Can Offshore Drilling Come Back in Wake of $1.9B Ensco, Atwood Merger?
Ensco plc is acquiring Atwood Oceanics in an all-stock merger, the first major mergers and acquisition (M&A) activity in the offshore space following the long downturn in commodity prices.
And some analysts say it could herald long-awaited improvement in the struggling sector.
Analysts at Evercore ISI said offshore drillers needed to things to catalyze improvement in returns: fewer rigs in the water and more M&A consolidation.
“We believe this transaction may kick start a much-needed M&A cycle in the offshore drilling group,” Evercore ISI said. “Today’s joint announcement between Ensco and Atwood is a major step forward for a sector that is just beginning to see stabilization in terms of contracting and dayrates.”
Analysts at Barclays weren’t as buoyant over the deal.
“What does this transaction mean for the currently oversupplied offshore drilling market? Unfortunately not much,” Barclays said in a note to investors. “The fact remains that the offshore drilling market (both floaters and jackups) remains severely oversupplied with floating rig utilization at 47 percent (134 contracted out of 282 total supply … and jackup rig utilization at 54 percent (293 contracted out of 540 total supply).”
However, Barclays noted that of those rigs, 205 floaters and 458 jackups are currently marketed.
Analysts at Barclays said the estimated value of the deal is $1.9 billion, including about $860 million in the equity purchase price. That’s based on a May 26 closing price of $10.72 per ATW share and $6.70 per ESV share.
By mid-day May 30, ESV was trading at $6.43 per share. ATW shares were $10.13 each.
Under the terms of the deal, Atwood (NYSE: ATW) shareholders will receive 1.60 shares of Ensco (NYSE: ESV). Upon closing, which is expected in the third quarter, ATW and ESV shareholders will own about 69 percent and 31 percent of the combined company, Evercore estimated.
Ensco said in a statement the company expects to see “annual pre-tax synergies” of about $65 million for 2019 and beyond.
“The combination of Ensco and Atwood will strengthen our position as the leader in offshore drilling across a wide range of water depths around the world – creating a broad platform that we can build upon in the future,” Ensco CEO Carl Trowell said in the statement. “This acquisition significantly enhances our high-specification floater and jackup fleets, adding technologically advanced drillships and semisubmersibles, and refreshing our premium jackup fleet to best position ourselves for the market recovery.”
The combined company will be an “offshore drilling bellwether” able to rival the likes of Transcocean by fleet size, Evercore said. And, it will also be one of the most technologically advanced. Twenty-one of the 26 floaters are designed for ultra-deepwater.
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