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Summary

  • Ensco plc released its second-quarter results and discussed the earnings outlook for the remainder of the 2014.
  • After an in-depth review of its floaters fleet and in light of the softening floaters market, the company has decided to hold for sale five older semi-submersibles.
  • ESV is a well-managed and well-equipped top-tier offshore driller with a bright outlook for 2015 and after. I rate ESV as a definitive BUY.

Ensco plc (NYSE:ESV) 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; 19 semi-submersible rigs and also two deepwaters managed units.

It is aggressively investing in its fleet to compete in this highly selective offshore market. In total, ESV has seven rigs in construction (three drillships and four jackups). Ensco's fleet is actually the second largest offshore driller.

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 ESV backlog to $11 billion.

Chief Executive Officer and President Carl Trowell said:

"Our focus on operational excellence and safety has yielded very good results with 95% operational utilization for the quarter and a total recordable incident rate year to date that is even better than our record safety performance in 2013. We ended the quarter with near-record revenue backlog for our jackup fleet given positive contracting across several regions, however, market conditions for floating rigs have become more challenging."

Source: Business wire.

YTD chart:

ESV Chart

ESV data by YCharts

Complete fleet analysis as of July 16, 2014: Drillships, Semi-submersibles and Jackups.

"Fleet high-grading during the quarter also included our decision to sell five floaters with an average age of 32 years," added Mr. Trowell. "This decision followed an in-depth review of our fleet given more challenging floater market conditions, particularly for older midwater rigs. These actions will allow us to more quickly reduce expenses and focus on our go-forward fleet of floaters that has an average age of just nine years

Important Link: Conference call July 31, 2014.

Fleet status filing July 16, 2014.

1 - Drillships

# Name

Year

Built

Water Depth Max

K feet

Contract

End

Day rate

K $

Location
1 Ensco DS-1 1999 6/10 1/16 368 Middle East and Africa
2 Ensco DS-2 1999 6/10 12/14 438 Middle East and Africa
3

Ensco DS-3

Pride "O. Ascencion"

2010 10/12 06/16 520 North & South America
4

Ensco DS-4

Pride "O.D Clarion"

2010 10/12 07/16 565 North & South America
5

Ensco DS-5

Pride "O.D Mandocino"

2011 10/12 07/16 435 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
8 Ensco DS-8 2014 10/12

under construction contracted

3Q15-3Q20 655 Africa Angola
9 Ensco DS-9 2014 10/12 under construction contracted 3Q15-3Q18 655 GOM
10 Ensco DS-10 2015 10/12 under construction 3Q15 Asia Pacific Rim

- Ensco DS1 and Ensco DS2 have been impaired.

2 - Semi-submersibles

# Name

Year

Built

Water

Depth

Max

K feet

Contract

End

Day rate

K $

Location
1 Ensco 8500 2008 8.5/10 9/15 320 North & South America
2 Ensco 8501 2008 8.5/10

8/14

14 days Inspection Q3-14

535 North & South America
3 Ensco 8502 2010 8.5/10

11/14

532 North & South America
4 Ensco 8503 2010 8.5/10

8/14

+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 9/14 485 North & South America
7 Ensco 8506 2012 8.5/10 7/15 535 North & South America
8 Ensco 7500 2000 8

HELD FOR SALE

0 To Spain
9

Ensco 6000

Pride South America

2010 3.4/4

HELD FOR SALE

Shipyard Spain-Stacking

- Spain
10

Ensco 6001 Pride Carlos Walter

2000 5.7 6/18 375 Brazil
11 Ensco 6002 Pride Brazil 2001 5.7 7/18 375 Brazil
12 Ensco 6003 Pride Rio de Janeiro 2004 5.7 1/17 322 Brazil
13 Ensco 6004 Pride Portland 2004 5.7 12/16 322 Brazil
14 Ensco 5000 Pride Mexico 1973 2.3/2.65

HELD FOR SALE

- South Africa
15 Ensco 5001 Pride South Pacific 1974 5/6.5

HELD FOR SALE

1/15

288 Middle East and Africa
16 Ensco 5002 Pride Sea Explorer 1975 1 HELD FOR SALE - Asia Pacific Rim
17 Ensco 5004 Pride Venezuela 1982 1.5

Shipyard

7/14-1/17

-

325

Europe and Mediterranean
18 Ensco 5005 Pride South Atlantic 1982/1997 1.5/1.7 Shipyard contracted 7/15 240 Singapore
19

Ensco 5006 Pride North America

1998/1999 7.5

Inpex/Shipyard

3/18

-

490

Singapore

- Ensco 5004 and Ensco 5005 have been impaired.

3 - Jackups

# Name

Year

Built

Water Depth Max

K feet

Contract

End

Day rate Location
1 Ensco 141 2016 Capable 400' Under Construction 3Q16 Middle East and Africa
2 Ensco 140 2016 Capable 400' Under Construction 2Q16 Middle East and Africa
3 Ensco 123 2016 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' Delivered 4Q16 232 Asia Pacific Rim
5 Ensco 121 2013 Ultra-Premium Harsh Environment Water Depth Max: 400' 6/16 232 Europe and Mediterranean
6 Ensco 120 2013 Special Capabilities: High Specification, HPHT Capable Water Depth Max: 400' 11/15 238 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'

9/14

172

Asia Pacific Rim
9 Ensco 108 2007 High Specification, HPHT Capable Water Depth Max: 400' 3/17 158 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' 12/14 158 Asia Pacific Rim
12 Ensco 105 2002/2010 High Specification, HPHT Capable Water Depth Max: 400' 5/15 162 Asia Pacific Rim
13 Ensco 104 2002/2011 High Specification, HPHT Capable Water Depth Max: 400' Shipyard maintenance and upgrades - 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' 10/14 125 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' 2/16 62 Middle East and Africa
20 Ensco 96 1982/2011 Water Depth Max: 250' 2/16 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' 1/15 92 North & South America
23 Ensco 92 1982/1996 Water Depth Max: 225' 8/15 165 Europe and Mediterranean
24 Ensco 91 1980/2012 Water Depth Max: 270' 1/15 68 Middle East and Africa
25 Ensco 90 1982/2002 Water Depth Max: 250' Stacked? - 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' 8/14 125 North & South America
30 Ensco 85 - - Sold $64m/April 24 - -
31 Ensco 84 1981/2013 Water Depth Max: 250' 3/16 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' 4/17 145 Europe and Mediterranean
36 Ensco 76 2000 Special Capabilities: HPHT Capable Water Depth Max: 350' 11/15 120 Middle East and Africa
37 Ensco 75 1999 Water Depth Max: 400' 9/14 132 North & South America
38 Ensco 72 1981/2012 Water Depth Max: 225' 9/15 142 Europe and Mediterranean
39 Ensco 71 1982/2012 Water Depth Max: 225' 5/15 172 Europe and Mediterranean
40 Ensco 70 1981/1996 Water Depth Max: 250' 2/17 172 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'

Shipyard

9/14-9/17

145 Middle East and Africa
46 Ensco 53 1982/2008 Water Depth Max: 300' 2/16 115 Asia Pacific Rim
47 Ensco 52 1983/2013 Water Depth Max: 300' 9/14 85 Asia Pacific Rim

4 - Under management

# Name

Year

Built

Water Depth Max

K feet

Contract

End

Day rate Location
1 Thunder Horse DeepWater semi-sub 1/15 120 GOM
2 Mad Dog DeepWater Spar Drilling Rig 1/15 68 GOM

Fleet analysis

Drillships Semi-sub Jackups
Under-construction 3 0 4
Total rigs including under-construction 10 19 46
Held for sale 0 5 0
Age average in year* 5 15 7.5

* 5 floaters midwater semi are held for sale, and an additional four floaters were impaired but remaining in activity. The total average age will be reduced to nine years.

The 5 rigs held for sale: Ensco 5000, Ensco 5001, Ensco 5002, Ensco 6000, and Ensco 7500.

Commentary.

Ensco plc reported its second-quarter results on July 30, 2014.

The company is a strong top-tier offshore driller with a perfect track record on safety. The new CEO, Jay Swent, indicated that excluding the impairment loss and the gain on the Ensco 85, the company had $1.35 per share in the second-quarter 2014, which is very impressive.

The company has decided after an in-depth review of its older floaters to go ahead with a substantial impairment, which comprises the drillships and the semi-submersibles. The impairment involved a total of nine floaters in which five floaters are warm stacked now, and are held for sale. One exception for the Ensco 7500, which is held for sale now and has not been impaired.

The four residual rigs are still in operation but will be impaired to reflect the actual market paradigm. I interpret this move as a positive for the average age of the remaining ESV fleet, now lowered to only nine years.

Ensco is still maintaining its $3 per share dividend or 5.9% and has no intention to stop paying dividend anytime soon. This is another incentive to keep this stock for the long term.

Mr. Swent added, "We remain committed to our $3.00 per share annualized dividend and continue to have significant financial flexibility with $11 billion of contracted revenue backlog and a leverage ratio under 30% - even as we grow our fleet with seven rigs under construction."

Despite a challenging general prospect, with some pockets of strength, especially in West Africa (Angola, Nigeria), the company is well-equipped to weather this period of a rig over-supply and capex contraction from the big oil companies. The fundamental drivers are still in place, and the price of oil is stubbornly robust.

The jackup market is quite healthy and even growing in some places, with a good outlook, despite many new jackups scheduled to come on-line soon. ESV is a leader in a premium jackup market. In North Sea, ESV has no more rig available for 2014 and until 2015 in the Middle East, to take few examples of ESV strength.

On the other hand, the floater market is more challenging, especially for the aged rigs and the decision to sell five senior floaters will reduce significantly the maintenance cost. The company has seen a weakening of this market recently, which led to the divestiture of the older midwater semi-submersibles.

Furthermore, the near future is even brighter with the new rigs coming on-line at an attractive day rate.

ESV is a very impressive and well-managed company that I definitely recommend BUY and accumulate over the next couple of years.

Source: Ensco: Fleet Analysis As Of July 16, 2014 And Commentary