"After the very robust pace of offshore activity over the past four years, our industry may be entering a short and arguably useful pause in the cycle. As was the case in 2013, we entered this year with considerable backlog. That said, although we believe activity in the jackup sector is best defined as a steady state, the reality is that we find ourselves evaluating fewer floating rig contract opportunities today than we did a year ago. We expect to have additional contract opportunities under review as the year progresses, but it is increasingly clear that the first half of 2014 is likely to be characterized by lower rig utilization. The lower utilization is likely to be more pronounced for the floating rigs with limited technical features. Noble's exposure to a weaker floating rig sector is limited in 2014, with only 22% of our operating days available."
"We are confident about the long-term outlook for offshore drilling and remain committed to a capital allocation strategy that promotes disciplined growth with strong returns and strategic appeal while offering the flexibility to consider other actions that promote enhanced shareholder value. In the ultra-deepwater segment, which represents a growing portion of our revenue, we continue to observe a fundamentally sound business. In the face of generally steady crude oil prices, successful exploration programs with over 240 announced deepwater discoveries since 2008, continued geographic expansion and a building backlog of field development projects, the segment is poised to provide exceptional future growth opportunities. Our transformation to a company with a predominately premium asset fleet positions Noble to successfully address the future opportunities in ultra-deepwater and high-specification jackup drilling applications."
It is a total overreaction. Ensco lowered the price on its 8503 rig from $550K per day to $495-530K per day. Sure this isn't the best news, but this just puts the price in line with what Ensco is getting for the rest of the 8500 series of $480K/day to $530K/day. Cobalt was paying $550K/day but that was an anomaly. A similar price reduction was offered by Transocean and Wall Street is freaking out.
Ensco has many the best rigs out there at reasonable prices. Any price reductions will hit the competitors more than ESV. The Pemex deal announced this week will lead to huge growth in Gulf of Mexico. Pemex uses rigs from 17 different companies and has rated Ensco as its #1 driller in terms of performance and satisfaction. This a big source of growth for Ensco.
The new rigs that are coming online will add almost $3 per share to earnings by 2016. Look at the long term chart of ESV and you will see a nice uptrend.
This should help ESV in the years ahead:
Legislation that opens the door to oil and gas drilling in international Gulf waters has cleared Congress, just in time for Mexico’s energy reforms and a Jan. 17 deadline for the U.S. to sign off on the work.
The Gulf of Mexico measure was embedded in a two-year budget deal that cleared the Senate on Wednesday and passed the House last week. President Barack Obama is expected to sign the broad budget legislation soon. In doing so, he effectively will implement a long-stalled international treaty that was first signed in February 2012 and ratified by Mexico two months later. Under the pact, a moratorium on oil and gas drilling is set to end on Jan. 17, 2014.
The pact sets a framework for oil and gas development along the U.S.-Mexico maritime boundary in the Gulf, including the “Western Gap” area that some energy companies have been eager to explore. The treaty encourages commercial unionization agreements where resources straddling the boundary are divided up, effectively encouraging U.S. companies to partner with Mexico’s Pemex to produce oil and gas in the 1.5 million acre area.
Sentiment: Strong Buy
Right now ESV and DO are trading at the exact same price per share. However, I don't know why anyone would rather own DO over ESV. ESV has a much more modern fleet, best-in-class management, higher dividend, higher margins, lower cost structure, higher EPS/lower P/E, and a lower P/B. The only advantage that DO is has is a lower debt per share, but ESV's debt level is totally normal at 26% of cap.
Can anyone give any reason why you shouldn't sell DO and buy ESV?
One of third of the rig contracts expire next year and some are getting unattainable rates. People are worried about if 2014 earnings are realistic.....