Offshore drillers Ensco plc and Pride International Inc. are combining in a $7.3 billion cash-and-stock deal, a transaction that highlights the "post-Macondo" world, Ensco CEO Dan Rabun said Monday.
Pride, headquartered in Houston, last year held discussions with 9% stakeholder Seadrill Ltd., a Norwegian contract driller, about a possible buyout. Seadrill had attempted to buy the company in 2008, and Ensco and Pride officials on Monday said they couldn't discuss the minority partner's reaction to the announcement.
The transaction, expected to be completed by the end of June, is part of an industry consolidation that many analysts have forecast since the offshore industry was roiled following the Macondo well blowout in the Gulf of Mexico (GOM) last April.
The new company, which would retain the Ensco brand, would create the second largest offshore driller in the world behind Transocean Ltd. The combined companies would have 74 rigs in offshore basins around the world, with more than one-quarter of the rigs able to operate in deepwater at depths of up to 30,000 feet.
The combined company would have 21 ultra-deepwater and deepwater rigs, forming the second largest (in a tie with Noble Corp.) and youngest fleet able to drill in water depths of 4,500 feet or more. The leader, Transocean Ltd., has 44 ultra-deepwater rigs. In addition, the combined company would have more active jackup rigs than any other driller. Mid-water rigs will represent 8% of the combined fleet.
Rabun, who would retain his CEO title once the transaction is complete, said the tie-up is an "ideal strategic fit, as our rig types, markets, customers and expertise complement each other with minimal overlap." The management team, which is to include executives from both Ensco and Pride, will be named later.
Under the terms of the transaction, Pride shareholders would receive 0.4778 new shares of Ensco plus $15.60 in cash for each Pride share they hold. The terms equate to an offer of around $41.60/share of Pride, or a 21% premium to the stock's close last Friday on the New York Stock Exchange. Pride's shares surged close to 18% Monday following news of the deal.
Once the transaction is complete, Pride shareholders would own about 38% of Ensco's equity. Ensco's eight directors are to remain on the board and be joined by two Pride directors.
UK-based Ensco has a big presence in North America's offshore, as well as in the North Sea, Southeast Asia and the Middle East. Pride is established in Brazil's emerging offshore, as well as in West Africa.
The Ensco-Pride merger is the largest for the offshore drilling industry since Transocean acquired GlobalSantaFe Corp. in 2007 (see Daily GPI, July 24, 2007). Several smaller tie-ups were announced in the last year: Nobel bought Frontier Drilling, Rowan Cos. acquired Norway's Skeie Drilling and Seadrill scooped up Scorpion Offshore.
Based on the closing price of each company's shares on Friday, the estimated enterprise value of the Ensco-Pride combination is $16 billion. The total estimated revenue backlog for the combined company is $10 billion.
"Pride has gained valuable expertise building and operating ultra-deepwater semisubmersibles and drillships and has strong relationships with leading customers in Brazil and West Africa, two of the fastest-growing deepwater markets in the world," said Rabun. "Ensco is a leading provider of premium jackups and ultra-deepwater semisubmersible rigs with a major presence in the North Sea, Southeast Asia, North America and the Middle East. Together, we will form an even stronger company that is ideally positioned to capitalize on growth opportunities within our industry."
Rabun noted that the two companies share "the same core values through our dedication to safety, ethics, operational excellence, employee development, customer satisfaction and disciplined risk management. These values form the foundation of our future growth."
Pride CEO Lou Raspino, who shared a microphone with Rabun during a conference call, said "the whole is definitely greater than the sum of the parts." He said the new offshore driller would have "many of the attributes needed to ensure long-term success in our business. I have always been an advocate of scale, believing that a company with critical mass is afforded numerous benefits, including operational efficiencies, marketing advantages and the ability to attract and retain talented individuals that will help to secure a strong future for our company."
Within the fleet of 27 floating rigs (semisubmersibles and drillships) are 21 deepwater drilling rigs, including seven rigs delivered since 2008 and another five rigs scheduled to be delivered between now and 2013. Thirteen of the rigs are rated for operations in water depths of 7,500 feet and greater.
The combined company's jackup rig fleet, composed of 47 rigs, all with independent leg design, includes 27 units with water depth ratings of 300 feet and more, with nine units delivered since 2000.
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