Oil and natural gas driller
) reported impressive fourth quarter 2012 results on the back of
increased utilization, rising customer demand as well as new rigs
joining the fleet.
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Adjusted fourth quarter profit was $1.37 a share, which surpassed
the Zacks Consensus Estimate of $1.28 comfortably. Earnings
increased approximately 34.3% from $1.02 earned in the
Total revenue surged 11.5% to $1,085.5 million from last year's
revenue of $973.2 million. However, total revenue failed to match
our expectation of $1,092.0 million.
Ensco added that demand in the deepwater Gulf of Mexico region
remains robust. For 2013, the company foresees opportunities in
Indonesia, Malaysia and Australia. The company further added that
in shallow water, Pemex is expected to contract for six to eight
more jackups off Mexico this year. Ensco is also expected to gain
contracts for 6 to 10 more rigs in India.
Fourth Quarter Segment Performance
Starting fourth quarter of 2012, Ensco changed its reporting
segments. Floaters segment now consists of all its drillships as
well as semisubmersibles. However, Jackups and Other segments
Floaters: Revenue jumped 10.2% to $672.3 million in the reported
quarter from the year-earlier level of $610.3 million. The
outperformance was mainly backed by the start-up of ENSCO 8505
and a full quarter contribution from ENSCO DS-5, accompanied with
the increase in the average day rate and utilization.
Rig utilization in this segment climbed to 83% from 80% in the
year-earlier quarter. Dayrate increased to $367,718 from the
year-earlier level of $341,841.
Jackups: Revenues from the Jackup fleet jumped to $392.9 million
in the fourth quarter from last year's $340.8 million, with its
average dayrate climbing 15.0% to $111,459 from $96,927. However,
overall jackup utilization decreased to 87% from 88% in the
Other: Revenue came in at $20.3 million in the reported quarter,
down 8.1% from $22.1 million in the fourth quarter of 2011 mainly
because of poor dayrate. Average day rates registered a $12,000
decline in the segment.
Costs and Expenses
On the cost front, depreciation expense increased 5.4%, contract
drilling expenses climbed 5.3%, while general and administrative
expenses declined approximately 13% on a year-over-year basis in
Ensco succeeded in achieving its 2012 expense synergy goal of
$100 million related to the acquisition. It also remains on track
to add synergies this year. The company expects its full-year
2013 effective tax rate at around 12%.
Balance Sheet and Capex
At the end of the fourth quarter, Ensco had $487.1 million in
cash. Long-term debt (inclusive of current maturities) was
$4,845.9 million, with a debt-to-capitalization ratio of 29.0%
(compared with 29.4% in the preceding quarter).
During 2012, the company spent $1.8 billion in total, out of
which 72% was expended in new construction. Ensco remains
committed to the enhancement of its fleet. To this end it remains
committed with $1.9 billion worth of contracts for rigs that are
to be constructed through 2014. It also shed its 2 supplementary
rigs in the fourth 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 $10 billion of
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
The company retains a Zacks Rank #3 (short-term Hold rating) like
other industry player such as
). There are other companies in the oil and gas drilling industry
Helmerich & Payne, Inc.
Patterson-UTI Energy Inc.
) that are more promising. Both sport a Zacks Rank #2 (Buy).