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Ensco plc (ESV - Analyst Report) has inked a contract with Noble Energy Inc. (NBL - Analyst Report), Anadarko Petroleum Corp. (APC - Analyst Report) and a unit of Apache Corp. (APA - Analyst Report) − Apache Deepwater LLC − for the use of one of its ultra-deepwater semisubmersible drilling rigs in the Gulf of Mexico (GoM). The contract is expected to add $350 million to Ensco’s revenue backlog.

Per the shared drilling contract, the ENSCO 8505 newbuild has been contracted for two years or two rotations per operator, whichever is longer, at a day rate of $475,000 plus cost adjustments.

The contracted rig is the sixth of seven rigs in Ensco’s 8500 series, with a 35,000 feet nominal rated drilling depth. The vessel is slated to be delivered from the Keppel FELS Limited shipyard in Singapore in the first quarter of 2012 and subsequently begin its contract in the second quarter.

In the second quarter of 2011, ENSCO 8500 rigs operated in South America, Asia and the U.S. GoM with practically no downtime and achieved 99% utilization. The U.K. contractor –– Ensco –– holds the leading position in overall customer satisfaction and expects the final rig in the series to be delivered in the second half of 2012.

While new regulations in the GoM have pressured offshore drillers, we appreciate Ensco’s financial discipline and organically developed asset base. The Deepwater segment is showing significant growth opportunities with contracts already in place. This should significantly aid the company’s earnings in the long term. Management also remains optimistic about the broader recovery in jackup demand, particularly in the Middle East. The international deepwater markets are looking strong with new multi-year projects in West Africa, Brazil, South East Asia and the Mediterranean.

We maintain our Neutral recommendation for Ensco as we believe these factors are adequately reflected in the present valuation, leaving little room for meaningful upside from current levels. Ensco currently holds a Zacks #3 Rank, which translates to a Hold rating for the short term.

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