Earnings call transcript: Noram Drilling Q1 2025 sees steady performance amid market challenges

Noram Drilling reported its financial results for Q1 2025, showing stable performance despite a challenging market environment. The company posted revenue of CAD 25.8 million, slightly down from the previous quarter, but net profit significantly increased to CAD 5.2 million. According to InvestingPro data, the stock currently trades near its 52-week low of $2.17, with analysis suggesting the stock is undervalued based on its Fair Value estimate. The stock price saw a modest increase of 0.89% following the announcement, reflecting cautious optimism among investors.

Key Takeaways

• Revenue for Q1 2025 was CAD 25.8 million, a slight decrease from Q4.
• Net profit rose to CAD 5.2 million, up from CAD 1.9 million in Q4.
• Rig utilization decreased slightly to 89.7%.
• Dividend payout was CAD 5.2 million, equating to NOK 1.33 per share.
• The stock price increased by 0.89% after the earnings release.

Company Performance

Noram Drilling’s Q1 2025 results reflect a stable financial footing amidst a declining rig count in the Permian Basin. Despite a slight drop in revenue from the previous quarter, the company managed to increase its net profit significantly, showcasing its operational efficiency and cost management. InvestingPro analysis reveals a strong gross profit margin of 70.53% and healthy current ratio of 1.53, indicating solid financial health. The company continues to leverage its fleet of ultra super spec rigs to maintain a competitive edge in the market. For deeper insights into Noram’s financial health and future prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Financial Highlights

• Revenue: CAD 25.8 million, down from CAD 26.6 million in Q4.
• Net Profit: CAD 5.2 million, up from CAD 1.9 million in Q4.
• Adjusted EBITDA: CAD 6.7 million, marginally up from Q4.
• Dividend: CAD 5.2 million, NOK 1.33 per share.
• Cash Balance: CAD 12.8 million.

Outlook & Guidance

Noram Drilling remains cautious about the outlook for 2026, with future performance heavily dependent on WTI crude oil prices. The company is exploring potential rig redeployment to the Haynesville or international markets, which could offer new growth opportunities. Maintaining its dividend policy will be contingent on continued profitability.

Executive Commentary

CEO Martin Jamieson remarked, "We believe that at the current rig activity levels, oil production in the US has peaked." He emphasized the company’s position as a top contract driller with high-performance rigs. Marius Furule, Director of Investor Relations, highlighted the company’s commitment to returning excess cash flow to shareholders.

Risks and Challenges

• Fluctuating WTI crude oil prices could impact profitability.
• Decreasing rig count in key markets like the Permian Basin.
• Potential challenges in redeploying stacked rigs.
• Economic factors affecting global oil demand and production.
• Competition from other drilling companies with similar capabilities.

Noram Drilling’s Q1 2025 performance underscores its resilience in a volatile market, with strategic initiatives poised to drive future growth. The company’s ability to adapt to changing market conditions and maintain profitability will be crucial as it navigates the challenges ahead.

Full transcript - Noram Drilling AS (NORAM) Q1 2025:

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Hello, everyone, and welcome to Noram Drilling’s First Quarter twenty twenty five Results Presentation. My name is Marius Furule, and I’m the company’s Director for Investor Relations and Strategy. And with me today, I have the company’s CEO and CFO, Martin Jamieson, from Houston. We will first go through a presentation of the quarterly results and recent market developments before we open up for a questions and answer session at the end of the presentation. But before we begin, I would like to bring your attention to our disclaimer page.

This conference call will contain forward looking statements. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward looking statements. Forward looking statements are not guarantees of future performance, and these statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements. So you should therefore not place reliance on these forward looking statements. So with that said, Marty, please go ahead.

Martin Jamieson, CEO, Noram Drilling: Thank you, Marius, and hello to everyone joining us today. I am pleased to report that Noram continued to deliver operational excellence with 10 of our 11 rigs in our fleet employed during the first quarter. Permian rig counts finished the quarter at 300, down four from the beginning of 02/2025. WTI began and finished the quarter at approximately 72 a barrel with a high of 80 and a low of 66. Our revenue was 25,800,000.0, down 800,000 from the previous quarter, primarily as a result of slightly lower utilization.

Our fleet utilization decreased to 89.7% from 90.6% in the prior quarter. Adjusted EBITDA was 6,700,000.0, up 100,000 from the previous quarter. Our net result was positively impacted by, excuse me. Our profit after tax, was 5,200,000.0 in q one two thousand twenty five versus 1,900,000.0 in q four two thousand twenty four. Our net result was positively impacted by a change in our rigs estimated remaining useful life estimates effective January 1, reducing accounting depreciation of our assets.

10 of our 11 rigs were under contract and working at the end of the first quarter. Our backlog was 17,600,000.0 as of May 28 with nine of our 11 rigs under contract and working. Next page, regarding recent events and outlook. During the first quarter, we paid dividends of 5,200,000.0 or NOK 1.33 per share. Subsequent to quarter end, we announced two additional monthly dividends, and our latest distribution represents our thirtieth consecutive monthly distribution since our listing.

As mentioned on the previous slide, our current backlog was 17,600,000.0 as of Wednesday. Seven of our rigs are currently operating under contracts of at least six month terms. Two of our rigs are on a pad to pad contract. I am pleased to report that we signed a contract with a major E and P customer yesterday for a previously announced anticipated third rig that may that would be released, and that will be transitioned from the existing customer with little or no white space. This initial pad to pad contract will add an additional $1,000,000 to our backlog.

As of last Friday, the Permian rig counts had declined an additional 21 units or 7% to 279 as a result of WTI prices declining from around 71 to a low of 57 and is currently trading around $61. This has been driven by continued economic and geopolitical uncertainties. E and P consistently operating and and demonstrating fiscal discipline. And then, obviously, the OPEC announced production increases. Now turning to the next page.

On the market side, we see that the Permian rig counts continue to drop as mentioned earlier since the beginning of the year as oil companies respond to lower oil prices by cutting activity. Accordingly, oil well completions are dropping. Data from EIA suggests April 2025 well completions were the lowest since the lows of 2021 when COVID disrupted the supply of people and rigs. Oil production growth has continued to slow, and the latest EIA figures point to only 260,000 barrels of oil per day growth year over year during q one. We are firm believers that we would need to see an increased rig count to accommodate material production growth in the Permian going forward.

E and P commentaries vary, but the sentiment is currently consistent. US oil production has peaked and will decline at the current rig count levels. Breakeven WTI prices vary, but estimates range mostly from the upper 50 to mid $60 range. Seems E and Ps are coming clean with their full cost breakeven estimates. CapEx will likely continue to decline if WTI prices drop below the current levels as E and Ps likely will elect not to drill their tier one acreage as these prices and their tier two acreage breakevens are more than likely higher than the current WTI prices.

In closing of my opening remarks, I would like to thank all of our employees for their hard work and their dedication. We continue to be a top contract driller with our talented employees and ultra super spec rigs. We’re very proud of everyone. Marius, let me turn it back to you for a review of our key operational figures for the quarter.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Thank you, Marty. So in the first quarter, we achieved a rig utilization of 89.7%, down from 90.6% in Q4. We had one rig stacked during the quarter. And subsequent to quarter end, we had another one ending its pad to pad contract with a public E and P. We continue to look for employment opportunities for both stacked rigs, including outside our main market in permit.

Revenues came in at CAD 25,800,000.0, slightly down from CAD 26,600,000.0 in Q4. However, we had an adjusted EBITDA of CAD 6,700,000.0, marginally up from NOK 6,600,000.0 in Q4, thanks to lower operating expenses. Our operating expenses decreased as our repair and maintenance expenses decreased from Q4. However, we would like to caution that we do not expect the level of R and M expenses in Q1 to be representative for the run rate going forward. Our all in breakeven was around $17,500 per day for the working rigs, but we expect this metric to be at a slightly higher level going forward as Q1 was extraordinary on the low side.

The idle rigs are stacked at about 30% lower cost than the working fleet. On the income statement, we had an operating profit of about NOK5.2 million compared to an operating profit of million in Q4. The increase in operating profit can be mainly attributed to lower operational expenses and a change in our accounting policy regarding ORIG’s useful life assumptions. Accordingly, we expect quarterly depreciation going forward to be around those of the level in Q1, which will lead to, all else equal, a higher net result for the company. In Q1, we had the financial income of 150,000 as a result of interest income and FX gains.

And we continue to have a debt free balance sheet, which and we had no borrowings under our RCF at the end of the quarter. First quarter net profit was NOK 5,200,000.0 versus a net profit of around NOK 19,000 in Q4. So turning over to the balance sheet and cash flow statement. We ended the quarter with a cash balance of 12,800,000.0, sorry, as a result of working capital reversals during the quarter. During Q1, we paid out NOK5.2 million or NOK1.33 per share in monthly dividends, and we have declared two quarterly dividends subsequent to quarter end.

We will, subject to profitability, continue to pay out dividends as we operate with high utilization and favorable drilling rates. So to conclude this presentation, NORA has a fleet of 11 ultra super spec rigs fully upgraded with state of the art walking systems and racking capacity with a track record of drilling the longest wells in the Permian Basin. We are strategically positioned in Permian, the largest U. S. Shale Basin, where our rigs are among the very top performers in terms of drilling efficiency, measured by feet per rig per day.

We retain a top quality customer portfolio of five E and Ps, ranging from super majors to smaller companies. The company has industry low cash breakeven and minimal investment requirements in the rigs to keep them at the top of the market. We have a clear dividend policy and will continue to return all excess cash flow to our shareholders. And since our listing, we have returned now million or NOK19 per share to our shareholders. And our latest monthly cash distribution implies an annual yield of approximately 22% as of the closing price on Wednesday.

And with that, I will conclude this presentation, and we will open up for a and answer session. You can either use the raise hand function, or you can write in the Q and A chat. So I think we have a little bit problems with the the raise hand function right now. So I appreciate if we could use the Q and A section in the Teams. So our first questions come from Harald Lund.

He asks, Looking forward into 2026, do you think rig count will continue to go down? And is it possible that Moran will have more rigs out from the market? So, Marty, would you like like to start?

Martin Jamieson, CEO, Noram Drilling: Yeah. So so it’s a little premature to start looking into 02/1926. I think kinda everyone’s really focused on 2025 right now, meaning that the E and Ps are actively monitoring their CapEx plans. And in order to start getting a vision into 02/1926, I don’t anticipate that we’ll get much clarity on that until, you know, probably the earliest third quarter, more likely the fourth quarter. But it’s gonna all be driven by the price of WTI.

And at at current levels, what what it feels like is that at the current WTI prices, I think there’ll be some continued pressure on the number of rigs short term. Now whether that carries on to 2026 or not, that that’s remains to be seen. What I can tell you is that we believe that at the current rig activity levels, oil production in The US has peaked. And you in order to to maintain the production at some level going forward, we’re gonna need to increase the rig count. Whether that happens in 2026 or not, I think it’s a little premature.

I still believe that NORAAM will will perform well given that all of our rigs are ultra super spec rigs. We continue to operate very well. And as mentioned earlier, we’re transitioning a rig next week from an existing customer to an to a major operator, which, you know, I think in this marketplace, I think, speaks volumes, for the quality of Norium. I hope that answers your question, and sorry I don’t have a very good crystal ball into 2026 right now.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: And part two of this question is related to your distribution of of dividends. Is Nord Streaming able to pay dividends with more rigs out of the market?

Martin Jamieson, CEO, Noram Drilling: Arias, you wanna handle that, or would you like me to?

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: I mean, we can we can say as as said during the presentation, we will, of course, subject to profitability, continue to pay out dividends. And NORM has a long operational history. And since 2016, we have with this current fleet, we have not run into an operational loss before financials, I. E, unlevered. We’ve been profitable every year since 2016.

We are taking measures to reduce our costs in the event of a prolonged downturn. And we will try to protect our shareholders from activity declines. However, it remains to be seen what level of rigs we can retain working. We are, of course, hopeful that we can stand firm with the rigs we have under contracts as of now. Many of our rigs have worked for the same clients for numerous of years, and we see the value in being a top performer, as illustrated by the fact that we were just able to transition one rig going off a pad to pad contract directly onto an existing customer.

And as Marty said, this speaks for itself in terms of our standing in the market. Would you like to add anything to that, Marty?

Martin Jamieson, CEO, Noram Drilling: Well said, Maurice. Nothing else to add. Yeah.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Another question on the on the side here. Are you seeing competitors moving idle rigs away from the Permian, or are they warm stacking them for now? Thanks.

Martin Jamieson, CEO, Noram Drilling: Yeah. So so the only rigs that we see leaving the Permian are rigs that really came to the Permian a little over a year ago when natural gas prices declined. And those are those are a modest number, And the rigs that are leaving are are they they could have been either more than likely, they were idle rigs going back to the Haynesville to work. And but, again, it’s as of today, it’s only been a handful of rigs. So the you know, not much not much color on on the number and types of rigs yet.

But if natural gas continues to stay above $3, I think we could see more rigs leaving the Permian for the Haynesville.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Another questionnaire. Will all rigs stay warm without work if more of them will be out of work?

Martin Jamieson, CEO, Noram Drilling: Yeah. No. I don’t I don’t think so. It’s just not an it’s not economically viable to maintain the crews if you really don’t have good vision as to how long your rig’s gonna be stacked. What what I think will more than likely happen is let’s just take an example.

If if if NORAAM were to have three or four rigs stacked, we would not have crews for all four rigs, sitting in the yard at one time. We may have a complement of maybe two crews that rotate between the four rigs. And when the market returns and we we return one or two rigs to work, we would bring in additional crews so those rigs would be ready. So I would call it a hybrid full cost model. And thus, as Maurice mentioned, if our full breakeven cost is 17,500 a day, a warm cost or a warm stacked rig probably incurs 7 to $10,000 a day.

And what I would while I wouldn’t call it cold stacked, I would call it a a stacked rig with no crews. That probably runs about $3,000 a day.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Alright. We have another question here from from Trolls of Fernis. Regarding M and A, what’s your what’s your view on this? And is it more likely or not in the current oil price environment?

Martin Jamieson, CEO, Noram Drilling: Hey, Trolls. Thanks for the question. You know, it it’s very interesting that I don’t know is the is the bottom line. To me, it comes back to are the investors of drilling rigs, are they willing to to give up control for a transaction? I think everyone sees the merit of consolidation, but it’s just tough to to give up the cockpit seat and turn it over to someone else.

Not all rigs are the same. We operate a pure fleet of 11 super spec rigs. And for us to be interested to do something with somebody else, we’re we would want to make sure that we weren’t diluting the quality of our our asset base and having to navigate with that. Now having said that, we still remain firmly interested yeah, should there be an opportunity to pick up, you know, a one or two or three rigs that fit our portfolio well. But to see a kinda larger transaction happen, I don’t think that occurs without someone being in financial duress.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Also, we you could we could also have a comment regarding m and a between the E and Ps as this has been a major theme the last two to three years in the market. And we are we after after DiamondBack acquired Double Eagle, which was probably one of the one of the bigger transactions in our space the last six to twelve months. I would I would expect the appetite for more E and Ps E and P M and A to be somewhat lower in the current oil price environment as right now, economics gets a little bit more challenging on both sides of the transaction. But we could also say that the market in Permian has been quite consolidated now in terms of acreage, and there are fewer and fewer opportunities for big public E and Ps to acquire smaller private companies, which is typically or and historically clients that Noram has worked for. And then we have another question from the chat.

I understand that NORM rigs can handle both oil and natural gas. How easy is it for other drivers to change from oil to natural gas, I assume, drillers? And secondly, how are how are the natural gas drilling market right now?

Martin Jamieson, CEO, Noram Drilling: Yeah. So so I’m gonna really reference Norium. You know, we we cut our teeth in the drilling business working in the natural gas basins, primarily Oklahoma. And in order for us to go back and work in the Haynesville or Oklahoma, I I’m actually surprised at how little additional effort and expense it would take. Only some minor equipment that we pulled off of the rigs when we came out Oklahoma to the Permian would be required to reinstall on a rig.

So for for the quality of our rigs, it would take very little effort other than kinda roughly thirty days to to put the rig on trucks and get get it into the to the natural gas basin. You know, it is interesting that natural gas is above $3, has remained above $3 here in the current quarter. But you really haven’t seen a significant move in the rig count in those basins just yet. How quickly that happens is to be seen, but we we continue to actively look for opportunities in in the Haynesville and would not hesitate to to move a rig over there or a couple rigs. Our preference would be to move a couple to get some economies of scale versus a single rig.

But we’re very capable and have a history of experience in operating in natural gas basins.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Another question there. It’s regards to to other areas or basins. Can you provide a little bit a little more color? I mean, now we just talked about gas basins, but are there any other opportunities out there?

Martin Jamieson, CEO, Noram Drilling: Yeah. So so I really think it it our rigs are well suited for either the Haynesville, Oklahoma, the Eagle Ford, but, specifically, the Permian. You know, one thing that’s kinda entertaining us a little bit is maybe looking at the international markets. And while that’s clearly not the the backbone of Norium, we we we our rigs could be well suited in some of the international markets. And so while I don’t want anybody hanging their hat on that, it is something else that might be an all opportunity for Noram down the road.

And and let me and I’m sorry, Morris. Let me add, you know, the the Permian accounts for 50% of the rig count, levels. If you add in the Eagle Ford and the Haynesville, in Oklahoma, you know, you’re you’re you’ve got a super majority of The US land count with all of those basins. So, you know, we’re we’re in the sweet spot. So it’s really those basins or international market, that, provides an opportunity.

Sorry.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Yeah. And then another question here. How are day rate and contract terms trending in the current market?

Martin Jamieson, CEO, Noram Drilling: Yeah. You know, that’s that’s a great question. And, you know, how I would respond to that is, you know, while our back log is down compared to the the prior releases, that’s more of a function of the timing of renewals as seven of our rigs are operating on contracts of six six month terms. What I can say is as of today, we have not seen a significant change in our customer bases expectations of contract terms and day rates. You know, if oil if WTI remains at kinda the levels they’re at today or continues to decline, I think it would only be kinda anticipated that there’ll be some pressure on day rates and contract terms.

But as of today, we’ve not seen much pressure there.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Thank you for that, Maury. Another question here on the line from Peter Lada. Are you in active discussions regarding your two stacked rigs? And in a best case scenario, how quickly could they be back on contract?

Martin Jamieson, CEO, Noram Drilling: Yeah. So so we always are having active conversations. But, you know, given kinda where WTI is right now, any opportunities that are out there, it’s a very competitive field. The fact that we were able to place this rig that’s coming off of contract next week with us alternative major operator, I think, kinda speaks to kinda the the where the world’s at right now for our business. I I do believe that at the current levels, I would be optimistic if I thought that we could put the third rig back to work during the third quarter, maybe a little bit earlier.

The the the rig that’s been stacked for eighteen months, that’s gonna take a longer period of time primarily because, as mentioned earlier, the Permian count rig count has come down 21 rigs since the end of the first quarter. And the majority of those rigs are hot stacked or warm stacked, if you will, maybe not having a full crew, but could crew up pretty quickly. And, you know, we’ve missed some opportunities or excuse me. I think the right term is we’ve lost some opportunities to put our last rig that’s been idle for for, over eighteen months now because operators are gonna take a rig that is warm or hot over a rig that’s been stacked for eighteen months. So, you know, I unfortunately, I think it’s gonna take a little longer for that last rig to get back to work.

But, our rig that just stacked last week, you know, it it’s it’s a it’s a great operating rig. And, hopefully, I’m being conservative, but that we can get it back to work by the third quarter. But it it could happen earlier.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Yeah. Both are good, very good rigs done with similar specs. So, a little bit different designs, but, yeah, the difference is that one of them, has not been working for some time, and the other one just went off contract, which makes the latter more attractive to the oil companies looking for hot rigs.

Martin Jamieson, CEO, Noram Drilling: So

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: yeah, just the next question is regarding the depreciation change in Q1. And what what factors went into this decision?

Martin Jamieson, CEO, Noram Drilling: Yeah. So so as always, you continue to evaluate the the useful life estimates regarding your your accounting policies. Our rigs average ten to eleven years in age from the original construction date. We originally estimated the useful life of our rigs to be ten to fifteen years, And we’ve given our super spec upgrades completed over the last several years, which were being depreciated over five to ten years. What once we’ve once we’ve kind of operated rigs, completed those upgrades, and more importantly, we’ve now been through the ten year, which is kind of the crucial recertification of of your rigs where you where you check the derrick and the subs to see if you’ve got cracks, you know, essentially in the foundation or the bones of the rig.

And what we’ve concluded is that given our maintenance program and the very minimal repairs required on these ten year recertifications, what we’ve concluded is is that given that there’s no technical obsolescence risk, the quality of our maintenance program, the upgrades that we performed on our rigs, we determined that the original ten to fifteen year useful life estimates were conservative. And the fact that we had a little over $50,000,000 of carrying value on our rigs, we would have had basically zero net book value over the next three to four years on our balance sheet, and we there’s no reason to believe that our rigs won’t operate for another ten to fifteen years given our our current maintenance program. And so that that was the the basis for revising the remaining estimated life of our rig assets.

Marius Furule, Director of Investor Relations and Strategy, Noram Drilling: Thank you. Thank you, Marty. There are no further questions in the chat. So I think we will conclude there. I would like to thank all of you for listening into our call today, and we hope to see you again next quarter.

And thank you to the family of NORM employees for the great efforts made during the first quarter. So thank you all. Hope to see you in three months. Goodbye.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.