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Ensco's Higher Downtime and Rig Oversupply Raise Concerns
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On Jul 18, 2016, we issued an updated research report on a leading supplier of offshore contract drilling services to the oil and gas industry, Ensco plc .
The prolonged weakness in crude prices has compelled the top energy companies to resort to spending cuts (particularly on the costly upstream projects) due to lower profit margins. This, in turn, means less work for drilling contractors like Ensco.
The company is expected to experience increased downtime in 2016. This will affect its utilization rates in the coming quarters and thus, lower revenues. Further, challenges associated with contracting rigs for extensions in Brazil remain concerns.
The increased supply of high-spec rigs is likely to put pressure on utilization for standard jackups in the long run. Again, the company's execution ability with respect to the jackups under construction will play a major role in determining its growth.
With large, multinational energy firms remaining relatively unaffected by the skyrocketing capital expenses, the drilling space is becoming increasingly competitive with multiple companies chasing a single contract. This excess capacity, in turn, could lead to further lowering of utilization or dayrates.
However, less oil is being discovered on land and companies now have to dig even deeper to get to their reserves. This creates a lucrative growth opportunity for Ensco, which has a technologically advanced and versatile drilling fleet. Hence, we expect the company to benefit from a market with robust multi-year demand trends.
Having transformed from a Gulf of Mexico company to a relatively pure international play, Ensco should be well positioned to improve its earnings and revenues in the foreseeable future. The company is also poised to gain from a recovery in oil-directed drilling.
Moreover, Ensco has a contracted revenue backlog (excluding bonus opportunities) of $5.2 billion, which provides it with excellent cash flow visibility. With the completion of the construction phase of its eight additional rigs in 2015, along with the recently ordered two 140 series jackups, Ensco is expected to experience significant growth.
Zacks Rank and Stocks to Consider
Ensco carries a Zacks Rank #5 (Strong Sell). Some better-ranked players from the energy sector are Sasol Ltd. (SSL - Free Report) , QEP Resources, Inc. and ReneSola Ltd. (SOL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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Ensco's Higher Downtime and Rig Oversupply Raise Concerns
On Jul 18, 2016, we issued an updated research report on a leading supplier of offshore contract drilling services to the oil and gas industry, Ensco plc .
The prolonged weakness in crude prices has compelled the top energy companies to resort to spending cuts (particularly on the costly upstream projects) due to lower profit margins. This, in turn, means less work for drilling contractors like Ensco.
The company is expected to experience increased downtime in 2016. This will affect its utilization rates in the coming quarters and thus, lower revenues. Further, challenges associated with contracting rigs for extensions in Brazil remain concerns.
The increased supply of high-spec rigs is likely to put pressure on utilization for standard jackups in the long run. Again, the company's execution ability with respect to the jackups under construction will play a major role in determining its growth.
ENSCO PLC Price and Consensus
ENSCO PLC Price and Consensus | ENSCO PLC Quote
With large, multinational energy firms remaining relatively unaffected by the skyrocketing capital expenses, the drilling space is becoming increasingly competitive with multiple companies chasing a single contract. This excess capacity, in turn, could lead to further lowering of utilization or dayrates.
However, less oil is being discovered on land and companies now have to dig even deeper to get to their reserves. This creates a lucrative growth opportunity for Ensco, which has a technologically advanced and versatile drilling fleet. Hence, we expect the company to benefit from a market with robust multi-year demand trends.
Having transformed from a Gulf of Mexico company to a relatively pure international play, Ensco should be well positioned to improve its earnings and revenues in the foreseeable future. The company is also poised to gain from a recovery in oil-directed drilling.
Moreover, Ensco has a contracted revenue backlog (excluding bonus opportunities) of $5.2 billion, which provides it with excellent cash flow visibility. With the completion of the construction phase of its eight additional rigs in 2015, along with the recently ordered two 140 series jackups, Ensco is expected to experience significant growth.
Zacks Rank and Stocks to Consider
Ensco carries a Zacks Rank #5 (Strong Sell). Some better-ranked players from the energy sector are Sasol Ltd. (SSL - Free Report) , QEP Resources, Inc. and ReneSola Ltd. (SOL - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>