- 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.
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.
1 - Drillships
Water Depth Max
|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|
Pride "O. Ascencion"
|2010||10/12||06/16||520||North & South America|
Pride "O.D Clarion"
|2010||10/12||07/16||565||North & South America|
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
|1||Ensco 8500||2008||8.5/10||9/15||320||North & South America|
|2||Ensco 8501||2008||8.5/10|| |
14 days Inspection Q3-14
|535||North & South America|
|3||Ensco 8502||2010||8.5/10|| |
|532||North & South America|
|4||Ensco 8503||2010||8.5/10|| |
+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
Pride South America
HELD FOR SALE
Ensco 6001 Pride Carlos Walter
|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
|15||Ensco 5001 Pride South Pacific||1974||5/6.5|| |
HELD FOR SALE
|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|| |
|Europe and Mediterranean|
|18||Ensco 5005 Pride South Atlantic||1982/1997||1.5/1.7||Shipyard contracted 7/15||240||Singapore|
Ensco 5006 Pride North America
- Ensco 5004 and Ensco 5005 have been impaired.
3 - Jackups
Water Depth Max
|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'|| |
|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'|| |
|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
Water Depth Max
|1||Thunder Horse||DeepWater semi-sub||1/15||120||GOM|
|2||Mad Dog||DeepWater Spar Drilling Rig||1/15||68||GOM|
|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.
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.