Don't read too much into Ensco’s big new contract, analysts say

Ensco’s (ESV +0.3%) fleet status update released late yesterday said it had contracted one of its offshore drillers at a rate far above what anyone thought possible in the current weak market, but analysts still see a struggle ahead for offshore drillers and warn that recent share price strength won't continue.

Cowen analysts say the $650K dayrate for the Ensco DS-8 ultra-deepwater newbuild drillship is well ahead of the expected low-$500Ks thanks to unique circumstances, but lower-spec ultra-deepwater assets are commanding dayrates as low as $350K with the current market weakness likely to last well into 2015.

Still, the rally has pushed drillers' shares near their 200-day moving averages; today, DO +0.8%, SDRL +0.6%, HP +0.7%, ATW +0.1%, RDC -1%, HERO -2.2%.

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Comments (17)
  • mds5375
    , contributor
    Comments (176) | Send Message
    "analysts still see a struggle ahead for offshore drillers and warn that recent share price strength won't continue".


    Of course it will remain weak -- especially considering Statoil's recent announcement... Ha Ha! Analysts should never be encumbered by the facts.
    18 Jun 2014, 04:01 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (3730) | Send Message
    Facts? FACTS!? How DARE you mention such things! This is a thorough *analysis* on how things *could* play out! It needs no such pesky "facts"!




    Ahem... so, once analysts finally clue in that day rates have mostly gone up 5-10% for newer rigs rather than declining 20%, will the offshore drillers eclipse and surpass their former highs from 2013?


    Once they pass that 200DMA, quite a few funds will start buying again... more upward pressure.


    18 Jun 2014, 04:12 PM Reply Like
  • rvshaw
    , contributor
    Comments (117) | Send Message
    Analysts must be liberals...they never let facts get in the way of the story they are telling. There have been quite a few facts recently regarding new contracts and the day rates associated with them. Yet, with each announcement, the analysts sing "the sky is falling". Meanwhile, I'm enjoying this nice ride on SDRL.
    18 Jun 2014, 04:08 PM Reply Like
  • Slick E
    , contributor
    Comments (150) | Send Message
    Just leave the politics to a political board, eh?
    18 Jun 2014, 04:11 PM Reply Like
  • tgar13
    , contributor
    Comments (232) | Send Message
    All politicos left and right tell their stories... Please keep politics off the comment site unless it relates to policies and investment implications
    18 Jun 2014, 05:23 PM Reply Like
  • The Rebel
    , contributor
    Comments (2826) | Send Message
    rvshaw- Looks like you struck a nerve.
    18 Jun 2014, 09:04 PM Reply Like
  • rvshaw
    , contributor
    Comments (117) | Send Message
    Struck a nerve...maybe. Silence me? Never.
    19 Jun 2014, 07:16 AM Reply Like
  • NuclearNeil
    , contributor
    Comments (225) | Send Message
    I have come to learn that the Barron's linked articles are not worth an investor's time.
    18 Jun 2014, 04:13 PM Reply Like
    , contributor
    Comments (48) | Send Message
    many funds and brokerages will not purchase a stock under $5.00....
    18 Jun 2014, 04:34 PM Reply Like
  • Marine Harvest
    , contributor
    Comments (170) | Send Message
    Well, I think that the author did not appreciate the bifurcation in the offshore drillers that is obvious to anyone paying attention. Sure, RIG's rigs are old, as are many of DO's. That portends nothing for 6th generation rigs. Like this one. Like SDRL's.
    18 Jun 2014, 05:27 PM Reply Like
  • Bob Curtin
    , contributor
    Comments (106) | Send Message
    Face it, if analysts were able to understand the fundamentals of the companies they follow and could actually forecast, revenue, earnings and cash flow, they would be making money going short and long stocks instead of spending their time revising estimates and making ill-timed calls. About all their forecasts are good for is bulletin board material for CEOs.
    18 Jun 2014, 05:45 PM Reply Like
  • billlt
    , contributor
    Comments (48) | Send Message
    Angola is one of the most expensive places in the world to operate a Deepwater rig. It costs you around 50-70k usd a day more to operate there than in the US GOM. Total will have some upgrades that they wish which will have been incorporated in the dayrate. You also need to consider whether the mobilization cost is incorporated in the dayrate, being amortized over the contract duration.
    18 Jun 2014, 08:38 PM Reply Like
  • Marine Harvest
    , contributor
    Comments (170) | Send Message
    Here is what ESV says about its day rate for this rig:


    "Contracted to Total in Angola from 3Q15 to 3Q20,
    initially high 610s. Plus periodic rate increases resulting
    in mid 650s average rate over drilling program. Plus
    mob fee of approx. $26 million to be amortized over
    primary contract term and one 1-year priced option"
    18 Jun 2014, 09:40 PM Reply Like
  • Debutant
    , contributor
    Comments (2929) | Send Message
    The action-reaction between the propaganda machine (pm) and the drilling sector (ds):


    -(pm): "too many rigs out there. No new contracts to come"
    -(ds signs new lease contracts)


    -(pm): "ok, but the rates will go lower"
    -(ds signs new contracts at rates that are not low)


    -(pm): "ok, it is a good contract but not a great contract"
    -(ds ignores the noise, focuses on the business, continues to reward its shareholders [×])
    -(pm): "#/^&£€_%=÷×$"


    [×] : dividend pay day (SDRL today. ESV tomorrow)
    19 Jun 2014, 02:39 AM Reply Like
  • gennocro
    , contributor
    Comments (76) | Send Message
    When is SDRL's distribution being paid? $1/share :)
    19 Jun 2014, 02:06 PM Reply Like
  • gennocro
    , contributor
    Comments (76) | Send Message
    I would like some feedback about the issue that SDRL is overbought?
    19 Jun 2014, 03:27 PM Reply Like
  • Energysystems
    , contributor
    Comments (2125) | Send Message
    Technically you can say yes that SDRL is in overbought territory. But, my opinion was $SDRL was oversold, I doubled down, and now the shares are 20%(ish) higher.
    20 Jun 2014, 02:44 PM Reply Like
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