(Updated as of 30 June 2010)

Historically, operating results in the offshore contract drilling industry have been cyclical and directly related to the demand and available supply of drilling rigs.

Demand for rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond our control. Offshore exploration and development spending may fluctuate substantially from year-to-year and from region-to-region. Such spending fluctuations result from many factors, including: demand for oil and natural gas, regional and global economic conditions and changes therein, political, social and legislative environments in major oil-producing countries, production and inventory levels and related activities of OPEC and other oil and natural gas producers, technological advancements that impact the methods or cost of oil and natural gas exploration and development, disruption to exploration and development activities due to hurricanes and other severe weather conditions and the risk thereof, and the impact that these and other events, whether caused by economic conditions, international or national climate change regulations or other factors, may have on the current and expected future prices of oil and natural gas.

In May 2010, the U.S. Department of Interior implemented a six-month moratorium/suspension on certain drilling activities in water depths greater than 500 feet in the U.S. Gulf of Mexico in response to the BP Macondo well incident. The U.S. Department of Interior subsequently issued Notices to Lessees ("NTLs") implementing additional safety and certification requirements applicable to drilling activities in the U.S. Gulf of Mexico, imposed additional requirements for approval of development and production activities in the U.S. Gulf of Mexico and has delayed the approval of applications to drill in both deepwater and shallow-water areas. On June 22, 2010, the U.S. District Court for the Eastern District of Louisiana granted a temporary injunction which immediately prohibited enforcement of the moratorium/suspension and an appeal to the Fifth Circuit Court of Appeals declined the government's petition to stay enforcement of the injunction.  On July 12, 2010, the U.S. Department of Interior issued a revised moratorium/suspension on drilling in the U.S. Gulf of Mexico that generally applies to mobile offshore drilling units that utilize subsea blowout prevention equipment required for deepwater drilling operations.
 
Some U.S. Gulf of Mexico deepwater projects have been delayed as a result of the moratorium/suspension, which does not prohibit certain well operations.  Although global deepwater drilling activity has remained stable during 2010, there is significant uncertainty as to the near-term and long-term impact the BP Macondo well incident may have on deepwater drilling in the U.S. Gulf of Mexico, in addition to its potential impact on the global deepwater market.
 
Semisubmersible rig supply also continues to increase as a result of newbuild construction programs. It has been reported that 29 newbuild semisubmersible rigs are currently under construction, approximately half of which are scheduled for delivery during the remainder of 2010. The majority of semisubmersible rigs scheduled for delivery during 2010 are contracted. Based on the current level of uncertainty regarding deepwater drilling in the U.S. Gulf of Mexico, we are unable to predict whether newbuild semisubmersible rigs will be absorbed into the global market without a significant effect on utilization and day rates.
 
The significant decline in oil and natural gas prices during the latter half of 2008 and the deterioration of the global economy led to an abrupt reduction in demand for jackup rigs during 2009. Although oil prices have stabilized, incremental drilling activity during 2010 has remained limited resulting in continued softness in jackup rig day rates. While we are encouraged by continued rig inquiries, it remains uncertain whether they will ultimately result in a measurable increase in jackup rig demand in the near-term. Furthermore, it is uncertain as to the impact the BP Macondo well incident may have on jackup rig demand in general, and in the U.S. Gulf of Mexico in particular.
 
Jackup rig supply continues to increase as a result of newbuild construction programs which were initiated prior to the 2008 decline in oil and natural gas prices. It has been reported that 41 newbuild jackup rigs are currently under construction, over half of which are scheduled for delivery during the remainder of 2010. The majority of jackup rigs scheduled for delivery during 2010 are not contracted. It is unlikely that the market in general or any geographic region in particular will be able to fully absorb newbuild jackup rig deliveries in the near-term, especially in consideration of the existing oversupply of jackup rigs.

Since factors that affect offshore exploration and development spending are beyond our control and, because rig demand can change quickly, it is difficult for us to predict future industry conditions, demand trends or future operating results. Periods of low rig demand often result in excess rig supply, which generally results in reductions in utilization levels and day rates; periods of high rig demand often result in a shortage of rigs, which generally results in increased utilization levels and day rates.

The limited availability of insurance for certain perils in some geographic regions and rig loss or damage due to hurricanes, blowouts, craterings, punch-throughs and other operational events may impact the supply of jackup or semisubmersible rigs in a particular market and cause fluctuations in utilization and day rates.

Deepwater

During 2009, depressed oil and natural gas prices resulted in a modest decline in demand for ultra-deepwater semisubmersible rigs, however, global utilization and day rates generally were stable. Although utilization and day rates remained stable during the first six months of 2010, utilization and day rates may come under pressure if deepwater contracts in the U.S. Gulf of Mexico are terminated and/or those rigs are marketed in other regions.  Future ultra-deepwater semisubmersible rig utilization and day rates will depend in large part on projected oil and natural gas prices, the global economy and the potential long-term impact the BP Macondo well incident may have on the global deepwater market.
 
ENSCO 8502 was delivered in January 2010 and is scheduled to commence drilling operations under a two-year contract in August 2010.  Although our customer has questioned whether the new requirements of the moratorium/suspension and related NTLs will delay contract commencement, we believe ENSCO 8502 is in compliance with contractual requirements and current applicable regulations and that the drilling contract should commence in accordance with its terms.  We also have four ENSCO 8500 Series^® rigs under construction with scheduled delivery dates during the fourth quarter of 2010, the second half of 2011 and the first and second half of 2012. ENSCO 8503 is committed under a long-term drilling contract in the Gulf of Mexico and is scheduled to commence drilling operations during the first quarter of 2011.  The remaining ENSCO 8500 Series^® rigs under construction are without contracts. Our ENSCO 7500 ultra-deepwater semisubmersible rig currently is operating under contract in Australia.

Asia Pacific

During 2009, Asia Pacific jackup rig utilization and day rates were significantly impacted by the 2008 decline in oil and natural gas prices. While the Asia Pacific jackup market began to show signs of stability during the first six months of 2010, competition for work remained intense due to the oversupply of jackup rigs and limited contract opportunities. With an expected increase in the supply of available jackup rigs from newbuild deliveries and expiring drilling contracts, we anticipate that Asia Pacific jackup rig utilization and day rates will remain under pressure in the near-term.
 
In conjunction with our long-established strategy of high-grading our jackup rig fleet by investing in newer equipment, we sold three jackup rigs located in the Asia Pacific region during the first six months of 2010.  In July 2010, we acquired a KFELS Super B Class design jackup rig constructed in 2008.  The rig was renamed ENSCO 109 and is currently operating in Australia.

Europe/Africa

Our Europe and Africa offshore drilling operations are mainly conducted in Northern Europe. The 2008 decline in oil and natural gas prices resulted in several cancelled tenders and unexercised contract extension options during the latter portion of 2009. Tender activity in the region during the first six months of 2010 was limited with some inquiries for work beginning in 2011, and we expect this trend to continue in the near-term. With limited tender activity and additional jackup rigs projected to complete their current contracts later this year, we anticipate this market will experience excess rig availability, and utilization and day rates will remain under pressure in the near-term.

North and South America

A significant portion of our North and South America offshore drilling operations are conducted in Mexico, where demand for rigs increased in recent years as Petróleos Mexicanos ("PEMEX"), the national oil company of Mexico, accelerated drilling activities in an attempt to offset continued depletion of its major oil and natural gas fields. During 2009 and the first six months of 2010, demand for jackup rigs in Mexico remained high despite global economic conditions. PEMEX recently issued additional tenders for several jackup rigs to commence drilling operations in late 2010 in response to contracts expiring later this year. We expect future day rates in Mexico to face pressure as jackup rig contracts in the region expire and drilling contractors with idle rigs in the Gulf of Mexico and other geographic regions pursue the available contract opportunities.

Customers

Ensco provides its services to a broad customer base, which includes major international operators such as BP, Chevron, ConocoPhillips, ExxonMobil, Shell, TOTAL, as well as government-owned and independent oil and gas companies.

Competitors

We compete in the offshore drilling market with other public companies such as: Diamond Offshore Drilling Inc., Noble Corporation, Pride International, Inc., Rowan Companies, Inc., SeaDrill and Transocean Inc.