Ensco continues to Underperform; Unstable Environment Weighed on Share Price


Ensco (NYSE:ESV) has been working on several strategic initiatives to improve its financial and operational performance over the last two years. The company has topped revenue and earnings estimates for the fourth quarter; it’s both key financial metrics declined when compared to the same period last year.

The drilling industry experienced a severe setback three years ago when the oil price-crash forced exploration and production companies to slash their investments more than 75%.

ESV stock price plunged from $50 in 2015 to only $4 a share at present, amid the downside volatility in oil prices and the drilling industry. ESV shares have the 52-week trading range of $4 – $9 – with the market capitalization of $1.93 billion

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Pricing Pressure Impacts Revenue and Earnings

Though markets have been in the recovery mode over the past few quarters and oil companies resumed their investments in growth opportunities, stiff market competition, and lower pricing continues impacting Ensco’s financial numbers.

Its revenues in the fourth quarter declined 10% year on year to $454 million, primarily due to a lower average daily rate for the fleet – which dipped to $157,000 in Q4 FY2017 from $177,000 in the year-ago period. The additional revenue of $23 million from Atwood was also used to offset lower average day rates across the fleet.

The decline in revenue and margins impacted its earnings performance and the cash generation potential. Its adjusted loss from continuing operations landed around $0.23 per share from earnings of $0.09 per share in the past year period.

Mr. Trowell said, “We took additional steps to improve our financial position by extending our revolving credit facility and refinancing our nearest-term debt maturities through senior notes offering and debt tender earlier this year. These actions provide us with the financial flexibility to continue positioning Ensco as a leading offshore service provider.”

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Balance Sheet is Strong

Despite the difficult market environment, Ensco appears in a stable cash position to support its investment in growth opportunities. The company has total liquidity of $3.2 billion, and it has debt maturity of only $308 million in the next six years. With $2.8 billion in contracted revenue backlog, the company has no immediate threat to its balance sheet.

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