Is There Hope for Ensco with the Downturn and the Downgrade?
Ensco’s fleet
Ensco (ESV) currently owns 55 rigs. Of these, 21 are floaters and the others are jackups. The company operates its rigs in six continents. It also has newbuilds in the pipeline.
Ensco’s newbuilds
Ensco has four newbuilds in the pipeline—three jackups and one floater. Recently, the company deferred delivery of the ENSCO DS-10 to 1Q17, delaying $300 million in capex (capital expenditures). It also deferred delivery of the ENSCO 123 to 1Q18, delaying $200 million in capex. The other two rigs—ENSCO 140 and ENSCO 141—have expected deliveries in 2016.
Postponing newbuild delivery is common among offshore drillers (XLE) in the current scenario. Offshore drillers’ main aim in the current industry cycle is to preserve cash.
Atwood Oceanics (ATW) has deferred delivery of its rigs beyond the second half of 2017. Transocean (RIG) recently postponed its 11 newbuilds to 2019 and beyond. Seadrill (SDRL) has 14 newbuilds in the pipeline, which it has postponed to 2018 and beyond. Similarly, Diamond Offshore Drilling (DO), Rowan Companies (RDC), and Noble (NE) have postponed deliveries of their newbuilds along with the associated payments.
Ensco’s capital expenditure
Ensco’s capital expenditure is mainly for new rig construction, rig enhancements, and minor upgrades and improvements. The company expects its capital expenditure to be $450 million in 2016 and $450 million in 2017.
Ensco’s free cash flow
Ensco ended 2015 with a positive free cash flow. Wall Street analysts estimate that Ensco’s operating cash flow in the next two years will be sufficient to fund its capital expenditures. They expect a positive free cash flow in 2016 as well as 2017.
Next, we’ll take a look at Ensco’s debt, covenants, and credit rating.
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