Ensco International

Ensco International - Risks

Contract drilling is notoriously cyclical and competitive. During most periods, drillers compete on price with little differentiation between contractors.
Shallow-water drill rig demand is softening in the Gulf of Mexico (GOM), which is a higher margin region.
Some NOCs (national oil company) are opening up in-house drilling operations, which may lessen demand for oil drillers.
Oil service companies are doing record business due to high commodity prices and increased exploration activities. If oil prices experience a sustained drop, demand for contract drilling could fall.
The oil service industry traditionally requires heavy capital investment with long lead times. Past cycles have been marked with boom periods ending with overcapacity as new rigs saturate the market.
Like most GOM operators, Ensco is finding insurance harder to come by.
Skilled personnel shortages mean increased labor costs across the industry.

Over 110 jackup and deepwater semi-submersible rigs are scheduled for delivery between now and 2010. If the market doesn't absorb this new supply, Ensco's operating results will be adversely affected.
The company is facing weakening conditions in the Gulf of Mexico, with lower utilization rates down 8% over the last 9 months YOY and negative 11% in day rates over the same time span.
Ensco have 4 deepwater rigs under construction but only 3 of them are contracted out upon completion. While the company does not anticipate any trouble contracting out the 4th rig, any softening or adverse developments in the deepwater drilling market may leave Ensco with a costly, idle rig.
The company doesn't anticipate realizing maximum earnings from the deepwater segment until 2011 ($2.15 per share).
A handful of companies control 50% of the demand for offshore drilling. Any change in E&P drilling budgets will negatively impact drillers like Ensco.
Despite claiming 9% of the deepwater drilling market (once rigs are completed), Ensco primary revenue stream will continue to be the offshore jackup market.
The company's new CEO, Daniel Rabun, is a lawyer and not an operations man.