- Ensco Plc. is a top-tier offshore driller with a strong fleet of 79 rigs. Q1 2014 earnings show strength and future growth.
- A complete analysis of the fleet is necessary to evaluate how well-adapted the company is to face the challenges ahead.
- The company has a healthy backlog of $11 billion, a strong presence worldwide, secured dividend approaching 6% and a robust dominance in the jackups sector. It is a buy.
Ensco Plc. (NYSE:ESV)
The company offers offshore contract drilling services to both domestic and international oil companies. ESV has a large offshore drilling rig fleet (75 rigs). Its fleet portfolio includes 10 drillships, 46 independent leg jackups and 19 semi-submersible rigs. It is aggressively investing in its fleet to compete in this highly selective offshore market. In total, ESV has 8 rigs in construction.
Consequently, its newly-built ultra-deepwater rigs have started work on a multi-year contract with previous customers. It received two new ultra-premium, harsh environment ENSCO 120 series jackups. Both ENSCO 120 series jackups were contracted in advance for a multi-year program.
All these positive investments in its business take its backlog to $10.7 billion.
Starting with highlights from the first quarter. We achieved 96% operational utilization, a major improvement from 90% last year and our best performance over the last 8 quarters. Our contracted jackups rigs led the way with 99% operational utilization for the first quarter. Our 8500 Series rigs also had 99% operational utilization, highlighting the many benefits of our standardization strategy.
ESV posted impressive record revenue and earnings in 2013, and increased its dividends twice by 33% and 50% to now $3/share. Its strong balance sheet and borrowing capability (both its commercial paper program and revolving credit facility) will provide more flexibility for the company to make additional investments to get a competitive fleet.
Ensco Plc. was founded in 1975, and is headquartered in London, the United Kingdom.
ESV data by YCharts
Complete fleet analysis: Drillships, Semi-submersibles and Jackups.
1 - Drillships.
Water Depth Max
|1||Ensco DS-1||1999||6/10||1/16||358||Middle East and Africa|
|2||Ensco DS-2||1999||6/10||2Q15||438||Middle East and Africa|
Pride "O. Ascencion"
|2010||10/12||Avail.06/16||520||North & South America|
Pride "O.D Clarion"
|2010||10/12||Avail.07/16||565||North & South America|
Pride "O.D Mandocino"
|2011||10/12||Avail.07/16||438||North & South America|
|6||Ensco DS-6||2011||10/12||2/18||535||Middle East and Africa|
|7||Ensco DS-7||2013||10/12||11/16||635||Middle East and Africa|
|3Q15-3Q20 655||Africa Angola|
|3Q15||Asia Pacific Rim|
2 - Semi-submersibles.
|1||Ensco 8500||2008||8.5/10||9/15||318||North & South America|
14 days Inspection Q3-14
|535||North & South America|
|532||North & South America|
+2 wells option
|375||North & South America|
|5||Ensco 8504||2011||8.5/10||5/15||562||Asia Pacific Rim|
|6||Ensco 8505||2012||8.5/10||2Q15||495||North & South America|
|7||Ensco 8506||2012||8.5/10||7/15||548||North & South America|
Pride South America
Ensco 6001 Pride Carlos Walter
|11||Ensco 6002 Pride Brazil||2001||5.7||6/18||375||Brazil|
|12||Ensco 6003 Pride Rio de Janeiro||2004||5.7||1/17||322||Brazil|
|13||Ensco 6004 Pride Portland||2004||5.7||10/16||322||Brazil|
|14||Ensco 5000 Pride Mexico||1973||2.3/2.65||Stacked||-||Middle East and Africa|
|15||Ensco 5001 Pride South Pacific||1974||5/6.5||2/15||288||Middle East and Africa|
|16||Ensco 5002 Pride Sea Explorer||1975||1||Stacked||-||Asia Pacific Rim|
|17||Ensco 5004 Pride Venezuela||1982||1.5|
|Europe and Mediterranean|
|18||Ensco 5005 Pride South Atlantic||1982/1997||1.5/1.7||Shipyard||-||Asia Pacific Rim|
Ensco 5006 Pride North America
|Asia Pacific Rim|
3 - Jackups.
Water Depth Max
|1||Ensco 141||2016||Capable 400'||Under Construction||2Q16||Middle East and Africa|
|2||Ensco 140||2016||Capable 400'||Under Construction||2Q16||Middle East and Africa|
|3||Ensco 123||201*||Ultra-Premium Harsh Environment Water Depth Max: 400'||Under Construction||2Q16||Europe and Mediterranean|
|4||Ensco 122||2014||Ultra-Premium Harsh Environment Water Depth Max: 400'||Under Construction||4Q16||Asia Pacific Rim|
|5||Ensco 121||2013||Ultra-Premium Harsh Environment Water Depth Max: 400'||5/16||232||Europe and Mediterranean|
|6||Ensco 120||2013||Special Capabilities: High Specification, HPHT Capable Water Depth Max: 400'||11/15||232||Europe and Mediterranean|
|7||Ensco 110||2015||Special Capabilities: High Specification, HPHT Capable Water Depth Max: 400'||Under Construction||1Q15||Asia Pacific Rim|
|8||Ensco 109||2008||Special Capabilities: High Specification, HPHT Capable Water Depth Max: 400'|
|Asia Pacific Rim|
|9||Ensco 108||2007||High Specification, HPHT Capable Water Depth Max: 400'||4/17||158||Asia Pacific Rim|
|10||Ensco 107||2006||High Specification, HPHT Capable Water Depth Max: 400'||2/15||235||Asia Pacific Rim|
|11||Ensco 106||2005||High Specification, HPHT Capable Water Depth Max: 400'||10/14||158||Asia Pacific Rim|
|12||Ensco 105||2002/2010||High Specification, HPHT Capable Water Depth Max: 400'||12/14||162||Asia Pacific Rim|
|13||Ensco 104||2002/2011||High Specification, HPHT Capable Water Depth Max: 400'||5/14||172||Asia Pacific Rim|
|14||Ensco 102||2002||Heavy Duty, HPHT Capable Water Depth Max: 400'||6/16||212||Europe and Mediterranean|
|15||Ensco 101||2000||Heavy Duty, HPHT Capable Water Depth Max: 400'||12/15||218||Europe and Mediterranean|
|16||Ensco 100||1987/2009||Heavy Duty, HPHT Capable Water Depth Max: 400'||3Q18||165||Europe and Mediterranean|
|17||Ensco 99||1985/2005||Special Capabilities: 30,000' Drilling Depth Rated Water Depth Max: 250'||7/14||125||North & South America|
|18||Ensco 98||1977/2009||Water Depth Max: 250'||8/15||92||North & South America|
|19||Ensco 97||1980/2005||Water Depth Max: 250'||11/14||62||Middle East and Africa|
|20||Ensco 96||1982/2011||Water Depth Max: 250'||11/14||62||Middle East and Africa|
|21||Ensco 94||1981/2008||Water Depth Max: 250'||6/16||110||Middle East and Africa|
|22||Ensco 93||1982/2009||Water Depth Max: 250'||6/15||92||North & South America|
|23||Ensco 92||1982/1996||Water Depth Max: 225'||8/15||155||Europe and Mediterranean|
|24||Ensco 91||1980/2012||Water Depth Max: 270'||8/14||68||Middle East and Africa|
|25||Ensco 90||1982/2002||Water Depth Max: 250'||6/14||128||North & South America|
|26||Ensco 89||1982/2009||Water Depth Max: 250'||11/15||92||North & South America|
|27||Ensco 88||1982/2004||Water Depth Max: 250'||11/16||110||Middle East and Africa|
|28||Ensco 87||1982/2006||Water Depth Max: 350'||1/15||148||North & South America|
|29||Ensco 86||1981/2006||Water Depth Max: 250'||6/14||125||North & South America|
|30||Ensco 85||-||-||Sold $64m/April 24||-||-|
|31||Ensco 84||1981/2013||Water Depth Max: 250'||11/14||62||Middle East and Africa|
|32||Ensco 83||1979/2009||Water Depth Max: 250'||10/16||92||North & South America|
|33||Ensco 82||1979/2003||Water Depth Max: 300'||9/14||142||North & South America|
|34||Ensco 81||1979/2003||Water Depth Max: 350'||1/15||145||North & South America|
|35||Ensco 80||1978/2011||Water Depth Max: 225'||Shipyard||-||Europe and Mediterranean|
|36||Ensco 76||2000||Special Capabilities: HPHT Capable Water Depth Max: 350'||7/14||120||Middle East and Africa|
|37||Ensco 75||1999||Water Depth Max: 400'||Maintenance||-||North & South America|
|38||Ensco 72||1981/2012||Water Depth Max: 225'||7/14||142||Europe and Mediterranean|
|39||Ensco 71||1982/2012||Water Depth Max: 225'||5/15||142||Europe and Mediterranean|
|40||Ensco 70||1981/1996||Water Depth Max: 250'||Shipyard||-||Europe and Mediterranean|
|41||Ensco 68||1976/2004||Water Depth Max: 400'||1/15||145||North & South America|
|42||Ensco 67||1976/2005||Water Depth Max: 400'||3/16||135||Asia Pacific Rim|
|43||Ensco 58||1981||Water Depth Max: 250'||1/15||65||Middle East and Africa|
|44||Ensco 56||1982/2006||Water Depth Max: 300'||7/15||115||Asia Pacific Rim|
|45||Ensco 54||1982/2004||Water Depth Max: 300'||10/17||145||Middle East and Africa|
|46||Ensco 53||1982/2008||Water Depth Max: 300'||2/16||110||Asia Pacific Rim|
|47||Ensco 52||1983/2013||Water Depth Max: 300'||9/14||85||Asia Pacific Rim|
Fleet analysis snapshot.
Rejuvenation of the fleet is an essential financial strategy for any offshore driller that wants to keep a competitive edge in this highly selective market. I wrote recently about Diamond Drilling (NYSE:DO) and the headwinds that the company was facing, with its aging midwaters and jackups with an average of 36-year-old and 30-year-old respectively. Revenue and earnings are satisfactory right now, showing a healthy balance sheet; however, an aging fleet will hamper competitiveness; thus, future earnings will be affected adversely.
Ensco Plc. is taking an aggressive approach in this area, and it is a definitive advantage for value investors. Since the beginning of 2014, Ensco Plc. has sold three old jackups, Ensco 69, Wisconsin and recently, Ensco 85 that was sold for $64 million above its book value of $54 million. Ensco Plc. has a total of eight rigs under construction right now, with five premium jackups and three ultra-deepwater drillships. Capex for new build rigs is $1.2 billion for 2014, $1.2 billion for 2015 and $0.4 billion for 2016. Daniel W. Rabun, CEO, said it very well at the conference call:
We also continue to make good progress in the divestment of our older assets in an orderly and disciplined manner rather than using a spin-off or other transformational transaction to continue to high-grade our fleet. Since the beginning of this year, we have sold 3 additional rigs, bringing our total to 14 rigs since 2009.
This is what I call a proactive strategy that will give a strong support for future growth and will enable the company to maintain its high-level dividends for years to come.
This is what we want to hear from a value investor's perspective. With an up-to-the-challenge fleet and secured high-level dividends, around 6% now.
What is the fleet competitiveness based on?
The ultra-deep sector and the jackup sector seems doing very well now, despite a somewhat temporary softness, which may not last as long as previously anticipated. The demand is here from Angola to GOM; new fields are in demand of offshore rigs. Even India, Brazil and Europe seem following the trend. The reason is that crude oil is still above $100 and reserves are actually dwindling worldwide. Big oil companies are doing very well in this environment and are forced to invest in the deep-water strategic sector that will provide the reserves that they need. A competitive offshore drilling company should have a young and adapted fleet that offers the best technique and efficiency.
Then, we should look at the average age of the fleet for ESV:
|Total rigs including under-construction||10||19||46|
|Age average in year||5||15||7.5|
|Average day rate k $||499||505||135|
* Rig age is taken from the last update.
* Average day rate is an indication only. There are a lot of disparities within the three rig categories.
We can see now that ESV has an impressive young fleet, which in turn guarantees a good day rate overall.
Conclusion and recommendation.
A global analysis of the fleet is an important exercise that should always be a priority for a value investor who wants to invest long term. Offshore drilling is a relatively simple business model.
Few important criteria must be looked at thoroughly. First, we must look at the nature of the fleet, its age, day rate and its adaptability to the actual and future rig demand. Second, it is important to look at what return on investment the company is providing now and for the next few years ahead. Third, the company's ability to provide a good and secure dividend.
1 - If we look at the fleet, we see that ESV is a strong player in jackups worldwide and managed to have a young fleet well-diversified, with the new Ensco 120 series about to commence operations in the North Sea. The drillships and semi-submersibles are not left behind with the 8500 series.
2 - The company released the Q1 2014 earnings:
ESV had earnings of $1.31 a share (excluding one-time items). Floaters' average day rates aided the results this quarter. However, the earnings decreased 3.7% from $1.36 in the year-earlier quarter, owing to reduced rig utilization, along with increased contract drilling expenses.
Total revenue grew 3.2% to $1,187 million, compared from $1,149.9 million generated in the same quarter in 2013. For example, revenue at the Jackup fleet jumped to $429.9 million from $410.5 million in Q1 2013.
3 - Dividends are $3 a share now, or about 6%. Here is what James W. Swent, CEO, said at the conference call:
In summary, we continue to have a very strong financial position that fully supports our dividend commitment of $3 per share annually. By virtue of doubling the dividend last year, we now have one of the highest dividend yields in the S&P 500. We believe that our dividend yields, combined with the potential for growth from 8 new-build rigs and our strong balance sheet, makes Ensco a compelling investment.
Ensco Plc. is doing an excellent job on all three counts, and should belong to your value portfolio.