ENSCO International (ESV)

The main complaint is the company’s paltry dividend and their buy-high stock repurchase program (seems like many companies buy high and stop buying when the shares are discounted). If the markets are repricing risk, it’d be nice to see management take more forceful action to reward shareholders, perhaps along the lines of special dividend payments like Diamond Offshore Drilling (DO).

Overall, Ensco turned in a good quarter but there are some questions lingering for the future. They were unsuccessful on their Pemex bids and expressed reticence about aggressively bidding into that market with incumbent operators and fussy specs. Contract drilling expense will continue to factor prominently as it’s projected to rise 15% this year, possibly outstripping revenue and earnings growth. Operating cash flow, even after backing out the one-time hit of the ARS, is running a little lower than expected. ESV also failed to return cash to shareholders via share buybacks or a dividend hike in Q1 08 as they announced the construction of a new 8500 rig.

Furthermore, the delay on the ENSCO 8500 is a minor hit as it defers additional deepwater drilling revenue into the next fiscal year. While it’s understandable that the first machine in a new line will experience some “teething” problems, management should be held to their word that the following rigs in the series meet the timelines unless Keppels messes up on their end.