Market Overview

Ensco Rowan plc Reports First Quarter 2019 Results

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EnscoRowan Merger Completed Creating Industry-Leading Offshore Driller
Liquidity
and Financial Flexibility Enhanced by Increased Revolving Credit
Facility Capacity
Strong Operational and Safety Performance Leads
to Industry-Leading Customer Satisfaction
New Drillship Contracts
Awarded Offshore Brazil and Egypt
Further Jackup Contract Awards
and Extensions in the North Sea

Ensco Rowan plc (NYSE:ESV) ("EnscoRowan" or the "Company") today
reported a loss of $1.75 per share for first quarter 2019 compared to a
loss of $1.29 per share a year ago.

Several items influenced these comparisons:

  • $6 million or $0.05 per share of transaction costs related to the
    EnscoRowan merger included in first quarter 2019 general and
    administrative expense compared to $9 million or $0.08 per share of
    transaction costs related to the Atwood acquisition in first quarter
    2018, of which $8 million was included in contract drilling expense
    and $1 million in general and administrative expense
  • $1 million or $0.01 per share of discrete tax expense in first quarter
    2019 tax provision compared to $9 million or $0.08 per share of
    discrete tax benefit in first quarter 2018 tax provision
  • $19 million or $0.17 per share loss included in first quarter 2018
    other expense resulting from the repurchase of $722 million aggregate
    principal amount of senior notes
  • $17 million or $0.15 per share bargain purchase gain related to the
    Atwood acquisition included in first quarter 2018 other expense

Adjusted for the items noted above, the loss was $1.69 per share in
first quarter 2019 compared to a loss of $1.27 per share a year ago.
Since the EnscoRowan merger was completed on April 11, 2019, first
quarter 2019 results reflect the performance of Ensco only. Upon closing
of the EnscoRowan merger, we effected a reverse stock split under
English law where every four existing Class A ordinary shares, each with
a nominal value of $0.10, were consolidated into one Class A ordinary
share, each with a nominal value of $0.40. All share and per share data
included in this report have been retroactively restated to reflect the
reverse stock split.

Chief Executive Officer and President Tom Burke said, "The successful
completion of our merger creates an industry-leading offshore driller
across all water depths and geographies. Our rig fleet of 28 floaters
and 53 jackups is the largest and among the most
technologically-advanced in the industry, capable of providing a wide
range of drilling services to an expanded base of clients around the
world, and is ideally positioned to meet increasing levels of customer
demand for the highest-specification ultra-deepwater drillships and
harsh environment jackups."

Dr. Burke added, "These strengths were recognized by our banking group
and, upon closing the transaction, we executed an agreement to increase
the capacity under our unsecured revolving credit facility, bolstering
our liquidity. Further, by becoming a larger and more diversified
company, we are better positioned to continue navigating the protracted
recovery in the offshore drilling sector."

Dr. Burke concluded, "EnscoRowan's long track record of safety and
operational excellence, combined with a focus on deploying new
technologies and innovative solutions that differentiate our services
and drive operational efficiencies, has helped to build strong and
lasting customer relationships. This led to EnscoRowan being rated first
in total customer satisfaction in the latest independent survey by
EnergyPoint Research — the ninth consecutive year that the Company has
earned this distinction. As a result of these combined strengths, we
continue to win new work for our rigs, and we were pleased to recently
be awarded contracts for two of our highest-specification drillships
offshore Brazil and Egypt as well as further jackup contracts or
extensions in the North Sea, where we are seeing strong customer demand."

First Quarter Results

Revenues were $406 million in first quarter 2019 compared to $417
million a year ago primarily due to the sale of two rigs that operated
in the year-ago period and a decline in the average day rate to $121,000
from $132,000 in first quarter 2018. This was partially offset by the
addition of ENSCO DS-9, ENSCO DS-10, ENSCO 140 and ENSCO 141 to the
active fleet. Reported utilization increased to 58% from 54% in first
quarter 2018.

Contract drilling expense increased to $333 million in first quarter
2019 from $325 million a year ago primarily due to higher costs for four
rigs that were added to the active fleet in 2018 and higher utilization
within the jackup fleet. This was partially offset by the sale of two
rigs that operated in the year-ago period and $8 million of integration
costs in first quarter 2018 related to the Atwood acquisition.

Depreciation expense increased to $125 million in first quarter 2019
from $115 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 fully depreciated or subject to impairment charges.

General and administrative expense increased to $30 million from $28
million a year ago mostly due to $6 million of transaction costs in
first quarter 2019 related to the EnscoRowan merger, partially offset by
the realization of synergies from the Atwood acquisition. As noted
above, general and administrative expense in first quarter 2018 included
$1 million of transaction costs related to the Atwood acquisition.

Other expense increased to $75 million in first quarter 2019 from $71
million a year ago primarily due to higher interest expense. Interest
expense in first quarter 2019 was $81 million, net of $6 million of
interest that was capitalized, compared to interest expense of $66
million in first quarter 2018, net of $18 million of interest that was
capitalized. The increase in interest expense was due to lower
capitalized interest as a result of ENSCO DS-10 joining the active fleet
and the issuance of new senior notes during first quarter 2018,
partially offset by interest savings from debt repurchases during the
same quarter. The year-to-year comparison was also influenced by a loss
on the repurchase of senior notes, foreign currency losses and a bargain
purchase gain adjustment in first quarter 2018.

Tax expense increased to $32 million in first quarter 2019 from $18
million a year ago. As noted above, the first quarter 2019 tax provision
included $1 million of discrete tax expense compared to $9 million of
discrete tax benefit in first quarter 2018.

Segment Highlights

Floaters

Floater revenues decreased to $233 million in first quarter 2019 from
$259 million a year ago primarily due to a decline in average day rates
to $240,000 from $263,000 in first quarter 2018. These year-to-year
comparisons were also 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 98% compared to 99% a year
ago.

Contract drilling expense decreased to $182 million in first quarter
2019 from $185 million a year ago primarily due to the sale of ENSCO
6001 and contract preparation costs incurred in the year-ago period.
These items were partially offset by higher costs associated with rigs
joining the active fleet.

Jackups

Jackup revenues increased to $157 million in first quarter 2019 from
$143 million a year ago primarily due to a seven 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 year-ago period.
Adjusted for uncontracted rigs and planned downtime, operational
utilization was 98% compared to 99% a year ago.

Contract drilling expense increased to $135 million in first quarter
2019 from $127 million a year ago primarily due to the addition of ENSCO
140 and ENSCO 141 to the active fleet and an increase in reported
utilization. These items were partially offset by the sale of ENSCO 80
as noted above.

Other

Other is composed of managed drilling rigs. Revenues increased to $16
million from $15 million a year ago, while contract drilling expense
increased to $15 million from $13 million in first quarter 2018.

    First Quarter
                         
(in millions of $, Floaters Jackups Other Reconciling Items Consolidated Total
except %) 2019   2018   Chg   2019   2018   Chg   2019   2018   Chg   2019   2018   2019   2018   Chg
 
Revenues 232.7 259.0 (10 )% 157.0 143.4 9 % 16.2 14.6 11 % 405.9 417.0 (3 )%
Operating expenses
Contract drilling 181.8 185.1 (2 )% 135.4 126.9 7 % 15.4 13.2 17 % 332.6 325.2 2 %
Depreciation 84.8 75.3 13 % 36.9 36.5 1 % 3.3 3.4 125.0 115.2 9 %
General and admin.                                     29.6     27.9     29.6     27.9     6 %
Operating income (loss) (33.9 )   (1.4 )   nm   (15.3 )   (20.0 )   24 %   0.8     1.4     (43 )%   (32.9 )   (31.3 )   (81.3 )   (51.3 )   (58 )%
 

Financial Position — March 31, 2019

  • $2.0 billion of contracted revenue backlog excluding bonus
    opportunities
  • $2.5 billion of liquidity
    • $0.5 billion of cash and short-term investments
    • $2.0 billion available revolving credit facility
  • $5.0 billion of long-term debt

Pro Forma Financial Position — March 31, 2019

On April 11, 2019, Ensco and Rowan merged to form Ensco Rowan plc.
EnscoRowan's pro forma financial position reflects the impact of the
transaction as if it occurred on March 31, 2019:

  • $2.6 billion of contracted revenue backlog excluding bonus
    opportunities
  • $3.8 billion of liquidity
    • $1.5 billion of cash and short-term investments
    • $2.3 billion available revolving credit facility
  • $7.1 billion of total debt(1)
  • $10.0 billion of EnscoRowan shareholders' equity(2)
(1)   Includes approximately $200 million of debt due August 2019
(2) Reflects $1.4 billion of consideration transferred and the estimated
$755 million bargain purchase gain
 

EnscoRowan will conduct a conference call to discuss first quarter 2019
results at 9:00 a.m. CDT (10:00 a.m. EDT and 3:00 p.m. London) on
Thursday, May 2, 2019. The call will be webcast live at www.enscorowan.com.
Alternatively, callers may dial 1-855-239-3215 within the United States
or +1-412-542-4130 from outside the U.S. Please ask for the EnscoRowan
conference call. It is recommended that participants call 20 minutes
ahead of the scheduled start time. Callers may avoid delays by
pre-registering to receive a dial-in number and PIN at http://dpregister.com/10130152.

A webcast replay and transcript of the call will be available at www.enscorowan.com.
A replay will also be available through June 3, 2019 by dialing
1-877-344-7529 within the United States or +1-412-317-0088 from outside
the U.S. (conference ID 10130152).

Ensco Rowan plc (NYSE:ESV) is the industry leader in offshore drilling
services across all water depths and geographies. Operating a
high-quality rig fleet of ultra-deepwater drillships, versatile
semisubmersibles and modern shallow-water jackups, EnscoRowan has
experience operating in nearly every major offshore basin. With an
unwavering commitment to safety and operational excellence, and a focus
on technology and innovation, EnscoRowan was rated first in total
customer satisfaction in the latest independent survey by EnergyPoint
Research - the ninth consecutive year that the Company has earned this
distinction. Ensco Rowan plc is an English limited company (England No.
7023598) with its corporate headquarters located at 6 Chesterfield
Gardens, London W1J 5BQ. To learn more, visit our website at www.enscorowan.com.

Forward-Looking Statements

Statements contained in this press release that are not historical
facts are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements
include words or phrases such as "anticipate," "believe," "estimate,"
"expect," "intend," "plan," "project," "could," "may," "might,"
"should," "will" and similar words and specifically include statements
involving expected financial performance; effective tax rates, day rates
and backlog; estimated rig availability; rig commitments and contracts;
contract duration, status, terms and other contract commitments; letters
of intent; scheduled delivery dates for rigs; the timing of delivery,
mobilization, contract commencement, relocation or other movement of
rigs; our intent to sell or scrap rigs; and general market, business and
industry conditions, trends and outlook. In addition, statements
included in this press release regarding the anticipated benefits,
opportunities, synergies and effects of the EnscoRowan merger are
forward-looking statements. The forward-looking statements contained in
this press release are subject to numerous risks, uncertainties and
assumptions that may cause actual results to vary materially from those
indicated, including actions by regulatory authorities, rating agencies
or other third parties; actions by our security holders; costs and
difficulties related to the integration of Ensco and Rowan and the
related impact on our financial results and performance; our ability to
repay debt and the timing thereof; availability and terms of any
financing; commodity price fluctuations, customer demand, new rig
supply, downtime and other risks associated with offshore rig
operations, relocations, severe weather or hurricanes; changes in
worldwide rig supply and demand, competition and technology; future
levels of offshore drilling activity; governmental action, civil unrest
and political and economic uncertainties; terrorism, piracy and military
action; risks inherent to shipyard rig construction, repair, maintenance
or enhancement; possible cancellation, suspension or termination of
drilling contracts as a result of mechanical difficulties, performance,
customer finances, the decline or the perceived risk of a further
decline in oil and/or natural gas prices, or other reasons, including
terminations for convenience (without cause); our ability to enter into,
and the terms of, future drilling contracts; any failure to execute
definitive contracts following announcements of letters of intent,
letters of award or other expected work commitments; the outcome of
litigation, legal proceedings, investigations or other claims or
contract disputes; governmental regulatory, legislative and permitting
requirements affecting drilling operations; our ability to attract and
retain skilled personnel on commercially reasonable terms; environmental
or other liabilities, risks or losses; debt restrictions that may limit
our liquidity and flexibility; and cybersecurity risks and threats. In
addition to the numerous factors described above, you should also
carefully read and consider "Item 1A. Risk Factors" in Part I and "Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II of our most recent annual report on
Form 10-K, as updated in our subsequent quarterly reports on Form 10-Q,
which are available on the SEC's website at
www.sec.gov
or on the Investor Relations section of our website at
www.enscorowan.com.
Each forward-looking statement speaks only as of the date of the
particular statement, and we undertake no obligation to publicly update
or revise any forward-looking statements, except as required by law.

   
ENSCO ROWAN PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three Months Ended March 31,
2019   2018
 
OPERATING REVENUES $ 405.9 $ 417.0
 
OPERATING EXPENSES
Contract drilling (exclusive of depreciation) 332.6 325.2
Depreciation 125.0 115.2
General and administrative   29.6     27.9  
    487.2     468.3  
 
OPERATING LOSS (81.3 ) (51.3 )
 
OTHER INCOME (EXPENSE)
Interest income 3.5 3.0
Interest expense, net (81.0 ) (65.6 )
Other, net   2.3     (8.1 )
    (75.2 )   (70.7 )
 
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (156.5 ) (122.0 )
 
PROVISION FOR INCOME TAXES   31.5     18.4  
 
LOSS FROM CONTINUING OPERATIONS (188.0 ) (140.4 )
 
LOSS FROM DISCONTINUED OPERATIONS, NET       (.1 )
 
NET LOSS (188.0 ) (140.5 )
 
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (2.4 )   .4  
 
NET LOSS ATTRIBUTABLE TO ENSCOROWAN   $ (190.4 )   $ (140.1 )
 
LOSS PER SHARE - BASIC AND DILUTED
Continuing operations $ (1.75 ) $ (1.29 )
Discontinued operations        
    $ (1.75 )   $ (1.29 )
WEIGHTED-AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 108.7 108.4
 
 
ENSCO ROWAN PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 
March 31, December 31,
2019 2018
(unaudited)
ASSETS
 
CURRENT ASSETS
Cash and cash equivalents $ 298.4 $ 275.1
Short-term investments 245.0 329.0
Accounts receivable, net 313.7 344.7
Other   354.8     360.9
Total current assets   1,211.9     1,309.7
 
PROPERTY AND EQUIPMENT, NET 12,508.9 12,616.2
 
OTHER ASSETS 142.2     97.8
    $ 13,863.0     $ 14,023.7
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES $ 516.9 $ 528.5
 
LONG-TERM DEBT 5,018.5 5,010.4
 
OTHER LIABILITIES 427.3 396.0
 
TOTAL EQUITY 7,900.3     8,088.8
    $ 13,863.0     $ 14,023.7
 
 
ENSCO ROWAN PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended
March 31,
2019   2018
 
OPERATING ACTIVITIES
Net loss $ (188.0 ) $ (140.5 )
Adjustments to reconcile net loss to net cash provided by operating
activities of continuing operations:
Depreciation expense 125.0 115.2
Amortization, net (14.5 ) (16.8 )
Share-based compensation expense 7.8 8.4
Deferred income tax expense 5.9 11.3
Loss on debt extinguishment 18.8
Gain on bargain purchase (16.6 )
Other 1.4 (2.1 )
Changes in operating assets and liabilities   38.0     61.8  
Net cash (used in) provided by operating activities   (24.4 )   39.5  
INVESTING ACTIVITIES
Maturities of short-term investments 204.0 390.0
Purchases of short-term investments (120.0 ) (349.0 )
Additions to property and equipment (29.0 ) (269.3 )
Other   .3     .1  
Net cash provided by (used in) investing activities   55.3     (228.2 )
FINANCING ACTIVITIES
Cash dividends paid (4.5 ) (4.5 )
Proceeds from issuance of senior notes 1,000.0
Reduction of long-term borrowings (771.0 )
Debt financing costs (16.8 )
Other   (2.8 )   (1.2 )
Net cash (used in) provided by financing activities   (7.3 )   206.5  
Net cash provided by discontinued operations       2.5  
Effect of exchange rate changes on cash and cash equivalents (.3 ) (.3 )
INCREASE IN CASH AND CASH EQUIVALENTS 23.3 20.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   275.1     445.4  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 298.4     $ 465.4  
 
   
ENSCO ROWAN PLC AND SUBSIDIARIES
OPERATING STATISTICS
(Unaudited)
 
First Quarter Fourth Quarter
2019   2018 2018
 
Rig Utilization(1)
 
Floaters 43 % 44 % 40 %
Jackups 68 % 61 % 62 %
             
Total   58 %   54 %   53 %
 
Average Day Rates(2)
 
Floaters $ 240,440 $ 262,661 $ 258,759
Jackups 72,146 73,529 76,222
             
Total   $ 120,935     $ 132,486     $ 128,505  
(1)   Rig utilization is derived by dividing the number of days under
contract by the number of days in the period. Days under contract
equals the total number of days that rigs have earned and recognized
day rate revenue, including days associated with early contract
terminations, compensated downtime and mobilizations. When revenue
is earned but is deferred and amortized over a future period, for
example when a rig earns revenue while mobilizing to commence a new
contract or while being upgraded in a shipyard, the related days are
excluded from days under contract.
 
For newly-constructed or acquired rigs, the number of days in the
period begins upon commencement of drilling operations for rigs with
a contract or when the rig becomes available for drilling operations
for rigs without a contract.
 
(2) Average day rates are derived by dividing contract drilling
revenues, adjusted to exclude certain types of non-recurring
reimbursable revenues, lump-sum revenues and revenues attributable
to amortization of drilling contract intangibles, by the aggregate
number of contract days, adjusted to exclude contract days
associated with certain mobilizations, demobilizations, shipyard
contracts and standby contracts.
 

Non-GAAP Financial Measures (Unaudited)

To supplement EnscoRowan's condensed consolidated financial statements
presented on a GAAP basis, this press release provides investors with
adjusted loss per share from continuing operations and adjusted EBITDA,
which are non-GAAP measures.

We believe that adjusted loss per share from continuing operations
provides meaningful supplemental information regarding the company's
performance by excluding certain charges that may not be indicative of
EnscoRowan's ongoing operating results. This allows investors and others
to better compare financial results across accounting periods and to
those of peer companies, and to better understand the long-term
performance of our business.

EnscoRowan defines "Adjusted EBITDA" as net income (loss) before income
(loss) from discontinued operations, other income (expense), income tax
expense (benefit), interest expense, depreciation, amortization, loss on
impairment, (gain) loss on asset disposals, transaction costs and
significant non-recurring items. Adjusted EBITDA is a non-GAAP measure
that our management uses to facilitate period-to-period comparisons of
our core operating performance and to evaluate our long-term financial
performance against that of our peers. We believe that this measure is
useful to investors and analysts in allowing for greater transparency of
our core operating performance and makes it easier to compare our
results with those of other companies within our industry. Adjusted
EBITDA should not be considered (a) in isolation of, or as a substitute
for, net income (loss), (b) as an indication of cash flows from
operating activities or (c) as a measure of liquidity. Adjusted EBITDA
may not be comparable to other similarly titled measures reported by
other companies.

Non-GAAP financial measures should be considered as a supplement to, and
not as a substitute for, or superior to, financial measures prepared in
accordance with GAAP.

Adjusted Loss Per Share

The table below reconciles loss per share, as calculated in accordance
with GAAP, to adjusted loss per share for the quarters ended March 31,
2019 and 2018. Adjusted loss per share for the quarter ended March 31,
2019 excludes transaction costs related to the EnscoRowan merger and
discrete tax items. Adjusted loss per share for the quarter ended
March 31, 2018 excludes the loss on debt repurchases and redemptions,
gain on bargain purchase, transaction costs related to the Atwood
acquisition and discrete tax items. Immediately following the completion
of the EnscoRowan merger, every four existing Class A ordinary shares
were consolidated into one Class A ordinary share (the "Reverse Stock
Split"). All per share data below has been retroactively adjusted to
reflect the Reverse Stock Split.

LOSS PER SHARE RECONCILIATION(1):   Three Months Ended March 31,
2019   2018
Loss from continuing operations attributable to EnscoRowan shares(2) Loss per share from continuing operations Loss from continuing operations attributable to EnscoRowan shares(2) Loss per share from continuing operations
As reported $ (190.5 ) $ (1.75 ) $ (140.1 ) $ (1.29 )
Adjustments:
Loss on debt repurchases 18.8 0.17
Bargain purchase gain (16.6 ) (0.15 )
Integration costs 5.9 0.05 8.6 0.08
Discrete tax items   0.6   0.01     (8.9 ) (0.08 )
Adjusted   $ (184.0 ) $ (1.69 )   $ (138.2 ) $ (1.27 )
(1)   No adjustments have been made to loss per share from discontinued
operations for the three-month periods ended March 31, 2019 and 2018.
 
(2) Loss from continuing operations attributable to EnscoRowan shares is
calculated as net loss from continuing operations attributable to
EnscoRowan adjusted for net income allocated to participating
securities under the two-class method of $100,000 for the
three-month periods ended March 31, 2019 and 2018, respectively. Net
loss from continuing operations attributable to EnscoRowan excludes
income attributable to noncontrolling interest of $2.4 million and
loss attributable to noncontrolling interest of $400,000 for the
three-month period ended March 31, 2019 and March 31, 2018,
respectively.
 

Reconciliation of Net Loss to Adjusted EBITDA

A reconciliation of net loss as reported to Adjusted EBITDA for the
quarters ended March 31, 2019 and 2018 is included in the tables below
(in millions):

  Three Months Ended March 31,
2019   2018
 
Net loss $ (188.0 ) $ (140.5 )
Less:
Loss from discontinued operations, net       (0.1 )
Loss from continuing operations (188.0 ) (140.4 )
Add:
Income tax expense 31.5 18.4
Interest expense 81.0 65.6
Other (income) expense   (5.8 )   5.1  
Operating loss (81.3 ) (51.3 )
Add:
Depreciation expense 125.0 115.2
Amortization, net (1) (14.5 ) (16.8 )
(Gain) loss on asset disposals 0.8 (0.3 )
Transaction costs   5.9     8.6  
Adjusted EBITDA $ 35.9 $ 55.4

(1)

  Amortization, net, includes amortization during the indicated period
for deferred mobilization revenues and costs, deferred capital
upgrade revenues, deferred certification costs, intangible
amortization and other amortization.

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