Ensco plc (ESV)

Q2 2010 Earnings Call Transcript

July 22, 2010 11:00 am ET


Sean O'Neill – VP, IR

Dan Rabun – Chairman, President and CEO

Jay Swent – SVP and CFO

Bill Chadwick – EVP and COO

Carey Lowe – SVP, Deep Water

Mark Burns – SVP


Dan Boyd – Goldman Sachs

Geoff Kieburtz – Weeden

Ian MacPherson – Simmons & Company

Jud Bailey – Jefferies & Company

Mike Urban – Deutsche Bank

Roger Read – Natixis

Waqar Syed – Macquarie Capital

Arun Jayaram – Credit Suisse

Scott Gruber – Sanford Bernstein

Collin Gerry – Raymond James

Presen t a t ion


Good day, everyone. And welcome to Ensco plc's second quarter earnings for 2010 conference call. As a reminder, this call is being recorded and your participation constitutes consent to its taping.

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

Sean O ' Neill

Thank you, operator. And welcome everyone to Ensco's second quarter 2010 conference call. With me today are Dan Rabun, CEO; Bill Chadwick, our Chief Operating Officer; Jay Swent, CFO, as well as, other members of our executive management team. We issued our earnings release which is available on our newly designed website at www.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 or forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially.

Please prefer 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 most recent fleet status report was issued on July 16th.

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

Dan Rabun

Thanks, Sean, and welcome everyone. Understandably, events in the U.S. Gulf of Mexico are being closely watched by industry participants and investors alike. And I will address our Gulf of Mexico operations in a moment.

As I've told our employees, though, it's important to remember that Ensco operates a global business with customers in most of the major oil and gas markets around the world and we need to remain focused on fulfilling our customers' global drilling needs.

Geographic diversity is a key strength of Ensco and I'm pleased to report that our crews around the world are doing an excellent job. Critically important, we continue to achieve very high safety standards with a total recordable incident rate through mid-year that is on par with our record results in 2010.

You may recall on our third quarter earnings call last year I spoke extensively about the importance of safety. At the time, it may have been considered a minor issue to the investment community. But I wanted to emphasize that safety is a critical part of what we do every day at Ensco and the foundation for any success we have as an organization. I mention that safety is not only the right thing to do but also directly tied to operational performance and customer satisfaction.

We have dedicated significant resources to the training and development of our employees on both safety and operational excellence. And 31 of our offshore positions have been accredited by IADC more than any other driller.

Our investments in training are evident not only in our strong safety record but also in independent customer service scores where we ranked number one for performance and reliability.

In the second quarter utilization of our rigs was quite good given the current market conditions, 91% for deepwater and 73% for jackups. We remain bullish on the long-term prospects for offshore drilling and we have been actively high grading our fleet consistent with our strategy of providing high-end equipment to our customers.

A few weeks ago, we purchased an ultra-high spec rig, renamed Ensco 109 that is ideally suited for the deep-gas drilling market, an important growth area in the jackup market. Also our large investments dedicated to the expansion of our ultra deep water fleet are progressing well and I applaud our crews and capital projects teams for keeping us on schedule.

Our outlook for offshore drilling was a major factor in our decision not only to make further investments, but also to announce a major increase to our regular quarterly dividend from $0.10 a share per year to $1.40 per share on an annual basis.

Now, let's make comments about the Gulf of Mexico. The tragic loss of life and environmental damage from the BP Macondo well incident is a defining moment for our industry. The investigations taking place will be critical to learn not only what happened, but more importantly what the industry can do better.

Stringent compliance with best oil field practices will be the minimum standard and increased testing and certifications will be instituted to ensure that a similar event never occurs again. We have been working very closely with our customers to comply with new regulations and we are assisting wherever possible in the permitting and re-permitting process.

As noted in our most recent rig status report, some customers have asserted that the situation in the Gulf of Mexico constitutes force measure. We have respectfully disagreed and we will enforce the protection we have under our contracts.

To help alleviate the challenges in the Gulf for our customers, we will continue to keep our rigs in full compliance with new regulatory requirements and work with them on alternative plans. Our employees have done an exceptional job in this regard.

For example, six of our seven marketed jackups in the U.S. Gulf of Mexico are currently operating and earning full day rate. Most are working on side track or completion assignments and one of our customers recently received a permit to drill a new well after satisfying all the new regulatory requirements under NTL-5 and NTL-6. This is the first permit we are aware of to drill a new well in the Gulf under the new regulatory framework. I should add that a majority of our customers contracted our rigs are optimistic about receiving permits for upcoming projects and our rigs will be ready.

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