No Enervation at ENSCO

Compared to the dashing deepwater, the shallow end of the Gulf of Mexico is decidedly dreary. While it's less exposed to this market than Hercules Offshore (Nasdaq: HERO  ) , ENSCO International (NYSE: ESV  ) does face a bit of a drag here over the near to medium term. That hasn't stopped ENSCO from reporting a record third quarter, however, with earnings per share up 30%.

While fleet-wide average dayrates saw a slight sequential slip, jackup rates held firm, bounding 20% higher than last year. By comparison, Diamond Offshore's (NYSE: DO  ) jackup rates barely budged from last year's low levels, and while it notched a bigger gain, Noble Corp (NYSE: NE  ) still fell well short of ENSCO's average of $143,000 per day.

Of course, the game isn't just about rates, but about margins. Fortunately, ENSCO reigns supreme among offshore players, with a nine-month cash margin of 68%. While I gave Diamond high marks on this front last week, I now stand corrected, and hasten to note that Noble stands firmly as the No. 2 margin maven.

On the call, management provided one interesting example of how they optimize the economic returns on their newly built rigs. Beginning with the ENSCO 7500, currently under contract with Chevron (NYSE: CVX  ) , all of the firm's semisubmersibles are classified as non-self-propelled, meaning that they need to be towed from one drill site to another. This may seem inconvenient, but it cuts costs by reducing the headcount on the rig. That's eminently sensible, since a rig spends most of its days drilling, not drifting.

They may not be as flashy as GlobalSantaFe's (NYSE: GSF  ) decadent drillships, but ENSCO's new floaters will get the job done. Meanwhile, with a relative glut of idle jackups in the Gulf of Mexico, ENSCO doesn't exactly have it easy, but I believe the company will continue to do right by shareholders and put all rigs to their best economic use -- wherever in the world that may be.


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