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Ensco plc (ESV - Analyst Report) has reported fourth quarter 2011 earnings of 99 cents per share from continuing operations, beating the Zacks Consensus Estimate of 98 cents. The earnings from continuing operations also showed an improvement from the year-ago earnings of 90 cents.
Full-year 2011 earnings from continuing operations declined nearly 19% to $3.08 per share from last year’s profit level of $3.80. However, the full-year earnings were ahead of the Zacks Consensus Estimate of $3.03.
Total revenue surged more than 145% to $1,001.4 million in the reported quarter from the year-ago revenue of $408.5 million. Total revenue surpassed the Zacks Consensus Estimate of $1,000 million.
Most of the increment came from the Pride International acquisition and new ultra-deepwater rigs in the active fleet. Higher deepwater segment utilization and average day rates as well as an increase in jackup segment utilization also contributed to the revenue increase.
Full-year total revenue increased more than 67% to $2,842.7 million from the year-earlier level of $1,696.8 million but failed to match up to our expectation of $2,873 million.
Jackup: Revenues from the Jackup fleet jumped to $349.1 million in the fourth quarter, from the year-earlier level of $295.1 million, despite a fall in the average dayrate to $96,712 from $102,235 in the year-earlier period. Overall jackup utilization in this segment jumped to 82% from 75% in the year-earlier period.
Deepwater: The segment’s revenue jumped a whopping 353% from the year-earlier level to $513.9 million in the reported quarter. The outperformance was mainly related to the Pride International acquisition as well as the addition of two ultra-deepwater rigs (ENSCO 8503 and ENSCO 8504). However, the result was partially tempered by a decline in revenues from ENSCO 7500 that was undergoing an enhancement project in a shipyard during the quarter.
Rig utilization in this segment climbed to 80% from 67% in the year-earlier quarter. Dayrate increased to $371,269 from the year-earlier level of $294,905.
Midwater: The segment generated revenue of $116.3 million in the reported quarter mainly from the acquisition. Midwater registered a dayrate of $228,670 and rig utilization of 82%.
On the cost front, depreciation expense increased more than 145%, contract drilling expenses climbed nearly 178% and general and administrative expenses increased considerably to $40.3 million (versus $22.9 million in the fourth quarter of 2010), on a year-over-year basis.
At the end of the quarter, Ensco had $430.7 million in cash and long-term debt of $4,925.1 million, with debt-to-capitalization ratio of 31.1% (compared to 31.6% in the preceding period).
We appreciate Ensco’s financial discipline, attractive dividend yield and organically developed asset base. International deepwater market opportunities are stepping up aided by new multi-year programs in West Africa, SE Asia, Braziland the Mediterranean. This should eventually be accretive to the company’s earnings.
Moreover, we foresee substantial earnings visibility for Ensco following the merger with Pride International. The combined company is expected to benefit from the international jackup market recovery coupled with continued strength in the deepwater market. The newbuild rigs, rising average day rates as well as higher utilization are considered long-term growth drivers.
Management also remains optimistic about the broader recovery in offshore drilling. The company recently contracted three newbuild rigs -- ENSCO 8505, ENSCO 8506 and ENSCO 120. Of these, ENSCO 8505 and ENSCO 8506 were contracted to repeat customers in the Gulf of Mexico, while the other newbuild rig, ENSCO 120, was contracted in the central North Sea.
Ensco has approximately $9.7 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 helps it to address any operational or corporate needs.
However, the increased supply of high-spec rigs is likely to put pressure on utilization for standard jackups in the long run. Hence, we currently maintain our long-term Neutral recommendation for Ensco shares. The company, which retains a Zacks #3 Rank (short-term Hold rating), competes with Rowan Companies Inc. (RDC - Analyst Report). For the long term, we maintain a Neutral rating.
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