Ensco Beats on Earnings, Grows YoY


Oil and natural gas driller Ensco plc (ESV) reported improved third quarter 2013 results on the back of increased utilization, rising customer demand as well as new rigs joining the fleet.

Diluted third quarter earnings were $1.69 a share, which beat the Zacks Consensus Estimate of $1.65. The earnings increased 9.5% from $1.48 earned in the year-earlier quarter.

Total revenue grew 12.7% to $1,266.2 million from $1,123.5 million generated in the year-ago quarter. Total revenue missed our expectation of $1,285.0 million.

Ensco attributed the deployment of new rigs over the past year that increased utilization and average dayrate to the earnings growth. Moreover, a full quarter of operations by ENSCO 8505 also contributed to the growth.

Moreover, a full quarter of operations by ENSCO 8506 and ENSCO DS-6 (the fourth Samsung DP3 drillship) for repeat customers emphasized the benefits provided by fleet standardization. Ensco ordered its eighth Samsung DP3 drillship, ENSCO DS-10 as well as a premium jackup – ENSCO 110 – for delivery in early 2015, in view of increased customer demand.

Third Quarter Segment Performance

In fourth quarter 2012, Ensco changed its reporting segments. The Floaters segment now consists of all its drillships as well as semisubmersibles. However, the Jackups and Other segments were unaffected.

Floaters: Revenues jumped 9.0% to $787.9 million in the reported quarter from the year-earlier level of $723.0 million. The improvement was mainly backed by the addition of three newbuild floaters.

Rig utilization in this segment dropped to 79% from 90% in the year-earlier quarter. Dayrate increased to $416,201 from the year-earlier level of $362,197.

Jackups: Revenues from the Jackup fleet jumped to $459.6 million from $380.8 million in the prior-year quarter, with average dayrate climbing 15.6% to $125,434 from $108,540. Overall jackup utilization increased to 90% from 87% in the year-earlier quarter.

Other: Revenues came in at $18.7 million, down 5.1% from $19.7 million in the third quarter of 2012.

Costs and Expenses

On the cost front, depreciation expense increased 7.7%, contract drilling expenses rose 22.1%, while general and administrative expenses dropped 7.0% on a year-over-year basis.

Balance Sheet and Capex

At the end of the third quarter, Ensco had $325.4 million in cash. Long-term debt (inclusive of current maturities) was $4,731.1 million, with a debt-to-capitalization ratio of 27.5% (compared with 28.1% in the preceding quarter).

With the completion of the construction phase of its 6 additional rigs − scheduled to be delivered by the end of 2014 − Ensco is expected to achieve significant growth. During the quarter, Ensco received the delivery of ultra-deepwater drillship ENSCO DS-7 and ultra-premium jackup ENSCO 120. Ensco has an $11 billion contract revenue backlog, excluding bonus opportunities. The company’s solid backlog position provides it with excellent cash flow visibility. Additionally, the company’s impressive balance sheet and sufficient liquidity help it to address operational or corporate needs.

Zacks Rank

The company retains a Zacks Rank #4 (Sell rating). However, there are certain Zacks Ranked #1 stocks – Stone Energy Corp. (SGY), Linn Energy LLC (LINE) and Enerplus Corp. (ERF) – that appear more rewarding for the short term.

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