uploads///Revenue

What Does Ensco Project for the Offshore Drilling Industry?

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Nov. 4 2015, Published 5:52 p.m. ET

Revenue

Ensco’s revenue from continuing operations was $1.0 billion in 3Q15, down by $189 million, or 16%, from 3Q14. Third quarter revenue includes a $146 million lump sum payment received for early contract termination by the customer for ENSCO DS-4. It also includes $18 million related to ENSCO DS-9 mobilization, upgrade, and testing. The mobilization revenue was recorded in 3Q15 due to an early contract termination. The company earns its revenue by operating floaters as well as jack-ups.

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What impacted revenues?

In spite of the lump sum payment received in 3Q15, revenue was significantly down compared to the same period last year. Some of the prominent reasons were:

  • Ensco’s utilization rate fell to 62% from 89% recorded in 3Q14.
  • Also, the average day rate fell to $232,000 from $239,000 a year ago.

4Q15 expectations

  • As 3Q15 revenue includes lump sum payments, Ensco’s management expects revenue to decline on a sequential quarterly basis.
  • The company projects its average day rates to decline by approximately 5% from the third quarter average day rate of $232,000.
  • The company also expects its fleet utilization to be in the low 60% range, which is in line with its 3Q15 utilization rate.

Management’s industry updates

  • Ensco’s (ESV) management stated customer demand remains at a lower level due to the cyclical downturn in the offshore drilling (IYE) (XLE) market. It further adds that customers have announced incremental cuts in their capital expenditure budgets. The company expects 2016 capex to be lower on a year-over-year basis. This will further reduce rig demand in 2016. Coupled with newbuild deliveries, this will add downward pressure to utilization rates and day rates.
  • There has been an extraordinary decline in exploration spending.
  • Customers have delayed drilling programs and are exploring subletting opportunities for contracted rigs. This is adding to the supply pressure.
  • Customers are requesting contract concessions and are even terminating drilling contracts.

Ensco’s management gave a bleak outlook for the offshore drilling (IYE) (XLE) industry and companies such as Diamond Offshore (DO), Pacific Drilling (PACD), Transocean (RIG), Atwood Oceanics (ATW), Rowan Companies (RDC), and Seadrill (SDRL).

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