Offshore contract driller ENSCO (NYSE:ESV) tends to keep its earnings releases brief, but there are usually all sorts of goodies contained in its quarterly conference calls. To get a sense of the global state of offshore drilling, there may be no better place to turn.
First, the basics. For the quarter, ENSCO's average dayrate across 43 jackup rigs clocked in at $168,200, which is 18% higher than last year, and 5% above last quarter's figure. However, revenue dropped 10% and 17%, respectively, as utilization sagged from 95% in each of those past periods to 80% this time around.
This drilling drop-off would really torpedo 2009 results, were it not for ENSCO's three lucrative deepwater contracts kicking in this year. While the jittery jackup situation for ENSCO and competitors like Noble (NYSE:NE) and Rowan Companies (NYSE:RDC) can pretty much be summed up as "Duh, lower oil prices," management's discussion of regional trends helps to flesh out that abrupt assessment.
It's pretty much the same old story in two spots: the North Sea, something of a closed market on account of high regulatory hurdles, remains pretty well balanced, while the U.S. Gulf of Mexico, which was oversupplied even before the crash in commodities, continues to shed rigs.
Most striking was management's estimate that later this year, only 14 premium jackups will remain in the U.S. Gulf (with half bearing the ENSCO emblem). There were 22 in early February. That skedaddle ought to at least speed up long-sought stabilization in this market.
A more dynamic situation is to be found in the Middle East and Asia, regions that were driving a lot of incremental jackup demand over the past few years. Saudi Aramco's early release of some rigs is pretty symbolic of the sea change. Competition among contractors is now fierce, and both utilization and rates are dropping hard.
For all this turmoil, ENSCO investors can rest pretty easy for two reasons. One, the firm's revenue profile is shifting toward one-third deepwater work by 2013, as ENSCO's state-of-the-art semisubmersible fleet leapfrogs Diamond Offshore's (NYSE:DO) position and grows to rival that of Transocean (NYSE:RIG). Two, the balance sheet is a dream, with hardly any debt to speak of. If you're an ENSCO owner, I see no reason to jump overboard.
