Sept. 04–Transocean on Tuesday moved to cement its position as the world’s biggest offshore drilling contractor, announcing that it would acquire another rival, this time for $2.7 billion.
Transocean, which operates largely out of Houston, said it will buy Ocean Rig after coming off a $1 billion acquisition earlier this year of Norway’sSonga Offshore. The Ocean Rig deal will give Transocean twice as many deepwater rigs and drillships as its nearest competitors. The fleets are used for developing wells and exploring for underwater oil and gas reserves.
The cash-and-stock deal will pay a 20 percent premium on Ocean Rig’s market value at the end of last week. Transocean is betting the offshore energy sector, which has lagged far behind shale’s resurgence, is finally beginning to rebound, said Ian Macpherson, a senior energy analyst at Piper Jaffray & Co., an investment research firm.
“We’re seeing all the right signals in the market for a recovery,” Macpherson said.
No one, however, is expecting a return to heady days of 2014, when oil prices topped $100 a barrel, said MacPherson. It costs far more to drill in deep ocean waters than in the onshore shale plays, so the offshore sector has undergone a much slower bounce back from the oil bust that drove prices as a low as $26 a barrel in early 2016.
As a result, the offshore sector has shrunk through through mergers, acquisitions and bankruptcies. But higher oil prices — crude settled at $69.87 a barrel in New York Tuesday — coupled with more efficient operations and lower services costs, are bringing deepwater drilling back to life, said Transocean President and Chief Executive Jeremy Thigpen.
“Adding Ocean Rig’s premium assets to our industry-leading fleet … better positions us to capitalize on what, we believe, is an imminent recovery in the ultra-deepwater market,” Thigpen added.
Thigpen admitted the Ocean Rig deal is based on Transocean’s optimistic outlook for a deepwater sector. Investors weren’t so sure. Transocean’s stock fell nearly 7 percent to $11.30 a share on Tuesday.
The deal boosts Transocean’s footprint in offshore regions like Brazil, Norway and West Africa and vaults it further ahead of competitors such as London’sEnsco and Houston-based Diamond Offshore Drilling, which have less than half of the deepwater rigs as Transocean. Another of Transocean’s main rivals, Seadrill of London, just emerged from bankruptcy in July.
Transocean is formally headquartered in Switzerland, primarily for tax reasons, but its operational headquarters are in Houston. Ocean Rig is headquartered in the Cayman Islands, also for tax reasons, but traditionally has operated out of Greece.
Transocean shareholders will own 79 percent of the combined company while Ocean Rig investors will hold the remaining 21 percent. The deal is expected to close in the first quarter of 2019
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