Analyst: Labor Hunt Will Drive Offshore Driller Consolidation

HOUSTON Mar 22, 2007 (Dow Jones Newswires)

A growing labor shortage in the offshore drilling industry will be a major driver behind any consolidation that might occur, Raymond James & Associates analyst J. Marshall Adkins said Thursday.

"That's a big, big part of it," Adkins told Dow Jones Newswires after speaking on a panel hosted by the consulting firm RMI in Houston. "I wouldn't be shocked to see (consolidation) in the next six months."

Analysts have been speculating for months that Seadrill Ltd. (SDRL.OS), a Bermuda-based offshore driller founded by shipping magnate John Fredriksen in 2005, will move to acquire a leading U.S. rig operator. Adkins pointed to GlobalSantaFe Corp. (GSF) and Ensco International (ESV), but others have named Noble Corp. (NE) and even industry-leader Transocean Inc. (RIG) as potential targets.

With oil and gas company exploration budgets reaching historic levels over the last few years, rig operators have begun to expand their fleets. The labor market has lagged behind, with the gap between new jobs and experienced workers expected to grow as new rigs enter the market. The problem is compounded for Seadrill and other upstarts, which have had to grow fastest and with a smaller workforce to start with.

The newer operators have largely turned to the developing world for staff, rather than poaching from rivals, as many established firms expected, said Larry Dickerson, president and chief operating officer at Diamond Offshore (DO), speaking on the panel.

Dickerson has said he does not believe consolidation is likely.

"The basic problem with looking for consolidation in this industry is there's no readily available value enhancements by doing a merger," he said on the company's fourth-quarter conference call in February. "There's not enough costs to be saved to justify paying a premium."

Copyright (c) 2007 Dow Jones & Company, Inc.

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