ENSCO Beats on Deepwater Strength

• By Zacks Equity Research
• On 11:35 am EDT, Thursday October 22, 2009

ENSCO International Inc. (NYSE: ESV - News) – a leading supplier of offshore contract drilling services to the oil and gas industry – yesterday reported modestly better-than-expected third quarter results, driven by robust performance of its deepwater segment. Earnings per share from continuing operations came in at $1.05, topping the Zacks Consensus Estimate of $1.03.

 

However, on a year-over-year basis, ENSCO’s earnings per share declined more than 49%, while revenues were down 31.3% to $425.4 million. The year-over-year negative comparison was due to lower rig utilization, a decline in average day rates for the premium jackup fleet, and unplanned downtimes.

 

Jackup

 

The average day rate in the Asia-Pacific region decreased 9.6% year over year to $141,945. The Asia-Pacific jackup rig utilization was 62%, down from 96% in the year-ago quarter.

 

Average day rates for the company’s Europe/Africa fleet was down more than 22% from the prior-year quarter to $175,861, while rig utilization in the region fell to 63%, as against 96% in the year-ago period.

 

Day rates in the company’s North and South America jackup market averaged $132,962, up 29.4% year over year. However, jackup utilization in the region reduced to 57% during the quarter, as compared to 98% in the year-ago period.

 

Deepwater

 

The star performer during the quarter was the deepwater segment whose sales were up significantly year-over-year (nearly 131%) to $62.5 million. This can be attributed to the mobilization of the company’s ENSCO 8500 rig in the U.S. Gulf of Mexico in early June 2009. Though rig utilization dropped from 87% to 64%, average day rates rose 7% to $387,407.

 

Balance Sheet

 

At the end of the quarter, the company had more than $1 billion in cash and long-term debt of $283 million (debt-to-capitalization ratio of 5.1%).

 

Outlook

 

Management indicated a bullish outlook for the deepwater segment with revenues expected to grow significantly in 2010 and 2011. ENSCO further informed that it has recently added the ultra-deepwater semi-submersible rig ENSCO 8501 rig to its active drilling fleet. The company projected a rise in jackup utilization, thereby partially offsetting the impact of declining day rates.

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