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Ensco Beats on Earnings & Revenues

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

Diluted second quarter earnings were $1.55 a share, which surpassed the Zacks Consensus Estimate of $1.50. Earnings increased 6.9% from $1.45 earned in the year-earlier quarter.

Total revenue grew 16.5% to $1,248.1 million from $1,071.1 million generated in the year-ago quarter. Total revenue also beat our expectation of $1,234.0 million.

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

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.

Second 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 22.3% to $823.4 million in the reported quarter from the year-earlier level of $673.4 million. The improvement was mainly backed by the addition of three newbuild floaters.

Rig utilization in this segment dropped to 86% from 92% in the year-earlier quarter. Dayrate increased to $399,316 from the year-earlier level of $351,963.

Jackups: Revenues from the Jackup fleet jumped to $404.4 million from $376.6 million in the prior-year quarter, with its average dayrate climbing 15.9% to $122,083 from $105,356. However, overall jackup utilization decreased to 83% from 90% in the year-earlier quarter.

Other: Revenues came in at $20.3 million, down 4.7% from $21.3 million in the second quarter of 2012.

Costs and Expenses

On the cost front, depreciation expense increased 12.2%, contract drilling expenses rose 22.8%, while general and administrative expenses dropped 2.5% on a year-over-year basis.

Balance Sheet and Capex

At the end of the second quarter, Ensco had $489.8 million in cash. Long-term debt (inclusive of current maturities) was $4,806.2 million, with a debt-to-capitalization ratio of 28.1% (compared with 28.6% 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. Ensco has $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 #3 (short-term Hold rating). However, there are certain Zacks Ranked #1 stocks – Memorial Production Partners L.P. (MEMP), Gulfmark Offshore, Inc. (GLF) and Dril-Quip, Inc. (DRQ) – that appear more rewarding in the short term.

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