Ensco plc (ESV) reported fourth quarter 2010 earnings of 90 cents per share from continuing operations, handily beating the Zacks Consensus Estimate of 69 cents. However, results were well below the year-ago quarter’s earnings of $1.40 per share, mainly due to lower dayrates and utilization.
Ensco’s total revenue came in at $408.5 million in the reported quarter, beating the Zacks Consensus Estimate of $390 million, but falling 18% from the year-ago quarter’s revenue of $497.8 million.
On a comparative note, Nabors Industries Ltd. (NBR) reported better-than-expected fourth quarter 2010 earnings on the back of the addition of the Superior Well Services and a strong North American market.
Segment Performance
Jackup: Revenues from the Jackup fleet totaled $295.1 million, down 21% from the year-earlier level. The decline was mainly due to a fall in average dayrate to $102,235 from $129,223 recorded in the year-earlier period. Overall jackup utilization in the reported quarter increased marginally to 75% from 74% in fourth quarter 2009.
In the North and South America jackup market, dayrates dropped substantially to $82,591 from $111,248 in the year-ago quarter. Utilization in this market increased to 84% from 79% in the year-earlier quarter.
Rig utilization in the Europe/Africa region increased to 75% as against 60% in the year-earlier quarter. The average day rate was down almost 20% from the year-earlier level at $127,683.
In the Asia-Pacific region, jackup rig utilization was 69%, down from 80% in the year-ago quarter. Average day rates also decreased nearly 19% year over year to $104,242.
Deepwater: The segment’s revenue decreased almost 9% from the year-earlier level to $113.4 million. Rig utilization in this segment declined to 67% from 91% in the year-earlier quarter. Dayrate also plummeted to $294,905 from the year-earlier level of $415,045.
The decline in average dayrate and utilization was largely due to ENSCO 7500, which was in a shipyard that was being upgraded during the quarter. Additionally, the U.S. government abstained from issuing permits to drill new deepwater wells in the quarter under review.
Balance Sheet
At the end of the quarter, Ensco had $1,050.7 million in cash and long-term debt of $240.1 million (debt-to-capitalization ratio of 3.87% versus 4.3% in the previous quarter).
Outlook
We appreciate Ensco’s financial discipline, attractive dividend yield and organically developed asset base. The Deepwater segment has significant growth opportunities with contracts already in place and delivery of new rigs. This should significantly aid the company’s earnings in the long term.
However, the increased supply of high-spec rigs is likely to put pressure on utilization for standard jackups in the long run. Additionally, the offshore drilling scenario after regulatory changes remains our concern.
Hence, we continue to maintain our long-term Neutral recommendation for Ensco shares, and have a Zacks #3 Rank (short-term Hold rating).
ENSCO PLC (ESV): Free Stock Analysis Report
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