Ensco Stays Neutral - Analyst Blog
May 16 2011 - 11:58AM
Zacks
We maintain our Neutral recommendation for Ensco
Plc (ESV) following lower-than-expected first quarter 2011
results. While new regulations in the Gulf of Mexico (GoM) have
pressured offshore drillers, we appreciate Ensco’s financial
discipline, organically developed asset base as well as robust
deepwater outlook.
Ensco’s first quarter earnings experienced an approximately 60%
drop, failing to meet our expectation mainly due to lower dayrates
and utilization. Revenues in Jackup and Deepwater segments also
registered a 17% and 25% year over year decline, respectively,
mainly due to a fall in the average dayrate and lower
utilization.
Uncertainties related to the impact that the new GoM regulations
might have over Ensco and other offshore drillers are also looming
large. Considering the company’s exposure to both deep and shallow
water GoM, the continued strain on permit issuances could adversely
affect the company’s operations.
However, management expects international deepwater market
opportunities to be aided by new multi-year programs in West
Africa, South East Asia, Brazil and the Mediterranean. The
Deepwater segment is showing significant growth opportunities with
contracts already in place and ongoing delivery of new rigs.
Notably, the contract signed by ENSCO 8504with Total
SA (TOT) at a dayrate of $424,000 in Brunei is also a
positive indicator for the surging deepwater demand in South East
Asia.
Management also remains optimistic about broader recovery in
jackup demand, particularly in North Sea and Mexico and expects
average jackup utilization to increase to the mid 80% range in the
second half of 2011 from 72% recorded in the first quarter of
2011.
Importantly, we foresee the proposed merger with Pride
International (PDE) to be accretive to Ensco given the
improving ultra-deepwater and high spec jackup markets, as well as
cost synergies. This move will make Ensco the world's
second-largest offshore oil and gas driller behind
Transocean Inc. (RIG) with significant presence in
lucrative deepwater markets off Brazil and West Africa.
Given the above factors, we currently retain our long-term
Neutral recommendation for the company. Ensco currently retains a
Zacks #3 Rank, which translates into a short-term Hold rating.
ENSCO PLC (ESV): Free Stock Analysis Report
PRIDE INTL INC (PDE): Free Stock Analysis Report
TRANSOCEAN LTD (RIG): Free Stock Analysis Report
TOTAL FINA SA (TOT): Free Stock Analysis Report
Zacks Investment Research
Pride (NYSE:PDE)
Historical Stock Chart
From Aug 2024 to Sep 2024
Pride (NYSE:PDE)
Historical Stock Chart
From Sep 2023 to Sep 2024