ESV Update
Lehman Brothers recently downgraded ESV. The timing was interesting - ESV released the same day its contract status report. http://www.enscous.com/UploadFiles/File/04-16-07%208K%20Rig%20Status.pdf
This report is VERY informative - for every one of its rigs, ESV identifies location, current day rates, contract expiration date, and any new changes (like price hikes). Nice guys that they are, they even highlight in yellow which rigs have news updates. The latest report shows:
51 Jul 07 increases from $100K to $130K per day
51 Dec 07 increases from $130K per day to $180K
92 Dec 07 contract extended from June to Dec, same rates
Also, about 10 rigs have cost adjustments. Basically that means that the labor costs are skyrocketing and ESV is passing them on. That keeps margins whole.
Equally important is that rigs with expiring contracts have found homes.
A more critical thing that I am noticing is that ESV has reached the end of a contract re-pricing boom. For the last year, ESV was handling a wave of contract expirations that allowed them to boost prices as much as $100K per day. That is levelling off somewhat, which affects the pace of profit growth. So lets review the remainder of 2007. I'll identify the day rate increase and the rig.
Apr $170K (108), $15K (ESV barge), $40K (86)
May $200K (105)
June $110K (350)
July $30K (51)
Aug $10K (94), $10K (71)
Sept
Oct $30K (88), $20K (97)
Nov $50K (52), $60K (56), $10K (108), $40K (74)
Dec $80K (51)
Other (Gulf of Mexico mainly): -$20K (101) for 45 days, -$10K (68) for 2 months, +$10K (81) for 1 month.
The total impact is an increase in revenue of $133M for the next 8 months. To put that in perspective, ESV's 2006 annual net profit was $770M. This is pure profit, so earnings can grow 20% over the next year based on these contract re-sets alone. Additional year-over-year growth will be coming from the 2006 contract re-sets.
So should we get out of ESV given the slowdown in contract re-sets?
Not quite yet. In Feb 2008 ESV re-sets the semi-submersible 7500 for $160K increase per day (net 2008 yield $53M). Then sometime in Q2 08 an entirely new rig opens up at $250K per day (net 2008 yield for 7 months $53M). Even a 10% growth is attractive considering their 2007 forward P/E is 7.8.
Assuming contracts don't get broken, ESV's major growth is peaking sometime in the Fall 2007. Unless there is big news, we should consider alternatives.
This report is VERY informative - for every one of its rigs, ESV identifies location, current day rates, contract expiration date, and any new changes (like price hikes). Nice guys that they are, they even highlight in yellow which rigs have news updates. The latest report shows:
51 Jul 07 increases from $100K to $130K per day
51 Dec 07 increases from $130K per day to $180K
92 Dec 07 contract extended from June to Dec, same rates
Also, about 10 rigs have cost adjustments. Basically that means that the labor costs are skyrocketing and ESV is passing them on. That keeps margins whole.
Equally important is that rigs with expiring contracts have found homes.
A more critical thing that I am noticing is that ESV has reached the end of a contract re-pricing boom. For the last year, ESV was handling a wave of contract expirations that allowed them to boost prices as much as $100K per day. That is levelling off somewhat, which affects the pace of profit growth. So lets review the remainder of 2007. I'll identify the day rate increase and the rig.
Apr $170K (108), $15K (ESV barge), $40K (86)
May $200K (105)
June $110K (350)
July $30K (51)
Aug $10K (94), $10K (71)
Sept
Oct $30K (88), $20K (97)
Nov $50K (52), $60K (56), $10K (108), $40K (74)
Dec $80K (51)
Other (Gulf of Mexico mainly): -$20K (101) for 45 days, -$10K (68) for 2 months, +$10K (81) for 1 month.
The total impact is an increase in revenue of $133M for the next 8 months. To put that in perspective, ESV's 2006 annual net profit was $770M. This is pure profit, so earnings can grow 20% over the next year based on these contract re-sets alone. Additional year-over-year growth will be coming from the 2006 contract re-sets.
So should we get out of ESV given the slowdown in contract re-sets?
Not quite yet. In Feb 2008 ESV re-sets the semi-submersible 7500 for $160K increase per day (net 2008 yield $53M). Then sometime in Q2 08 an entirely new rig opens up at $250K per day (net 2008 yield for 7 months $53M). Even a 10% growth is attractive considering their 2007 forward P/E is 7.8.
Assuming contracts don't get broken, ESV's major growth is peaking sometime in the Fall 2007. Unless there is big news, we should consider alternatives.
posted by Andrew at
8:07 AM
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