Pacific Drilling SA (PACD), ENSCO PLC (ESV): One Driller Poised to Unleash Value

Growth strategy

Pacific Drilling’s overall strategy is to focus exclusively on the ultra deepwater segment. This is different from the strategies used by other offshore drillers like industry giant ENSCO PLC (NYSE:ESV), who tries to meet demand at all water depths. In Q2, Ensco’s offshore drilling fleet consisted of 10 drillships, 19 semisubmersibles, and 46 jackups.

While the day rates for drillships are higher, there are also big markets for semisubmersibles and jackups. In Q2, ENSCO PLC (NYSE:ESV)’s jackup revenue grew 7% year over year to $404 million and accounted for about 32% of its revenue. The company expects another 14% increase sequentially in its jackup segment revenue in Q3. The advantage of ENSCO PLC (NYSE:ESV)’s approach is that it can tap into more markets and meet demand for different water depths and situations. Drillships and semisubmersible rigs are good for deepwater and ultra deepwater drilling, but shallow wells are drilled with jackups. Pacific Drilling’s approach doesn’t give it access to those other markets.

Still, as near shore oil fields are developed, there will be a natural trend to deeper water exploration, which should benefit Pacific Drilling. In addition, there is actually a ton of potential for growth in the industry. Since the average ocean depth is 14,000 feet and current technology only allows for drilling in water up to 12,000 feet deep, more than 50% of the oceans remain unexplored for oil. Also, oceans cover 71% of the Earth’s surface so the potential for industry growth is huge. Taking all these factors into account, Pacific Drilling looks positioned to generate a lot of value for shareholders.

The article 1 Driller Poised to Unleash Value originally appeared on and is written by Alvin Gonzales.

Alvin Gonzales has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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