Analysis: Eyes on ex-Pride unit Seahawk amid driller deals
SAN FRANCISCO |
SAN FRANCISCO (Reuters) - Ensco Plc's (ESV.N) takeover of Pride International Inc PDE.N sets the stage for cash-raising moves by struggling Gulf of Mexico drillers and deprives acquisitive giant Seadrill Ltd (SDRL.OL) of its most likely prey.
Seahawk Drilling Inc (HAWK.O), an operator of older shallow-water rigs that was spun off by Pride in 2009, is gasping under heavy losses now that no new drilling permits are being issued in the Gulf of Mexico, where it has the second-largest fleet after Hercules Offshore Inc (HERO.O).
Shares of Seahawk jumped nearly 10 percent on Monday as investors anticipate some sort of move by the company, which said last month a deal to sell one of its 20 rigs to Essar Oilfield Services India had fallen through.
"We continue to review all the alternatives," a Seahawk spokeswoman said via email. "These alternatives could include, but are not limited to, transactions involving a sale of assets, a recapitalization, or a sale or merger of Seahawk."
Yet industry experts say that beyond the long-anticipated purchase of Pride, the backdrop for takeovers in the offshore drilling industry looks fairly dim.
Independent analyst Lenny Zephirin said Pride was the best deal out there, and Ensco did well to secure it. But he saw no upside for Seahawk's aged fleet of low-tech jackups given the situation in the Gulf of Mexico, where a regulatory overhaul followed last year's disastrous BP (BP.L) well blowout.
"If an international company wants to acquire Seahawk and then move those rigs out of the Gulf of Mexico, then that's a positive option," he said. "But exactly where can those rigs work?"
An investment banker highlighted the difficulty of striking deals in offshore drilling, explaining that because it always took the same number of people to run a rig, no matter how big the company that owns it, cost savings are thin on the ground.
"It's not like manufacturing, where you can shut down a facility and use the capacity of another," said the banker, who declined to be identified. "When you have the inability to create much value through synergies, it's difficult to pay a premium."
Ensco and Pride said they expect annual cost savings of about $50 million by 2012.
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Zephirin viewed Pride as a prize asset, on the other hand, pointing out that its $7 billion backlog of contracted work, mostly in deepwater, was well over twice as much as Ensco's.
Seadrill was long seen as the most likely suitor for Pride, as owner of more than 9 percent of the Houston-based company, but Ensco's debt-free balance sheet may have looked better than that of highly leveraged Seadrill.
"They never said they wouldn't take Seadrill's cash, they just didn't want Seadrill paper," said Kurt Hallead, co-head of energy research at RBC Capital Markets.
Norway-listed Seadrill has made no secret of its desire to buy more companies. Chief Executive Alf Thorkildsen told Reuters last September that Seadrill was targeting smaller peers with between four and six deepwater rigs.
Shares of Atwood Oceanics Inc (ATW.N), which has six rigs capable of drilling in up to 5,000 feet of water or more, jumped 5.5 percent to a 2-1/2-year high of $43.06.
Among shallow-water specialists, Hercules shares rose 2.9 percent. Shares of Rowan Cos Inc (RDC.N), owner of 30 jackup rigs and a land rig fleet that it plans to spin off along with its manufacturing division, rose more than 3 percent.
Houston-based Rowan has said it would want to rebase outside the United States in any merger deal in order to secure a lower tax rate like Seadrill and Swiss rivals Transocean Ltd (RIGN.VX)(RIG.N) and Noble Corp (NE.N).
(Reporting by Braden Reddall in San Francisco and Mike Erman in New York, editing by Matthew Lewis)
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