Why I Purchased Ensco Stock in 2012

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Joel: Also, another company that you mentioned that you recently purchased is another offshore company. Ensco is the company, and it's really an interesting company because it had a huge acquisition earlier in the year. They bought Pride International for $7.8 billion dollars.

Taylor: Yeah, $7.6 billion.

Joel: It basically made them the second largest offshore driller. What were some of the theses behind your investment for this company?

Taylor: I was looking at them after this acquisition. I thought that the strategy there was brilliant, and basically created the newest fleet in the industry. You look at the Macondo, exploration and production companies are being so much more cautious with who they choose. They need a great track record.

Transocean didn't necessarily have that. They still had a lot of the overhang from the BP spill there. They weren't all the way through their litigation with the United States government and now you see them down in Brazil, and Chevron, really trying to struggle through with the spill there.

They could be banned. They had some rigs put on hold down there because of the fact that their operations led to oil spills. There could be fines down there, so that steered me away from them.

Then if you look at them on a P/E level, they're one of the cheapest in the industry. Moving forward, they have tremendous growth prospects after doubling their revenue and their net income for 2010 into 2011, so I thought that momentum was going to carry forward.

They're not stopping with this acquisition. They have a huge backlog of ships that they're building, so they're really moving more heavily into the space. The utilization rates are up for them, almost above 90 for every unit that they own, and then the day rates as a market, as a whole, are driving those rates up.

As their contracts continue to roll off, which they do have a few in 2013 and 2014 coming off line, they're going to be able to reup at higher day rates, which could drive growth even further for them.

Joel: Yeah, definitely. You mentioned that they doubled their revenues from a year ago, and a significant amount of that had to do with the Pride International purchase.

Taylor: Right.

Joel: That was a great purchase because it grabbed new ships. If you look at the average age of their deepsea drilling ships, it's three years, and you mentioned all the troubles internationally.

If you look at another company, Seadrill, that has not as young ships, but pretty close, they're getting $660,000 per day, compared to a Diamond Offshore, who has 20-year-old ships that are getting about half that much.

Definitely a great move for them, being young, being safe, and then on top of that they have the number one customer satisfaction rating, so all in all they have everything going for them. I think that is a good purchase, and a long-term decision. It looks good; a company you can buy and hold for the long term.

Taylor: I think so, yeah.

Joel: Thanks a lot for your insight, Taylor.


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