ENSCO Grows With Deepwater – Analyst Blog

ENSCO International plc (ESV) – a leading supplier of offshore contract drilling services to the oil and gas industry – reported modestly better-than-expected fourth quarter results, driven by improving performance of its Deepwater segment and higher utilization across the fleet. Earnings per share from continuing operations came in at $1.24, topping the Zacks Consensus Estimate of $1.22.

 

However, on a year-over-year basis, ENSCO’s earnings per share declined 42%, while revenues were down 17.4% to $499.6 million.

 

 

We see a downtrend in estimate revisions. For the last 30 days, 7 of the 29 analysts covering the stock lowered estimates for the full fiscal 2010 while 3 analysts moved in the opposite direction. However, in the last 7 days, one analyst raised the estimate and another one lowered it.

 

Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $4.07 per share, which is well below the full fiscal 2009 earnings of $5.45.

 

The company’s earnings surprise for the preceding four quarters varies between 1.9% and 9.7%, with the average being 4.5%.

 

 

ENSCO’s segment performance is as follows:

 

In this segment, the average day rate in the Asia-Pacific region decreased 20.7% year over year to $126,090. The Asia-Pacific jackup rig utilization was 79%, down from 94% in the year-ago quarter.

 

Average day rates for the company’s Europe/Africa fleet was down more than 30% from the prior-year quarter to $159,080, while rig utilization in the region fell to 60%, as against 94% in the year-ago period.

 

Day rates in the company’s North and South America jackup market averaged $111,248, up 2% year over year. However, jackup utilization in the region reduced to 73% during the quarter, as compared to 98% in the year-ago period.

 

 

The star performer during the quarter was the Deepwater segment, whose sales were up significantly from the year-earlier level to $124 million. This can be attributed to the commencement of operations of two rigs − ENSCO 8500 in June and ENSCO 8501 in October. However, rig utilization dropped to 91% from 100% in the fourth quarter of 2008.

 

 

At the end of the quarter, ENSCO had more than $1.1 billion in cash and long-term debt of $274 million (debt-to-capitalization ratio of 4.8%).

 

 

With the market rates for premium jackup rigs stabilizing over the last few months, we believe ENSCO will benefit the most as three fourths of the company’s revenue is generated from this category. In addition, the company’s 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.