Ensco Plc. Q1 2010 Earnings Call Transcript

Ensco Plc. Q1 2010 Earnings Call Transcript
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Ensco Plc (ESV)

Q1 2010 Earnings Call

April 23, 2010 11:00 am ET

Executives

Sean O'Neill - VP of IR

Dan Rabun - Chairman and CEO

Bill Chadwick - COO

Jay Swent - CFO

Mark Burns - SVP

Analysts

Jud Bailey - Jeffries & Co

Pierre Conner - Capital One Southcoast

Mike Urban - Deutsche Bank

Dan Boyd - Goldman Sachs

Ian MacPherson - Simmons & Company

Robin Shoemaker - Citi

Roger Read - Natixis

Geoff Kieburtz - Weeden & Company

Scott Gruber - Bernstein

Joe Hill - Tudor Pickering Holt & Company

Alan Laws - BMO Capital Markets

Matt Bebe - Morgan Keegan

Presentation

Operator

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Good day everyone and welcome to Ensco Plc. First Quarter Earnings for 2010 Conference Call. As a reminder, this call is being recorded and your participation constitute consent to its taping.

I will now turn this conference over to Mr. Sean O'Neill, Vice President of Investor Relations who will moderate the call. Please go ahead sir.

Sean O'Neill

Good morning and welcome to Ensco's first quarter 2010 conference call. With me today are Dan Rabun, CEO; Bill Chadwick, our Chief Operating Officer; Jay Swent, Chief Financial Officer, as well as other members of our executive management team.

We issued our earnings released which is available on our website enscoplc.com. Later today, we plan to file our SEC Form 10-Q. As usual we will keep our call to one hour. Any comments we make about expectations are forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our earnings release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements. As a reminder, our monthly rig status report was last issued on July 15.

Now, let me turn it over to Dan Rabun, Chairman and CEO.

Dan Rabun

Thanks Sean and good morning everyone. Let me start by saying that our thoughts and queries with the employees and the families of the Transocean and BP especially with the crewmembers of the deepwater horizon. Offshore drillers are a tight knit community and many of our employees have friends at Transocean and BP. They will be kept in our prayers. Before Jay takes us through the financial results I would like to start by providing some color on the first quarter highlights, the state of our end markets and our current outlook.

Before the end I’d like to mention that our redomestication to the UK went very smoothly. Our senior executives have relocated into London and we’re settling into our new corporate headquarters and we are own scheduling restructuring our operations to maximize the benefits of the move. I’d like to note that we have not experienced any financial impact from the recent interruptions caused by the volcano in Iceland. We have had some minor difficulty in the North Sea with crew changes and logistical support. But today it has not affected the safe operation of our rigs.

Now, let me turn to operations, I will start with our deepwater business. I am very pleased to report that we achieved a 99% utilization in the first quarter including our latest new billed semis. The first well drilled by ENSCO 8501 was very challenging even for a seasoned rig. A number of complex operations took place while drilling this well and the rig had minimal downtime. Our customer is very pleased with the performance of the rig and the crew. We are starting to see the benefits of our strategy of building rigs with the same design and equipment and then leveraging our experience as the rigs commenced operations.

On our last earnings call, we reported that fire damage on ENSCO 8502 would delay the commencement of the rig. I am pleased to report that the repairs were completed sooner than expected and the rig is scheduled to arrive in US Gulf in mid-May in commenced operations in August.

We were able to expedite the necessary repairs and limit the delays by leveraging resources in the shipyard where we are constructing four additional rigs of the same design. The Keppel FELS shipyard made this repair a priority and with Ensco’s capital project team completed the repairs ahead of schedule. The next rig in the series, ENSCO 8503 remains unscheduled for delivery at the shipyard in the fourth quarter within the contract delivery date. We expect significant growth in our deepwater business based on contracts already in place. Also we continue to market the remaining uncommitted rigs for work beginning in late 2011 and 2012 they may have scheduled for delivery as well as ENSCO’s 7500 that will roll off its current contract in Australia later this year. Our deepwater fleet now represents nearly half of our total operating assets and our remaining capital expending to invest for the 3 billion plus newbuild program is now approximately $1 billion.

Turing now to our jackup business, utilization improved again in the first quarter to 76%. Our strategy is to drive utilization and our marketing teams are doing a good job of identifying and securing opportunities in many cases with new customers. Over the years, Ensco has a history of disposing of the selected assets and reinvesting a newer, more technically capable asset. We are committed to continue its evaluation at high-grading of our fleet. In the first quarter, we sold two of our jackups that attracted prices. We continue to evaluate opportunities to reinvest the new jackups.

Now let’s discuss the markets. I will start with deepwater. They are upcoming opportunities in the short and medium term timeframe in West Africa, Brazil, Australia and US Gulf of Mexico as well as non-traditional but growing areas like Indonesia, China, Ghana, Srilanka and the Mediterranean. We are focusing on marketing efforts in these and other areas for instance 7500 and will be available later this year. The market is experiencing some gaps in the commitment of new long-term drilling programs in 2010 resulting from drilling plans being suspended or cancelled in 2008 during the global financial crisis as commodity prices fell. As oil prices have risen and stabilized, we have seen customers gain confidence in the long-term fundamentals and there is an increase in plans for deepwater bidding activity across several regions. We anticipate that demand for deepwater rigs will increase over the next several years as new drilling programs emerge and development drilling begins on many of the recent deepwater discoveries. We believe these opportunities encrypt the delivery of our own uncommitted semis that will be available late next year and in 2012.

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