Ensco (ESV) has a global presence with rig operations across six continents. Looking at Ensco’s geographic performance, we see that the Gulf of Mexico had contributed the most revenue, around 40%, up to mid-2014. But in 2Q15, it contributed only 26% of Ensco’s total revenue. The company derives its revenue from Mexico, Angola, Brazil, and the United Kingdom.
Revenue from the Gulf of Mexico tumbles
Ensco’s total revenue for Q2 2015 was $1,059 million compared to $1,136 million in Q2 2014. Comparing the company’s revenue by geographic segments, we see that all the segments except the Gulf Of Mexico recorded positive growth. Revenue from the Gulf of Mexico fell by almost 50% in the second quarter of 2015, to $271 million from $464.7 million in Q2 2014.
Declining crude oil prices have had a drastic negative impact on the offshore drilling industry (XLE). Offshore drilling in the Gulf of Mexico is one of the most challenged and hardest-hit in this depressed industry scenario. The average contract duration in the gulf has been historically less than in other regions. Also, most contracts in this region are on a per-well basis. Longer-term contracts yield higher day rates than short-term contracts. The short nature of these contracts negatively affects the day rate and the utilization rate, which in turn affect Ensco’s revenue.
Hercules Offshore (HERO) has almost 100% exposure to the Gulf of Mexico. It filed for bankruptcy protection amid falling oil prices and the depressing state of the Gulf Of Mexico. Similarly, companies like Diamond Offshore (DO), Noble (NE), and Rowan Companies (RDC) that operate in this region are negatively affected.
Offshore drilling (IYE) is a capital-intensive industry, and keeping rigs idle without cold-stacking them can cost as much as $12,000 per day.
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