Wednesday, October 27, 2010

Ensco Plc (ESV) Q3 2010

Ensco Plc (ESV) reported Q3 earnings on 10/20/2010, posting EPS of $0.92- beating analyst estimate of $0.89. Q3 revenue was $428,000,000, up 5% from Q3 of 2009. Ensco 8503 was completed on time in Singapore, bringing the total ultra deepwater semi’s to 5 (four 8500 series, and one 7500). Deepwater drilling revenue was up 77% compared to Q3 of 2009, driven mainly by Ensco 8501. Deepwater drilling expense was up 38% due to the addition of Ensco 8501, and Ensco 8502. Ensco 7500 was placed in the ship yard, offsetting $10,000,000 of the deepwater drilling revenue. Ensco 109, an ultra high speed jack up suited for deep gas drilling, was acquired at $186,000,000 as well. Ensco 69 disputes have been settled, resulting in Ensco 69’s reclassification in continuing operations. This added $0.04 to EPS. There is a pending agreement to sell Ensco 60, moving the rig to discontinued operations as a result. The company is expecting $26,000,000 for the sale of Ensco 60, but has not recognized that transaction yet. This negatively impacted EPS by $0.01, as opposed to adding $0.04 as it did in Q3 of 2009.

No revenue was recognized for Ensco 8502, as a result of a pending contract. This rig was placed in service on August 13th, and has been recognized as an operating expense. Resolving this dispute is a key objective for ESV in Q4. Another factor is going to be Ensco’s ultimate contracting for the 7500 rig. Management claims that they have had an increase in requests regarding the rig, but still have not made their final decision. Q4 revenues are expected to be between $345- $400 million, with the wide range resulting from the uncertainties in the deepwater segment. Ensco is poised well in comparison to its competitors in regards to new regulations expected within the industry. The government of Singapore honored Ensco with a Safety Award for their construction of Ensco 8503.


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