Keeping an eye on the expenses is a persistent challenge for deep-water drillers, who not only need to handle complex and hostile underwater environments, but also be mindful of how to pay for them.
Ensco, one of the leading offshore service providers, is aggressively investing its resources in maintaining and upgrading its fleet, gambling that robust dayrates of up to $600,000 per day – driven by high oil prices – for offshore platforms will make up for the costs.
Ensco aims to continue its steep earnings growth through fleet expansion. It spent $1.35 billion — nearly 75 percent of its $1.8 billion of capital expenditures — on new builds in 2012 and has another $1.2 billion slated for new builds this year.
Ensco expects the move to pay off, but some analysts view it as having a short-term downside. Barclays lowered its price targets from $79 to $75 for the company, citing higher contract drilling costs.
Barclays also has lowered its earnings estimates for 2013 to $6.45 per share from $6.75 per share, analyst James West wrote in a Monday morning earnings note.
Ensco opened at $61.90 per share on Monday morning, up a few cents from $61.79 per share sat the beginning of the year.
But West is bullish on Ensco as a long-term investment, noting that the investment is likely to pay off.
“Ensco is well positioned for the strengthening upturn in offshore markets, in our opinion, through its high quality fleet, solid execution, and its manageable newbuild program,” West wrote. “The company is one of the soundest operators of assets, in our view, and we think this, coupled with its solid customer base, bodes well for international expansion and favorable follow-on work at higher dayrates.”
Ensco earned $219.5 million for the fourth quarter, a five percent decrease from its $229.4 million in earnings for the same time last year.
Ensco reported $1.09 billion in revenue in the fourth quarter, up 12 percent from $973 million for the same time last year, as it benefits from higher average day rates and decreased downtime for its fleet of jackups and drillships.
The year as a whole, however, has been robust. The company reported $1.17 billion in earnings for 2011, a 95 percent increase over its 2011 earnings of $600.4 million.
The company anticipates seven percent revenue growth in the first quarter, said Ensco Chief Financial Officer James Swent at Ensco’s earnings call on Thursday.