Nabors Industries announced that it will buy Canada’s Enserco Energy Service Co. for C$15.50/share (US$252 million plus assumed debt of C$36.9 million) in cash or exchangeable shares, or about a 5% premium to last Monday’s closing price on the Toronto Stock Exchange. The friendly offer follows Nabors’ C$93 million acquisition of Command Drilling last fall and sustains the trend of U.S. energy companies buying up their Canadian counterparts to capitalize on Canada’s growing share of the North American natural gas market. It also continues the consolidation in the drilling and oilfield service sector.

“Enserco’s assets are relatively new, in excellent condition and well suited for the increasingly important role that Canada is playing in the North American natural gas supply picture,” said Nabors Chairman Gene Isenberg. “Enserco has one of the industry’s best safety records, which I firmly believe is the most direct indication of the quality of an operation, its people and its management.”

Nabors currently owns and operates more than 500 land drilling and 740 land workover and well-servicing rigs worldwide, including 52 in Canada. Its offshore operations include 43 platform rigs, 16 jack-ups and three barge rigs in the Gulf of Mexico and international markets. Nabors also operates 30 marine transportation and support vessels in the Gulf. The company also provides a wide variety of other drilling and oilfield manufacturing services.

Enserco will give Nabors 193 Canadian service rigs and 30 drilling rigs. Enserco is an integrated energy services company, providing production and drilling services to the North American oil and gas industry. Its subsidiaries include Bonus Well Servicing and H&R Drilling.

Standard & Poor’s said the acquisition would not affect Nabors’ credit ratings (A-/Stable/–) but “should strengthen Nabors’ position in the Canadian drilling and well-servicing industries” by adding assets at a “reasonable price with respect to EBITDA multiples and as a percentage of replacement cost.”

Although the transaction initially may be funded with cash, which will increase the company’s net debt leverage, Nabors will retain an excellent financial profile, S&P said. Pro forma net debt leverage at Dec. 31, 2001, should rise to only about 40% from 37%.

Isenberg said Nabors is interested in increasing its investment in Canada for several reasons. “In the last few years, many of our key U.S. customers have substantially increased their presence in Canada, as it has become even more strategic to the North American gas supply. Federal and provincial initiatives to reduce corporate tax rates have also increased Canada’s attractiveness as an investment for Nabors.”

The acquisition agreement has been unanimously approved by Enserco’s board. The deal contains customary non-solicitation provisions and a termination fee payable by Enserco of C$17 million under certain circumstances. Nabors also retains the right to match competitive proposals should they arise.

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