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Ensco (ESV) Wins 3 Drillship Contracts Offshore West Africa

Ensco plc ESV has been awarded three drillship contracts offshore West Africa. This includes an aggregate contracted term of three years and over six additional years of options.

The contracted drillships include ENSCO DS-4, ENSCO DS-10 and ENSCO DS-7.

ENSCO DS-4 has been awarded a two-year contract with Chevron Corporation CVX offshore Nigeria. The contract is anticipated to begin operations in Aug 2017 and includes a priced customer option for one additional year of work. Recently, Ensco reactivated the rig following a period during which it was stacked in Tenerife. Reactivation expenses are expected to reach $28 million.

Royal Dutch Shell plc RDS.A has contracted ENSCO DS-10 for one year offshore Nigeria. The contract is expected to commence in the first quarter of 2018. The agreement includes five one-year priced customer options. Consequent to winning this contract, the rig’s delivery is anticipated to be brought forward to third-quarter 2017 from first-quarter 2019. ENSCO DS-10 will then undergo a period of acceptance testing before getting transferred to Nigeria for its maiden contract. Remaining capital expenditures related with the rig are estimated at about $190 million. The amount is inclusive of a final milestone payment to the shipyard, an upgrade to add a second seven-ram blowout preventer, acceptance testing, capitalized interest and mobilization.

ENSCO DS-7 is contracted to Total SA TOT until Nov 2017. Since Nov 2016, the rig has been idle in Tenerife. It has been getting a standby rate subsequent to an early termination of its original contract for customer convenience. ENSCO DS-7 is scheduled to travel to Ivory Coast and will start drilling in Aug 2017. The rig’s operation is estimated to take 60 days to complete. Additionally, Total SA has a priced option for one additional well.

Subsequent to these new contracts, contract drilling expense for second-quarter 2017 is projected at $282 million after adjusting a $10 million settlement of an earlier disclosed legal contingency. The expenditure is slightly higher than the prior guidance of $270 million–$280 million or $292 million on an unadjusted basis.

Capital expenditures are now estimated at $350 million for the nine-month period from second-quarter 2017 through fourth-quarter 2017. This estimate includes about $240 million for new rig construction, $29 million of capitalized interest and about $110 million for rig enhancements, minor upgrades and improvements.

Shares of the company have lost 38.7% over the last three months compared with the Zacks categorized Oil & Gas – Drillingindustry’s decline of 26.8%.

Ensco currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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