ENSCO PLC, 10-Q filed on 8/9/2011
Quarterly Report
Document And Entity Information
6 Months Ended
Jun. 30, 2011
Aug. 4, 2011
Document And Entity Information
 
 
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Jun. 30, 2011 
 
Entity Registrant Name
Ensco plc 
 
Entity Central Index Key
0000314808 
 
Current Fiscal Year End Date
--12-31 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q2 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Shares, Shares Outstanding
 
230,493,455 
Condensed Consolidated Statements Of Income (USD $)
In Millions, except Per Share data
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Condensed Consolidated Statements Of Income
 
 
 
 
OPERATING REVENUES
$ 564.2 
$ 411.4 
$ 925.7 
$ 860.0 
OPERATING EXPENSES
 
 
 
 
OPERATING EXPENSES Contract drilling (exclusive of depreciation)
286.3 
206.0 
477.9 
388.4 
Depreciation
83.5 
51.9 
143.0 
103.6 
General and administrative
47.4 
22.0 
77.5 
42.6 
Total operating expenses
417.2 
279.9 
698.4 
534.6 
OPERATING INCOME
147.0 
131.5 
227.3 
325.4 
OTHER INCOME (EXPENSE), NET
(18.1)
12.8 
(15.9)
15.9 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
128.9 
144.3 
211.4 
341.3 
PROVISION FOR INCOME TAXES
 
 
 
 
Current income tax expense
27.9 
28.7 
54.2 
51.9 
Deferred income tax (benefit) expense
(2.6)
(6.3)
(11.9)
5.5 
Total provision for income taxes
25.3 
22.4 
42.3 
57.4 
INCOME FROM CONTINUING OPERATIONS
103.6 
121.9 
169.1 
283.9 
DISCONTINUED OPERATIONS
 
 
 
 
INCOME FROM DISCONTINUED OPERATIONS, NET
 
6.0 
 
35.6 
NET INCOME
103.6 
127.9 
169.1 
319.5 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(1.7)
(1.6)
(2.6)
(3.4)
NET INCOME ATTRIBUTABLE TO ENSCO
101.9 
126.3 
166.5 
316.1 
EARNINGS PER SHARE - BASIC
 
 
 
 
Continuing operations
$ 0.59 
$ 0.85 
$ 1.06 
$ 1.97 
Discontinued operations
 
$ 0.04 
 
$ 0.25 
Total earnings per share - basic
$ 0.59 
$ 0.89 
$ 1.06 
$ 2.22 
EARNINGS PER SHARE - DILUTED
 
 
 
 
Continuing operations
$ 0.59 
$ 0.85 
$ 1.06 
$ 1.97 
Discontinued operations
 
$ 0.04 
 
$ 0.25 
Total earnings per share - diluted
$ 0.59 
$ 0.89 
$ 1.06 
$ 2.22 
NET INCOME ATTRIBUTABLE TO ENSCO SHARES
 
 
 
 
Basic
100.9 
124.8 
164.5 
312.2 
Diluted
$ 100.9 
$ 124.8 
$ 164.5 
$ 312.2 
WEIGHTED-AVERAGE SHARES OUTSTANDING
 
 
 
 
Basic
169.8 
140.9 
155.6 
140.8 
Diluted
170.2 
140.9 
155.9 
140.9 
CASH DIVIDENDS PER SHARE
$ 0.35 
$ 0.35 
$ 0.70 
$ 0.375 
Condensed Consolidated Balance Sheets (USD $)
In Millions
Jun. 30, 2011
Dec. 31, 2010
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 554.0 
$ 1,050.7 
Accounts receivable, net
682.9 
214.6 
Other
329.4 
171.4 
Total current assets
1,566.3 
1,436.7 
PROPERTY AND EQUIPMENT, AT COST
13,901.3 
6,744.6 
Less accumulated depreciation
1,792.5 
1,694.7 
Property and equipment, net
12,108.8 
5,049.9 
GOODWILL
3,295.0 
336.2 
OTHER ASSETS, NET
541.3 
228.7 
TOTAL ASSETS
17,511.4 
7,051.5 
CURRENT LIABILITIES
 
 
Accounts payable - trade
553.1 
163.5 
Accrued liabilities and other
504.2 
168.3 
Short-term debt
89.9 
 
Current maturities of long-term debt
47.5 
17.2 
Total current liabilities
1,194.7 
349.0 
LONG-TERM DEBT
4,917.4 
240.1 
DEFERRED INCOME TAXES
364.1 
358.0 
OTHER LIABILITIES
456.9 
139.4 
COMMITMENTS AND CONTINGENCIES
 
 
ENSCO SHAREHOLDERS' EQUITY
 
 
Additional paid-in capital
5,209.9 
637.1 
Retained earnings
5,340.8 
5,305.0 
Accumulated other comprehensive income
14.8 
11.1 
Treasury shares, at cost, 5.7 million shares and 7.1 million shares
(17.5)
(8.8)
Total Ensco shareholders' equity
10,571.7 
5,959.5 
NONCONTROLLING INTERESTS
6.6 
5.5 
Total equity
10,578.3 
5,965.0 
Total liabilities and shareholders' equity
17,511.4 
7,051.5 
Common Class A [Member]
 
 
ENSCO SHAREHOLDERS' EQUITY
 
 
Common shares, value
23.6 
15.0 
Common Class B, Par Value In GBP [Member]
 
 
ENSCO SHAREHOLDERS' EQUITY
 
 
Common shares, value
$ 0.1 
$ 0.1 
Condensed Consolidated Balance Sheets (Parenthetical)
Jun. 30, 2011
Dec. 31, 2010
Jun. 30, 2011
Common Class A [Member]
USD ($)
Dec. 31, 2010
Common Class A [Member]
USD ($)
Jun. 30, 2011
Common Class B, Par Value In GBP [Member]
GBP (£)
Dec. 31, 2010
Common Class B, Par Value In GBP [Member]
GBP (£)
Common shares, par value
 
 
$ 0.1 
$ 0.1 
£ 1 
£ 1 
Common shares, shares authorized
 
 
450,000,000 
450,000,000 
50,000 
50,000 
Common shares, shares issued
 
 
235,800,000 
150,000,000 
50,000 
50,000 
Treasury shares, shares held
5,700,000 
7,100,000 
 
 
 
 
Condensed Consolidated Statements Of Cash Flows (USD $)
In Millions
6 Months Ended
Jun. 30,
2011
2010
OPERATING ACTIVITIES
 
 
Net income
$ 169.1 
$ 319.5 
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
 
 
Depreciation expense
143.0 
103.6 
Share-based compensation expense
22.2 
22.4 
Deferred income tax (benefit) expense
(11.9)
5.5 
Amortization expense
14.9 
16.0 
Loss on asset impairment
 
12.2 
Income from discontinued operations, net
 
(0.7)
Gain on disposal of discontinued operations, net
 
(34.9)
Other
(12.9)
5.4 
Changes in operating assets and liabilities:
 
 
(Increase) decrease in accounts receivable
(102.3)
23.9 
Decrease in other assets
31.4 
0.1 
Decrease in liabilities
(77.7)
(97.6)
Net cash provided by operating activities of continuing operations
175.8 
375.4 
INVESTING ACTIVITIES
 
 
Acquisition of Pride International, Inc., net of cash acquired
(2,656.0)
 
Additions to property and equipment
(265.6)
(336.6)
Proceeds from disposal of discontinued operations
 
132.4 
Proceeds from disposition of assets
44.4 
0.7 
Other
(4.5)
 
Net cash used in investing activities
(2,881.7)
(203.5)
FINANCING ACTIVITIES
 
 
Proceeds from issuance of senior notes
2,462.8 
 
Reduction of long-term borrowings
(189.6)
(8.6)
Cash dividends paid
(130.7)
(53.6)
Commercial paper borrowings, net
89.9 
 
Debt financing costs
(31.8)
(6.2)
Other
8.5 
(12.4)
Net cash provided by (used in) financing activities
2,209.1 
(80.8)
Effect of exchange rate changes on cash and cash equivalents
0.1 
(0.7)
Net cash provided by operating activities of discontinued operations
 
5.3 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(496.7)
95.7 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
1,050.7 
1,141.4 
CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 554.0 
$ 1,237.1 
Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Financial Statements
 
Note 1 - Unaudited Condensed Consolidated Financial Statements
 
    We prepared the accompanying condensed consolidated financial statements of Ensco plc and subsidiaries (the "Company," "Ensco," "we" or "us") in accordance with accounting principles generally accepted in the United States of America ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") included in the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial information included in this report is unaudited but, in our opinion, includes all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The December 31, 2010 condensed consolidated balance sheet data were derived from our 2010 audited consolidated financial statements, but do not include all disclosures required by GAAP. Certain previously reported amounts have been reclassified to conform to the current year presentation. The preparation of our condensed consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements. Actual results could differ from those estimates.
 
    The financial data for the three-month and six-month periods ended June 30, 2011 and 2010 included herein have been subjected to a limited review by KPMG LLP, our independent registered public accounting firm. The accompanying independent registered public accounting firm's review report is not a report within the meaning of Sections 7 and 11 of the Securities Act of 1933, and the independent registered public accounting firm's liability under Section 11 does not extend to it.
 
    Results of operations for the three-month and six-month periods ended June 30, 2011 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2011.  It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2010 included in our Annual Report on Form 10-K filed with the SEC on February 24, 2011.
Acquisition Of Pride International, Inc.
Acquisition Of Pride International, Inc.

Note 2 - Acquisition of Pride International, Inc.

 

    On May 31, 2011 (the "Merger Date"), Ensco plc completed a merger transaction (the "Merger") with Pride International, Inc., a Delaware corporation ("Pride"), ENSCO International Incorporated, a Delaware corporation and a wholly-owned subsidiary and predecessor of Ensco ("Ensco Delaware"), and ENSCO Ventures LLC, a Delaware limited liability company and an indirect, wholly-owned subsidiary of Ensco plc ("Merger Sub"). Pursuant to the Agreement and Plan of Merger, dated as of February 6, 2011 (as amended, the "Merger Agreement"), among Ensco plc, Pride, Ensco Delaware and Merger Sub, and subject to the conditions set forth therein, Merger Sub merged with and into Pride, with Pride as the surviving entity and an indirect, wholly-owned subsidiary of Ensco plc.

 

    The Merger expands our deepwater fleet with drillship assets, increases our presence in the floater markets as well as various major offshore drilling provinces and establishes Ensco with the world's second largest offshore drilling rig fleet.  Revenues and net income of Pride from the Merger Date were $151.2 million and $24.3 million, respectively, included in our condensed consolidated statement of income for the three-month and six-month periods ended June 30, 2011.

 

    Consideration

 

    As a result of the Merger, each outstanding share of Pride's common stock (other than shares of common stock held directly or indirectly by Ensco, Pride or any wholly-owned subsidiary of Ensco or Pride (which were cancelled as a result of the Merger) and those shares held by certain U.K. residents if determined by Ensco) were converted into the right to receive $15.60 in cash and 0.4778 Ensco American depositary shares, each representing one Class A ordinary share ("ADS" or "share").  Under certain circumstances, U.K. residents received all cash consideration as a result of compliance with legal requirements. The total consideration delivered in the Merger was $7.4 billion, consisting of $2.8 billion of cash, 85.8 million Ensco ADSs with an aggregate value of $4.6 billion based on the closing price of Ensco ADSs of $53.32 on the Merger Date and the estimated fair value of $35.4 million of vested Pride employee stock options assumed by Ensco.

 

 

   The following table summarizes the components of the merger consideration (dollars in millions, except per share amounts):

 

Share consideration paid:

 

 

 

179.7million outstanding shares of Pride common stock converted to 85.8 million of Ensco ADSs

   using the exchange ratio of 0.4778 and valued at $53.32 per share

 

$4,577.5

 

 

 

 

 

Cash and other consideration paid:

 

 

 

179.7 million outstanding shares of Pride common stock at $15.60 per share

 

2,803.0

 

Estimated fair value of 2.5 million vested Pride employee stock options assumed by Ensco

 

35.4

 

Merger consideration

 

$7,415.9

 

 

    Assets Acquired and Liabilities Assumed

 

    The transaction has been accounted for using the acquisition method of accounting which requires that assets acquired and liabilities assumed be recorded at their estimated fair values as of the Merger Date. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. We have not finalized the determination of the fair values of the assets acquired and liabilities assumed and, therefore, the fair value estimates set forth below are subject to adjustment during a one year measurement period subsequent to the acquisition date as permitted under GAAP.  The estimated fair values of certain assets and liabilities, including inventory, taxes and contingencies require judgments and assumptions that increase the likelihood that adjustments may be made to these estimates during the measurement period.  The provisional amounts recorded for assets acquired and liabilities assumed were based on preliminary estimates of their fair values as of the Merger Date and were as follows:

 

    Property and Equipment

 

    Property and equipment acquired in connection with the Merger consisted primarily of drilling rigs and related equipment, including seven drillships (two of which are under construction), 12 semisubmersible rigs and seven jackup rigs.  We recorded step-up adjustments in the aggregate of $285.5 million to record the estimated fair value of Pride's drilling rigs and related equipment, which were primarily based on an income approach valuation model.  We estimated remaining useful lives for Pride's drilling rigs, which ranged from 10 to 35 years based on original estimated useful lives of 30 to 35 years.

 

    In connection with the integration of Pride's operations, we are in the process of changing the names of most of Pride's fleet in accordance with our naming convention.  For purposes of the notes to the condensed consolidated financial statements, we used the new names whether or not the name change had been legally completed.

 

    Goodwill

 

    Goodwill recognized as a result of the Merger was calculated as the excess of the consideration transferred over the net assets acquired and represents the future economic benefits arising from other intangible assets acquired that could not be individually identified and separately recognized.  Goodwill specifically includes the expected synergies and other benefits that we believe will result from combining the operations of Pride with the operations of Ensco and other intangible assets that do not qualify for separate recognition, such as assembled workforce in place at the Merger Date.  In addition, goodwill is not expected to be tax deductible.

 

 

   Goodwill recognized as a result of the Merger preliminarily was allocated to our reportable segments as follows (in millions):

 

Deepwater

 

 

 

 

$2,485.1

Midwater

 

 

 

 

473.7

Jackup

 

 

 

 

--

Total

 

 

 

 

$2,958.8

 

    Other Intangible Assets and Liabilities

 

    We recorded intangible assets and liabilities in the aggregate of $209.0 million and $276.0 million, respectively, representing the estimated fair values of Pride's firm drilling contracts in place at the Merger Date with favorable or unfavorable contract terms as compared to current market day rates for comparable drilling rigs.  The various factors considered in the determination of these fair values were (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the Merger Date.  The intangible assets and liabilities were calculated based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate.  After amortizing $5.1 million of net contract intangible revenues in June 2011, the remaining balances were $202.5 million of intangible assets included in other current assets and other assets, net, and $264.4 million of intangible liabilities included in accrued liabilities and other and other liabilities on our condensed consolidated balance sheet as of June 30, 2011.  These balances will be amortized to operating revenues over the respective remaining drilling contract terms on a straight-line basis.  Amortization income (expense) for these intangible assets and liabilities is estimated to be $51.8 million for the remainder of 2011, $23.0 million for 2012, $7.9 million for 2013, ($4.8) million for 2014, ($15.6) million for 2015 and ($400,000) thereafter.

 

    We recorded an intangible liability of $36.0 million for the estimated fair value of an unfavorable drillship construction contract which was determined by comparing the firm obligations for the remaining construction of the ENSCO DS-6 as of May 31, 2011 to current market rates for the construction of a similar design drilling rig. The unfavorable construction contract liability is calculated based on the present value of the difference in cash outflows for the remaining contractual payments as compared to a hypothetical contract with the same remaining contractual payments at current market rates using a risk-adjusted discount rate and estimated effective income tax rate.  This liability will be amortized over the estimated useful life of ENSCO DS-6 as a reduction of depreciation expense beginning on the date the rig is placed into service.

 

    Debt

 

    We assumed Pride's outstanding debt comprised of $900.0 million aggregate principal amount of 6.875% senior notes due 2020, $500.0 million aggregate principal amount of 8.500% senior notes due 2019, $300.0 million aggregate principal amount of 7.875% senior notes due 2040 (collectively the "Pride Notes") and $151.5 million aggregate principal amount of Maritime Administration ("MARAD") bonds due 2016.  Under a supplemental indenture, Ensco plc has fully and unconditionally guaranteed the performance of all obligations of Pride with respect to the Pride Notes.  See "Note 18 - Guarantee of Registered Securities" for additional information on the guarantee of the Pride Notes.  A step-up adjustment of $406.2 million was recorded to adjust the Pride Notes and the MARAD bonds to their aggregate estimated fair value. The adjustment was based on quoted market prices for Pride's publicly traded debt and an income approach valuation model for Pride's non-publicly traded debt. In addition, we assumed debt outstanding with respect to Pride's senior unsecured revolving credit facility totaling $181.0 million, which was repaid in full and the facility terminated.

 

    Merger-Related Costs

 

    Merger-related transaction costs consisted of various advisory, legal, accounting, valuation and other professional or consulting fees totaling $17.3 million and $23.8 million for the three-month and six-month periods ended June 30, 2011, respectively, and were expensed as incurred and included in general and administrative expense on our condensed consolidated statements of income.  Debt issuance costs of $27.2 million associated with our senior notes issued in March 2011 and bridge term facility issued in February 2011 were capitalized and will be amortized to interest expense over the lives of the respective debt arrangements.  The costs of $70.5 million associated with the Ensco ADSs issued to effect the Merger were recorded as a reduction to additional paid-in capital.

 

    Deferred Taxes

 

    The acquisition of a business through the purchase of its common stock generally is treated as a "nontaxable" transaction.  The acquisition of Pride was executed through the acquisition of its outstanding common stock and, therefore, the historical tax bases of the acquired assets and assumed liabilities, net operating losses and other tax attributes of Pride were assumed as of the acquisition date. However, adjustments were recorded to recognize deferred tax assets and liabilities for the tax effects of differences between acquisition date fair values and tax bases of assets acquired and liabilities assumed. As of the acquisition date, a decrease of $24.2 million to Pride's net deferred tax liability was recognized.

 

 

    Deferred tax assets and liabilities recognized in connection with the Merger were measured at rates enacted as of the acquisition date. Tax rate changes, or any deferred tax adjustments for new tax legislation, following the acquisition date will be reflected in our operating results in the period in which the change in tax laws or rate is enacted.

 

   Contingencies

 

    In connection with the Merger, we recognized contingent liabilities resulting from certain lawsuits, claims or proceedings existing as of the Merger Date. These matters existed as of the Merger Date as Pride was involved from time to time as party to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows. See "Note 15 – Commitments and Contingencies" for additional information on contingencies.

 

    Pro Forma Impact of the Merger

 

    The following unaudited supplemental pro forma results present consolidated information as if the Merger had been completed on January 1, 2010.  The pro forma results include, among others,  (i) the amortization associated with an estimate of the acquired intangible assets and liabilities, (ii) interest expense associated with debt used to fund a portion of the Merger and (iii) the impact of certain fair value adjustments such as additional depreciation expense for adjustments to property and equipment and reduction to interest expense for adjustments to debt.  The pro forma results do not include any potential synergies, non-recurring charges which result directly from the Merger, cost savings or other expected benefits of the Merger.  Accordingly, the pro forma results should not be considered indicative of the results that would have occurred if the Merger and related borrowings had occurred on January 1, 2010 nor are they indicative of future results.

 

(In millions, except per share amounts) 

 

Three Months Ended

 

Six Months Ended

 

 

              June 30,             

 

            June 30,           

 

 

2011

 

2010

 

2011

 

2010

 

Revenues

 

$880.8

 

 

$773.2

 

 

$1,642.1

 

 

$1,591.1

 

Net income

 

110.7

 

 

186.5

 

 

183.5

 

 

447.4

 

Earnings per share - basic

 

0.42

 

 

0.77

 

 

0.74

 

 

1.78

 

Earnings per share - diluted

 

0.42

 

 

0.76

 

 

0.74

 

 

1.78

 

 

Fair Value Measurements
Fair Value Measurements
Note 3 - Fair Value Measurements
 
    The following fair value hierarchy table categorizes information regarding our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010 (in millions):
 
 
Quoted Prices in
Active Markets
for
Identical Assets
    (Level 1)    
Significant
Other
Observable
Inputs
    (Level 2)    
 
Significant
Unobservable
Inputs
    (Level 3)    
 
 
 
 
     Total     
   
As of June 30, 2011
                       
Supplemental executive retirement plan assets
  $27.0      
$    --  
   
$    --
    $27.0    
Derivatives, net
 
--  
   
13.7  
   
--
     
13.7  
 
Total financial assets
 
$27.0  
   
$13.7  
   
$    --
   
$40.7  
 
 
As of December 31, 2010
                       
Auction rate securities
 
$    --  
   
$    --  
   
$44.5
   
$44.5  
 
Supplemental executive retirement plan assets
 
23.0  
   
    --  
   
--
   
23.0  
 
Derivatives, net 
 
    --  
   
16.4  
   
   --
   
16.4  
 
Total financial assets 
 
$23.0  
   
$16.4  
   
$44.5
   
$83.9  
 
 
    Auction Rate Securities
 
    As of December 31, 2010, we held long-term debt instruments with variable interest rates that periodically reset through an auction process ("auction rate securities") totaling $50.1 million (par value) and were included in other assets, net, on our condensed consolidated balance sheet. During the quarter ended March 31, 2011, $42.0 million (par value) of our auction rate securities were repurchased at par and $8.1 million (par value) were sold at 90% of par. Our auction rate securities were measured at fair value on a recurring basis using significant Level 3 inputs as of December 31, 2010. The following table summarizes the fair value measurements of our auction rate securities using significant Level 3 inputs, and changes therein, for the three-month and six-month periods ended June 30, 2011 and 2010 (in millions):
 
 
 Three Months Ended    
            June 30,              
      Six Months Ended
                June 30,         
 
  2011 
  2010 
      2011 
        2010  
                   
Beginning Balance
 
$ --
 
$ 55.4  
 
$ 44.5
 
$ 60.5 
 
Sales
 
--
 
(10.5) 
 
(49.3
)
(15.9)
 
Realized losses*   --   --     (0.1 ) --   
Unrealized gains*
 
--
 
.3  
 
4.9
 
.6 
 
Transfers in and/or out of Level 3
 
--
 
--  
 
--
 
-- 
 
Ending balance
 
$ --
 
$ 45.2  
 
$     --
 
$ 45.2 
 
 
*Realized losses and unrealized gains were included in other income, net, in our condensed consolidated statements of income.
 
    Supplemental Executive Retirement Plan Assets
 
    Our Ensco supplemental executive retirement plans (the "SERP") are non-qualified plans that accord eligible employees an opportunity to defer a portion of their compensation for use after retirement. Assets held in the SERP were marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010. The fair value measurement of assets held in the SERP was based on quoted market prices.
 
    Derivatives
 
    Our derivatives were measured at fair value on a recurring basis using Level 2 inputs as of June 30, 2011 and December 31, 2010. See "Note 6 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurement of our derivatives was based on market prices that are generally observable for similar assets or liabilities at commonly-quoted intervals.
 
   Other Financial Instruments
 
    The carrying values and estimated fair values of our long-term debt instruments as of June 30, 2011 and December 31, 2010 were as follows (in millions):
 
 
June 30,
                  2011                   
December 31,
                   2010                  
 
 
Carrying
  Value  
Estimated
  Fair
   Value  
Carrying
  Value  
Estimated
  Fair
   Value  
 
 
         
4.70% Senior notes due 2021   $1,471.2          $1,514.3         $     --           $     --          
6.875% Senior notes due 2020   1,063.1          1,048.9         --           --          
3.25% Senior notes due 2016
  992.8          1,017.5          --            --          
8.50% Senior notes due 2019   639.1          634.4          --            --          
7.875% Senior notes due 2040    385.6           373.8          --            --          
7.20% Debentures due 2027           149.0          167.8         148.9          165.0         
4.33% Bonds, including current maturities, due 2016    164.3          164.4          --            --          
6.36% Bonds, including current maturities, due 2015
 
57.0       
 
64.4      
 
63.4       
 
71.9       
 
4.65Bonds, including current maturities, due 2020
 
42.8       
 
48.4      
 
45.0       
 
50.6       
 
 
    The estimated fair values of our senior notes and debentures were determined using quoted market prices. The estimated fair values of our bonds were determined using an income approach valuation model. The estimated fair values of our cash and cash equivalents, receivables, trade payables and other liabilities approximated their carrying values as of June 30, 2011 and December 31, 2010.
Property And Equipment
Property And Equipment
Note 4 - Property and Equipment
 
    Property and equipment as of June 30, 2011 and December 31, 2010 consisted of the following (in millions):
 
 
June 30,
    December 31,  
 
     2011     
             2010         
            
Drilling rigs and equipment
 
$11,318.2
 
$5,175.2
 
Other
 
82.4
 
50.4
 
Work in progress
 
2,500.7
 
1,519.0
 
   
$13,901.3
 
$6,744.6
 
 
    Drilling rigs and equipment increased $6.1 billion during 2011 primarily due to the Merger.  The fair values recorded for Pride's drilling rigs and equipment as of the Merger Date was $5.5 billion which included five drillships, 12 semisubmersible rigs and seven jackup rigs.
 
    Work in progress increased $981.7 million during 2011 primarily related to the Merger. The fair values recorded for Pride's work in progress as of the Merger Date was $1.3 billion.  Work in progress as of June 30, 2011 primarily consisted of $1.1 billion related to the construction of our ENSCO 8500 Series® ultra-deepwater semisubmersible rigs, $1.1 billion related to the construction of our ENSCO DS-5, ENSCO DS-6 and ENSCO DS-7 ultra-deepwater drillships, which were acquired in connection with the Merger, and costs associated with various modification and enhancement projects. Work in progress as of December 31, 2010 primarily consisted of $1,401.1 million related to the construction of our ENSCO 8500 Series® ultra-deepwater semisubmersible rigs and costs associated with various modification and enhancement projects.
Debt
Debt

Note 5 - Debt


    Long-term debt as of June 30, 2011 and December 31, 2010 consisted of the following (in millions):

 

 

June 30,

December 31,

 

     2011    

         2010        

 

 

 

 

 

 

4.70% Senior notes due 2021

 

$1,471.2

 

$     --

 

6.875% Senior notes due 2020

 

 1,063.1

 

--

 

3.25% Senior notes due 2016

 

   992.8

 

--

 

8.50% Senior notes due 2019

 

  639.1

 

--

 

7.875% Senior notes due 2040

 

  385.6

 

  --

 

7.20% Debentures due 2027

 

  149.0

 

  --

 

4.33% Bonds due 2016

 

  164.3

 

148.9

 

6.36% Bonds due 2015

 

  57.0

 

  63.4

 

4.65% Bonds due 2020

 

  42.8

 

  45.0

 

Commercial paper 

 

89.9

 

--

 

 

 

 

 

 

 

Less current maturities

 

  (137.4

)

  (17.2

)

Total long-term debt

 

  $4,917.4

 

  $240.1

 

 

    

Acquired Debt

 

    In connection with the Merger, we assumed Pride's outstanding debt comprised of $900.0 million aggregate principal amount of 6.875% senior notes due 2020, $500.0 million 8.500% senior notes due 2019, $300.0 million 7.875% senior notes due 2040 and $151.5 million of MARAD bonds due 2016.  Under a supplemental indenture, Ensco plc has fully and unconditionally guaranteed the performance of all obligations of Pride with respect to the Pride Notes.  See "Note 18 - Guarantee of Registered Securities" for additional information on the guarantee of the Pride Notes.  In addition, we assumed debt outstanding with respect to Pride's senior unsecured revolving credit facility totaling $181.0 million, which was repaid in full and the facility terminated.

 

    We may also redeem each series of the Pride Notes, in whole or in part, at any time, at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium. The Pride Notes also contain customary events of default, including failure to pay principal or interest on the Pride Notes when due, among others. The Pride Notes contain certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

 

Senior Notes

 

    On March 17, 2011, we issued $1.0 billion aggregate principal amount of unsecured 3.25% senior notes due 2016 at a discount of $7.6 million and $1.5 billion aggregate principal amount of unsecured 4.70% senior notes due 2021 at a discount of $29.6 million (collectively the "Notes") in a public offering. Interest on the Notes is payable semiannually in March and September of each year.  The Notes were issued pursuant to an indenture between us and Deutsche Bank Trust Company Americas, as trustee (the "Trustee"), dated March 17, 2011 (the "Indenture"), and a supplemental indenture between us and the Trustee, dated March 17, 2011 (the "Supplemental Indenture"). The proceeds from the sale of the Notes were used to fund a portion of the cash consideration payable in connection with the Merger.

 

    We may also redeem each series of the Notes, in whole or in part, at any time, at a price equal to 100% of their principal amount, plus accrued and unpaid interest and a "make-whole" premium. The Notes, the Indenture and the Supplemental Indenture also contain customary events of default, including failure to pay principal or interest on the Notes when due, among others. The Supplemental Indenture contains certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to create or incur secured indebtedness, enter into certain sale/leaseback transactions and enter into certain merger or consolidation transactions.

 

    Five-Year Credit Facility

 

On May 12, 2011, we entered into an amended and restated agreement (the "Five-Year Credit Facility") with a syndicate of banks that provided for a $700.0 million unsecured revolving credit facility for general corporate purposes.  On May 31, 2011, upon the consummation of the Merger, and pursuant to the terms of the Five-Year Credit Facility, the commitment under the Five-Year Credit Facility increased from $700.0 million to $1.45 billion. In addition, certain of Ensco's subsidiaries became borrowers and/or guarantors of the Five-Year Credit Facility. The Five-Year Credit Facility has a five-year term, expiring in May 2016, and replaces our $700.0 million four-year credit agreement which was scheduled to mature in May 2014.  Advances under the Five-Year Credit Facility bear interest at LIBOR plus an applicable margin rate (currently 1.5% per annum), depending on our credit rating. We are required to pay a quarterly undrawn facility fee (currently 0.20% per annum) on the total $1.45 billion commitment, which is also based on our credit rating. We also are required to maintain a debt to total capitalization ratio less than or equal to 50% under the Five-Year Credit Facility. We have the right, subject to lender consent, to increase the commitments under the Five-Year Credit Facility to an aggregate amount of up to $1.7 billion.  We had no amounts outstanding under the Five-Year Credit Facility or our prior credit agreement as of June 30, 2011 and December 31, 2010, respectively.

 

 

    364-Day Credit Facility

 

    On May 12, 2011, we entered into a 364-Day Credit Agreement (the "364-Day Credit Facility") with a syndicate of banks. The 364-Day Credit Facility provided for a $450.0 million unsecured revolving credit facility to be used for general corporate purposes, which would not be available for borrowing until certain conditions at the closing of the Merger were satisfied.  On May 31, 2011, upon the consummation of the Merger, the full commitment of $450.0 million under the 364-Day Credit Facility became available for Ensco to use for general corporate purposes. In addition, certain of Ensco's subsidiaries became borrowers and/or guarantors of the 364-Day Credit Facility. The 364-Day Credit Facility has a one-year term, expiring in May 2012, or the date of the termination of the lender commitments as set forth in the 364-Day Credit Facility.  Upon our election prior to maturity, amounts outstanding under the 364-Day Credit Facility may be converted into a term loan with a maturity date of May 11, 2013 after payment of a fee equal to 1% of the amounts converted. Advances under the 364-Day Credit Facility bear interest at LIBOR plus an applicable margin rate (currently 1.50% per annum) depending on our credit rating. We are required to pay a quarterly undrawn facility fee (currently 0.10% per annum) on the total $450.0 million commitment, which is also based on our credit rating. We also are required to maintain a debt to total capitalization ratio less than or equal to 50% under the 364-Day Credit Facility. We have the right, subject to lender consent, to increase the commitments under the 364-Day Credit Facility to an aggregate amount of up to $550.0 million.  We had no amounts outstanding under the 364-Day Credit Facility as of June 30, 2011.

 

Commercial Paper

 

    On April 26, 2011, we entered into a commercial paper program with four commercial paper dealers pursuant to which we may issue, on a private placement basis, unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $700.0 million.  On May 31, 2011, following the consummation of the Merger, Ensco increased the maximum aggregate amount of the commercial paper program to $1.0 billion. Under the commercial paper program, we may issue commercial paper from time to time, and the proceeds of such financings will be used for capital expenditures and other general corporate purposes.  The commercial paper will bear interest at rates that will vary based on market conditions and the ratings assigned by credit rating agencies at the time of issuance. The maturities of the commercial paper will vary, but may not exceed 364 days from the date of issue. The commercial paper is not redeemable or subject to voluntary prepayment by us prior to maturity.  We had $89.9 million outstanding under our commercial paper program as of June 30, 2011 which was classified as short-term debt on our condensed consolidated balance sheet.

 

Bridge Term Facility

 

    On February 6, 2011, we entered into a bridge commitment letter (the "Commitment Letter") with Deutsche Bank AG Cayman Islands Branch ("DBCI"), Deutsche Bank Securities Inc. and Citigroup Global Markets Inc. ("Citi"). Pursuant to the Commitment Letter, DBCI and Citi committed to provide a $2.8 billion unsecured bridge term loan facility (the "Bridge Term Facility") to fund a portion of the cash consideration in the Merger.  Upon receipt of the proceeds from the issuance of the Notes, we determined that we had adequate cash resources to fund the cash component of the consideration payable in connection with the proposed Merger.  Accordingly, the Bridge Term Facility was terminated.

 

    Maturities

 

    The aggregate maturities of our debt, excluding net unamortized premiums of $363.6 million, as of June 30, 2011 were as follows (in millions):

 

2011

 

 

$  113.6

2012

 

 

47.5

2013

 

 

47.5

2014

 

 

47.5

2015

 

 

47.5

Thereafter

 

 

4,387.6

Total

 

 

$4,691.2

 

 

    Interest expense totaled $19.6 million and $23.7 million for the three-month and six-month periods ended June 30, 2011, respectively, which was net of amounts capitalized of $22.0 million and $36.4 million in connection with our newbuild construction during the same periods, respectively.  All interest expense incurred during each of the three-month and six-month periods ended June 30, 2010 was capitalized in connection with our newbuild construction.

Derivative Instruments
Derivative Instruments

Note 6 - Derivative Instruments

   

    Our functional currency is the U.S. dollar. As is customary in the oil and gas industry, a majority of our revenues are denominated in U.S. dollars; however, a portion of the revenues earned and expenses incurred by some of our subsidiaries are denominated in currencies other than the U.S. dollar ("foreign currencies"). These transactions are remeasured in U.S. dollars based on a combination of both current and historical exchange rates. We use foreign currency forward contracts ("derivatives") to reduce our exposure to various market risks, primarily foreign currency exchange rate risk. We maintain a foreign currency exchange rate risk management strategy that utilizes derivatives to reduce our exposure to unanticipated fluctuations in earnings and cash flows caused by changes in foreign currency exchange rates. Although no interest rate related derivatives were outstanding as of June 30, 2011 and December 31, 2010, we occasionally employ an interest rate risk management strategy that utilizes derivatives to minimize or eliminate unanticipated fluctuations in earnings and cash flows arising from changes in, and volatility of, interest rates. We minimize our credit risk relating to the counterparties of our derivatives by transacting with multiple, high-quality financial institutions, thereby limiting exposure to individual counterparties, and by monitoring the financial condition of our counterparties. We do not enter into derivatives for trading or other speculative purposes.

 

    All derivatives were recorded on our condensed consolidated balance sheets at fair value. Accounting for the gains and losses resulting from changes in the fair value of derivatives depends on the use of the derivative and whether it qualifies for hedge accounting.  As of June 30, 2011 and December 31, 2010, our condensed consolidated balance sheets included net foreign currency derivative assets of $13.7 million and $16.4 million, respectively. See "Note 3 - Fair Value Measurements" for additional information on the fair value measurement of our derivatives.

 

    

     We utilize derivatives designated as hedging instruments to hedge forecasted foreign currency denominated transactions ("cash flow hedges"), primarily to reduce our exposure to foreign currency exchange rate risk associated with the portion of our remaining ENSCO 8500 Series® construction obligations denominated in Singapore dollars and contract drilling expenses denominated in various other currencies. As of June 30, 2011, we had cash flow hedges outstanding to exchange an aggregate $260.0 million for various foreign currencies, including $133.2 million for Singapore dollars, $90.7 million for British pounds, $26.6 million for Australian dollars, $7.4 million for Mexican pesos and $2.1 million for other currencies.

 

    Gains and losses, net of tax, on derivatives designated as cash flow hedges included in our condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2011 and 2010 were as follows (in millions):

 

     

        We have net assets and liabilities denominated in numerous foreign currencies and use various methods to manage our exposure to foreign currency exchange rate risk. We predominantly structure our drilling contracts in U.S. dollars, which significantly reduces the portion of our cash flows and assets denominated in foreign currencies. We occasionally enter into derivatives that hedge the fair value of recognized foreign currency denominated assets or liabilities but do not designate such derivatives as hedging instruments.  In these situations, a natural hedging relationship generally exists whereby changes in the fair value of the derivatives offset changes in the fair value of the underlying hedged items. As of June 30, 2011, we had derivatives not designated as hedging instruments outstanding to exchange an aggregate $109.6 million for various foreign currencies, including $76.0 million for British pounds, $9.8 million for Australian dollars, $8.4 million for Swiss francs, $5.7 million for Indonesian rupiahs and $9.7 million for other currencies.

 

    A net gain of $300,000 and a net loss of $1.7 million associated with our derivatives not designated as hedging instruments were included in other income, net, in our condensed consolidated statements of income for the three-month periods ended June 30, 2011 and 2010, respectively.  A net gain of $500,000 and a net loss of $1.1 million associated with our derivatives not designated as hedging instruments were included in other income, net, in our condensed consolidated statements of income for the six-month periods ended June 30, 2011 and 2010, respectively.

 

    As of June 30, 2011, the estimated amount of net gains associated with derivative instruments, net of tax, that will be reclassified to earnings during the next twelve months totaled $700,000.

Goodwill
Goodwill
Note 7 - Goodwill
 
    The changes in the carrying amount of goodwill are detailed below by reportable segment.  On May 31, 2011, we completed the acquisition of Pride resulting in the recognition of a preliminary amount of $2.96 billion in goodwill.
 
 
Deepwater  
 
    Midwater
       Jackup
 
 
 Total     
                
Balance as of December 31, 2010
$   143.6  
 
$      --   
 
$192.6
   
 
$   336.2 
 
Acquisition of Pride  2,485.1    
473.7   
 
--
   
 
2,958.8 
 
Balance as of June 30, 2011
$2,628.7  
 
$473.7   
 
$192.6
   
 
$3,295.0 
 
 
Shareholders' Equity
Shareholders' Equity
Note 8 - Shareholders' Equity
 
    In connection with the Merger, each outstanding share of Pride's common stock was exchanged for the right to receive $15.60 in cash and 0.4778 Ensco ADSs. The Merger resulted in the issuance of 85.8 million Ensco ADSs each with a par value of $0.10 and a total market value of $4.6 billion based on the closing price of $53.32 on May 31, 2011.  This resulted in increases to additional paid-in capital and Class A ordinary shares of $4.6 billion and $8.6 million, respectively.  As of June 30, 2011 and December 31, 2010, our additional paid-in capital balance totaled $5.2 billion and $637.1 million, respectively, and our Class A ordinary shares balance totaled $23.6 million and $15.0 million, respectively.
Share-Based Compensation
Share-Based Compensation
Note 9 - Share-Based Compensation
 
   During the quarter ended June 30, 2011, we granted 562,000 non-vested share awards to our employees, officers and non-employee directors for annual equity awards and for equity awards granted to new or recently promoted employees, pursuant to our 2005 Long-Term Incentive Plan ("LTIP").  Grants of non-vested share awards generally vest at a rate of 20% per year, as determined by a committee of the Board of Directors.  Non-vested share awards granted to certain officers vest at a rate of 33% per year.  Non-vested share awards generally have voting and dividend rights effective on the date of grant and are measured at fair value using the market value of our shares on the date of grant. The weighted-average grant-date fair value of non-vested share awards granted during the quarter ended June 30, 2011 was $54.33 per share.  All non-vested share award grants were issued out of treasury.
Earnings Per Share
Earnings Per Share
Note 10 - Earnings Per Share
 
    We compute basic and diluted earnings per share ("EPS") in accordance with the two-class method. Net income attributable to Ensco used in our computations of basic and diluted EPS is adjusted to exclude net income allocated to non-vested shares granted to our employees and non-employee directors. Weighted-average shares outstanding used in our computation of diluted EPS includes the dilutive effect of share options using the treasury stock method and excludes non-vested shares.
 
    The following table is a reconciliation of net income attributable to Ensco shares used in our basic and diluted EPS computations for the three-month and six-month periods ended June 30, 2011 and 2010 (in millions):
 
 
Three Months Ended 
            June 30,            
     Six Months Ended
                  June 30,          
 
 
  2011 
  2010 
    2011 
      2010
                   
Net income attributable to Ensco
 
$101.9
 
$126.3
 
$166.5
 
$316.1
 
Net income allocated to non-vested share awards
 
(1.0
)
(1.5
)
(2.0
)
(3.9
)
Net income attributable to Ensco shares
 
$100.9
 
$124.8
 
$164.5
 
$312.2
 
 
    The following table is a reconciliation of the weighted-average shares used in our basic and diluted EPS computations for the three-month and six-month periods ended June 30, 2011 and 2010 (in millions):
 
 
Three Months Ended
             June 30,             
     Six Months Ended
                 June 30,           
 
 
  2011 
   2010 
       2011  
        2010 
                    
Weighted-average shares - basic
 
169.8
 
140.9
 
155.6
 
140.8
 
Potentially dilutive share options
 
.4
 
.0
 
.3
 
.1
 
Weighted-average shares - diluted
 
170.2
 
140.9
 
155.9
 
140.9
 
 
    Antidilutive share options totaling 431,000 and 1.1 million were excluded from the computation of diluted EPS for the three-month periods ended June 30, 2011 and 2010, respectively.  Antidilutive share options totaling 397,000 and 1.0 million were excluded from the computation of diluted EPS for the six-month periods ended June 30, 2011 and 2010, respectively.
Comprehensive Income
Comprehensive Income
Note 11 - Comprehensive Income
 
    Accumulated other comprehensive income as of June 30, 2011 and December 31, 2010 was comprised of gains and losses on derivative instruments, net of tax. The components of other comprehensive income (loss), net of tax, for the three-month and six-month periods ended June 30, 2011 and 2010 were as follows (in millions):
 
 
  Three Months Ended
               June 30,           
    Six Months Ended
              June 30,         
 
 
     2011   
     2010   
     2011 
       2010 
                   
Net income
 
$103.6
 
$127.9
 
$169.1
 
$319.5
 
Other comprehensive income (loss):
                 
Net change in fair value of derivatives
 
3.1
 
(1.6
)
6.0
 
(3.0
)
Reclassification of gains and losses on derivative
                 
instruments from other comprehensive (income) loss
                 
into net income
 
(1.5
)
(.2
)
(2.3
)
(1.5
)
Net other comprehensive income (loss)
 
1.6
 
(1.8
)
3.7
 
(4.5
)
Comprehensive income
 
105.2
 
126.1
 
172.8
 
315.0
 
Comprehensive income attributable to noncontrolling interests
 
(1.7
)
(1.6
)
(2.6
)
(3.4
)
Comprehensive income attributable to Ensco
 
$103.5
 
$124.5
 
$170.2
 
$311.6
 
 
Income Taxes
Income Taxes
Note 12 - Income Taxes
 
    Our consolidated effective income tax rate for the three-month and six-month periods ended June 30, 2011 of 19.6% and 20.0%, respectively, includes the impact of various discrete tax items, the majority of which is attributable to a gain on disposal of assets in a jurisdiction with a high tax rate during the three-month period ended June 30, 2011 and the recognition of a liability for unrecognized tax benefits associated with a tax position taken in a prior year during the three-month period ended March 31, 2011. Excluding the impact of the aforementioned discrete items, our consolidated effective income tax rate for the three-month and six-month periods ended June 30, 2011 was 14.6% and 14.7%, respectively, compared to a consolidated effective income tax rate of 15.5% and 16.8% for the three-month and six-month periods ended June 30, 2010.  The decrease was primarily attributable to the transfer of ownership of several of our drilling rigs among our subsidiaries in April 2010 and December 2010, which resulted in an increase in the relative components of our earnings generated in tax jurisdictions with lower tax rates.
Discontinued Operations
Discontinued Operations

Note 13 - Discontinued Operations

 

    During the six month period ended June 30, 2010, we sold three jackup rigs for an aggregate $141.8 million, of which $9.4 million was received in December 2009.  We recognized an aggregate pre-tax gain of $51.8 million in connection with the disposals, which was included in income from discontinued operations, net, in our condensed consolidated statement of income for the six-month period ended June 30, 2010. Income from discontinued operations, net, included operating losses of $3.3 million and $1.5 million for the three month and six month periods ended June 30, 2010, respectively.  Debt and interest expense are not allocated to our discontinued operations.

Noncontrolling Interests
Noncontrolling Interests

Note 14 - Noncontrolling Interests

 

    Noncontrolling interests are classified as equity on our consolidated balance sheets, and net income attributable to noncontrolling interests is presented separately on our consolidated statements of income.  Local third parties hold a noncontrolling ownership interest in certain of our subsidiaries.  The following table is a reconciliation of income from continuing operations attributable to Ensco for the three-month and six-month periods ended June 30, 2011 and 2010 (in millions):

 

 

Three Months Ended  

           June 30,             

      Six Months Ended

               June 30,         

 

 2011 

  2010 

    2011 

       2010 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$103.6

 

$121.9

 

$169.1

 

$283.9

 

Income from continuing operations attributable to

noncontrolling interests

 

(1.7

)

(1.6

)

(2.6

)

(3.2

)

Income from continuing operations attributable to Ensco

 

$101.9

 

$120.3

 

$166.5

 

$280.7

 

 

 

    The following table is a reconciliation of income from discontinued operations, net, attributable to Ensco for the three-month and six-month periods ended June 30, 2010 (in millions):

 

 

Three Months Ended

     June 30, 2010      

     Six Months Ended

           June 30,  2010    

 

 

 

 

 

 

Income from discontinued operations 

$6.0  

 

 

$35.6      

 

Income from discontinued operations attributable to

   noncontrolling interests 

--  

 

 

(.2)     

 

Income from discontinued operations attributable to Ensco

$6.0  

 

 

$35.4      

 

 

 

Commitments And Contingencies
Commitments And Contingencies
Note 15 - Commitments and Contingencies
 
    Leases

    We are obligated under leases for certain of our offices and equipment. Rental expense relating to operating leases was $11.0 million and $8.4 million for the six-month periods ended June 30, 2011 and 2010, respectively. Future minimum rental payments under our noncancellable operating lease obligations are as follows (in millions):

 
    Capital Commitments

    The following table summarizes the aggregate contractual commitments related to our two ENSCO 8500 Series® rigs, our ENSCO DS-6 and ENSCO DS-7 ultra-deepwater drillships and our two ultra-high specification harsh environment jackup rigs currently under construction as of June 30, 2011 (in millions):

 
    The actual timing of these expenditures may vary based on the completion of various construction milestones, which are, to a large extent, beyond our control.
 
    Demand Letter, Derivative Cases and Shareholder Class Actions
 
    In June 2009, Pride received a demand letter from a purported shareholder that alleged certain of Pride's then-current and former officers and directors violated their fiduciary duties in regards to certain matters involving Pride's previously disclosed Foreign Corrupt Practices Act ("FCPA") investigation. The letter requested that Pride's board of directors take appropriate action against the individuals in question. In September 2009, Pride's board of directors formed a special committee, which retained independent legal counsel and commenced an evaluation of the issues raised by the letter in an effort to determine a course of action.
 
    In April 2010, two purported shareholders of Pride filed derivative actions against all of Pride's then-current directors and against Pride, as nominal defendant. The lawsuits alleged that the individual defendants breached their fiduciary duties in regards to certain matters involving Pride's previously disclosed FCPA investigation. Among other remedies, the lawsuits seek damages in an unspecified amount and equitable relief against the individual defendants, along with an award of attorney fees and other costs and expenses to the plaintiff.  After the conclusion of Pride's investigation, the plantiffs filed a consolidated amended petition in January 2011, raising allegations substantially similar to those made in the prior lawsuits.
 
    In December 2010, the special committee completed its evaluation of the issues surrounding Pride's FCPA investigation and again reviewed its conclusion in January 2011 in connection with the amended petition described above.  The committee concluded that it was not in the interest of Pride or its shareholders to pursue litigation related to the matter.
 
    During the first quarter of 2011, a number of putative shareholder class action complaints or petitions were filed against various combinations of Pride, Pride's directors, Ensco and certain of our subsidiaries. These lawsuits challenged the proposed Merger and generally alleged, among other matters, that the individual members of the Pride board of directors breached their fiduciary duties by approving the proposed Merger, failing to take steps to maximize value to Pride's shareholders and failing to disclose material information concerning the proposed Merger in the registration statement on Form S-4; that Pride, Ensco and certain of our subsidiaries aided and abetted such breaches of fiduciary duties; and that the Merger Agreement improperly favored Ensco and unduly restricted Pride's ability to negotiate with other bidders. These lawsuits generally sought, among other remedies, compensatory damages, declaratory and injunctive relief concerning the alleged fiduciary breaches, and injunctive relief prohibiting the defendants from consummating the Merger.  In addition, the plaintiffs in the derivative class action lawsuits related to Pride's previously disclosed FCPA investigation filed an amendment to their petition adding claims related to the Merger.
 
   In May 2011, Ensco and the other named defendants signed a memorandum of understanding with the plaintiffs to settle the previously disclosed shareholder class action lawsuits filed related to the Merger Agreement.  As provided in the memorandum of understanding, the Merger Agreement was amended to reduce the fee payable by Pride in connection with certain terminations of the Merger Agreement to $195.0 million from $260.0 million. The amendment also shortened the "tail period" for certain transactions that could trigger a termination fee from 12 months to nine months after termination and eliminated the "force the vote" provision applicable to Pride such that Pride would not be required to submit the adoption of the Merger Agreement to its shareholders if the Pride board of directors made an adverse change in their recommendation.
 
    The memorandum of understanding also provided, among other matters, that the parties would seek to enter into a stipulation of settlement which provides for the release of certain claims held by such class and the payment of the fees and expenses of the attorneys for the class in an amount to be agreed.  The stipulation of the settlement will be subject to customary conditions, including court approval. There can be no assurance that the parties will ultimately enter into a stipulation of settlement that receives court approval.  In the event the parties are unable to reach agreement on the amount of attorneys' fees, such matter may be submitted to the court for determination.
 
    At this time, we are unable to predict the outcome of these matters or estimate the extent to which we may be exposed to any resulting liability, including the amount of attorneys' fees that may be awarded.  Although the outcome cannot be predicted, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows.
 
    Seahawk Tax-Related Credit Support
   
    On August 24, 2009, Pride completed the spin-off of Seahawk Drilling, Inc. ("Seahawk"), which held the assets and liabilities that were associated with Pride's mat-supported jackup rig business.
   
   In 2006, 2007 and 2009, Seahawk received tax assessments from the Mexican government related to their operations.  Pursuant to local statutory requirements, Seahawk has provided and may provide additional surety bonds, letters of credit or other suitable collateral to contest these assessments. Pursuant to a tax support agreement between Pride and Seahawk, Pride agreed, at Seahawk's request, to guarantee or indemnify the issuer of any such surety bonds, letters of credit or other collateral issued for Seahawk's account in respect of such Mexican tax assessments made prior to the spin-off date.  In September 2010, Seahawk requested that Pride provide credit support for four letters of credit issued for the appeals of four of Seahawk's tax assessments. The amount of the request totaled approximately $50.0 million. In October 2010, Pride provided credit support in satisfaction of this request. A liability of $2.0 million related to this matter was recorded as of June 30, 2011 and included in accrued liabilities and other on our condensed consolidated balance sheet. Pursuant to the tax support agreement, Seahawk is required to pay us a fee based on the actual credit support provided. Seahawk's quarterly fee payment due on December 31, 2010 was not made, which had the effect of terminating Pride's obligation to provide further credit support under the tax support agreement.
 
    In February 2011, Pride sent a notice to Seahawk requesting that it provide cash-collateral for the credit support that Pride previously provided, as provided under the terms of the agreement. In connection with its bankruptcy filing, Seahawk is seeking to terminate its reimbursement obligations under the tax support agreement, and we have filed a proof of claim in Seahawk's bankruptcy for all damages arising from or relating to Seahawk's repudiation of its obligations under the tax support agreement.  For further information regarding Seahawk's bankruptcy, including alleged claims it may have against Pride, see "Seahawk Drilling, Inc. Bankruptcy" in Part II, Item 1, Legal Proceedings of this quarterly report on Form 10-Q.
 
    ENSCO 74 Loss
 
    In September 2008, ENSCO 74 was lost as a result of Hurricane Ike in the U.S. Gulf of Mexico.  Portions of its legs remained underwater adjacent to the customer's platform, and the sunken rig hull of ENSCO 74 was located approximately 95 miles from the original drilling location when it was struck by an oil tanker in March 2009.  During the fourth quarter of 2010, wreck removal operations on the sunken rig hull of ENSCO 74 were completed.

    We believe it is probable that we are required to remove the leg sections of ENSCO 74 remaining adjacent to the customer's platform because they may interfere with the customer's future operations, in addition to the removal of related debris.  We estimate the leg and related debris removal costs to range from $21.0 million to $35.0 million. We expect the cost of removal of the legs and related debris to be fully covered by our insurance.

    Physical damage to our rigs caused by a hurricane, the associated "sue and labor" costs to mitigate the insured loss and removal, salvage and recovery costs are all covered by our property insurance policies subject to a $50.0 million per occurrence self-insured retention.  Coverage for ENSCO 74 sue and labor costs and wreckage and debris removal costs under our property insurance policies is limited to $25.0 million and $50.0 million, respectively. Supplemental wreckage and debris removal coverage is provided under our liability insurance policies, subject to an annual aggregate limit of $500.0 million. We also have a customer contractual indemnification that provides for reimbursement of any ENSCO 74 wreckage and debris removal costs that are not recovered under our insurance policies.

    A $21.0 million liability, representing the low end of the range of estimated leg and related debris removal costs, and a corresponding receivable for recovery of those costs was recorded as of June 30, 2011 and included in accrued liabilities and other and other assets, net, on our condensed consolidated balance sheet.

    In March 2009, we received notice from legal counsel representing certain underwriters in a subrogation claim alleging that ENSCO 74 caused a pipeline to rupture during Hurricane Ike.  In September 2009, civil litigation was filed seeking damages for the cost of repairs and business interruption in an amount in excess of $26.0 million. Based on information currently available, primarily the adequacy of available defenses, we have not concluded that it is probable a liability exists with respect to this matter.

    In March 2009, the owner of the oil tanker that struck the hull of ENSCO 74 commenced civil litigation against us seeking monetary damages of $10.0 million for losses incurred when the tanker struck the sunken hull of ENSCO 74. Based on information currently available, primarily the adequacy of available defenses, we have not concluded that it is probable a liability exists with respect to this matter.
 
    We filed a petition for exoneration or limitation of liability under U.S. admiralty and maritime law in September 2009. The petition seeks exoneration from or limitation of liability for any and all injury, loss or damage caused, occasioned or occurred in relation to the ENSCO 74 loss in September 2008. The owner of the tanker that struck the hull of ENSCO 74 and the owners of four subsea pipelines have presented claims in the exoneration/limitation proceedings.  The matter is scheduled for trial in March 2012.

    We have liability insurance policies that provide coverage for claims such as the tanker and pipeline claims as well as removal of wreckage and debris in excess of the property insurance policy sublimit, subject to a $10.0 million per occurrence self-insured retention for third-party claims and an annual aggregate limit of $500.0 million. We believe all liabilities associated with the ENSCO 74 loss during Hurricane Ike resulted from a single occurrence under the terms of the applicable insurance policies. However, legal counsel for certain liability underwriters have asserted that the liability claims arise from separate occurrences. In the event of multiple occurrences, the self-insured retention is $15.0 million for two occurrences and $1.0 million for each occurrence thereafter.

    Although we do not expect final disposition of the claims associated with the ENSCO 74 loss to have a material adverse effect upon our financial position, operating results or cash flows, there can be no assurances as to the ultimate outcome.

    ENSCO 69
 
    By letter dated June 4, 2009, we were informed by Petrosucre, a subsidiary of Petróleos de Venezuela S.A., the national oil company of Venezuela, of its intention to assume complete custody and control of the ENSCO  69.  We have filed an insurance claim under our package policy, which includes coverage for certain political risks. ENSCO 69 has an insured value of $65.0 million under our package policy, subject to a $10.0 million deductible.

    In September 2009, legal counsel acting for the package policy underwriters denied coverage under the package policy and reserved rights.  In March 2010, we commenced litigation to recover on our political risk package policy claim. Our lawsuit seeks recovery under the policy for the loss of ENSCO 69 and includes claims for wrongful denial of coverage, breach of contract, breach of the Texas insurance code, failure to timely respond to the claim and bad faith. Our lawsuit seeks actual damages in the amount of $55.0 million (insured value of $65.0 million less a $10.0 million deductible), punitive damages and attorneys' fees. In July 2010, we agreed with underwriters to submit the matter to arbitration. We have been able to reach a mutually agreeable settlement with most of the underwriters subscribing to the package policy, which is expected to result in a gain of approximately $10.8 million upon receipt of cash settlements during the third quarter of 2011.  The pending arbitration only will be applicable to those underwriters that do not agree to the settlement.  Until these proceedings are concluded, there can be no assurances as to the ultimate outcome with regard to the underwriter who has not agreed to settle this matter.
 
    ENSCO 29 Wreck Removal

    A portion of the ENSCO 29 platform drilling rig was lost over the side of a customer's platform as a result of Hurricane Katrina during 2005. Although beneficial ownership of ENSCO 29 was transferred to our insurance underwriters when the rig was determined to be a total loss, management believes we may be legally required to remove ENSCO 29 wreckage and debris from the seabed and currently estimates the removal cost could range from $5.0 million to $15.0 million. Our property insurance policies include coverage for ENSCO 29 wreckage and debris removal costs up to $3.8 million. We also have liability insurance policies that provide specified coverage for wreckage and debris removal costs in excess of the $3.8 million coverage provided under our property insurance policies.

    Our liability insurance underwriters have issued letters reserving rights and effectively denying coverage by questioning the applicability of coverage for the potential ENSCO 29 wreckage and debris removal costs.  During 2007, we commenced litigation against certain underwriters alleging breach of contract, wrongful denial, bad faith and other claims and seeking a declaration that removal of wreckage and debris is covered under our liability insurance, monetary damages, attorneys' fees and other remedies. The court heard several pretrial motions on May 25, 2011 and on July 31, 2011 issued an order compelling the matter to be submitted to arbitration.

    While we anticipate that any ENSCO 29 wreckage and debris removal costs incurred will be largely or fully covered by insurance, a $1.2 million provision, representing the portion of the $5.0 million low end of the range of estimated removal cost we believe is subject to liability insurance coverage, was recognized in 2006.

    Asbestos Litigation

    During 2004, we and certain current and former subsidiaries were named as defendants, along with numerous other third-party companies as co-defendants, in three multi-party lawsuits filed in Mississippi. The lawsuits sought an unspecified amount of monetary damages on behalf of individuals alleging personal injury or death, primarily under the Jones Act, purportedly resulting from exposure to asbestos on drilling rigs and associated facilities during the period 1965 through 1986.

    In compliance with the Mississippi Rules of Civil Procedure, the individual claimants in the original multi-party lawsuits whose claims were not dismissed were ordered to file either new or amended single plaintiff complaints naming the specific defendant(s) against whom they intended to pursue claims. As a result, out of more than 600 initial multi-party claims, we have been named as a defendant by 65 individual plaintiffs. Of these claims, 62 claims or lawsuits are pending in Mississippi state courts and three are pending in the U.S. District Court as a result of their removal from state court.

    To date, written discovery and plaintiff depositions have taken place in eight cases involving us.  While several cases have been selected for trial during 2011 and 2012, none of the cases pending against us in Mississippi state court are included within those selected cases.
 
    We intend to continue to vigorously defend against these claims and have filed responsive pleadings preserving all defenses and challenges to jurisdiction and venue. However, discovery is still ongoing and, therefore, available information regarding the nature of all pending claims is limited. At present, we cannot reasonably determine how many of the claimants may have valid claims under the Jones Act or estimate a range of potential liability exposure, if any.

    In addition to the pending cases in Mississippi, we have other asbestos or lung injury claims pending against us in litigation in other jurisdictions. Although we do not expect the final disposition of the Mississippi and other asbestos or lung injury lawsuits to have a material adverse effect upon our financial position, operating results or cash flows, there can be no assurances as to the ultimate outcome of the lawsuits.

    Working Time Directive

    Legislation known as the U.K. Working Time Directive ("WTD") was introduced during 2003 and may be applicable to our employees and employees of other drilling contractors that work offshore in U.K. territorial waters or in the U.K. sector of the North Sea. Certain trade unions representing offshore employees have claimed that drilling contractors are not in compliance with the WTD in respect of paid time off (vacation time) for employees working offshore on a rotational basis (generally equal time working and off).

    A Labor Tribunal in Aberdeen, Scotland, rendered decisions in claims involving other offshore drilling contractors and offshore service companies in February 2008. The Tribunal decisions effectively held that employers of offshore workers in the U.K. sector employed on an equal time on/time off rotation are obligated to accord such rotating personnel two-weeks annual paid time off from their scheduled offshore work assignment period. Both sides of the matter, employee and employer groups, appealed the Tribunal decision. The appeals were heard by the Employment Appeal Tribunal ("EAT") in December 2008.

    In an opinion rendered in March 2009, the EAT determined that the time off work enjoyed by U.K. offshore oil and gas workers, typically 26 weeks per year, meets the amount of annual leave employers must provide to employees under the WTD. The employer group was successful in all arguments on appeal, as the EAT determined that the statutory entitlement to annual leave under the WTD can be discharged through normal field break arrangements for offshore workers. As a consequence of the EAT decision, an equal time on/time off offshore rotation has been deemed to be fully compliant with the WTD.  The employee group (led by a trade union) was granted leave to appeal to the highest civil court in Scotland (the Court of Session).  A hearing on the appeal occurred in June 2010, and a decision was rendered in October 2010 in favor of the employer group.  The employee group has appealed to the U.K. Supreme Court, and a hearing is scheduled in October 2011.

    Based on information currently available, we do not expect the ultimate resolution of these matters to have a material adverse effect on our financial position, operating results or cash flows.
 
    Environmental Matters
 
    We are currently subject to pending notices of assessment issued from 2008 to 2011 pursuant to which governmental authorities in Brazil are seeking fines in an aggregate amount of $3.0 million for the release of drilling fluid from drilling rigs operating offshore Brazil. We are contesting these notices and intend to defend ourselves vigorously.  Although we do not expect the outcome of these assessments to have a material adverse effect on our financial position, operating results or cash flows, there can be no assurance as to the ultimate outcome of these assessments. A $3.0 million liability related to these matters was recorded as of June 30, 2011 and included in accrued liabilities and other on our condensed consolidated balance sheet.
 
    We are currently subject to a pending administrative proceeding initiated in July 2009 by a governmental authority of Spain pursuant to which such governmental authority is seeking payment in an aggregate amount of $4.0 million for an alleged environmental spill originating from the ENSCO 5006 while it was operating offshore Spain. We expect to be indemnified for any payments resulting from this incident by our customer under the terms of the drilling contract. Our customer has posted guarantees with the Spanish government to cover potential penalties. In addition, a criminal investigation of the incident was initiated in July 2010 by a prosecutor in Tarragona, Spain, and the administrative proceedings have been suspended pending the outcome of this investigation. We do not know at this time what, if any, involvement we may have in this investigation.
 
    We intend to defend ourselves vigorously in the administrative proceeding and any criminal investigation. At this time, we are unable to predict the outcome of these matters or estimate the extent to which we may be exposed to any resulting liability. Although we do not expect the outcome of the proceedings to have a material adverse effect on our financial position, operating results or cash flows, there can be no assurance as to the ultimate outcome of the proceedings.
 
    Other Matters
 
    In addition to the foregoing, we are named defendants or parties in certain other lawsuits, claims or proceedings incidental to our business and are involved from time to time as parties to governmental investigations or proceedings, including matters related to taxation, arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows.
Segment Information
Segment Information
Note 16 - Segment Information
 
In connection with the Merger, we evaluated our core assets and operations, consisting of five drillships, 17 semisubmersible rigs, 46 jackup rigs and seven rigs under construction, and organized them into three segments based on water depth operating capabilities. Accordingly, we now consider our business to consist of three reportable segments: (1) Deepwater, which consists of our drillships and semisubmersible rigs capable of drilling in water depths of 4,500 feet or greater, (2) Midwater, which consists of our semisubmersible rigs capable of drilling in water depths of 4,499 feet or less and (3) Jackup, which consists of our jackup rigs capable of operating in water depths up to 400 feet. Each of our three reportable segments provides one service, contract drilling.  We also manage the drilling operations for two deepwater rigs and own one barge rig, which are included in "Other."
 
    Segment information for the three-month and six-month periods ended June 30, 2011 and 2010 is presented below. General and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income and were included in "Reconciling Items."  We measure segment assets as property and equipment. Prior year information has been reclassified to conform to the current year presentation.
 
Three Months Ended June 30, 2011
 
 
 
Deepwater  
 
 
  Midwater
 
 
  Jackup
   Other
Operating
Segments
      Total     
Reconciling
   Items   
 
Consolidated
     Total      
                 
Revenues
$   232.3
 
$  36.1
 
$   289.3
  $   6.5  
$     564.2
 
$     --
 
$     564.2
 
Operating expenses
Contract drilling (exclusive
of depreciation)
111.1
 
22.9
 
145.4
   6.9  
286.3
 
--
 
286.3
 
Depreciation
33.9
 
5.2
 
43.2
   0.5  
82.8
 
0.7
 
83.5
 
General and administrative
--
 
--
 
--
   --  
--
 
47.4
 
47.4
 
Operating income (loss)
$     87.3
 
$    8.0
 
$   100.7
  $  (0.9 )
$     195.1
 
$(48.1
$     147.0
 
Property and equipment, net
$8,774.8
 
$910.8
 
$2,386.1
   $ 13.9  
$12,085.6
 
$ 23.2
 
$12,108.8
 
 
Three Months Ended June 30, 2010
 
Deepwater  
  Midwater
  Jackup
   Other
Operating
Segments
      Total     
Reconciling
   Items   
 
Consolidated
     Total      
                 
Revenues
$   120.9
 
$      --
 
$   290.5
  $     --  
$     411.4
 
$     --
 
$     411.4
 
Operating expenses
Contract drilling (exclusive
of depreciation)
46.5
 
--
 
147.0
   12.5  
206.0
 
--
 
206.0
 
Depreciation
9.7
 
--
 
41.1
   0.8  
51.6
 
0.3
 
51.9
 
General and administrative
--
 
--
 
--
   --  
--
 
22.0
 
22.0
 
Operating income (loss)
$     64.7
 
$      --
 
$   102.4
   $(13.3 )
$     153.8
 
$(22.3
$      131.5
 
Property and equipment, net
$2,509.0
 
$      --
 
$2,076.4
   $ 15.2  
$  4,600.6
 
$   4.1
 
$   4,604.7
 
 
Six Months Ended June 30, 2011
 
 
 
Deepwater  
  Midwater
  Jackup
   Other
Operating
Segments
      Total     
Reconciling
   Items   
Consolidated
     Total      
                 
Revenues
$   330.4
 
$  36.1
 
$   552.7
  $   6.5  
$     925.7
 
$     --
 
$     925.7
 
Operating expenses
Contract drilling (exclusive
of depreciation)
152.0
 
22.9
 
295.7
   7.3  
477.9
 
--
 
477.9
 
Depreciation
50.1
 
5.2
 
85.7
   0.9  
141.9
 
1.1
 
143.0
 
General and administrative
--
 
--
 
--
   --  
--
 
77.5
 
77.5
 
Operating income (loss)
$   128.3
 
$    8.0
 
$   171.3
  $  (1.7 )
$     305.9
 
$(78.6
$     227.3
 
Property and equipment, net
$8,774.8
 
$910.8
 
$2,386.1
   $ 13.9  
$12,085.6
 
$ 23.2
 
$12,108.8
 
 
Six Months Ended June 30, 2010
 
Deepwater  
  Midwater
 
  Jackup
   Other
Operating
Segments
      Total     
Reconciling
   Items   
 
Consolidated
     Total      
                 
Revenues
$    251.3
 
$      --
 
$   608.7
  $     --  
$     860.0
 
$     --
 
$     860.0
 
Operating expenses
Contract drilling (exclusive
of depreciation)
91.5
 
--
 
284.0
   12.9  
388.4
 
--
 
388.4
 
Depreciation
19.5
 
--
 
82.0
   1.5  
103.0
 
0.6
 
103.6
 
General and administrative
--
 
--
 
--
   --  
--
 
42.6
 
42.6
 
Operating income (loss)
$   140.3
 
$      --
 
$   242.7
   $(14.4 )
$     368.6
 
$(43.2
$     325.4
 
Property and equipment, net
$2,509.0
 
$      --
 
$2,076.4
   $ 15.2  
$  4,600.6
 
$   4.1
 
$  4,604.7
 
 
    Information about Geographic Areas
 
    As of June 30, 2011, the geographic distribution of our drilling rigs, by operating segment, was as follows:
 
  Deepwater     Midwater Jackup Other             Total   
             
U.S.
5     
--     
11   
--   
16  
 
Mexico
--     
--     
4   
 --   
4  
 
North America
  5     
--     
15   
--   
20  
 
South America
7     
5      --    --    12    
Africa  3     
1     
1   
--   
5  
 
Middle East
--     
--     
11   
--   
11  
 
Europe  1      --      9    --    10    
Asia  --      --      9      1    10    
Asia - Under Construction 5      --      2    --    7    
Australia --      --      1    --    1    
Total
21     
6     
48   
1   
76  
 
 
    Certain of our drilling rigs in the U.S. Gulf of Mexico have been or may be further affected by the regulatory developments and other actions that have or may be imposed by the U.S. Department of the Interior, including the regulations issued on September 30, 2010. Utilization and day rates for certain of our drilling rigs have been negatively influenced due to regulatory requirements and delays in our customers' ability to secure drilling permits. Current or future NTLs or other directives and regulations may further impact our customers' ability to obtain permits and commence or continue deepwater or shallow-water operations in the U.S. Gulf of Mexico.  Additionally, regulatory or customer requirements relating to blowout prevention equipment certification, inspection and testing may adversely impact our revenues.
    
    During the three-month and six-month periods ended June 30, 2011, revenues provided by our drilling operations in the U.S. Gulf of Mexico totaled $156.0 million and $288.0 million, or 28% and 31%, of our consolidated revenues, respectively. Of these amounts, 64% and 63% were provided by our deepwater drilling operations in the U.S. Gulf of Mexico for the three-month and six-month periods ended June 30, 2011, respectively.  Prolonged actual or de facto delays, moratoria or suspensions of drilling activity in the U.S. Gulf of Mexico and associated new regulatory, legislative or permitting requirements in the U.S. or elsewhere could materially adversely affect our financial condition, operating results or cash flows.
Supplemental Financial Information
Additional Financial Information
Note 17 - Supplemental Financial Information

    Consolidated Balance Sheet Information

 
 

 
Guarantee Of Registered Securities
Guarantee Of Registered Securities
Note 18 - Guarantee of Registered Securities
 
    In connection with the Merger, on May 31, 2011, Ensco plc and Pride entered into a supplemental indenture with the indenture trustee providing for, among other items, the full and unconditional guarantee by Ensco plc of Pride's 8.50% senior notes due 2019, 6.875% senior notes due 2020 and 7.875% senior notes due 2040, which had an aggregate outstanding principal balance as of June 30, 2011 of $1.7 billion.  The Ensco plc guarantee provides for the unconditional and irrevocable guarantee of the prompt payment, when due, of any amount owed to the holders of the Pride senior notes.
 
    Ensco plc is also a full and unconditional guarantor of the 7.20% Debentures due 2027 issued by Ensco Delaware in November 1997, which had an aggregate outstanding principal balance of $151.5 million as of June 30, 2011.
 
    All guarantees are unsecured obligations of Ensco plc ranking equal in right of payment with all of its existing and future unsecured and unsubordinated indebtedness.
 
   The following tables present the condensed consolidating balance sheets as of June 30, 2011 and December 31, 2010; the condensed consolidating statements of income for the three and six months ended June 30, 2011 and 2010; and the condensed consolidating statements of cash flows for the six months ended June 30, 2011 and 2010, in accordance with Rule 3-10 of Regulation S-X.  The condensed consolidating financial statements for the three and six months ended June 30, 2011 include the results of Pride from the Merger Date.