Ensco plc Report Loss

By Joseph R. Fonseca
Thursday, February 25, 2016
RGB-1 Ensco 52 Courtesy Ensco plc

* Non-Cash Asset and Goodwill Impairments Totaling $2.9 Billion
  * Cash From Operating Activities of $423 Million in Fourth Quarter and $1.7 Billion for Full Year
  * Record Safety and Operational Performance
  * ENSCO DS-8 Commences Initial Five-Year Contract Offshore Angola
  * #1 in Total Customer Satisfaction for Sixth Consecutive Year
  * Quarterly Dividend Reduced to $0.01 Per Share to Improve Capital Management Flexibility

LONDON--(BUSINESS WIRE)-- Ensco plc (NYSE: ESV) today reported a loss of $10.64 per diluted share in fourth quarter 2015 compared to a loss of $14.89 per diluted share in fourth quarter 2014. The loss from discontinued operations in fourth quarter 2015 was $0.41 per share compared to a loss of $1.67 per share last year. The loss from continuing operations in fourth quarter 2015 was $10.23 per share compared to a loss of $13.22 per share a year ago.

Fourth quarter 2015 results included:

 * $2.584 billion or $10.20 per share of non-cash asset impairments
   - $2.468 billion or $9.79 per share in continuing operations
   - $116 million or $0.41 per share in discontinued operations
 * $276 million or $1.18 per share of non-cash goodwill impairments in continuing operations
 * The impact of a previously disclosed customer notice regarding ENSCO DS-5
   - $45 million or $0.16 per share of fourth quarter contract backlog not recognized as revenue
   - $17 million or $0.06 per share provision for doubtful accounts in contract drilling expense
 * $11 million or $0.04 per share favorable discrete tax item in continuing operations

Excluding these items, adjusted earnings per share from continuing operations were $0.92 in fourth quarter 2015 compared to $1.68 a year ago, detailed in the attached reconciliation table.

To improve capital management flexibility in light of the market downturn and less visibility in terms of customer demand, Ensco’s Board of Directors declared a $0.01 cash dividend per Class A ordinary share payable on 18 March 2016, a $0.14 per share reduction from the prior level. The ex-dividend date is 3 March 2016 with a record date of 7 March 2016.

“As the downturn in the offshore drilling market continues given further declines in commodity prices — we believe it is prudent to take additional steps to increase liquidity and improve capital management flexibility by reducing our dividend," said Chief Executive Officer and President Carl Trowell. “Reducing the dividend will provide us with $130 million of additional liquidity on an annual basis, bolstering our current liquidity position of more than $3.5 billion, including $1.3 billion of cash and short-term investments and a fully available $2.25 billion revolving credit facility."

Mr. Trowell added, "We are also taking additional steps to restructure our fleet and intend to scrap or permanently retire five more jackups and one more floater not currently held for sale. These six rigs in continuing operations — ENSCO 56, ENSCO 81, ENSCO 82, ENSCO 86, ENSCO 99 and ENSCO DS-1 — are no longer part of Ensco's go-forward fleet. Three floaters and three jackups previously classified as held for sale will also be scrapped. All 12 of these rigs have been cold stacked to significantly reduce expenses. By scrapping rigs, we eliminate costs and contribute to reducing global rig supply.”

Mr. Trowell concluded, “Despite challenging market conditions during 2015, we further improved rig uptime and safety performance with record operational utilization across the fleet and our best-ever safety record. Combined, this strong performance led to top scores for total customer satisfaction in the annual EnergyPoint survey — the sixth consecutive year we have been honored with this distinction. Also during the year, we delivered three new rigs from the shipyard — all of which are contributing to earnings.”

Fourth Quarter Results

Continuing Operations

Revenues were $828 million in fourth quarter 2015 compared to $1.160 billion a year ago primarily due to a year-over-year decline in reported utilization to 63% from 86% in fourth quarter 2014. Also, the average day rate for the fleet declined to $216,000 from $243,000 a year ago.

Contract drilling expense declined to $415 million from $514 million a year ago, as lower compensation and repair and maintenance expenses, partially related to fewer rig operating days, more than offset newbuilds commencing contracts and the reactivation of a semisubmersible following shipyard upgrades. Excluding a $17 million provision for doubtful accounts related to a customer dispute for ENSCO DS-5, contract drilling expense was $398 million — a 23% decline from last year.

Fourth quarter 2015 results included a loss on impairment of $2.744 billion compared to a loss on impairment of $3.515 billion a year ago.

Depreciation expense increased to $150 million from $139 million in fourth quarter 2014 as new rigs were added to the operating fleet. General and administrative expense was $30 million in fourth quarter 2015 compared to $28 million last year.

Interest expense in fourth quarter 2015 was $57 million, net of $20 million of interest that was capitalized, compared to interest expense of $52 million in fourth quarter 2014, net of $20 million of interest that was capitalized. Interest expense increased year to year due to a previously reported $1.1 billion debt refinancing in first quarter 2015.

Discontinued Operations


Discontinued operations include three floaters and two jackups held for sale, as well as rigs and other assets no longer on the Company’s balance sheet. The net loss from discontinued operations was $95 million for fourth quarter 2015 compared to a net loss of $388 million a year ago. Excluding impairments, net income from discontinued operations was $1 million in fourth quarter 2015 compared to a net loss of $26 million a year ago.

Segment Highlights for Continuing Operations


Floaters


Floater revenues were $490 million in fourth quarter 2015 compared to $663 million last year. As noted above, the Company did not recognize revenue of approximately $45 million for ENSCO DS-5 that was contracted during fourth quarter 2015. The year-to-year decline in revenues was also driven by lower utilization for other floaters. Reported utilization was 57% compared to 81% a year ago. Adjusted for idle rigs and planned downtime, operational utilization was 96% compared to 90% last year. The average day rate declined to $397,000 from $429,000 in fourth quarter 2014.

Contract drilling expense declined to $239 million in fourth quarter 2015 from $293 million last year. Excluding a $17 million provision for doubtful accounts noted above, contract drilling expense declined 24% from last year as compensation and repair and maintenance expense reductions more than offset an increase in contract drilling expense related to newbuild drillships ENSCO DS-8 and ENSCO DS-9 and the reactivation of ENSCO 5006.

Fourth quarter 2015 floater segment results included asset impairments totaling $1.695 billion and $83 million of goodwill impairments compared to asset impairments of $281 million and $2.998 billion of goodwill impairments a year ago.

jackups

Jackup Revenues were $307 million compared to $455 million a year ago. The addition of ENSCO 122 and ENSCO 110 partially offset a significant decrease in contracted rig days for other jackups. Reported utilization was 66% compared to 88% in fourth quarter 2014. Adjusted for idle rigs and planned downtime, operational utilization in fourth quarter 2015 was 99% compared to 98% a year ago. The average day rate declined to $126,000 from $147,000 last year.

Contract drilling expense decreased 20% to $149 million in fourth quarter 2015. The decline was due primarily to lower compensation and repair and maintenance expenses. These items were partially offset by an increase in contract drilling expense from two newbuild jackups that commenced their initial drilling contracts.

Fourth quarter 2015 jackup results included asset impairments totaling $773 million and $193 million of goodwill impairments. Fourth quarter 2014 results included asset impairments of $236 million. There were no goodwill impairments for the jackup segment a year ago.

Others


Other is composed of managed drilling rigs. Revenues declined to $31 million from $42 million in fourth quarter 2014. Contract drilling expense decreased to $27 million from $34 million a year ago. The completion of two managed jackup contracts in Mexico during fourth quarter 2015 decreased revenues and contract drilling expense compared to last year.

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