UK: Ensco Announces 4Q 2010 Results

Ensco plc  reported diluted earnings per share from continuing operations of $0.90 for fourth quarter 2010, compared to $1.40 per share in fourth quarter 2009. Earnings from discontinued operations were $0.03 per share in the fourth quarter, compared to $0.06 per share a year ago.

Diluted earnings per share were $0.93 in fourth quarter 2010, compared to $1.46 per share in fourth quarter 2009. Discontinued operations relate to rigs no longer in the Company’s fleet. As previously reported, Ensco recovered possession of the ENSCO 69 jackup from a PDVSA affiliate in Venezuela and results for this rig have been reclassified as continuing operations in prior periods.

Full year 2010 diluted earnings per share from continuing operations were $3.80, compared to $5.28 per share in 2009. Earnings from discontinued operations were $0.26 per share in 2010, compared to $0.20 per share a year ago. Diluted earnings per share were $4.06 in 2010, compared to $5.48 per share in 2009.

Chairman, President and Chief Executive Officer Dan Rabun stated, “I am very pleased to report several major accomplishments in 2010. Two new ENSCO 8500 Series® ultra-deepwater semisubmersibles, ENSCO 8502 and ENSCO 8503, were delivered bringing our total active ultra-deepwater fleet to five rigs with three more to be completed by the end of next year. All of our active 8500 Series rigs are operating under multi-year contracts, and we have attractive marketing opportunities for the three rigs under construction.”

Mr. Rabun added, “In our jackup business, we acquired ENSCO 109, a KFELS MOD-V Super B jackup, and divested four of our less capable jackup rigs during 2010 as part of our high-grading strategy. Recently, we ordered two ultra-premium harsh environment jackups with options for two additional rigs to further high-grade the fleet. These rigs will be enhanced designs of the KFELS Super A jackups offering best-in-class HPHT equipment, pipe handling systems and hoisting capacity. Our accomplishments during 2010 place us in an excellent position to acquire Pride International, which we announced earlier this month.

“In the fourth quarter, earnings decreased compared to the third quarter due to a decline in utilization and average day rates for both our deepwater and jackup fleets. Deepwater segment average day rates and utilization were negatively affected by the U.S. government’s decision not to issue drilling permits in the Gulf of Mexico. We have negotiated lower standby rates with customers while they pursue permits to drill and we have sublet two rigs to new customers. Ensco has maintained the full original contract term duration at full day rates under its contracts with deepwater customers in the U.S. Gulf of Mexico.

“In 2011, we anticipate deepwater segment revenue will grow significantly as ENSCO 8503 commences drilling in French Guiana, ENSCO 7500 commences drilling in Brazil and assuming deepwater drilling permits begin to be issued in the U.S. Gulf. Recently, a court ordered the Bureau of Ocean Energy Management, Regulation and Enforcement to act on five pending permit applications submitted by Ensco’s customers no later than mid-March in response to a preliminary injunction motion in our civil action.

“We expect further pressure on average reported jackup day rates in the first quarter as higher day rates from prior contracts are renewed at today’s lower market rates, however, leading-edge market day rates for premium jackup rigs have begun to increase in some regions over the past several months. For full year 2011, jackup utilization is anticipated to increase modestly.”

Revenues in fourth quarter 2010 declined to $409 million from $498 million a year ago. Total deepwater segment revenue declined 8% to $113 million as a result of lower average day rates and utilization, partially offset by a $26 million demobilization fee recognized for ENSCO 7500 and the addition of ENSCO 8502 to the fleet. Total jackup segment revenues decreased 21% to $295 million, mostly due to a 21% decline in the average day rate, offset by a slight increase in utilization to 75%.

Total operating expenses in fourth quarter 2010 increased to $266 million from $250 million last year, largely due to a $10 million rise in contract drilling expense. In fourth quarter 2009, contract drilling expense was reduced $18 million as a result of the collection of previously reserved receivables associated with ENSCO 69 operations in Venezuela. Adjusted for this item, contract drilling expense decreased $8 million year to year. Depreciation comprised $6 million of the increase in total operating expenses, mostly related to ENSCO 8502 joining the active fleet.

Segment Highlights

Deepwater

Deepwater segment revenues decreased to $113 million in fourth quarter 2010, from $124 million a year ago. Revenues of approximately $26 million related to the demobilization of ENSCO 7500 were recognized during fourth quarter 2010 as previously reported. The average day rate was $295,000 and utilization was 67%, compared to $415,000 and 91%, respectively, for the prior year period. Contract drilling expense was $37 million in fourth quarter 2010, down from $45 million in fourth quarter 2009. The decline in average day rate, utilization and contract drilling expense were driven mostly by ENSCO 7500, which was in a shipyard undergoing upgrades during fourth quarter 2010 compared to operating during fourth quarter 2009. The U.S. government did not issue permits to drill new deepwater wells in fourth quarter 2010 and Ensco agreed to lower day rates with customers. These negative factors were partially offset by ENSCO 8502 commencing operations in August 2010. ENSCO 8502 revenue for the period 13 August through 30 September was deferred in third quarter 2010, due to a previously disclosed dispute with a customer that has been resolved. Revenues for this period have been recognized in fourth quarter 2010.

Total Jackup Segments

Revenues from the jackup fleet totaled $295 million in fourth quarter 2010, down from $374 million a year ago. The decrease was due to a $27,000 decline in the average day rate to $102,000, partially offset by a one percentage point increase in utilization to 75%. Contract drilling expense increased $18 million year over year; however, adjusted for the $18 million recovery of previously reserved receivables noted above, contract drilling expense was flat year over year.