $586,000,000 in the 4th quarter. Adjusted EBITDA was $138,000,000 in Q1, down from $157,000,000 in Q4 of 2022. Diluted earnings per share was $0.74 and adjusted diluted EPS was 0.19 dollars Capital expenditures for the Q1 were $63,000,000 As anticipated, the sequential decrease in revenue and EBITDA was driven by fewer operating days for our jackup fleet, which was partially offset by increased day rates on our floaters.

Speaker 3

Our 13 marketed jackups was 67% contracted in the Q1 compared to 85% in the Q4. This decrease was driven primarily by the Noble Regina Allen, Noble Tom Prosser and Noble Invincible, all of which were highly utilized during the Q4 of 2022, that were off contract for the majority of the Q1 of 2023. Our 16 marketed floaters were 91% used in the Q1, similar to the Q4, with average day rates across our floater fleet increasing by 9% sequentially to approximately 332,000 per day. With average embedded day rates in our floater backlog above 400,000 per day and leading edge Rates still trending higher. We anticipate further repricing upside to support visible revenue and EBITDA expansion in the quarters ahead.

Speaker 3

The delayed start for the Noble Globetrotter 1 in Mexico did have a negative impact on the quarter versus our expectations. As summarized on Page 5 of the earnings presentation slides, our total backlog as of May 3 stood at $4,600,000,000 up from $3,900,000,000 at the start of this year. This This includes approximately $1,300,000,000 that is scheduled for revenue conversion over the remainder of 2023 and approximately $1,300,000,000 that is scheduled for 2024. We were very pleased last month to complete our refinancing, redeeming prior issued senior notes and issuing $600,000,000 principal amount of new eight and Senior Unsecured Notes due 2,030 and securing an amended and restated senior secured revolving credit agreement, which provides for commitment to 550,000,000 and maturity in April 2028. We believe the streamlined capital structure, which includes no maturities for 5 years and no amortization payments, provides ample liquidity and flexibility to deploy

Speaker 4

the business effectively on a

Speaker 3

through cycle basis and to execute on our stated capital allocation priorities, including the return of capital to shareholders. There are also numerous other integration related benefits that this refinancing unlocks for us. Additionally, we believe it is a terrific outcome for Noble to become the 1st offshore driller in many years to reestablish an efficient regular way structure supported by an unsecured bond. Our integration remains on track. We continue to expect to have realized over 3 quarters of the $125,000,000 target of annual run rate cost synergies in the Q4 of this year.

Speaker 3

As of the end of the Q1, we have achieved approximately $60,000,000 of synergies. Referring to Page 9 of the earnings slides, We are maintaining our full year guidance, including total revenue between $2,350,000,000 $2,550,000,000 which includes approximately $200,000,000 of combined reimbursables and non cash revenue amortization. Adjusted EBITDA between $725,000,000 $825,000,000 and capital expenditures of $325,000,000 $365,000,000 excluding any customer reimbursable CapEx and capital related to the Noble Regina Allen leg repair given the expected insurance proceeds. While we remain confident with these ranges, the delayed start of the Noble Globetrotter 1 contract has been a discrete setback relative to our outlook at the start of the year. So all else equal, this leaves us with work to do in order to derisk the upper half of this adjusted EBITDA range.

Speaker 3

This could, for example, be determined by additional contracting wins, which we believe are attainable, but as always subject to timing uncertainty as well as potential gaps between contracts. We continue to expect a steadily upward progression of EBITDA each quarter, with the 4th quarter expected to be the highest EBITDA contribution of the year. As we progress from Q1 into Q2, we expect to realize revenue improvements from several areas, most notably, A full quarter of the most recent CEA repricing that took effect in March, start up of the Noble Globetrotter 1 contract in Mexico, commencement of the Innovators contract in the North Sea and positive repricings for both the Noble Fay Kozak and the Noble Viking towards the end of Q2. As we look ahead to the Q4 of this year, we believe that we could approach an annualized run rate for adjusted EBITDA of around 1,000,000,000 subject to the same aforementioned proviso that there were a few pending contract awards that would serve to derisk this view. The negative free cash flow of $126,000,000 that we incurred in the Q1 was primarily driven by a net working capital build of $170,000,000 and we expect the majority of this to unwind in the Q2.

Speaker 3

In the Q1, we repurchased $10,000,000,000 of shares. I would note that we were subject to extended blackout restrictions during Q1 driven by the pending refinancing, which significantly limited our ability to repurchase shares. With the refinancing now behind us, we very much look forward to ramping up our return of capital to shareholders. That concludes my remarks, and I'd now like to pass the call back to Robert for closing comments.

Speaker 2

Thank you, Richard. With an expected upward progression of our quarterly EBITDA through 2023 and a viable path to $1,000,000,000 of annualized adjusted EBITDA in the Q4 of this year, the financial outlook for 2024 and beyond continues to remain extremely robust. We now have our refinancing in the rearview mirror and we'll look to return a significant majority of our free cash flow to shareholders going forward. You can expect us to continue to execute on our share repurchase program and to continuously evaluate if and when a dividend might be appropriate. I am so proud to be a part of this incredible company to work with our exceptional colleagues and to help bring the best of both legacy Noble and Maersk Drilling together to better serve our customers.

Speaker 2

As we continue on our journey to creating the leading offshore drilling company, We remain very encouraged by both the commercial pipeline of activity from our customers as well as the structurally redefined supply side dynamics of our business, which is still in the early stages of emergence from a deep and protracted underinvestment cycle. With that, I'd like to turn the call back to the operator for questions.

Operator

Our first question comes from the caller of Kurt Hallead with Benchmark.

Speaker 5

Hey, good morning everybody.

Speaker 2

Hey Kurt, how are you?

Speaker 5

Good, good. Thank you very much. So yes, I'm Kind of late, you laid out the groundwork here for obviously continued improvements throughout the year. You did tease the dynamic here that you could potentially have some additional contract announcements before the end of the year. I guess my question in that dynamic, Are these additional contract announcements pushing up above the recent leading edge rates of I guess we're in the $400,000 to $450,000 per range.

Speaker 5

And could you just give us some color around how you see that evolving? You don't have to get specifics obviously and you wouldn't on this call, but I'm just trying to gauge how you feel about the potential pricing of these contracts coming up in the back half of the year?

Speaker 2

Sure. Yes. I mean, we feel very comfortable with where we've priced these. We're big believers in the market and writing the market where it goes. Not over the finish line, so I don't want to get ahead of ourselves, but We're marking groups an incredible job of making sure that we're looking around corners and pricing effectively.

Speaker 2

And so I'm quite comfortable that these will be well appreciated fixtures if and when they come through.

Speaker 5

Got it. Thanks for that. Appreciate that. So on the Meltem, would that be a possibility here

Speaker 2

It's basically where we've said before, as conservative as an approach as we're taking, There's only a for now, only a couple of contracts really kind of per year, kind of 1 to 3, I'd say, and Exchange Commission. I mentioned last quarter that we could relax that criteria going forward, but we've said today that we're not planning to right now. So yes, it's a possibility. And we think that work Excuse me, that rig ends up back in the marketplace. It's a highly capable rig, and we're just trying to be patient and pick the right opportunity report.

Speaker 2

So it's I don't want to put a percentage to it, but we are actively chasing opportunities and we'll see what happens.

Speaker 5

Okay, great. Appreciate that. Maybe if I just wrap up, you referenced you're going to be returning cash to shareholders. So Number of companies have kind of pegged a certain percentage of free cash flow that they were going to allocate. Have you given some consideration To a percentage of cash flow that you may return to shareholders?

Speaker 3

Yes, Kurt. We haven't put a specific number on it. Obviously, the refi that we got done here in April was helpful to that. So we're now saying a significant majority, But we're not putting a specific number to it right now.

Speaker 5

Okay. That's great. Appreciate the color. Thank you. Thank you.

Operator

Our next question comes from Eddie Kim with Barclays.

Speaker 6

Hi, good morning. Just a quick follow-up on the Meltem. So you mentioned Petrobras might be setting some contract dates to commence late 2024 to induce some cold stack rates into bidding on some of their tenders. Are you currently bidding the Meltem into work now. And ideally, how long of a contract would you be looking to secure to justify the reactivation of that rate?

Speaker 2

Yes. So I guess a few things there. 1, the public results of the Petrobras tender would show that we don't we're not in the current tenders with that rig. And we have our specific reasons for that. For one thing, that I don't want to presuppose where we might end up bidding that rig or looking to put that rig into a maiden contract.

Speaker 2

It is a question of risk tolerance around some of the criteria that I've outlined previously, including termination rights in time to perform the shipyard work and reactivation work for liquidated damages or termination rights might kick in. So as we looked at the now public tenders, We didn't think that was the best fit for the Meltem, but that doesn't mean that it would be precluded from something there in the future by any means. Generally speaking, at current rates, 2 to 3 years is a timeframe that I think works quite well for an initial contract for that rig. Again, Extremely important to us is the are the contract terms that sit around the financials.

Speaker 6

Got it, understood. And that all makes sense. Just my follow-up is on the comment in prepared remarks that day rates are trending towards 500,000 a day. Some of your peers highlighted the same earlier this week. Would you expect To be at that level by the end of the year or do you think that we'll see a contract signed that with a 5 handle, Does that get pushed out kind of mid or late next year?

Speaker 2

There are a couple of things that need to fall into place, I think, to see another step change up in rates. I've said and I still believe very much believe that it's possible that we see it this year, obviously not for work starting this year, but that we see the fixture. I think you'll see some all in contract value rates that for sure meet that threshold. But in terms of just a flat and clean Right. There is a path.

Speaker 2

I think we need, for one thing Petrobras to execute on a lot of the contracts that they're out tendering for. And from there, as I said in the remarks, we see some tightness in 2024 that's It's very much conducive to some rate appreciation here.

Speaker 6

Got it. Great, understood. Thank you. I'll turn it back.

Speaker 5

Thanks, Annie.

Operator

Our final question comes from Frederic Steen with Clarksons Securities.

Speaker 4

Hey, guys. Hope you are all well, and thank you for taking my question. So I wanted to touch a bit more about the projected or the guidance you gave here, Richard, and how we can Expect the year to develop and potentially reaching a run rate EBITDA of €250,000,000 by the end of the year or sorry, €1,000,000,000 by the end of the year, but I guess that would be around €250,000,000 for the quarter. When we look at the $138,000,000 adjusted you delivered today and then reaching $250,000,000 by the end of this year, Do you have any idea of how that slope will look through 2024 at this point. But I guess we're also expecting to see more work for your jackups and not only improved performance based on repricing floaters.

Speaker 4

Kind of any color you can give on how you think Your financials will continue to develop would be super helpful.

Speaker 3

Sure. Yes. So obviously, our guidance for 2020 3 is the same as what it was at the start of the year. So Q1 EBITDA or adjusted EBITDA was $138,000,000 We see a path to $1,000,000,000 of annualized EBITDA in Q4, which is $250,000,000 That's not guidance per se, but we can see a path towards that for sure. Our jackup fleet is not contributing much candidly to EBITDA this year.

Speaker 3

So we only see it as about 10% of our EBITDA. So as you think beyond 2023, I think there's significant upside or option value, if you will, or EBITDA side that's not necessarily incorporated in the numbers this year. So I think that as we sit here today, we see a quarterly progression in EBITDA as we move through 2023, I think we're very optimistic about 2024 as well.

Speaker 4

Thank you. I also wanted to touch a bit on contracting strategy. And you don't need to disclose your actual strategies. But particularly with the SPS coming up for a large part of the fleet and what you said in your prepared remarks about some of these assets being repriced this year, there's some short term coverage on a meaningful part of the fleet. I guess you can kind of look at these 2 ways, but Obviously, there's utilization impact of having short term contracts.

Speaker 4

But on the other hand, you are kind of helping the market by repricing that fleet a bit more often. So have you taken kind of do you have any active strategy in how you're managing this portfolio of your Cloters in particular now, are you actively holding out or chasing short term contracts Just because you want to reprice further? Or are you actually looking to limit the amount of short term work?

Speaker 2

It's a good question, Frederic. I'll take it and then fill in if I've missed something. But first of all, you mentioned SPSs. That has no effect on our contracting strategy. It can create some friction in white space just because If they fall in between customers, which probably was your point that it sometimes can and it has in our case led to just a little bit of inefficient white space.

Speaker 2

But generally speaking, that's just a function of offshore assets and you work with your customer to find the time in between Wells to do it and it's something that's discussed prior to signing contracts and known to everyone for a long time, etcetera. So, while it does affect maybe some tactics or some efficiency. It doesn't really affect strategy per se. I think Noble's journey has been just very slightly different than others, because we're very thankful to have the CEA in Guyana. And Since that's a big component of our Tier 1 drillships and it reprices, we haven't been I don't think we've felt as pressured over the past couple of years to take on longer term contracts.

Speaker 2

And that's thankfully played I think to our benefit here putting us to present. We have a large fleet. We have, I think, the largest Tier 1 fleet in the world, But certainly we have global scale with our EDW fleet. And from where we sit today and where we see pricing. Despite the fact that we see pricing increasing as I've said, there's room for a couple of long term contracts I think in our fleet today.

Speaker 2

And it has some helpful implications. So we are by no means shying away from bidding on longer term contracts. Even though you may not have seen us win in some of those, in fact, I guess all of those that have been announced so far. We are participating and by no means is it excluded from our strategy. I think a mix is helpful.

Speaker 2

And the last little bit of color I'd give is that in our 6th generation fleet, We're a little bit more likely I think there to seek out term than we would in the 7th generation fleet, if that answers your question.

Speaker 4

Yes, that's super helpful, super helpful. Final one for me since it was no one else in the Thank you, at least when I started. Just on the capital allocation framework, you're buying back shares, your new debt stack, Congratulations, by the way. It gives you more flexibility on shareholder paybacks. Are you Kind of or which criteria needs to be met for you to have a well defined policy in the sense that you're paying out a certain amount of net income or certain amount of cash flow so that We get even more visibility than what we have today.

Speaker 3

Yes. It's a very good question and something obviously that we are Very focused on we the refi was very important to us, right? It gives us Better visibility around our capital structure and just allows us to manage the business through cycle better. So Obviously, we were free cash flow negative in Q1, and we expect that to reverse here, obviously, into Q2 and then we expect to generate an attractive level of free cash flow for the entire year. So we're looking now to return a significant majority of our free cash flow to shareholders.

Speaker 3

We're not putting today a specific percentage to that, but I think it's fair to say that it's obviously going to be closer to 100% than 50%

Speaker 2

Call today.

Speaker 4

That's very nice color. Thank you all for good answers.

Speaker 2

Thank

Speaker 5

you.

Operator

We have no further questions at this time. I would like to now turn the call back over to Ian McPherson.

Speaker 1

Thank you everyone for dialing in and for your continued interest in Noble and we look forward to speaking with you again next quarter.

Operator

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.

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Earnings Conference Call
Noble Q1 2023
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