UK: Ensco Announces Q2 Revenues of USD 564 Million

Ensco plc reported diluted earnings per share from continuing operations of $0.59 for second quarter 2011, compared to $0.85 per share in second quarter 2010.

There were no discontinued operations in second quarter 2011. Earnings from discontinued operations in second quarter 2010 were $0.04 per share that included an $18 million pre-tax gain from the sale of a jackup rig. Diluted earnings per share were $0.59 in second quarter 2011, compared to $0.89 per share in second quarter 2010.

On 31 May 2011, Ensco plc acquired Pride International, Inc. in a cash and stock transaction. One month of Pride International operations are included in our second quarter 2011 results with no corresponding amount in second quarter 2010. Recording Pride International’s assets and liabilities at their estimated fair values, as required by generally accepted accounting principles, did not have a material impact on second quarter 2011 results.

Professional fees, severance payments and other transaction-related costs to complete the Pride International acquisition totaled $23 million, $0.13 per share, in second quarter 2011 general and administrative expense. In addition, second quarter 2011 contract drilling expense included approximately $2 million, $0.01 per share, of severance costs related to the acquisition.

Chairman, President and Chief Executive Officer Dan Rabun stated, “We successfully completed the acquisition of Pride International, our new organizational structure is in place and teams are actively integrating our operations and systems. We are leveraging the benefits of our global presence and enhanced fleet, and new business opportunities are growing with a larger group of customers.”

Mr. Rabun added, “ENSCO 8504, the fifth of seven rigs in our ENSCO 8500 Series, which was delivered today in Singapore, was contracted to Total in Brunei during the second quarter and will begin drilling operations in the third quarter. Three of our drillships have commenced their original five-year contracts and ENSCO 8502 has commenced its original two-year contract. All of our deepwater rigs in the U.S. Gulf of Mexico are now earning full day rate, and we anticipate that ENSCO 8503 will begin its original two-year contract with Cobalt in the fourth quarter after it mobilizes to the U.S. Gulf of Mexico from French Guiana.

“Our rig crews have performed exceptionally well around the world. In particular, our ENSCO 8500 Series rigs had virtually no downtime during the second quarter and achieved 99% utilization. This exceptional performance further validates the benefits of standardization as we capitalize on efficiencies related to construction, training, inventory management and daily operations.

“In addition, we have seen a significant, broad-based pickup in jackup demand around the world, particularly in the Middle East where Ensco has contracted five jackups to Saudi Aramco in the last few months, and in the North Sea where all of our rigs are contracted into 2012. We believe there will be additional demand for jackups in Mexico later this year.”

Subsequent to Ensco’s most recent Fleet Status Report published on 22 July 2011, ENSCO 91 was contracted to Saudi Aramco for a three-year term beginning 28 July 2011 at a day rate of approximately $68,000. Ensco now has more than 100 years of contracted backlog, or an average of over 1.4 years per rig.

Revenues in second quarter 2011 were $564 million, compared to $411 million a year ago. Approximately $151 million of the $153 million increase was related to the Pride International acquisition.

Contract drilling expense was $286 million, up from $206 million in second quarter 2010. Excluding $94 million from the effect of the Pride International acquisition, contract drilling expense declined $14 million. Gains from asset disposals, reduced mobilization expense and lower costs for ENSCO 7500 while in the shipyard more than offset increased expense related to adding ENSCO 8502, ENSCO 8503 and ENSCO 109 to the fleet. Second quarter 2010 contract drilling expense included a $12 million impairment of the ENSCO I barge rig.

Depreciation expense rose to $84 million from $52 million a year ago. Excluding $22 million from the effect of the Pride International acquisition, the increase was mostly driven by the addition of ENSCO 8502, ENSCO 8503 and ENSCO 109 to the fleet.

General and administrative expense was $47 million, compared to $22 million in second quarter 2010. As noted above, professional fees, severance payments and other transaction-related costs to complete the Pride International acquisition totaled $23 million in second quarter 2011. The one month effect of the Pride International acquisition added $12 million to general and administrative expense. Approximately $6 million of severance and other expense items for former Pride International operations is included in both the $23 million transaction-related costs noted above and the $12 million one month effect from the Pride International acquisition. Therefore, adjusted for transaction-related costs and the effect of the Pride International acquisition, general and administrative expense declined $4 million from second quarter 2010.

Other expense in second quarter 2011 was $18 million, compared to Other income of $13 million in second quarter 2010. Other expense in second quarter 2011 included $20 million of interest expense, net of $22 million of interest that was capitalized. Interest income was $2 million. In second quarter 2010, Other income included an $11 million break-up fee. All interest expense in second quarter 2010 was capitalized. The increase in interest expense is due to issuing senior notes in March 2011 to fund a portion of the Pride International acquisition and assuming Pride International’s debt. Interest capitalized is related to Ensco’s newbuild program.

Ensco’s effective tax rate in second quarter 2011 was 19.6%. Excluding the impact of the gain on the sale of ENSCO 95 that is included in the Jackup segment, the adjusted tax rate was approximately 14.1% for the quarter.

Segment Highlights

Deepwater

Deepwater segment revenues were $232 million in second quarter 2011, up from $121 million a year ago. Approximately $101 million of the $111 million increase was related to the effect of the Pride International acquisition. Adding two ultra-deepwater rigs, ENSCO 8502 and ENSCO 8503, contributed to the increase, partially offset by a decline in revenues for ENSCO 7500 that was undergoing an enhancement project in a shipyard during second quarter 2011. The consolidated average day rate was $347,000 and utilization was 86%, compared to $403,000 and 91%, respectively, in second quarter 2010. Excluding the impact of the Pride International acquisition, the average day rate was $337,000 and utilization was 83% in second quarter 2011. Average day rates and utilization increased year over year for all of the ENSCO 8500 Series® ultra-deepwater rigs, but were offset by the impact of the ENSCO 7500 shipyard project.

During second quarter 2011, several deepwater rigs contracted in the U.S. Gulf of Mexico earned lower standby or sublet rates than their originally contracted full day rates. Going forward, the day rates for ENSCO DS-3, ENSCO DS-4, ENSCO DS-5 and ENSCO 8502 are estimated to increase since each of the rigs recently commenced their original multi-year contracts at their full day rates. In addition, the day rates for ENSCO 8503 and ENSCO DS-1 are projected to increase substantially in fourth quarter 2011 as noted in the Company’s most recent Fleet Status Report.

Contract drilling expense was $111 million in second quarter 2011, up from $47 million in second quarter 2010. Approximately $60 million of the $64 million increase was related to the effect of the Pride International acquisition. Increased expenses from adding ENSCO 8502 and ENSCO 8503 to the fleet were largely offset by lower expenses for ENSCO 7500.

Midwater

Prior to the Pride International acquisition, Ensco had no midwater rigs. Therefore, midwater segment revenues totaling $36 million in second quarter 2011 were entirely related to the effect of the Pride International acquisition. The average day rate was $237,000 and utilization was 79% in second quarter 2011. Contract drilling expense in second quarter 2011 was $23 million.

Jackup

Jackup segment revenues were $289 million, down slightly from $291 million a year ago. The decline was mostly due to a $6,000 decrease in the consolidated average day rate to $99,000, which was partially offset by the acquisition of ENSCO 109 in July 2010. The effect of the Pride International acquisition added approximately $7 million to revenues in the quarter. Utilization was 75% in both the current and year ago periods for the consolidated jackup fleet. Excluding the effect of the Pride International acquisition, the average day rate was $99,000 and utilization was 77%, compared to $105,000 and 75%, respectively, a year ago. Sequentially, the average day rate increased $2,000 from $97,000 in first quarter 2011.

Contract drilling expense decreased 1% to $145 million, mostly due to a $13 million pre-tax gain, $0.02 per share, from the sale of ENSCO 95 at the end of June 2011, partially offset by the acquisition of ENSCO 109. The effect of the Pride International acquisition added approximately $5 million to contract drilling expense.

Other

Other is comprised of managed drilling rig operations acquired from Pride International and the ENSCO I barge rig that has been cold stacked. Revenue totaling $7 million in second quarter 2011 is entirely related to the effect of the Pride International acquisition. Contract drilling expense declined $6 million from second quarter 2010, which included a $12 million loss on impairment for ENSCO I.

Source: Ensco, August 09, 2011;

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