Ensco reported diluted earnings per share from continuing operations of $0.82 for second quarter 2010, compared to $1.55 per share in second quarter 2009. Earnings from discontinued operations were $0.07 per share in the second quarter, compared to a loss of $0.14 per share a year ago. Discontinued operations in second quarter 2010 included an $18 million pre-tax gain from the sale of jackup rig ENSCO 57 and $6 million of pre-tax income related to ENSCO 69, which was previously reclassified as discontinued operations. Discontinued operations for prior periods reflect these and other jackup rigs that are no longer in the fleet. Diluted earnings per share were $0.89 in second quarter 2010, compared to $1.41 per share in second quarter 2009.
Second quarter 2010 results included a $12 million impairment of the ENSCO I barge rig reflected in contract drilling expense and $11 million of other income from a break-up fee, net of expenses, related to Ensco's partial tender offer for Scorpion Offshore that was terminated.
Chairman, President and Chief Executive Officer Dan Rabun stated, "We are working closely with our customers in the U.S. Gulf of Mexico to address new regulatory requirements prompted by the BP Macondo well incident, while ensuring the highest levels of safety for our employees, customers and the environment. Most of our rigs in the U.S. Gulf of Mexico are currently working at approved sites. We will continue to explore alternatives, such as non-drilling assignments and work outside the region, to keep our rigs currently in the U.S. Gulf of Mexico operating for our customers."
Mr. Rabun added, "I am extremely proud of our employees in the U.S. Gulf who have worked tirelessly for our customers during this challenging period. In addition, I am proud of our employees around the globe for remaining focused on serving our customers' drilling needs with a strong safety record."
Chief Operating Officer Bill Chadwick commented, "Given our positive long-term outlook for offshore drilling, we have continued to high-grade our fleet by investing in new equipment and divesting selected assets. For example, this month we acquired an ultra-high specification jackup rig, ENSCO 109, that is ideally suited for deep-gas drilling, and during the second quarter we sold one of our older jackup rigs at an attractive price."
Revenues in second quarter 2010 declined to $406 million from $497 million a year ago. Revenues from the jackup segments decreased $144 million and were partially offset by a $53 million increase in deepwater segment revenues.
Total operating expenses in second quarter 2010 increased to $282 million from $233 million last year. Contract drilling and depreciation expense rose by 21% and 15%, respectively, mostly driven by growth in the deepwater segment. Additionally, a $12 million impairment of ENSCO I was included in contract drilling expense in second quarter 2010. General and administrative expense increased to $22 million, from $16 million in second quarter 2009, as a result of increases in professional fees incurred in connection with the redomestication, share-based compensation expense and costs related to the Company's new London headquarters.
The Company's effective tax rate improved to 14% in second quarter 2010 from 18% a year ago primarily due to tax efficiencies achieved in connection with the reorganization of Ensco’s worldwide operations subsequent to the redomestication to the U.K. in December 2009.
Deepwater segment revenues grew to $121 million in second quarter 2010 from $68 million a year ago. Two new ENSCO 8500 Series® rigs commenced operations in 2009: ENSCO 8500 in June and ENSCO 8501 in October.
In second quarter 2010, the average day rate was $403,000 and utilization was 91%, compared to $491,000 and 96%, respectively, a year ago.
Contract drilling expense was $47 million in second quarter 2010, up from $24 million in second quarter 2009. The increase was primarily due to the commencement of ENSCO 8500 and ENSCO 8501 operations.
Total Jackup Segments
Revenues from the jackup fleet totaled $285 million in second quarter 2010, down from $430 million a year ago. The decline primarily was due to a $53,000 decline in average day rates to $105,000, and a two percentage point decrease in utilization to 73%. Contract drilling expense increased to $161 million from $148 million, mostly due to a $12 million impairment of ENSCO I.
Strong Financial Position – June 30, 2010
Ensco continues to maintain a strong financial position:
Chief Financial Officer Jay Swent commented, "During the second quarter, the Board of Directors approved a large increase to Ensco's regular quarterly dividend – a major milestone in Ensco's history – after a thorough review of several factors including our record shareholders' equity, strong cash position, modest leverage, positive cash flow outlook and the diversification of our rig fleet. We believe the new dividend payout is prudent and sustainable and allows for adequate capital management flexibility."
Mr. Swent added, "We also doubled our revolving credit facility to $700 million during the second quarter giving us greater flexibility to pursue our strategic plans. The wide support of our banking group highlights the strength of Ensco’s financial position."
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