China Merchants Group Is Said to Explore Offshore Rig Deals



(Bloomberg) -- State-owned conglomerate China Merchants Group is exploring acquisitions of offshore rig operators, which have struggled to recover from a collapse in oil-industry spending, people with knowledge of the matter said.

As part of this analysis, the Chinese firm has looked at various assets and companies including Seadrill Ltd. and Shelf Drilling Ltd., the people said, asking not to be identified as the information is private. Deliberations are at an early stage, and China Merchants hasn't made any formal offers, according to the people. It may opt to pick off assets as opposed to full takeovers, the people said.

China Merchants Group hasn't yet finalized the exact structure of any potential deals and could decide against pursuing the purchases, according to the people. A full takeover of Seadrill would be difficult given the company's debt restructuring, which could impact the timing of any transaction, one of the people said.

China Merchants Group said in an emailed statement the company hasn't considered buying offshore drilling operators such as Seadrill and Shelf Drilling. A representative for Seadrill declined to comment, while Shelf Drilling didn't immediately respond to requests for comment.

Shares of Seadrill, which has said it may file for Chapter 11 bankruptcy protection, rose as much as 158 percent in Oslo trading on Friday. That's the biggest intraday gain since 2005.

Industry Consolidation

Consolidation in the oil services sector is picking up as the slide in oil prices forced clients to rein in spending and defer large projects. Crude oil prices have fallen by about half over the past three years as a supply glut hurts spending across the industry.

"The offshore drilling industry needs to consolidate in order to address the massive overcapacity issues it faces," said Elvis Pellumbi, London-based chief investment officer at CF Opportunity Fund, which invests in energy companies. "The recently announced deals are great examples of fantastic industrial logic and great value for both buyers and sellers. There will be more such deals in the next few months."

Ensco Plc agreed to buy rival Atwood Oceanics Inc. in an all-stock deal valued at about $863 million in May. Transocean Ltd. agreed to buy Songa Offshore in a $3.4 billion deal last month.

Debt Restructuring

Seadrill, controlled by billionaire John Fredriksen, has been working for more than a year to relieve billions of dollars of debt incurred when crude prices started dropping in 2014. The company has warned that the restructuring will likely involve filing for Chapter 11 and that shareholders will suffer steep losses.

Shelf Drilling reported a first-half net loss of about $33 million this month, down from a profit a year earlier, as revenue declined and it took an impairment charge on its assets. Its shares have fallen 15 percent in Norwegian over-the-counter trading over the last 12 months, giving the company a market value of 5.32 billion kroner ($684 million).

Hong Kong-based China Merchants Group runs businesses spanning ports, toll roads and shipping to real estate, financial services and offshore engineering. Its total profit rose 34 percent to 111.2 billion yuan ($16.9 billion) in 2015, according to its website.

The company's China Merchants Industry Holdings Co. unit makes semi-submersible rigs and other offshore equipment at facilities in eastern China's Jiangsu province and the southern coastal city of Shenzhen. China Merchants Group is also a minority shareholder in the parent company of CIMC Raffles, which builds drilling platforms used by oil producers including China National Petroleum Corp.

--With assistance from Mikael Holter Dong Lyu and Rakteem Katakey

To contact Bloomberg News staff for this story: Dinesh Nair in London at dnair5@bloomberg.net, Vinicy Chan in Hong Kong at vchan91@bloomberg.net, Jing Yang de Morel in Shanghai at jyang543@bloomberg.net.


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