SEC Filing Summary
Issuer and period: The supplied filing is Ensco plc’s unaudited Form 10-Q for the quarter and six months ended June 30, 2010—not a filing under the name Valaris Ltd. KPMG performed an interim review, not an audit.
Financial performance
Amounts are in millions of U.S. dollars, except per-share amounts and where noted.
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Revenue | $406.3 | $497.3 | $847.8 | $981.5 |
| Operating income | $124.5 | $264.3 | $309.9 | $538.1 |
| Operating margin | 30.6% | 53.2% | 36.6% | 54.8% |
| Income from continuing operations | $117.7 | $221.7 | $274.4 | $437.0 |
| Net income attributable to Ensco | $126.3 | $200.3 | $316.1 | $421.0 |
| Diluted EPS | $0.89 | $1.41 | $2.22 | $2.97 |
- Revenue fell 18% in Q2 and 14% in the first half. Management attributed the decline mainly to lower jackup day rates and utilization in Europe and Africa and Asia Pacific; increased ultra-deepwater revenue partly offset the declines.
- Six-month operating cash flow from continuing operations was $343.6, down from $564.5. Capital expenditures were $336.6, including $267.2 for ENSCO 8500 Series construction. Cash increased to $1,237.1 from $1,141.4 at year-end 2009.
- At June 30, 2010, total current assets were $1,687.6 and current liabilities $416.4; working capital was $1,271.2 and the current ratio 4.0. Long-term debt was $248.6, including $17.2 current maturities; reported long-term debt to total capital was 4.1%. No borrowings were outstanding under the $700 revolving credit facility.
- Cash dividends were $0.35 per share in Q2 and $0.375 per share for the first half, versus $0.025 and $0.05, respectively, in 2009.
Material changes and unusual items
- Operating income decreased 53% in Q2 and 42% for the first half. Total utilization was 74% in Q2 versus 75% a year earlier; average day rate was $131,231 versus $171,428. Europe and Africa revenue fell 58% in Q2, while deepwater revenue increased as ENSCO 8500 and 8501 entered service.
- Discontinued operations included sales of ENSCO 57, ENSCO 50 and ENSCO 51, generating reported first-half disposal gains of $34.9. Discontinued operations contributed $45.1 to first-half net income, compared with a $13.5 loss in the prior-year period.
- Q2 other income included an $11.4 net breakup fee from the unsuccessful Scorpion Offshore tender offer. The company recorded a $12.2 impairment of the cold-stacked ENSCO I barge rig.
- On May 28, Ensco replaced its $350 revolving credit agreement with a $700 unsecured facility maturing in May 2014. In July, after quarter-end, it acquired ENSCO 109 for $186.0; $18.6 had been paid as a deposit by June 30.
Outlook, risks and contingencies
- Management expected 2010 capital expenditures of approximately $620 for ENSCO 8500 Series construction, $186 for ENSCO 109, $40 for rig enhancements and $100 for minor upgrades. Remaining construction obligations for the 8500 Series were $909.7; management expected to fund them with cash and future operating cash flow.
- Management cautioned that 2010 revenue and operating income were unlikely to match 2009 levels. It expected near-term pressure on jackup utilization and day rates in several regions, amid weak tender activity and an oversupply of rigs. Deepwater market prospects were uncertain.
- The BP Macondo incident, Gulf of Mexico moratorium and related permitting and safety requirements threatened contract timing and operations. Customers submitted force majeure notices for ENSCO 8500 and four jackups; Ensco rejected them. The four jackups were then operating at full day rate. The customer questioned whether ENSCO 8502’s planned August 2010 contract start would be delayed; Ensco expected the contract to commence as scheduled.
- Ensco had 10 rigs under contract in the U.S. Gulf of Mexico, including three ultra-deepwater semisubmersibles. It elected not to buy windstorm damage insurance for its eight Gulf jackups, retaining that property-loss risk; the filing describes substantial potential exposure. Deepwater hull coverage had a $50 per-occurrence retention.
- ENSCO 74 wreck removal liabilities of $50.3 were recorded with a corresponding $50.8 insurance receivable. ENSCO 69 recovery remained uncertain: the company recorded no insurance receivable and was pursuing a $55 claim. Other contingencies included ENSCO 74-related litigation, ENSCO 29 wreck removal coverage litigation, asbestos claims and a pending U.S. Department of Justice decision in an FCPA investigation. The SEC had advised it did not intend to recommend enforcement action.
- Auction-rate securities had $50.9 par value and a $45.2 carrying value, based on significant unobservable valuation inputs; the company intended to hold them until redemption, repurchase or an orderly market became available.
Important facts for investors to verify
- Confirm issuer identity and reporting entity: this filing is for Ensco plc, despite the request identifying Valaris Ltd.
- Track Gulf of Mexico moratorium, permitting changes, litigation, customer force majeure positions and the actual commencement of ENSCO 8502’s contract.
- Verify realized rig utilization, day rates, backlog conversion and the impact of new rig supply on regional markets.
- Review capital spending, construction milestones, ENSCO 109 economics, liquidity and compliance with the credit facility covenant.
- Monitor insurance recoveries and legal outcomes involving ENSCO 69, ENSCO 74, ENSCO 29, the FCPA matter and auction-rate securities.