Ensco's 2Q15 Earnings: Key Highlights from a Tough Industry
Capital expenditure
Ensco (ESV) deferred its delivery and large-milestone payment for drillship DS-10 by 18 months to 1Q17. This move significantly reduced the company’s 2015 capital expenditure to approximately $1.7 billion. Ensco’s capital expenditure is expected to reduce further in the coming years as no new rig purchases are planned. The company anticipates its total capital expenditure to be around $750 million in 2016 and 2017.
Ensco’s backlog
On its record, Ensco has a $7.4 billion revenue backlog—which is 162% of its 2014 revenue. The company successfully negotiated a deal and extended the contract term for one of its drillships, DS-7, until the last quarter of 2017. This move increased Ensco’s revenue backlog by $125 million. For the remaining half of the year, its revenue backlog stands at $1.7 billion. For 2016 and 2017, the company’s recorded backlogs are $2.7 billion and $1.8 billion, respectively. The remaining $1.2 billion backlog is for 2018 and onwards.
The offshore drilling industry (OIH)(XLE)(IYE) is facing serious challenges Among the many offshore basins, Africa and the Middle East are still quite robust. Ensco (ESV) has a strong reputation in the Middle East, which is the largest region for the company’s jackup rigs. This advantage has helped the company extend contracts and win new business in this region. Of Ensco’s total revenue backlog, 44% belongs to Africa and the Middle East. Among the company’s peers, Diamond Offshore Drilling (DO) has a revenue backlog of 211%. Pacific Drillers (PACD) and Atwood Oceanics (ATW) have backlogs of 174% and 593% of 2014 revenue, respectively. Seadrill’s (SDRL) backlog at the end of the first quarter was 178% of its 2014 revenue.
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