How Could the Rowan and Ensco plc Combination Impact Shareholders

Ensco plc (NYSE: ESV) provides offshore contract drilling services to the oil and gas industry worldwide. It operates through three segments: Floaters, Jackups, and Other.

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Recent Events

March 27, 2019. As disclosed on February 21, 2019, shareholders of both Ensco and Rowan voted to approve the pending all-stock transaction under which Rowan shareholders will receive 2.750 Ensco shares for each Rowan share they own. Completion of the transaction, which is expected to occur in April, remains subject to court approval pursuant to a UK court-sanctioned scheme of arrangement and other customary closing conditions.

Tom Burke, Rowan’s President and Chief Executive Officer, said: “We are pleased that Rowan shareholders overwhelmingly support the pending combination with Ensco and have voted to approve the transaction. Combining our organizations will enable Rowan and Ensco shareholders to participate in the substantial value creation opportunities of a larger, more technologically-advanced and diverse offshore drilling company. We wish to thank Rowan shareholders for their continued support and look forward to completing the transaction with Ensco.”

Carl Trowell, Ensco’s President and Chief Executive Officer stated: “We are gratified that Ensco shareholders recognize the strategic and financial merits of our pending combination with Rowan. The combined company will be an industry leader in offshore drilling across all water depths that is well positioned to better serve our customers. We are eager to close the transaction and begin delivering on the significant opportunities of the combined company.”

The combined company expects to realize annual pre-tax expense synergies of approximately $150 million, with more than 75% of targeted synergies expected to be realized within one year of closing. As a result, the transaction is projected to be accretive to cash flow per share in 2020 following an anticipated closing in the first half of 2019.

A combined Ensco and Rowan would have nearly $3 billion in backlog, $1.6 billion in cash, and less than $250 million in long-term debt due over the next year.


Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide. It operates through three segments: Floaters, Jackups, and Other. The company owns and operates an offshore drilling rig fleet of 65 rigs, including 32 located in the Middle East, Africa, and the Asia Pacific, which comprise 3 rigs under construction; 14 located in North and South America, such as Brazil; and 19 located in Europe and the Mediterranean. It also offers management services on rigs owned by third-parties. The company serves government-owned and independent oil and gas companies. Ensco plc was founded in 1975 and is headquartered in London, the United Kingdom.


7 Wall Street analysts have issued ratings and price targets for Ensco in 2019.

Date                    Brokerage                         Action                                Rating                 Price Target

3/26/2019          Societe Generale             Set Price Target               Hold                    $5.00

3/8/2019            HSBC                                  Upgrade                            Hold ➝ Buy        $7.00   

3/5/2019            B. Riley                              Lower Price Target          Neutral               $7.00 ➝ $5.00

3/1/2019            Wells Fargo & Co            Reiterated Rating            Buy

2/20/2019          Barclays                            Set Price Target               Sell                      $5.00

1/14/2019          Credit Suisse Group        Reiterated Rating            Buy                      $6.00

1/9/2019            DNB Markets                   Upgrade                            Hold ➝ Buy


Financial review

Fourth Quarter Results, 2018

Revenues decreased to $399 million in fourth quarter 2018 from $454 million a year ago primarily due to lower utilization for the floater fleet, the sale of two rigs that operated in the year-ago period and a decline in the average day rate to $129,000 from $157,000 in fourth quarter 2017.

Contract drilling expense declined to $323 million in fourth quarter 2018 from $334 million a year ago due to the sale of two rigs that operated in the year-ago period, lower rig reactivation expenses and $7 million of integration-related transaction costs related to the Atwood acquisition in fourth quarter 2017.

Fourth quarter 2018 results included a non-cash asset impairment of $40 million related to an older jackup rig compared to an impairment charge of $183 million recognized in fourth quarter 2017.

Depreciation expense increased to $122 million in fourth quarter 2018 from $120 million a year ago due to the addition of four rigs to the active fleet, partially offset by lower depreciation expense for assets that have been sold, fully depreciated or subject to impairment charges.

General and administrative expense declined to $24 million from $71 million a year ago. Adjusted for $4 million of transaction costs in fourth quarter 2018 related to the planned Rowan merger and $42 million of transaction costs in fourth quarter 2017 related to the Atwood acquisition, general and administrative expense was $20 million compared to $29 million a year ago

Other expense was $70 million in fourth quarter 2018 compared to other income of $87 million a year ago. Adjusted for a $140 million bargain purchase gain recognized upon closing the Atwood acquisition in fourth quarter 2017, other expense was $70 million compared to $53 million a year ago

Tax expense decreased to $23 million in fourth quarter 2018 from $42 million a year ago.

Segment Highlights Q4 2018


Floater revenues decreased to $228 million in fourth quarter 2018 from $303 million a year ago due to a four-percentage point decline in reported utilization and a decline in average day rates to $259,000 from $307,000 in fourth quarter 2017. These year-to-year comparisons were influenced by the sale of ENSCO 6001, which operated in the prior-year period, and the addition of ENSCO DS-9 and ENSCO DS-10 to the active fleet. Adjusted for uncontracted rigs and planned downtime, operational utilization was 97%, consistent with the year-ago period.

Contract drilling expense decreased to $173 million in fourth quarter 2018 from $193 million a year ago primarily due to the sale of ENSCO 6001 and a decline in reported utilization, which were partially offset by higher costs associated with rigs joining the active fleet.


Jackup revenues were $156 million in fourth quarter 2018 compared to $137 million a year ago primarily due to an eight-percentage point increase in reported utilization. These year-to-year comparisons were influenced by the addition of ENSCO 140 and ENSCO 141 to the active fleet, and the sale of ENSCO 80, which operated in the prior-year period. Adjusted for uncontracted rigs and planned downtime, operational utilization was 97% compared with 98% a year ago.

Contract drilling expense increased to $136 million in fourth quarter 2018 from $128 million a year ago primarily due to an increase in reported utilization and the addition of ENSCO 140 and ENSCO 141 to the active fleet. These items were partially offset by lower rig reactivation expenses in fourth quarter 2018 and the sale of ENSCO 80 as noted above.


Other is composed of managed drilling rigs. Revenues increased to $16 million from $15 million in fourth quarter 2017, while contract drilling expense of $13 million was consistent with the year-ago period.

Stock influences and risk factors

The success of the business largely depends on the level of activity in the oil and gas industry, which can be significantly affected by volatile oil and natural gas prices.

Customers may be unable or unwilling to fulfill their contractual commitments, including their obligations to pay for losses, damages or other liabilities resulting from operations under the contract.

They may have difficulty obtaining or maintaining insurance in the future on terms acceptable and insurance coverage may not protect against all of the risks and hazards they face, including those specific to offshore operations.

Stock chart

On Monday, April 8, 2019 ESV shares were trading at $3.97 per shares on traded volume of 6.2 million shares. The current RSI (14) is 41.60

At $3.97, ESV shares re trading below their 50 DMA and 200 DMA of $4.31 and $5.94 respectively.


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