GlobalSantaFe: 'Positive' On Drilling Industry Consolidation
HOUSTON Feb. 27, 2007 (Dow Jones Newswires)
GlobalSantaFe Corp. (GSF) is "very positive" on the idea of consolidation in the offshore drilling industry, but cost and compatibility obstacles remain, chief executive Jon Marshall said Tuesday.
"It would be healthy for the industry," he said, in a conference call with analysts. "As to the possibilities, I think they remain fairly constant."
Acquisition talks have swept the industry for months, focusing alternately on GlobalSantaFe, the second-largest publicly traded offshore driller by market capitalization, and several rivals. Seadrill, a Bermuda-based driller founded in 2005 by Norwegian shipping magnate John Fredriksen, is rumored to be in the market for a US driller.
Marshall differs from his peers in embracing the possibility of a deal, however. Recently, Transocean Inc. (RIG) CEO Bob Long called consolidation unlikely in 2007, and Noble Corp. (NE) CEO Mark Jackson said flat-out that the company is not interested in a leveraged buyout or similar deal.
A deal would be most likely between companies that operate similar fleets, Marshall said. Offshore drilling is divided between shallow-water activity, conducted primarily by rigs known as jackups, and deepwater "floating" rigs, including semi-submersible rigs and drillships.
GlobalSantaFe operates 61 rigs worldwide, including 45 jackups.
But consolidation wouldn't offer the immediate savings possible in other industries, even within the oil-field services sector.
"It's very difficult to create the cost synergies in the combination you see in other businesses," he said. "Most of our costs are associated with rigs. That doesn't change in a business combination."
A booming market for offshore drilling, as well as a labor shortage, also make it hard to control personnel costs.
"It's very difficult in this market to reduce anyone's pay or benefits," he said.
On Monday, GlobalSantaFe reported fourth-quarter net income of $349.4 million, or $1.48 a share, compared with a consensus analyst forecast of $1.21 a share, according to Thomson Financial. Proceeds from a rig sale and insurance payouts from the 2005 hurricane season boosted earnings, which would still have topped analysts' estimates by 4 cents without one-time additions.
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