Drilling

First Offshore Drilling Merger: Ensco Buys Atwood Oceanics

The offshore drilling sector has taken a step towards consolidating an oversupplied market and Ensco will emerge from this most recent deal as the owner of the largest combined fleet of floaters and jackups.

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An ENSCO ultra-deepwater drillship underway. Source: Ensco

Offshore drilling contractor Ensco is set to buy smaller rival Atwood Oceanics in all-stock transaction valued at USD 850 million. The deal marks the first such corporate acquisition in the offshore drilling sector since the onset of the oil and gas industry downturn.

The merged enterprise will be the world’s largest owner of a mixed-offshore drilling fleet with 63 rigs—26 deepwater floating rigs and 37 jack-ups. The breakdown of the additions coming from Atwood Oceanics include four deepwater drillships, two semisubmersibles, and five jack-ups. Pending regulatory approval, the deal is expected to close later this year.

Carl Trowell, chief executive officer of London-headquartered Ensco, emphasized in a press statement that acquisition bolsters the company’s “high-specification” fleet of drilling assets and positions it for an anticipated offshore recovery.

“We will remain one of our industry’s best capitalized companies,” said Trowell, adding that, “Our combined financial strength, diverse customer base and larger scale should lead to greater strategic and competitive advantages as well as cost efficiencies, allowing for opportunistic investments through the market cycle.”

Liz Tysall, a senior offshore rig analyst at Rystad Energy, explained that Atwood Oceanics is an attractive purchase for Ensco because it helps fill out the company’s global footprint and comes with a smaller debt burden than most of the other small-sized contractors that may be potential acquisition targets.

“I think Ensco is taking advantage of market timing. There is a sense out there that we’re coming close to the bottom after being in a really long trough,” said Tysall, who sees the merger as positive move for the fragmented offshore drilling business.

Rystad noted that this deal follows other smaller offshore rig transactions made in recent months including Shelf Drilling’s acquisition of 3 jackups from Seadrill for USD 225 million. In March, Transocean made itself a pure-play operator of deepwater rigs with the selling of its fleet of 15 jackups to Borr Drilling for USD 1.35 billion.

But to correct the global oversupply of offshore rigs, which continues to hold negative pressure on day rates, Tysall said more dealmaking will be needed.

“I don’t think it signals a return for offshore drillers just yet,” she cautioned. “Not only do the drilling contractors need to get rid of their older and less capable units, in order to help themselves out more, they need to consolidate.”

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This chart excludes newbuilds that have not been delivered in its analysis and also does not include Transocean which remains the world’s largest pure-play owner of deepwater floating rigs. Rystad notes that the combined Ensco and Atwood Oceanics drilling fleet will hold just under 55 years of backlogged contracts. Source: Rystad.