Ensco Profit Climbs as Record Oil Stokes Rig Demand

By Joe Carroll

July 24 (Bloomberg) -- Ensco International Inc., the U.S. oil and gas driller with rigs from India to Mexico, said second- quarter profit climbed 17 percent as record prices spurred exploration spending by energy producers.

Net income rose to $296.7 million, or $2.07 a share, from $254.4 million, or $1.72, a year earlier, Dallas-based Ensco said today in statement. Profit was 11 cents a share higher than the average of 14 analyst estimates compiled by Bloomberg.

``They blew out the numbers,'' said Lewis Kreps, an analyst at Jesup & Lamont Securities in Dallas, who rates the shares a ``buy'' and doesn't own any. ``They're having lower costs and higher rig rates.''

Ensco was paid an average of $148,200 a day for jack-up rigs, which have retractable rigs that extend to the seafloor, up 3.7 percent from a year earlier. The company had 95 percent of its jack-ups at work during the quarter, up from 93 percent.

Ensco was the low bidder yesterday on a two contracts for Petroleos Mexicanos and plans to bid when the Mexican oil company seeks six more rigs later this year, Chief Executive Officer Dan Rabun told investors today on a conference call.

State-controlled Saudi Arabian Oil Co. and Qatar Petroleum have signed multiyear leases for Ensco rigs to search the Persian Gulf for reserves. Demand for jack-up rigs is strong enough to absorb the 43 new units scheduled to leave shipyards around the world in the next 18 months, said Brian Uhlmer, an analyst at Pritchard Capital Partners LLC in Houston.

Demand Outlook

``The award of long-term contracts by experienced E&P companies in the Middle East is a very strong indicator of their perception that day rates have not peaked,'', Uhlmer said in a July 16 note to clients. ``The jack-up market will remain strong for several years.''

Ensco said its second-quarter sales rose 16 percent to $637.1 million. The company has reported profit gains for 15 consecutive quarters. Sales in the current quarter will increase by about 5 percent from the second-quarter level, Rabun said.

Ensco fell $2.75, or 3.8 percent, to $70.05 in New York Stock Exchange composite trading. All but four companies in the 15-member Philadelphia Oil Service Sector Index dropped today as gas futures tumbled.

Oil futures in New York traded 90 percent higher than a year earlier in the second quarter and topped $140 a barrel for the first time.

Producers including Chevron Corp., Eni SpA and Brazil's Petroleo Brasileiro SA are signing contracts to lease vessels that haven't been built yet and won't leave shipyards until early in the next decade. For rig operators, shortages of equipment and crews are creating order backlogs of up to five years.

Ensco is scheduled to take delivery of five new vessels in the next three years. Rabun is spending more than $2 billion to expand the company's deepwater fleet to tap surging demand for rigs that can operate in sees 12,000 feet (3,658 meters) deep.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.