ESV reported a 5.8% increase in net income Y/Y of $282.3M, $1.99 per diluted share, on revenues of $635.8M for 3Q08, compared to income of $266.7M, $1.82 per diluted share on revenues of $536.4M for the same period last year. ESV incurred a loss of $18.9M, $0.13 per diluted share, related to the loss of ENSCO 74, a Gulf of Mexico jackup rig. The rig is believed to have sunk in the aftermath of Hurricane Ike. Average day rates for the jack up fleet for the third quarter increased 10% to $156,900, as compared to $142,100 in the previous quarter last year. Rig utilization was also increased over last year with a rate of 97%, compared to 90%. The first of seven new ultra-deepwater rigs was delivered in September and is currently mobilizing to the Gulf of Mexico. Their balance sheet remained strong with $486M in cash and short term investments and only $300M in debt which half if is not due until 2027.
ESV still seems to be trading at a discount relative to fundamentals. The company will have all of the ultra-deepwater rigs operational by 2012 and anticipates the fleet will contribute approximately one-third of revenue once operational. ESV seems to be highly correlated to the price of oil, and after the price of oil peaking at $144 per barrel; ESV has traded off along with the price of oil. ESV has a strong balance sheet, favorable contract backlog, and is taking a conservative approach to internally funding the rig expansion program. I believe that price of oil is going to stabilize around $80 per barrel in the near future and begin to increase again once we are out of these hard economic times. Sentiment is to hold the position.
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