The ongoing uncertainty driven by the Macondo disaster in the Gulf of Mexico (GoM) has hit offshore drillers hard. However, Ensco plc (ESV) barely topped the Zacks Consensus Estimate on the back of its greater international exposure. On a year-over-year basis, Ensco’s earnings were drastically lower due to a weak jackup contribution and higher operating expenses.
Ensco’s earnings from continuing operations came in at 82 cents per share, compared with the Zacks Consensus Estimate of 80 cents and the year-earlier earnings per share of $1.55. Revenues declined more than 18% year over year to $406 million.
Segment Performance
Ensco’s segment performance is as follows:
Jackup: Revenues from the Jackup fleet totaled $285 million, down nearly 34% from the year-earlier level. Overall jackup utilization in the reported quarter decreased to 73% from 75% in the previous quarter.
A significant hike in utilization was noticed in the North and South America jackup market. Utilization in this market increased to 87% from 72% in the year-earlier quarter. Day rates averaged $82,939, down more than 30% year over year.
Rig utilization in the Europe/Africa region decreased to 63% as against 87% in the year-earlier quarter. Average day rate was down nearly 43% from the year-earlier level at $125,257.
In the Asia-Pacific region, jackup rig utilization was 68%, down from 69% in the year-ago quarter. Average day rates decreased 18% year over year.
Deepwater: The star performer of the quarter was the Deepwater segment, revenues from which increased 78% from the year-earlier level to $121 million. This can be attributed to the commencement of operations at two rigs — Ensco 8500 in June and Ensco 8501 in October 2009. Rig utilization in this segment fell to 91% from 96% in the year-earlier quarter and day rate was also down 18% from the year-earlier level at $403,307.
Balance Sheet
At the end of the quarter, Ensco had $1.23 billion in cash and a long-term debt of $266 million (debt-to-capitalization ratio of 4.4%).
Outlook
Having transformed from a GoM-biased company to a relatively pure international player, Ensco appears well positioned to cope with the six-month moratorium on drilling in the GoM, as well as benefit from a recovery in oil-directed drilling.
Given signs of improvement in demand for high-specification jackups and Ensco’s fleet composition, we have a favorable view for the company. Additionally, the company’s three ultra-deepwater newbuilds, which are slated to enter the market in 2010 and 2011, will positively impact the bottom line and improve investor sentiment as well.
However, we continue to maintain our Neutral recommendation (Zacks #3 Rank – Hold) for Ensco shares, due to our concerns associated with GoM-related issues (as one-third of total revenue comes from this region) and force majeure on the Ensco 8500 ultra-deepwater semi.
Read the full analyst report on “ESV”
Zacks Investment Research
