Morningstar | Ensco Day Rates Stayed Flat in 4Q, but Difficulty Contracting Floaters Begins to Affect Utilization
Ensco’s fourth-quarter revenue declined 12% year over year and 7% sequentially. The year-over-year decline was due entirely to a decrease in day rates, but the sequential decline was due to a fall in utilization, as day rates were flat quarter over quarter. Overall, following a year of declining day rates, pricing for Ensco seems to have stabilized in the fourth quarter. Still, Ensco (like peers) has moved away from providing disclosure on day rates on new contracts. We remain conservative in our estimates for future step-up in rates. Our fair value estimate for no-moat Ensco remains in place for now.Management’s guidance for the first quarter indicate that direct operating expenses would increase slightly as a result of preparation work for upcoming contracts, cutting the gross margin (19% in the fourth quarter) in the near term. However, this should be more than offset by a positive impact in the second quarter when new contracts start up.
Utilization has reached a new trough for floaters (40% in fourth-quarter 2018 versus 46% in third-quarter 2018) and declined sequentially for jackups (62% in the fourth quarter versus 66% in the third), bucking the trend we have seen in the fourth quarter of increased utilization following retirements in the industry. Nine of Ensco’s ultra-deep-water floaters remain out of use (six are preservation idled, and three are available for use), putting a strain on operating costs.
Ensco is an offshore contract drilling company engaged in providing offshore contract drilling services to the international oil and gas industry. As of Dec 31 2017, Co. owned and operated an offshore drilling rig fleet of 62 rigs. Co.'s rig fleet includes 12 drillships, 11 semisubmersible rigs, four moored semisubmersible rigs and 38 jackup rigs, including rigs under construction. Co.'s business consists of three operating segments: floaters, which includes its drillships and semisubmersible rigs; jackups; and other, which consists of management services on rigs owned by third-parties. Co.'s two reportable segments, floaters and jackups, provide one service, contract drilling.
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