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Ensco’s Second-Quarter Cost Guidance

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First-quarter expenses

Ensco’s (ESV) drilling expenses were $325 million in the first quarter—up from $278 million in the first quarter of 2017. The company’s drilling expenses rose primarily due to the addition of $39 million in costs associated with 11 Atwood rigs and $8 million in integration-related costs. The drilling costs are lower from $334 million in the previous quarter due to lower scheduled repairs and reactivation costs. Excluding integration-related costs, the total contract drilling expense was better than the guidance of ~$320 million.

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Second-quarter guidance

Ensco expects its drilling expenses excluding $5 million transaction costs in the second quarter to be ~$320.0 million. The company expects an increase in drilling expenses primarily due to higher expected fleet utilization and mobilization costs.

G&A expenses

Ensco’s G&A (general and administrative) expenses for the first quarter increased to $28 million from $26 million in the first quarter of 2017. The increase was mainly due to costs related to Atwood Oceanics’ integration costs.

Ensco expects its second-quarter G&A expenses to decline to $26 million from $28 million during the first quarter, primarily due to the realization of synergies from the Atwood Oceanics (ATW) acquisition.

Peers

Ensco’s drilling expenses fell from the previous quarter but its revenue fell by a greater magnitude. Ensco’s drilling expense-to-revenue ratio increased to 77% in the first quarter from 73.5% in the fourth quarter of 2017 and 59% in the first quarter of 2017.

Let’s look at other offshore drillers’ (OIH) ratios. In the fourth quarter of 2017, Diamond Offshore Drilling’s (DO) expense-to-revenue ratio rose to 59.0%. Transocean’s (RIG) ratio rose to 66.0% in the fourth quarter of 2017 from 46.0% in the third quarter of 2017.

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