Offshore drilling giant Noble Corp. last week agreed to buy privately held FDR Holdings Ltd., also known as Frontier, in a transaction worth an estimated $2.16 billion. In turn, Frontier customer Royal Dutch Shell plc signed new deepwater drilling contracts with Noble.

Houston-based Rowan Cos., which builds its rigs, also said last week it would buy Norway’s Skeie Drilling and Production ASA for $130.6 million in stock to expand its presence in overseas markets.

The Noble purchase, set to close this month, would add to Noble’s fleet of 62 offshore drilling units, including five now under construction, which drill worldwide in the deepwater U.S. Gulf of Mexico (GOM), Mexico, the Middle East, India, the North Sea, Brazil and West Africa. Eight drilling units now are contracted for the GOM.

Noble CEO David Williams, who spoke during a conference call from the company’s Sugar Land, TX, offices, told energy analysts that the “right opportunities have been very difficult to come by,” but the dual transactions should relieve some concerns that watchers have had about the offshore drilling sector.

“Noble has 6% of the total floaters, and with the new additions we have about 8% of total floaters and 9% of the deepwater rigs,” Williams said of the transaction. “It expands our water depth around the world and gives us some exposure to the Arctic.”

There are “opportunities out there,” he said. “We are not done by any means. We want to continue to grow the company…that’s always been a primary focus and we don’t see anything, any reason to change that at this point…

“The sentiment on the sector since April 20 has scared some people, but happily we are not one of those people…This makes the spec guys nervous, but we still see opportunities.”

A “common bond with Shell transcends the other noise in the marketplace,” Williams said. “It’s a natural fit that we have to talk to Shell about what their specific goals are, and for us, we’re absolutely delighted to be able to get as much benefit” from the purchase and new contracts.

The Frontier purchase would add six floating drilling units to Noble’s fleet, including two ultra-deepwater drillships that are part of a joint venture (JV) with Shell, as well as a floating production storage and offloading unit. The transaction, expected to close in July and be accretive to cash flow immediately, would add an estimated $3.2 billion to Noble’s gross contract backlog ($2 billion net).

Separate agreements with Shell provide 10-year contracts for the two JV drillships (one under construction and one additional newbuild) and add a multi-year extension on the deepwater semisubmersible Noble Jim Thompson, each subject to the Frontier closing.

The Shell agreements alone would add an additional estimated $4 billion to Noble’s contract backlog over more than 25 rig years.

For Shell, Noble would allow the producer to suspend its contracts, if necessary, on any rigs currently operating or anticipated to operate in the GOM during the imposed federal offshore moratorium, now being litigated in court (see NGI, June 28).

In exchange, Shell would pay a reduced suspension rate designed to support Noble’s personnel, as well as certain operational support costs to ensure “a safe and efficient restart of operations,” said Noble. The term of the contracts would be extended for a length of time equal to any suspension period at the original contract dayrate.

The Frontier acquisition is to be funded with a combination of cash, Noble’s existing bank credit facility and an $800 million bridge credit facility. Noble also expects to assume the remaining construction obligation on the two JV rigs and around $311 million (as of May 31) of nonrecourse project financing representing Frontier’s 50% portion of the outstanding balance of credit facilities of the JV drillships. Noble plans to secure permanent financing to replace the bridge loan and pay down the debt.

Williams was asked during the conference call to comment on whether Shell’s agreement to lock up Noble rigs for 10 years was positive for the supply/demand balance in the deepwater considering the potential offshore drilling moratorium.

“What is your general sense about when the majors will get back to work in the Gulf of Mexico?” the analyst asked. “Is the impact going to be six months, or longer than that, or shorter…?”

“We would certainly hope that in the face of the impact to jobs and industry, and the continued effect on the Gulf Coast, that cooler heads would prevail and the government would see the light…because industry has demonstrated time and time and time again that we can do this safely,” Williams said.

Drilling contractors now are “seeing their way clear to doing limited activities” in the GOM, said the CEO. “We’ve got one rig doing completions today. And we hope some of the efforts of industry organizations,” such as the American Petroleum Institute and the International Association of Drilling Contractors, “are able to convince the government that we are able to do drilling safely…sooner rather than later…

“This event has scared a lot of people,” Williams said of the disastrous oil spill. “We’ll see how this plays out. We certainly hope cooler heads prevail and we can get back to a reasonable level soon…The judicial challenge, the effects of that, everything is in our favor and supports our position. That’s what we hope. We can’t predict what our friends in Washington [DC] might do.”

Williams also was questioned about how much work Noble would have to do if regulators put more restrictions on blowout preventers — considered a reason the Macondo well spill was unable to be quickly halted.

“It’s a question I should take on the next call,” he said. “The rules are very new and not completely defined yet and still under investigation. I will tell you this: we don’t have any rigs in the Gulf of Mexico that we can’t modify to be compliant…Nothing we see tells us that one of our rigs will be obsolete in the Gulf of Mexico.”

In the Rowan transaction, the driller plans to issue almost six million in shares to owners of 48.8% of Skeie’s stock. Rowan already controlled around 1.5% of the stock.

Under terms of the agreement, Rowan would gain control of a four-year-old company with no revenue and three rigs now under construction by Keppel FELS Ltd. Rowan estimated it would cost $420 million to complete the rigs, and Skeie has $530 million in debt that is secured by the vessels.

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