The last few years have been absolutely brutal for Ensco (NYSE:ESV) and every other offshore oil rig company. As oil prices started to crash back in 2014, companies stopped renting rigs for exploration and development in order to conserve cash. To make matters worse, rig companies had spent billions on expanding their fleets in the years before this.

It left all of them with too many rigs, not enough customers, and uncomfortably large debt levels that led to sinking stock prices and a couple of high-profile bankruptcies.

Now that oil prices are on the mend and oil producers are starting to open their wallets again, some investors might be wondering if it is time to take another look at Ensco. After all, the company's stock trades for a dirt cheap price-to-tangible-book-value of 0.32. So let's go through Ensco's numbers and gauge the way the wind is blowing for the offshore industry to get a handle on whether this stock is a buy or not.

Offshore rig at sunset.

Image source: Getty Images.

It could be worse, really

I don't think any company was well prepared for the oil crash several years ago, but Ensco was one of the better prepared. The company's fleet had a large backlog that ensured revenue coming in for a while. More important was that it had a relatively modern fleet of rigs and not a whole lot of future obligations for rigs under construction. Management used this to its advantage by drastically cutting costs, scrapping older rigs that were unlikely to obtain more work, and keeping a considerable cash pile to manage its debt load.

Having a little financial firepower in reserve was why Ensco management was able to acquire struggling rig owner Atwood Oceanics. Atwood had an even more modern fleet that had contracts in place, but its unruly debt load meant Ensco could swoop in and buy it for a considerable discount. Today, those moves are starting to pay off. This past quarter, the company recorded its first year-over-year revenue increase that didn't include early contract termination fees, and management expects even more customer interest in the coming quarters.

ESV Chart

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The outlook is good, but not 2013 good

It's encouraging that Ensco isn't the only company experiencing an uptick in both revenue and customer interest. That suggests that this isn't just a fluke quarter, and we should expect Ensco and others to win more contracts, deploy more of their fleets, and get back to turning a profit.

At the same time, though, it's probably a bridge too far to say that Ensco will get back to the same levels of profitability that we saw pre-crash. Even though companies scrapped several rigs during the downturn, there is still a lot of idle equipment out there fighting for contracts.

More available equipment gives greater negotiating leverage to the customer and typically leads to lower dayrates. When the rig market was tight about five years ago, it wasn't uncommon to see a highly capable rig get a dayrate above $550,000 and last for several years. Today, though, those same rigs are fighting for contracts that are for a few wells and dayrates of $400,000 to $475,000. In fact, most rig companies have gotten into the habit of not disclosing rates, which probably means they are less favorable than they used to be. 

It's not entirely out of the question that we could one day get back to those incredibly favorable dayrates. To get there, though, we are going to need a long, sustained period of high oil prices for companies to justify spending on several rigs at high prices. According to Ensco's most recent investor presentation, about 65% of available rigs are utilized, compared to around 90% in 2014. As long as this dynamic persists, the chances of returning monster net-income margins are quite small. 

Slightly lower expectations, but still a value investment

No investor should reasonably expect Ensco -- or any other rig company for that matter -- to churn out pre-crash profits anytime soon. Their fleet sizes are considerably smaller, their customers have much more negotiating power, and getting back to higher utilization rates is going to take a few years at least. Factor those things into the company's future, and it's hard to justify using Ensco's historical valuation as a gauge to where this stock could go as it rebounds. 

Even by lower standards, though, Ensco's stock still looks rather cheap. At its current price to tangible book value, the market says that the stock is worth about a third of the liquidation value of the entire company. Sure, management has written down several billions in book value over the past few years to reflect the lower expectations of its fleet, but there is still a lot of potential as the company gradually rebounds from this market trough.

Ensco isn't a sure bet for investors. It is going to take a few years before a full-fledged recovery materializes, and any drop in oil prices between now and then could prolong that recovery. But for those with the patience and stomach to handle what will likely be an incredibly volatile stock, Ensco does have the fleet and financial fortitude to be a decent investment as the offshore rig market recovers.

Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.