UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _________________
Commission File Number 1-8097
ENSCO INTERNATIONAL INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 76-0232579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Fountain Place
1445 Ross Avenue, Dallas, Texas 75202 - 2792
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 922-1500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES _X_ NO___
There were 137,606,923 shares of Common Stock, $.10 par value, of the registrant
outstanding as of November 4, 1998.
<PAGE>
ENSCO INTERNATIONAL INCORPORATED
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Review Report of Independent Accountants 3
Consolidated Statement of Income
Three Months Ended September 30, 1998 and 1997 4
Consolidated Statement of Income
Nine Months Ended September 30, 1998 and 1997 5
Consolidated Balance Sheet
September 30, 1998 and December 31, 1997 6
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 24
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of ENSCO International Incorporated
We have reviewed the accompanying consolidated balance sheet of ENSCO
International Incorporated and its subsidiaries as of September 30, 1998 and the
related consolidated statements of income for the three and nine month periods
ended September 30, 1998 and 1997 and of cash flows for the nine month periods
ended September 30, 1998 and 1997. This financial information is the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1997, and the related
consolidated statements of income and of cash flows for the year then ended (not
presented herein), and in our report dated January 28, 1998 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet
information as of December 31, 1997, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Dallas, Texas
November 2, 1998
3
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share data)
(Unaudited)
Three Months Ended
September 30,
---------------------
1998 1997
------- -------
OPERATING REVENUES....................................... $ 179.8 $ 223.3
EXPENSES
Operating expenses................................... 80.5 80.4
Depreciation and amortization........................ 20.9 27.0
General and administrative........................... 3.8 3.5
------- -------
105.2 110.9
------- -------
OPERATING INCOME......................................... 74.6 112.4
OTHER INCOME (EXPENSE)
Interest income...................................... 4.0 1.4
Interest expense, net................................ (6.2) (5.0)
Other, net........................................... 10.0 (.1)
------- -------
7.8 (3.7)
------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST......... 82.4 108.7
PROVISION FOR INCOME TAXES
Current income taxes................................. 1.3 27.9
Deferred income taxes................................ 21.0 12.5
------- -------
22.3 40.4
MINORITY INTEREST........................................ 1.1 .5
------- -------
NET INCOME............................................... $ 59.0 $ 67.8
======= =======
EARNINGS PER SHARE
Basic................................................ $ .42 $ .48
Diluted.............................................. $ .42 $ .47
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic................................................ 139.0 141.2
Diluted.............................................. 139.5 143.1
DIVIDENDS PER SHARE...................................... $ .025 $ .025
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share data)
(Unaudited)
Nine Months Ended
September 30,
---------------------
1998 1997
------- -------
OPERATING REVENUES....................................... $ 660.2 $ 580.3
EXPENSES
Operating expenses................................... 247.8 227.6
Depreciation and amortization........................ 60.9 77.0
General and administrative........................... 11.5 10.4
------- -------
320.2 315.0
------- -------
OPERATING INCOME......................................... 340.0 265.3
OTHER INCOME (EXPENSE)
Interest income...................................... 10.5 4.1
Interest expense, net................................ (20.4) (15.6)
Other, net........................................... 10.0 -
------- -------
.1 (11.5)
------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST......... 340.1 253.8
PROVISION FOR INCOME TAXES
Current income taxes................................. 67.3 55.5
Deferred income taxes................................ 43.1 39.7
------- -------
110.4 95.2
MINORITY INTEREST........................................ 2.9 2.3
------- -------
NET INCOME............................................... $ 226.8 $ 156.3
======= =======
EARNINGS PER SHARE
Basic................................................ $ 1.61 $ 1.11
Diluted.............................................. $ 1.60 $ 1.10
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic................................................ 140.6 141.0
Diluted.............................................. 141.6 142.6
DIVIDENDS PER SHARE...................................... $ .075 $ .025
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $ 293.6 $ 262.2
Accounts receivable, net......................... 149.1 157.2
Prepaid expenses and other....................... 22.5 27.7
Assets held for sale............................. 45.7 -
-------- --------
Total current assets.................. 510.9 447.1
-------- --------
PROPERTY AND EQUIPMENT, AT COST...................... 1,727.6 1,534.1
Less accumulated depreciation.................... 389.2 357.0
-------- --------
Property and equipment, net........... 1,338.4 1,177.1
-------- --------
OTHER ASSETS, NET.................................... 141.0 147.8
-------- --------
$1,990.3 $1,772.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................. $ 16.4 $ 7.8
Accrued liabilities.............................. 139.1 93.8
Current maturities of long-term debt............. 22.7 29.3
-------- --------
Total current liabilities............. 178.2 130.9
-------- --------
LONG-TERM DEBT....................................... 382.0 400.8
DEFERRED INCOME TAXES................................ 171.4 128.2
OTHER LIABILITIES.................................... 18.9 24.4
MINORITY INTEREST.................................... 13.9 11.0
COMMITMENTS AND CONTINGENCIES........................ - -
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value, 20.0 million
shares authorized, none issued............... - -
Common stock, $.10 par value, 250.0 million
shares authorized, 155.6 million and 155.2
million shares issued........................ 15.6 15.5
Additional paid-in capital...................... 845.5 841.3
Retained earnings............................... 514.8 298.6
Restricted stock (unearned compensation)........ (8.0) (6.8)
Cumulative translation adjustment............... (1.1) (1.1)
Treasury stock, at cost, 18.0 million and
13.0 million shares......................... (140.9) (70.8)
-------- --------
Total stockholders' equity........... 1,225.9 1,076.7
-------- --------
$1,990.3 $1,772.0
======== ========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
September 30,
------------------
1998 1997
------- -------
OPERATING ACTIVITIES
Net income.............................................. $ 226.8 $ 156.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 60.9 77.0
Deferred income tax provision.................. 43.1 39.7
Amortization of other assets................... 8.1 4.7
Gain on asset dispositions..................... (11.5) (1.2)
Other.......................................... 2.7 .6
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.. 29.1 (52.4)
(Increase) decrease in prepaid expenses and
other.................................... 2.1 (6.8)
Increase in accounts payable................ 8.6 .6
Increase in accrued liabilities............. 18.0 13.5
------- -------
Net cash provided by operating activities.. 387.9 232.0
------- -------
INVESTING ACTIVITIES
Additions to property and equipment..................... (253.8) (140.6)
Proceeds from disposition of assets..................... 1.9 1.8
Other................................................... - .5
------- -------
Net cash used by investing activities...... (251.9) (138.3)
------- -------
FINANCING ACTIVITIES
Reduction of long-term borrowings....................... (25.1) (51.0)
Cash dividends.......................................... (10.6) (3.5)
Treasury stock purchased under buyback program.......... (69.6) -
Reduction in restricted cash............................ - 1.6
Other................................................... .7 .2
------- -------
Net cash used by financing activities...... (104.6) (52.7)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 31.4 41.0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 262.2 80.7
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 293.6 $ 121.7
======= =======
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Unaudited Financial Statements
The accompanying consolidated financial statements of ENSCO International
Incorporated (the "Company") have been prepared in accordance with generally
accepted accounting principles, pursuant to the rules and regulations of the
Securities and Exchange Commission included in the instructions to Form 10-Q and
Article 10 of Regulation S-X. The financial information included herein is
unaudited but, in the opinion of management, includes all adjustments
(consisting of normal recurring adjustments) which are necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented.
The financial data for the three and nine month periods ended September 30, 1998
included herein have been subjected to a limited review by
PricewaterhouseCoopers LLP, the registrant's independent accountants. The
accompanying review report of independent accountants is not a report within the
meaning of Sections 7 and 11 of the Securities Act of 1933 and the independent
accountant's liability under Section 11 does not extend to it.
Results of operations for the three and nine month periods ended September 30,
1998 are not necessarily indicative of the results of operations that will be
realized for the year ending December 31, 1998. It is recommended that these
financial statements be read in conjunction with the Company's consolidated
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K.
Note 2 - Assets Held for Sale
At September 30, 1998, $45.7 million, representing the net book value of four of
the Company's Venezuelan barge drilling rigs, was classified as assets held for
sale based on notification given to the Company by Petroleos de Venezuela
("PDVSA") of its intent to purchase the ENSCO VII, VIII, IX and X. PDVSA has the
option to purchase these rigs pursuant to a purchase option provided for in the
original charter agreement.
On October 27, 1998, the Company sold to PDVSA the four barge drilling rigs
whose contracts had expired in 1998 for cash proceeds of $49.4 million. The
Company and PDVSA are in dispute concerning additional consideration the Company
believes it is entitled to under the charter agreement, for reimbursement of
taxes, liabilities and costs related to the sale and operation of the barge
drilling rigs. The parties have yet to agree on the amount and method of
calculating such additional payment. In connection with the sale, the Company
and PDVSA have agreed to reserve their rights for resolution of these
contractual disputes. Based on cash proceeds received from the sale, an
insignificant gain will be recorded on the transaction after considering taxes
and payment to ENSCO's minority interest holder. Any additional proceeds
collected in future periods will be recognized into income when received.
8
<PAGE>
The Company's remaining six barge drilling rigs in Venezuela continue to
work for PDVSA under their charter contracts that all expire in mid-to-late
1999. The contracts with PDVSA for the six barge drilling rigs afford PDVSA the
option to purchase each of the rigs during or at the end of the contracts. The
Company is currently uncertain whether or not PDVSA will exercise its purchase
option on these rigs.
Note 3 - Gain on Vessel
On September 7, 1998, one of the Company's large anchor handling tug supply
vessels, the Kodiak II, sank while supporting drilling operations for a customer
in the Gulf of Mexico. The vessel sank in approximately 4,300 feet of water and
has been declared a total loss for insurance purposes.
The Company expects to receive insurance proceeds of $21.0 million on the loss
of the vessel, resulting in a financial statement gain of $10.0 million ($6.5
million or $.05 per basic and diluted share net of tax) for the three and nine
months ended September 30, 1998. The gain represents the insurance proceeds in
excess of the net book value of the vessel and is recorded in "Other, net" under
the Other Income (Expense) caption in the Consolidated Statements of Income for
the three and nine months ended September 30, 1998. Through the date of this
filing, the Company has received approximately $19.0 million of the $21.0
million proceeds from its insurers.
Note 4 - Stock Buyback Program
In May 1998, the Company's Board of Directors authorized the repurchase of up to
5.0 million shares of the Company's Common Stock as a means to offset the
dilutive effect of shares issued under the Company's stock compensation plans
and to capitalize on the decrease in the market price of the Company's common
stock. As of September 30, 1998, the Company had repurchased all 5.0 million
shares authorized at a cost of approximately $69.6 million.
Note 5 - Revolving Credit Agreement
In May 1998, the Company entered into a $185 million unsecured revolving credit
agreement (the "Credit Agreement") with a syndicate of banks. Interest on
amounts borrowed under the Credit Agreement are based on LIBOR plus an
applicable margin rate (currently .4%) depending on the Company's credit rating.
The Company also pays a commitment fee (currently .15% per annum) on the undrawn
portion of the available credit line, which is also based on the Company's
credit rating. The Company is required to maintain certain financial covenants
under the Credit Agreement which include the Company meeting a specified level
of interest coverage, assets to indebtedness, leverage ratio, and tangible net
worth. As of September 30, 1998, the Company had $185 million available for
borrowings under the Credit Agreement. The Credit Agreement matures in May 2003.
9
<PAGE>
Note 6 - Change in Depreciable Lives
During the latter part of 1997, the Company performed an engineering and
economic study of the Company's asset base. As a result of this study, the
Company, effective January 1, 1998, extended the depreciable lives of its
drilling rigs and marine vessels by an average of five to six years. The Company
believes that this change provides a better matching of the revenues and
expenses of the Company's assets over their anticipated useful lives. The effect
of this change on the Company's financial results for the three and nine months
ended September 30, 1998 was to reduce depreciation expense by approximately
$9.7 million or $.07 per basic and diluted share and $29.8 million or $.21 per
basic and diluted share, respectively.
Note 7 - Earnings Per Share
For the three and nine months ended September 30, 1998 and 1997, there were no
adjustments to net income for purposes of calculating basic and diluted earnings
per share. The following is a reconciliation of the weighted average common
shares used in the basic and diluted earnings per share computations for the
three and nine months ended September 30, 1998 and 1997 (in millions).
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ----------------
1998 1997 1998 1997
----- ----- ----- -----
Weighted average common shares-basic 139.0 141.2 140.6 141.0
Potentially dilutive common shares:
Restricted stock grants .1 .4 .3 .4
Stock options .4 1.5 .7 1.2
----- ----- ----- -----
Weighted average common shares-diluted 139.5 143.1 141.6 142.6
===== ===== ===== =====
Note 8 - Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The adoption of this
Statement had no effect on the Company's financial statements.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ENVIRONMENT
ENSCO International Incorporated is one of the leading international providers
of offshore drilling services and marine transportation services to the oil and
gas industry. The Company's operations are conducted in the geographic regions
of North America, Europe, Asia Pacific and South America.
Demand for the Company's services is significantly affected by worldwide
expenditures for oil and gas drilling. Expenditures for oil and gas drilling
activity fluctuate based upon many factors including world economic conditions,
the legislative environment in the U.S. and other major countries, production
levels and other activities of OPEC and other oil and gas producers and the
impact that these and other events have on the current and expected future
pricing of oil and natural gas.
During the third quarter of 1998, demand for offshore drilling equipment
declined from the second quarter of 1998 as oil prices remained at depressed
levels. The decline in oil prices is due to, among other things, concerns about
an excess supply of oil in the world markets and reduced growth in worldwide
demand due to the impact of the economic slowdown in Southeast Asia. In an
attempt to prevent further deterioration in oil prices, members of OPEC and some
other oil and gas producers recently agreed to reduce their oil production
levels. However, there can be no assurance that these agreements will reduce oil
production levels or if or when these measures will increase oil prices and
return them to higher levels that have prevailed over much of the last decade.
As oil prices have declined, companies exploring for oil and natural gas have
deferred some of their drilling programs thereby reducing demand for drilling
equipment and marine transportation services and resulting in reductions in day
rates and utilization. This erosion in day rates and utilization is having a
negative impact on the Company's financial results. The Company currently
expects that its earnings for the fourth quarter of 1998 will continue to trend
downward from the third quarter of 1998 and the results for the full year 1999
will be significantly less than the full year 1998 results. See "Outlook and
Forward-Looking Statements" for further information about how the current
business environment is expected to impact the Company's future financial
results.
RESULTS OF OPERATIONS
The Company's results for the third quarter of 1998 decreased significantly from
the prior year third quarter as the deterioration in the worldwide offshore
drilling markets adversely impacted the Company's results. Compared with the
third quarter of 1997, revenues for the third quarter of 1998 decreased by 19%
to $179.8 million, operating income decreased by 34% to $74.6 million and net
income decreased by 13% to $59.0 million.
Conversely, the Company's year to date results for the nine months ended
September 30, 1998, showed marked improvement over the prior year period as the
Company's first two quarters of 1998 were its best ever and reflected the
carryover of the strong market conditions experienced in the latter part of
1997. For the nine months ended September 30, 1998, revenues increased by 14% to
$660.2 million, operating income increased by 28% to $340.0 million and net
income increased by 45% to $226.8 million.
11
<PAGE>
The following analysis highlights the Company's operating results for the three
and nine months ended September 30, 1998 and 1997 (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Operating Results 1998 1997 1998 1997
- ----------------- ------ ------ ------ -------
Revenues $179.8 $223.3 $660.2 $580.3
Operating margin(1) 99.3 142.9 412.4 352.7
Operating income 74.6 112.4 340.0 265.3
Other income (expense) 7.8 (3.7) .1 (11.5)
Provision for income taxes 22.3 40.4 110.4 95.2
Minority interest 1.1 .5 2.9 2.3
Net income 59.0 67.8 226.8 156.3
Revenues
- --------
Contract drilling
Jackup rigs:
North America $ 68.3 $100.7 $277.9 $255.3
Europe 51.2 48.4 168.8 120.1
Asia Pacific 15.1 22.8 60.0 53.9
------ ------ ------ ------
Total jackup rigs 134.6 171.9 506.7 429.3
Barge rigs - South America 16.0 22.1 59.4 63.2
Platform rigs 11.1 5.5 27.5 20.3
------ ------ ------ ------
Total contract drilling 161.7 199.5 593.6 512.8
------ ------ ------ ------
Marine transportation
AHTS(2) 5.4 5.6 14.5 15.7
Supply 10.9 15.3 44.5 43.6
Mini-Supply 1.8 2.9 7.6 8.2
------ ------ ------ ------
Total marine transportation 18.1 23.8 66.6 67.5
------ ------ ------ ------
Total $179.8 $223.3 $660.2 $580.3
====== ====== ====== ======
Operating Margin(1)
- -------------------
Contract drilling
Jackup rigs:
North America $ 37.9 $ 70.5 $182.5 $168.9
Europe 35.2 34.0 122.2 78.9
Asia Pacific 6.5 11.5 31.5 22.2
------ ------ ------ ------
Total jackup rigs 79.6 116.0 336.2 270.0
Barge rigs - South America 8.0 11.5 30.3 36.6
Platform rigs 4.7 1.7 11.2 5.7
Other (.6) - (.6) -
------ ------ ------ ------
Total contract drilling 91.7 129.2 377.1 312.3
------ ------ ------ ------
Marine transportation
AHTS(2) 2.8 3.0 7.4 8.6
Supply 4.2 9.0 24.4 27.2
Mini-Supply .6 1.7 3.5 4.6
------ ------ ------ ------
Total marine transportation 7.6 13.7 35.3 40.4
------ ------ ------ ------
Total $ 99.3 $142.9 $412.4 $352.7
====== ====== ====== ======
(1) Defined as revenues less operating expenses, exclusive of depreciation and
amortization and general and administrative expenses.
(2) Anchor handling tug supply vessels.
12
<PAGE>
The following is an analysis of certain operating information of the Company for
the three and nine months ended September 30, 1998 and 1997:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- -------
Contract Drilling
- -----------------
Utilization:
Jackup rigs:
North America 88% 97% 93% 96%
Europe 89% 100% 96% 100%
Asia Pacific 43% 86% 60% 76%
-------- -------- -------- --------
Total jackup rigs 80% 95% 87% 93%
Barge rigs - South America 100% 100% 100% 100%
Platform rigs 90% 56% 87% 60%
-------- -------- -------- --------
Total 85% 91% 90% 90%
======== ======== ======== ========
Average day rates:
Jackup rigs:
North America $ 38,261 $ 51,005 $ 49,621 $ 44,194
Europe 98,675 87,789 100,679 73,737
Asia Pacific 54,391 40,915 51,542 37,658
-------- -------- -------- --------
Total jackup rigs 51,594 55,800 59,578 48,644
Barge rigs - South America 19,346 24,061 22,368 23,149
Platform rigs 27,032 20,954 24,902 18,394
-------- -------- --------- --------
Total $ 42,014 $ 47,224 $ 48,571 $ 40,709
======== ======== ======== ========
Marine Transportation
- ---------------------
Utilization:
AHTS(1) 73% 86% 66% 82%
Supply 82% 87% 87% 91%
Mini-supply 61% 95% 81% 97%
-------- -------- -------- --------
Total 76% 88% 83% 91%
======== ======== ======== ========
Average day rates:
AHTS(1) $ 16,251 $ 14,098 $ 16,095 $ 12,305
Supply 6,040 8,019 7,830 7,502
Mini-supply 3,978 4,101 4,294 3,879
-------- -------- -------- --------
Total $ 7,004 $ 7,905 $ 7,974 $ 7,336
======== ======== ======== ========
(1) Anchor handling tug supply vessels.
Discussions relative to each of the Company's operating segments and significant
changes in operating results for the three and nine months ended September 30,
1998 compared with the results of the corresponding prior year periods are set
forth below. See "Business Environment" and "Outlook and Forward-Looking
Statements" for additional information about the Company's expectations
regarding future operations, day rates and utilization.
13
<PAGE>
Contract Drilling
The following is an analysis of the Company's offshore drilling rigs at
September 30, 1998 and 1997:
Number of Rigs
--------------
1998 1997
---- ----
Jackup rigs:
North America 22 22
Europe 7(1) 6
Asia Pacific 7 7
---- ----
Total jackup rigs 36 35
Barge rigs - South America 10(2) 10
Platform rigs 8(3) 8(3)
---- ----
Total 54 53
==== ====
(1) The Company acquired a jackup drilling rig, the ENSCO 100, in
December 1997.
(2) Includes the four barge drilling rigs subsequently sold on October
27, 1998.
(3) Seven are located in the Gulf of Mexico and one, which is not
owned but operated under a management contract, is located off the
coast of China.
Revenues for the Company's contract drilling segment decreased by 19% to $161.7
million in the third quarter of 1998, compared with $199.5 million in the third
quarter of 1997. This decrease in revenues is primarily due to an 11% decline in
average day rates for the Company's drilling rigs and a reduction in utilization
to 85% in the current year quarter from 91% in the prior year quarter. For the
nine months ended September 30, 1998, revenues for the contract drilling segment
increased by 16% to $593.6 million, compared with $512.8 million for the same
period in 1997. This increase in revenues is primarily due to a 19% improvement
in average day rates, offset in part by a decrease in utilization for the
Company's jackup rigs.
Operating margin as a percentage of revenues for the contract drilling segment
decreased to 57% in the third quarter of 1998, compared with 65% in the third
quarter of 1997, primarily reflecting the significant decrease in revenues. For
the nine months ended September 30, 1998, operating margin as a percentage of
revenues increased to 64%, compared with 61% in the prior year period,
reflecting the improved results of the first two quarters of 1998 over the prior
year period.
North America Jackup Rigs
For the third quarter of 1998, revenues for the Company's North America jackup
rigs decreased by $32.4 million or 32% and the operating margin decreased by
$32.6 million or 46% from the prior year quarter. The decrease in revenues is
primarily due to a 25% decline in average day rates and a decrease in
utilization to 88% in the current year quarter from 97% in the prior year
quarter. The decrease in utilization is due to additional idle time resulting
from less demand for the Company's drilling rigs.
14
<PAGE>
For the nine months ended September 30, 1998, revenues for the Company's North
America jackup rigs increased by $22.6 million or 9% and the operating margin
increased by $13.6 million or 8% from the prior year period. The increase in
revenues is primarily due to a 12% improvement in average day rates, offset in
part by a slight decrease in utilization to 93% in the current year period from
96% in the prior year period. Operating expenses increased by $9.0 million or
10% from the prior year period primarily due to increased personnel costs,
operating supplies and repairs and replacements.
Europe Jackup Rigs
Third quarter revenues for the Europe jackup rigs increased by $2.8 million or
6% and the operating margin increased by $1.2 million or 4% from the prior year
quarter. The increase in revenues is primarily due to a 12% improvement in
average day rates, offset in part by a decrease in utilization to 89% in the
current year quarter from 100% in the prior year quarter. The decrease in
utilization is due to shipyard downtime for one rig in the third quarter of
1998. Also, the acquisition of the ENSCO 100 in December 1997 contributed $3.7
million in revenues and $3.3 million in operating margin to the 1998 third
quarter results. Operating expenses increased by $1.6 million or 11% from the
prior year quarter primarily due to increased personnel costs and operating
costs for the ENSCO 100.
For the nine months ended September 30, 1998, revenues for the Europe jackup
rigs increased by $48.7 million or 41% and the operating margin increased by
$43.3 million or 55% from the prior year period. Average day rates for the
current year period increased by 37% from the prior year while utilization
decreased to 96% in the current year period from 100% in the prior year period,
due to shipyard downtime for one rig in the third quarter of 1998. The ENSCO 100
contributed $10.9 million in revenues and $9.9 million in operating margin to
the results of the current year period. Operating expenses increased by $5.4
million or 13% from the prior year period primarily due to increased personnel
costs, operating supplies, repairs and replacements and operating costs for the
ENSCO 100.
Asia Pacific Jackup Rigs
Third quarter revenues for the Asia Pacific jackup rigs decreased by $7.7
million or 34% and the operating margin decreased by $5.0 million or 43% from
the prior year quarter. The decrease in revenues is due primarily to a decrease
in utilization to 43% in the current year quarter from 86% in the prior year
quarter, offset in part by a 33% increase in average day rates. The decrease in
utilization is due primarily to increased shipyard downtime resulting from two
rigs undergoing modifications and enhancements during the third quarter of 1998.
Additionally, two rigs came off contract in June 1998 and were idle for the
entire third quarter. Operating expenses decreased by $2.7 million or 24% from
the prior year period due primarily to decreased utilization resulting from
shipyard downtime and idle rigs.
15
<PAGE>
For the nine months ended September 30, 1998, revenues for the Asia Pacific
jackup rigs increased by $6.1 million or 11% and the operating margin increased
by $9.3 million or 42% from the prior year period. Average day rates for the
nine months ended September 30, 1998 increased by 37% while utilization
decreased to 60% in the current year period from 76% in the prior year period,
primarily resulting from shipyard downtime and additional idle time in the third
quarter of 1998. Operating expenses decreased by $3.2 million or 10% from the
prior year period due primarily to decreased utilization in the current year
period.
South America Barge Rigs
Third quarter revenues for the South America barge rigs decreased by $6.1
million or 28% and the operating margin decreased by $3.5 million or 30% from
the prior year quarter. The decrease in revenues and operating margin
quarter-over-quarter is due primarily to the expiration of the initial contract
periods on two of the barge rigs in March and April 1998 and two more barge rigs
in June 1998.
For the nine months ended September 30, 1998, revenues decreased by $3.8 million
or 6% and the operating margin decreased by $6.3 million or 17% from the prior
year period. The decrease in revenues for the current year nine month period is
attributable to the expiration of the four barge drilling rigs contracts as
discussed above, offset in part by increased revenues resulting from
inflationary day rate increases. Historically, the Company has been able to
recover inflationary cost increases through day rate adjustments as provided for
under the charter agreement with Petroleos de Venezuela, S.A. ("PDVSA"). Also,
in the first quarter of 1997, the Company collected additional revenues related
to catch-up adjustments of prior inflationary cost increases.
On October 27, 1998, the Company sold to PDVSA the four barge drilling rigs
whose contracts had expired in 1998 for cash proceeds of $49.4 million. PDVSA
purchased the rigs pursuant to a purchase option provided for in the original
charter agreement. The Company and PDVSA are in dispute concerning additional
consideration the Company believes it is entitled to under the charter
agreement, for reimbursement of taxes, liabilities and costs related to the sale
and operation of the barge drilling rigs. The parties have yet to agree on the
amount and method of calculating such additional payment. In connection with the
sale, the Company and PDVSA have agreed to reserve their rights for resolution
of these contractual disputes. Based on cash proceeds received from the sale, an
insignificant gain will be recorded on the transaction after considering taxes
and payment to ENSCO's minority interest holder. Any additional proceeds
collected in future periods will be recognized into income when received.
The Company's remaining six barge rigs in Venezuela continue to work for
PDVSA under their charter contracts that all expire in mid-to-late 1999. The
contracts with PDVSA afford PDVSA the option to purchase each of these rigs
during or at the end of the contracts. The Company is currently uncertain
whether or not PDVSA will exercise its purchase option on these rigs.
16
<PAGE>
Marine Transportation
The following is an analysis of the Company's marine transportation vessels as
of September 30, 1998 and 1997:
Number of Vessels
1998 1997
---- ----
AHTS 4* 5
Supply 24 24
Mini-Supply 8 8
---- ----
Total 36 37
==== ====
* One of the Company's anchor handling tug supply vessels, the Kodiak
II, sank in September 1998.
For the third quarter of 1998, revenues for the Company's marine transportation
segment decreased by $5.7 million or 24% and the operating margin decreased by
$6.1 million or 45% from the prior year quarter. Third quarter revenues reflect
a decrease in utilization to 76% in the current year quarter from 88% in the
prior year quarter, an average day rate decrease of approximately 11% from the
prior year quarter and lost revenues from the Kodiak II which sank in early
September 1998. The decrease in utilization is primarily due to idle time in the
third quarter of 1998 resulting from soft market conditions which caused
decreased demand for the Company's vessels. Operating expenses increased
approximately $.5 million from the prior year quarter due primarily to increased
drydocking expense and increased personnel costs.
For the nine months ended September 30, 1998, revenues decreased $.9 million or
1% and the operating margin decreased by $5.1 million or 13% from the prior year
period. Operating expenses increased approximately $4.1 million from the prior
year period due primarily to increased drydocking expense and increased
personnel costs.
Depreciation and Amortization
For the third quarter and nine months ended September 30, 1998, depreciation and
amortization expense decreased by $6.1 million or 23% and by $16.1 million or
21%, respectively, compared with the same periods in the prior year. These
decreases are due primarily to a change in the depreciable lives of the
Company's drilling rigs and marine vessels effective January 1, 1998, offset in
part by an increase in property and equipment balances from the prior year.
Based on an engineering and economic study of the Company's asset base, the
depreciable lives of the Company's drilling rigs and marine vessels have been
extended by an average of five to six years. The effect of this change on the
Company's financial results for the three and nine months ended September 30,
1998 was to reduce depreciation expense by $9.7 million or $.07 per basic and
diluted share and by $29.8 million or $.21 per basic and diluted share,
respectively.
17
<PAGE>
Other Income (Expense)
Other income (expense) for the third quarter and nine months ended September 30,
1998 and 1997 was as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
Interest income $ 4.0 $ 1.4 $ 10.5 $ 4.1
Interest expense, net (6.2) (5.0) (20.4) (15.6)
Other, net 10.0 (.1) 10.0 -
------ ------ ------ ------
$ 7.8 $ (3.7) $ .1 $(11.5)
====== ====== ====== ======
The Company's interest income increased for the third quarter and nine months
ended September 30, 1998 over the comparable prior year periods primarily due to
higher average cash balances in the current year.
Interest expense increased for the third quarter and nine months ended September
30, 1998 over the comparable prior year periods due to higher average debt
balances primarily resulting from the Company's issuance of $300 million of debt
in November 1997.
"Other, net" for the third quarter and nine months ended September 30, 1998
includes a non-recurring gain of $10.0 million ($6.5 million or $.05 per basic
and diluted share net of tax) resulting from the sinking of one of the Company's
large anchor handling tug supply vessels, the Kodiak II, in September 1998. The
gain represents the insurance proceeds to be received in excess of the net book
value of the vessel. See Note 3 - Gain on Vessel.
Provision for Income Taxes
The Company's effective tax rate for the third quarter of 1998 was 27% and for
the nine months ended September 30, 1998 was 32%, compared with 37% for the same
prior year periods. The decrease in the effective tax rate in the current year
periods is due primarily to recognition in the third quarter of 1998 of a
favorable settlement of a foreign tax matter and an adjustment of prior year
accruals.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Capital Expenditures
The Company's cash flow from operations and capital expenditures for the nine
months ended September 30, 1998 and 1997 were as follows (in millions):
1998 1997
------ ------
Cash flow from operations $387.9 $232.0
====== ======
Capital expenditures
Sustaining 34.3 22.7
Enhancements 136.2 96.2
Acquisitions or new construction 83.3 21.7
------ ------
$253.8 $140.6
======= ======
18
<PAGE>
Cash flow from operations increased by $155.9 million for the nine months ended
September 30, 1998 as compared to the prior year period. The increase in cash
flow from operations is primarily a result of increased operating margins in the
first nine months of 1998 and the net change in various working capital
accounts.
Management anticipates that capital expenditures for the full year 1998 will be
approximately $325 million, represented by approximately $45 million for
sustaining operations, $150 million for enhancements and $130 million for new
construction projects. The Company may spend additional funds to acquire rigs or
vessels in 1998, depending on market conditions and opportunities. The Company
is currently constructing three barge rigs as well as a harsh-environment jackup
rig. In May 1998, the Company was awarded a contract by Burlington Resources for
a deep water semisubmersible drilling rig. ENSCO has contracted with a shipyard
to build this semisubmersible drilling rig which will have water depth
capabilities up to 7,500 feet. ENSCO expects to complete construction of the rig
in approximately two years. The primary term of the contract is for three years,
during which time the Company anticipates that revenues could be approximately
$187 million.
Financing and Capital Resources
The Company's long-term debt, total capital and debt to capital ratios at
September 30, 1998 and December 31, 1997 are summarized below (in millions,
except percentages):
September 30, December 31,
1998 1997
------------- ------------
Long-term debt $ 382.0 $ 400.8
Total capital 1,607.9 1,477.5
Long-term debt to total capital 24% 27%
The decrease in long-term debt is due primarily to debt repayments in the first
nine months of 1998. The total capital of the Company increased due primarily to
the profitability of the Company for the first nine months of 1998, offset in
part by debt repayments, stock repurchases and cash dividends.
In May 1998, the Company's Board of Directors authorized the repurchase of up to
5.0 million shares of the Company's common stock to offset the dilutive effect
of shares issued under the Company's stock compensation plans and to capitalize
on the decrease in the market price of the Company's common stock. As of
September 30, 1998, the Company had repurchased all 5.0 million shares
authorized at a cost of approximately $69.6 million.
In May 1998, the Company entered into a $185 million unsecured revolving credit
agreement (the "Credit Agreement") with a syndicate of banks. Interest on
amounts borrowed under the Credit Agreement are based on LIBOR plus an
applicable margin rate (currently .4%) depending on the Company's credit rating.
The Company also pays a commitment fee (currently .15% per annum) on the undrawn
portion of the available credit line, which is also based on the Company's
credit rating. The Company is required to maintain certain financial covenants
under the Credit Agreement which include the Company meeting a specified level
of interest coverage, assets to indebtedness, leverage ratio, and tangible net
worth. As of September 30, 1998, the Company had $185 million available for
borrowings under the Credit Agreement. The Credit Agreement matures in May 2003.
19
<PAGE>
The Company's liquidity position at September 30, 1998 and December 31, 1997 is
summarized in the table below (in millions, except ratios):
September 30, December 31,
1998 1997
------------- ------------
Cash and cash equivalents $293.6 $262.2
Working capital 332.7 316.2
Current ratio 2.9 3.4
Management believes that cash flow from operations, the Credit Agreement and the
Company's working capital should be sufficient to fund the Company's short and
long-term liquidity needs.
MARKET RISKS
The Company uses financial instruments to hedge its known liabilities in foreign
currencies and certain projected foreign currency payments to mitigate its
exposure to changes in those foreign currencies. The Company does not enter into
financial instruments for speculative or trading purposes. At September 30,
1998, the Company had various foreign currency exchange contracts outstanding to
exchange U.S. Dollars for Dutch Guilders, British Pounds Sterling and Singapore
Dollars totaling $52.0 million combined. At September 30, 1998 there were no
material unrealized gains or losses on open foreign currency exchange derivative
hedges. Management believes that the Company's hedging activities do not expose
the Company to any material interest rate risk, foreign currency exchange rate
risk, commodity price risk or any other market rate or price risk.
YEAR 2000 UPDATE
The Company has completed its assessment of its critical information
technology (IT) systems and non-IT systems and has developed and initiated a
plan to address deficiencies. The Company believes that it is on schedule to
successfully implement the required systems and equipment modifications
necessary to make the Company's critical systems Year 2000 compliant by
mid-1999.
The Company's critical IT systems are comprised primarily of a general ledger
accounting software package and related application modules, a fixed asset
system, payroll system and requisition system. The assessment of the Company's
IT systems found that some of the IT systems were not Year 2000 compliant.
Changes to make these systems Year 2000 compliant are being made in conjunction
with the Company's planned upgrade cycle, which should be completed by mid-1999.
20
<PAGE>
Non-IT systems are comprised primarily of computer controlled equipment and
electronic devices, including equipment with embedded microprocessors which are
used to operate equipment on the Company's drilling rigs and marine vessels.
Additionally, telephone systems and other office based electronic equipment are
considered in the assessment of non-IT systems. With respect to drilling rig and
marine vessel based systems, the Company's assessment indicates that there will
be no disruption in the operations of its drilling rigs and marine vessels as a
result of the Year 2000 problem. The Company plans to conduct testing of its
drilling rig based equipment with manufacture representatives during the fourth
quarter of 1998 to verify the current assessment. With respect to other office
based non-IT systems, the Company's assessment found that it will be necessary
to replace or modify some existing equipment, which should be completed by
mid-1999.
The total cost to make all systems and equipment Year 2000 compliant is
currently estimated at $250,000, exclusive of software and systems that are
being upgraded in the normal business cycle. Approximately $50,000 has been
spent in modifying and upgrading systems and equipment to date.
The Company has initiated and/or received communication from most
significant suppliers, customers and financial service providers on the Year
2000 issue. This communication has been used to determine the extent to which
the Company is vulnerable to these third parties' failure to remedy their own
Year 2000 issues. Although there is currently no indication that these business
partners will not achieve their Year 2000 compliance plans, there can be no
guarantee that the systems of other companies on which the Company relies will
be timely converted. Additionally, there can be no guarantee that the Company
will not experience Year 2000 problems. If the Company or its business partners
experience Year 2000 compliance problems, material adverse business consequences
could result. The Company believes that the most likely negative effects, if
any, could include delays in payments to the Company from customers or payments
by the Company to suppliers and disruptions in shipments of equipment and
materials required to operate the Company's drilling rigs and marine vessels.
Based on the Company's current assessment of its IT systems, non-IT systems and
business partners, the Company has not, to date, developed a contingency plan
for Year 2000 issues. The Company will continue to monitor its decision on
contingency planning and such a plan will be developed if and when it is
considered prudent to do so.
OUTLOOK AND FORWARD-LOOKING STATEMENTS
With oil prices remaining at very depressed levels, management anticipates that
the Company will experience further decreases in day rates and utilization in
the near-term. As day rates and utilization continue to decrease, the Company's
financial results will be adversely affected. Due to the short-term nature of
many of the Company's contracts and the unpredictable nature of oil and natural
gas prices, which affect the demand for drilling activity, the extent of such
adverse change cannot be accurately predicted. The duration of this market
downturn depends on many factors that also cannot be accurately predicted;
however, management remains positive on the long-term outlook for the industry
and for ENSCO.
21
<PAGE>
The declines experienced in the offshore drilling markets have had the greatest
impact on the demand for the Company's jackup rigs in the Gulf of Mexico and
Southeast Asia. The Company expects that its Gulf of Mexico jackup rigs will
experience occasional downtime in the fourth quarter of 1998 as the majority of
these rigs are on short-term contracts and will be competing for additional
work. In the Asia Pacific region, the Company anticipates that two rigs will be
idle for the entire fourth quarter and two other rigs will experience some idle
time. In Europe, the Company anticipates that one rig will be idle during part
of the fourth quarter of 1998. In South America, the Company's remaining six
barge rigs are under contract to PDVSA into mid-to-late 1999. The market
downturn is also affecting the Company's marine transportation segment, and it
is anticipated that several of the Company's vessels will be idle for periods
during the fourth quarter of 1998.
In May 1998, the Company was awarded a contract by Burlington Resources for a
deep water semisubmersible drilling rig. ENSCO has contracted with a shipyard to
build this semisubmersible drilling rig which will have water depth capabilities
up to 7,500 feet. ENSCO expects to complete construction of the rig in
approximately two years. The primary term of the contract is for three years,
during which time the Company anticipates that revenues could be approximately
$187 million.
Progress on the construction of the Company's three barge rigs for Venezuela and
a harsh-environment jackup rig are proceeding as scheduled. The barge rigs,
which are being constructed against a long-term contract with Chevron, are
expected to be delivered in early 1999, and the harsh-environment jackup rig is
scheduled for delivery in early 2000. The Company has decided not to exercise
its option to build a second jackup rig at the present time but has arranged to
extend the option availability. The Company currently estimates that its capital
spending for new construction projects in 1999 will be approximately $240
million.
This report contains forward-looking statements based on current expectations
that involve a number of risks and uncertainties that could cause actual results
to differ materially from the results discussed in the forward-looking
statements. Generally, forward-looking statements include words or phrases such
as "management anticipates," "management expects," "the Company believes," "the
Company anticipates," "the Company expects" and words and phrases of similar
impact, and include but are not limited to statements regarding future
operations and business environment. The forward-looking statements are made
pursuant to safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. The factors that could cause actual results to differ materially
include, but are not limited to: (i) industry conditions and competition, (ii)
the cyclical nature of the industry, (iii) worldwide expenditures for oil and
gas drilling, (iv) operational risks and insurance, (v) risks associated with
operating in foreign jurisdictions, (vi) environmental liabilities which may
arise in the future which are not covered by insurance or indemnity, (vii) the
impact of current and future laws and governmental regulation, as well as repeal
or modification of the same, affecting the oil and gas industry and the
Company's operations in particular, and (viii) the risks described from time to
time in the Company's reports to the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
22
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains
and losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. This statement is not expected to have a material impact
on the Company's consolidated financial statements. This statement is effective
for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. ENSCO will adopt this accounting standard as required by January 1,
2000.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATON
Stockholder Proposals
The Company's 1999 Annual Meeting of Stockholders ("1999 Annual Meeting") will
be held on Tuesday, May 18, 1999. Proposals of the stockholders intended to be
presented at the 1999 Annual Meeting pursuant to Rule 14a-8 promulgated under
the Securities Exchange Act of 1934, as amended, for inclusion in the Company's
proxy materials must be received by the Company no later than November 26, 1998.
If a proponent fails to timely notify the Company of a non-Rule 14a-8
stockholder proposal that it intends to submit at the 1999 Annual Meeting, the
proxy solicited by the Board of Directors with respect to such meeting may grant
discretionary authority to the proxies named therein to vote with respect to
such matter. To be timely, a stockholder's notice must be delivered to or mailed
and received by the secretary of the Company, at the principal executive office
of the Company, not less than fifty (50) days nor more than seventy-five (75)
days prior to the 1999 Annual Meeting, subject to any other requirements of law.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed with this Report
Exhibit No.
15.1 Letter regarding unaudited interim financial
information.
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic
format of this Quarterly Report on Form 10-Q
submitted to the Securities and Exchange
Commission.)
(b) Reports on Form 8-K
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSCO INTERNATIONAL INCORPORATED
Date: November 4, 1998 /s/ C. Christopher Gaut
---------------- -----------------------------------
C. Christopher Gaut
Chief Financial Officer
/s/ H. E. Malone
----------------------------------
H. E. Malone, Corporate Controller
and Chief Accounting Officer
25
November 2, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that ENSCO International Incorporated has included our report
dated November 2, 1998 (issued pursuant to the provisions of Statement on
Auditing Standard No. 71) in the Company's Registration Statements on Form S-3
(Nos. 33-42965, 33-46500, 33-49590, 33-43756, 33-64642, 333-03575 and
333-37897), and any existing amendments thereto, and Form S-8 (Nos. 333-58625,
33-14714, 33-32447, 33-35862, 33-40282 and 33-41294). We are also aware of our
responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1998 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000314808
<NAME> ENSCO INTERNATIONAL INCORPORATED
<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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0
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<COMMON> 15,600
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