Looks like the ......... seems to be hitting the fan again and again
for ESV.
Monday March 8, 5:27 pm Eastern Time
S&P revises Ensco International outlook
(Press release provided by Standard & Poor's)
NEW YORK, March 8 - Standard & Poor's today revised its outlook on ENSCO International Inc. to negative from stable.
In addition, Standard & Poor's affirmed its triple-'B' corporate credit and senior unsecured debt ratings on the company.
The ratings reflect the Dallas, Texas company's position as one of the largest off-shore petroleum drilling contractors, with a high quality rig fleet that provides relatively good revenue and cash flow visibility.
Somewhat offsetting these strengths is the financial risk inherent in the volatile oil and gas contract drilling industry.
ENSCO benefits from good asset and geographic diversity, which mitigates exposure to individual drilling market fluctuations.
As the slump in commodity prices wears on, many exploration and production (E&P) companies have announced substantial cuts to their 1999 capital budgets; Standard & Poor's expects overall spending in 1999 to drop 25% to 40% below 1998 levels.
Rig day-rates have fallen precipitously in the shallow water Gulf of Mexico, where the majority of ENSCO's jack-up rigs are sited, as have utilization rates there and in Europe and Asia.
Further deterioration in market conditions could result in lower rig day and utilization rates as contracts expire. However, the ability of ENSCO's premium jack-up rigs to earn day rates above commodity jack-up rates -- and to maintain stronger utilization rates -- provides some insulation against the downturn, as do a lean cost structure, a conservative financial policy, a drilling and transport backlog of about $548 million, and substantial liquidity at year-end 1998 in the form of $330 million in cash and full availability of the company's $185 million bank facility, which matures in 2003.
The company's construction program (three barge rigs, one harsh environment jackup rig, and a semi-submersible rig) proceeds on time.
All rigs are being built against drilling contracts, except for the jack-up, which is scheduled for delivery in early 2000 and will require a day rate of about $130,000 -- average for the current North Sea market -- to be economic.
The construction program will require about $240 million of the company's $300 million capital budget in 1999, but the cash impact of this could be reduced by pending long-term financing through the U.S. Maritime Administration.
While ENSCO historically has demonstrated very strong pretax interest coverage, over the past year levels have deteriorated from the mid-teens to the low-teens.
If the market remains weak in 1999, cash flow generation, which has typically exceeded total debt in recent years, could fall below that level, and total debt to total capitalization could rise to about 30% from 25%.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) interest coverage could deteriorate from the high-teens to around 10 times (x), still satisfactory for the rating.
OUTLOOK: NEGATIVE
Forecasts of continued low petroleum prices for the next twelve to fourteen months have led independent exploration and production companies to curtail their capital spending budgets for 1999 and prospectively 2000.
As a result, Standard & Poor's expects further weakening of demand for off-shore drilling, which could in turn induce additional erosion of rig day- and utilization rates and elevate drillers' vulnerability to contract re-pricing.
Moreover, recovery in the sector is expected to lag a rebound in commodity prices. |
