Transocean Merger Sparks Consolidation Talk for Other Drillers

NEW DELHI, Jul 20, 2007 (Dow Jones Commodities News)

Minutes after the two largest offshore oil and gas drillers agreed to merge, attention shifted to who would be next.

Transocean Inc. (RIG) and GlobalSantaFe Corp. (GSF) said Monday they will merge in an all-stock deal. The new company, which will operate under the Transocean name, will combine the largest operator of deepwater rigs with the biggest owner of shallow-water jackup rigs outside the U.S.

Anyone with a significant presence abroad is a candidate for a follow-up deal, analysts said, in what could trigger further consolidation in the red hot oil services industry.

"Bigger is better in a commodity business like offshore drilling...(the deal) will pressure other players to combine," noted Dan Pickering of Pickering Energy Partners in a note Monday.

Speculation about consolidation has been a regular feature of the offshore drilling sector for over a year. The industry is in the middle of a multi-year boom driven by high oil prices and dwindling supplies, with no signs of slowing. Attention has long been focused on two-year-old Norwegian-owned Seadrill Ltd. (SDRL.OS), which hinted at being in the hunt to buy a more-established competitor. The company backed off those rumors earlier this year, but could now be pushed to make a deal, said Poe Fratt, an analyst with A.G. Edwards in St. Louis.

"This creates a little more urgency for them to go after somebody, there's one less company," he said.

Candidates to buy or sell including Diamond Offshore Drilling (DO), Noble Corp. (NE), Ensco International (ESV) and Pride International (PDE), Pratt said.

"At the end of the day, this is driven by the favorable outlook for international markets, including the deepwater markets," he said.

Stocks across the sector rose dramatically at the start of trading on Monday. GlobalSantaFe rose 5.5% to $78.89 and Transocean by 5.7% to $116.28. Diamond Offshore is up 2.8% to $111.43, Noble is up 2.8% to $105.35 and Pride is up 2.1% to $39.03.

Rig Shortages

The new Transocean will control 14 of 31 active drillships, the rig capable of drilling in the deepest water, according to Rigzone, an industry website.

Those rigs are developing deepwater fields that the energy industry views as the best hope to boost production in order to meet rising demand. Oil companies pay as much as $500,000 a day for Transocean to operate its drillships, as offshore rigs are in short supply.

But while Transocean dominates the ultra-deepwater now, it won't for long. Nearly 20 new drillships, and numerous other rigs capable of operating at great depths, are currently under construction.

"It's not like the market is closed, you have brand new entrants" such as Seadrill, Fratt said. "Clearly the barriers weren't high."

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

Company: GlobalSantaFe more info
 - Transocean's GlobalSantaFe Merger Proves Positive in Year End Review (Feb 20)
 - GlobalSantaFe Updates Customs Investigation (Nov 27)
 - Transocean Closes Merger with GlobalSantaFe (Nov 27)
Company: Transocean Ltd. more info
Manages 46 Offshore Rigs
 - Oil's Biggest Rigs Headed to Junkyard as Daily Losses Mount (Oct 18)
 - Transocean To Buy Norwegian Rig Firm Songa Offshore For $1.1B (Aug 15)
 - Borr Drilling Signs Deal With Transocean to Buy 15 Rigs (Mar 20)
Company: Diamond Offshore more info
Manages 19 Offshore Rigs
 - New Contracts Drive Diamond Offshore's Profit Beat; Shares Rise (Oct 30)
 - Diamond Offshore's Profit Beats Estimates On Lower Costs (May 01)
 - Offshore Drillers Still Seeking Recovery Enjoyed by Shale (Feb 07)
Company: Noble Corporation more info
Manages 28 Offshore Rigs
 - Sembcorp Marine Delivers World's Largest Jackup Noble Lloyd Noble (Jul 18)
 - Oil Industry Maintains Country Club Culture During Downturn (May 23)
 - Freeport to Pay Noble $540 Million to Not Use 2 Oil Rigs (May 10)
Company: Pride International more info
 - Randy Stilley Comes on Board of Paragon Offshore (Feb 04)
 - Ensco Completes Pride Acquisition (May 31)
 - Pride, Ensco Enter MOU in Merger Lawsuit (May 20)
Company: Seadrill Ltd more info
 - Norway's Seadrill Gets Two Rival Debt Restructuring Proposals (Oct 23)
 - Seadrill's Debt Overhaul Faces Creditor Scrutiny (Oct 02)
 - Seadrill Files for Bankruptcy in Bid to Shrink Debt Burden (Sep 13)
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