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Ensco's 2Q17 Results Are around the Corner—What to Expect

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Part 2
Ensco's 2Q17 Results Are around the Corner—What to Expect PART 2 OF 5

How Ensco’s New Contracts Could Impact the Company

New contracts

On July 11, 2017, Ensco (ESV) announced that it had secured three drillship contracts in West Africa for an aggregate three-year duration. The contracts have more than six additional years of options.

How Ensco&#8217;s New Contracts Could Impact the Company

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The details of the contract follow:

  • Ensco’s drillship ENSCO DS-4 secured a contract with Chevron (CVX) in Nigeria. The two-year contract should commence in August 2017. The contract includes an additional year of work at the option of the customer.
  • Ensco’s drillship ENSCO DS-10 secured a one-year contract with Shell (RDS) in Nigeria. The contract should commence in 1Q18. With this contract, the company would take the delivery of its DS-10 in 3Q17 instead of 1Q19.
  • Ensco’s drillship ENSCO DS-7 secured a contract with Total (TOT). The rig will work for Total until November 2017.

Impact of the new contracts

To commence these newly secured contracts, Ensco would have to shed some upfront costs. For example, the drillship DS-4 was stacked, and the company expects to incur ~$28 million toward reactivation of this rig and $15 million toward the rig’s upgrades. Similarly, the company’s capital expenditure is also expected to change.

Ensco expects its 2Q17 contract drilling expense to be $282 million, which is higher than its previous guidance of $270 million–$280 million. The company’s expected capital expenditure is now $350 million for 2Q17–4Q17. Because the delivery of Ensco’s rig ENSCO DS-10 was not scheduled in 2017, the company’s expected capex for 2Q17–4Q17 was $140 million.

In the next part, we’ll look at analyst’s revenue estimates for Ensco and its peers—Seadrill (SDRL), Transocean (RIG), and Diamond Offshore Drilling (DO).

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