ENSCO plc (ESV) — a leading supplier of offshore contract drilling services to the oil and gas industry — reported better-than-expected first quarter results, driven by improving performance of both of its Deepwater and Jack-up segments.

Earnings per share from continuing operations came in at $1.11, topping the Zacks Consensus Estimate of $1.01. Reported EPS was $1.33, including 22 cents of earnings from discontinued operations.

However, on a year-over-year basis, ENSCO’s earnings per share declined approximately 30%, while revenues were down more than 10% to $449 million.

Dividend

With a strong first quarter results, ENSCO raised its quarterly dividend to 35 cents (annualized $1.40) per share from 2.5 cents (annualized 10 cents). Though the current dividend yield of ENSCO (2.9%) is less than that of Diamond Offshore (DO, 8.9%) or Transocean (RIG, 3.4%), we believe an increase in value for shareholders via dividend raise is a prudent step taken by the company, given its solid balance sheet and lower capital requirement for 8500 series newbuilds.

Segment Performance

ENSCO’s segment performance is as follows:

Jack-up

Overall jack-up utilization in the reported quarter increased to 76% from 73% in the previous quarter.

A significant hike in utilization was noticed in the North and South America jack-up market. Utilization in this market increased to 86% from 73% in the previous quarter and 67% in the year-earlier quarter. Day rates averaged at $88,098, down 26% year over year and 21% sequentially.

Rig utilization in the Europe/Africa region rose to 68%, as against 60% in the previous quarter and 99% in the year-earlier quarter. Average day rate was down nearly 36% from the prior-year quarter and 11% sequentially to $141,032.

In the Asia-Pacific region, jack-up rig utilization was 74%, down from 83% in the year-ago quarter and 81% in the previous quarter. Average day rates decreased 26% year over year and 9% sequentially to $119,009.

Deepwater

The star performer during the quarter was the Deepwater segment, whose sales were up significantly from the year-earlier level to $130 million. This can be attributed to the commencement of operations of two rigs − Ensco 8500 in June and ENSCO 8501 in October last year. Rig utilization in this segment rose to 99% from 91% in the previous quarter but down from 100% in the year-earlier quarter.

Balance Sheet

At the end of the quarter, ENSCO had more than $1.23 billion in cash and a long-term debt of $274 million (debt-to-capitalization ratio of 4.6%).

Outlook

Given the signs of improvement in demand for high-specification jack-ups and ENSCO’s fleet composition, we believe that ENSCO shares will perform well. Additionally, the significant dividend increase and growing Deepwater segment on the back of long-term contract commencement of two newly delivered ultra-deepwater semis should improve investor sentiment and bolster the stock.
Read the full analyst report on “ESV”
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