Ensco, Rowan Combine in $2.4 Billion Offshore Deal

The combination of two offshore drilling companies in a $2.4 billion deal will likely not be the last merger in that industry as the offshore energy sector continues to consolidate during a slow recovery from the last oil bust.

The London driller Ensco, which runs its North and South America operations from Houston, will buy Rowan Cos. of Houston in all-stock deal announced Monday. The acquisition, which will provide Ensco with newer rigs with more technology, is aimed at keeping pace with larger rival Transocean of Switzerland.

The London driller Ensco, which runs its North and South America operations from Houston, will buy Rowan Cos. of Houston in all-stock deal announced Monday. The acquisition, which will provide Ensco with newer rigs with more technology, is aimed at keeping pace with larger rival Transocean of Switzerland.

"Ensco is clearly making a chance to compete in that very similar space, the hi-spec, deepwater sector," said Leslie Cook, a principal analyst with Wood Mackenzie who analyzes the offshore drilling rig industry. "And they're not afraid to do it."

Rowan shareholders will receive 2.215 Ensco shares per Rowan share. The deal is expected to close in the first half of 2019. When completed, Ensco shareholders will control 60.5 percent of the combined company, with Rowan shareholders controlling the other 39.5 percent.

The combined company will have 82 offshore rigs across six continents, including 28 floating rigs and 54 jack-ups, which operate in shallower waters.

Transocean, which operates largely out of Houston, last month announced the purchase of Ocean Rig for $2.7 billion. The company also bought Songa Offshore in Jan. for $1.2 billion.

The purchases are helping to expand Transocean's advanced offshore drilling rig fleet, where much of the competition is right now, Cook said. The offshore drill ships are used to drill into oil and gas reserves in deep water.

Offshore drillers have recovered much more slowly than their counterparts in onshore shale, which were able to make money at lower oil prices and are quicker to ramp up and down. Much of the new investment has flowed onshore, particularly to the Permian Basin in West Texas.

With oil prices rising above $70 barrel, a rebound in the offshore drilling rig industry got under way in the middle of this year, Cook said. In addition to higher crude price, operators of the newest and most advanced rigs are figuring how to squeeze out more money from them by adding more automation.

Continued consolidation will lead to added pressure on the remaining smaller players, said Cook, including the likes of Diamondback Offshore Drilling of Houston. The pending spin-off of Maersk Drilling from the Danish shipping company Maersk Group could also open up other opportunities for acquisitions, Cook said.

One of the biggest issues hanging over the offshore drilling rig market is persistent oversupply. Cook said day rates have remained low and drilling companies have signed shorter-term spot contracts rather than commit their rigs to three-year contracts at the lower rates.

She said that day rates are likely to continue to tick up as more rigs age out of the fleet and are replaced by more efficient models and oil stays at higher prices.

Source: My San Antonio