Oil and natural gas driller Ensco plc (ESV) reported impressive fourth quarter 2012 results on the back of increased utilization, rising customer demand as well as new rigs joining the fleet.
Adjusted fourth quarter profit was $1.37 a share, which surpassed the Zacks Consensus Estimate of $1.28 comfortably. Earnings increased approximately 34.3% from $1.02 earned in the year-earlier quarter.
Total revenue surged 11.5% to $1,085.5 million from last year's revenue of $973.2 million. However, total revenue failed to match our expectation of $1,092.0 million.
Ensco added that demand in the deepwater Gulf of Mexico region remains robust. For 2013, the company foresees opportunities in Indonesia, Malaysia and Australia. The company further added that in shallow water, Pemex is expected to contract for six to eight more jackups off Mexico this year. Ensco is also expected to gain contracts for 6 to 10 more rigs in India.
Fourth Quarter Segment Performance
Starting fourth quarter of 2012, Ensco changed its reporting segments. Floaters segment now consists of all its drillships as well as semisubmersibles. However, Jackups and Other segments remain unaffected.
Floaters: Revenue jumped 10.2% to $672.3 million in the reported quarter from the year-earlier level of $610.3 million. The outperformance was mainly backed by the start-up of ENSCO 8505 and a full quarter contribution from ENSCO DS-5, accompanied with the increase in the average day rate and utilization.
Rig utilization in this segment climbed to 83% from 80% in the year-earlier quarter. Dayrate increased to $367,718 from the year-earlier level of $341,841.
Jackups: Revenues from the Jackup fleet jumped to $392.9 million in the fourth quarter from last year's $340.8 million, with its average dayrate climbing 15.0% to $111,459 from $96,927. However, overall jackup utilization decreased to 87% from 88% in the year-earlier period.
Other: Revenue came in at $20.3 million in the reported quarter, down 8.1% from $22.1 million in the fourth quarter of 2011 mainly because of poor dayrate. Average day rates registered a $12,000 decline in the segment.
Costs and Expenses
On the cost front, depreciation expense increased 5.4%, contract drilling expenses climbed 5.3%, while general and administrative expenses declined approximately 13% on a year-over-year basis in the quarter.
Ensco succeeded in achieving its 2012 expense synergy goal of $100 million related to the acquisition. It also remains on track to add synergies this year. The company expects its full-year 2013 effective tax rate at around 12%.
Balance Sheet and Capex
At the end of the fourth quarter, Ensco had $487.1 million in cash. Long-term debt (inclusive of current maturities) was $4,845.9 million, with a debt-to-capitalization ratio of 29.0% (compared with 29.4% in the preceding quarter).
During 2012, the company spent $1.8 billion in total, out of which 72% was expended in new construction. Ensco remains committed to the enhancement of its fleet. To this end it remains committed with $1.9 billion worth of contracts for rigs that are to be constructed through 2014. It also shed its 2 supplementary rigs in the fourth quarter.
With the completion of the construction phase of its 6 additional rigs − scheduled to be delivered by the end of 2014 − Ensco is expected to achieve significant growth. Ensco has $10 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 help it to address operational or corporate needs.
The company retains a Zacks Rank #3 (short-term Hold rating) like other industry player such as Noble Corp. (NE). There are other companies in the oil and gas drilling industry like Helmerich & Payne, Inc. (HP) and Patterson-UTI Energy Inc. (PTEN) that are more promising. Both sport a Zacks Rank #2 (Buy).