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Actionable news in ESV: ENSCO PLC,

Ensco - Offshore Driller With Strong Appreciation Potential

Summary

Ensco's stock is down by almost 90% since the start of the oil crash.

Ensco has taken a number of decisions to improve its financial position and reduce its costs.

I recommend interested investors open a position in the company at the present time.

Introduction

Ensco (NYSE: ESV) is an offshore drilling contractor headquartered in London, United Kingdom. The company was formerly known as the Blocker Energy Corporation, however, has since changed its name. The company is the second largest drilling corporation in the world with dozens of rigs. The company buys these rigs for hundreds of millions of dollars and then rents them out for a "dayrate" allowing it to earn its revenues and profits.

Ensco Logo - Stock Saints

Ensco has had an incredibly difficult time since the start of the oil crash. The company has watched its stock price go from a peak of more than $55 per share before the start of the crash to recent lows of just over $7 per share, a drop of 87%. However, today, the company's stock went up by almost 10%. But despite this growth, Ensco is still an undervalued company at the present time.

Market Conditions

Market Capex - Ensco Investor Presentation

Oil prices have fallen significantly since the start of the crash, however, oil major capex has fallen even further. Companies tend to be slower about cutting prices once the crash has started, but once the crash gets going they become much more aggressive with their cuts and have them often last much longer. Oil major capex peaked in 2013 at $218 billion and is expected to fall by 45% in 2017 to $120 billion.

The vast majority of these production cuts are occurring in areas that have much higher cost of production. That is, companies will first spend capex on maintaining or additional exploration in fields that have a long history of reliable results before turning to exploring new unproven areas. Since the majority of offshore exploration tends to be expensive and not come with guarantees (as Royal Dutch Shell's recent Arctic drilling program cancellation shows), the offshore drilling market has seen its capex cut even harder.

Oil Market Demand / Supply Overview - HL Financial

There is some bright side, however, the the oil demand / supply market. The oil supply and demand balance first went out of whack in the 3Q 2013 roughly the same time as capex began to fall. However, oil prices started falling in mid-2014 set what was widely viewed as their final bottom in January 2016 and the demand / supply balance is expected to recover by late 2016 meaning a roughly 9 quarter time between the start of the imbalance and its recovery.

Assuming oil prices takes the same...


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