Paul, FWIW, here's what Goldman analyst Terry Darling had to say about Ensco and the jackup market a couple of days ago.
Analyst Comment October 19, 2004
ENSCO (IL/A): 3Q2004 EPS Above Expectations - Raising Fair Value to $40
ESV 3Q2004 EPS of $0.17 was above our estimate of $0.13 + consensus of $0.15 due to
higher jackup drilling rig utilization + day rates and lower depreciation. Day rates were
11% above our estimates w/ strength in all regions + utilization was higher in the US Gulf
+ N. Sea and lower in Asia- Pacific. We are raising our 2004 EPS estimate to $0.65 from
$0.59, but lowering our 2005 EPS estimate to $1.38 from $1.50 - still above consensus of
$1.27 - as the ramp up in N. Sea + Middle East jackup rates appears likely to proceed
somewhat slower than previously expected due to seasonal factors in the N. Sea + supply
absorption in the Middle East. We are implementing a 2006 EPS estimate of $1.75 and
raising our fair value estimate to $40 (11.5x 2006 EV/ EBITDA) from $36 previously. We
maintain our IL/A rating and continue to prefer the deepwater drillers DO (OP/A) and
RIG (OP/A) as day rate momentum is stronger in deepwater + newbuild economics are
closer to trough.
JACKUP DRILLING RIG MARKETS CONTINUE STEADY MARCH UPWARDS.
Jackup drilling rig markets globally are at or near 100% utilization and day rates continue
to march steadily higher. In the US Gulf, leading-edge rates have moved into the
mid-$40's for 250-300' capable rigs, the mid- $50,000's for 350' units and $60,000+ for
ultra-premium rigs. In the North Sea, utilization is also near 100% with rates in the $50-60,000
range for standard rigs and $80-110,000 for premium units. ESV indicated it sees a seasonal plateau
through 1Q2004 in the region + upward momentum resuming thereafter. W. Africa continues to
recover from budget issues in Nigeria w/ rates in the mid-$40,000's to mid-$50,000's. Rates in the
Middle East are in the low to mid-$50,000's and ESV sees rates at a plateau near-term as new
supply in that region is being absorbed. Incremental demand of 8 jackups in the region in 2H2005
suggests a re-acceleration is likely in 2H2005. In Asia- Pacific, ESV sees a shortage of jackups
materializing by mid-2005 and rates are now in the low-$60,000's.
VALUATION. On our new estimates, ESV is trading at 10.8x and 9x on an EV/ EBITDA basis
versus an average of 12x during the last two upcycles.
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