* Deal to create second-largest offshore driller
* Ensco would get access to Brazil, West Africa fields
* Cash/stock deal priced at 21 pct premium to Pride shrs
* Pride shares gain 15.7 pct, Ensco falls 4.2 pct
(Adds comments on further deals, analysis link, paragraph 15)
By Matt Daily and Braden Reddall
NEW YORK/SAN FRANCISCO, Feb 7 Ensco Plc (ESV.N)
plans to buy Pride International Inc PDE.N for about $7.3
billion to create the world's second-largest offshore oil and
gas driller and extend its reach to lucrative deepwater fields
off Brazil and West Africa.
The deal, unveiled on Monday, sets a purchase price for
Pride of $41.60 per share, a premium of 21 percent to Friday's
close, and will give Ensco more cash flow to build the
high-tech rigs needed to meet oil companies' demand for
equipment capable of drilling in increasingly tough waters.
"Pride and Ensco combined are going to be in all the major
oil-producing regions now," said Kurt Hallead, co-head of
energy research at RBC Capital Markets in Austin, Texas.
The industry has been hit hard by the deepwater drilling
moratorium in the Gulf of Mexico and stringent shallow-water
regulations following last year's BP Plc (BP.L) well blowout,
which led to the worst-ever U.S. maritime oil spill.
But major energy companies such as Chevron Corp (CVX.N) and
Royal Dutch Shell Plc (RDSa.L) expect to continue spending
billions of dollars offshore, encouraged by strong oil prices.
Reuters Insider story: link.reuters.com/peh87r
BREAKINGVIEWS column: [ID:nN07210023]
With a total of 74 rigs, including six being built, the
combined Ensco/Pride will eclipse Noble Corp (NE.N) to be
second only to Transocean Ltd RIGN.VX, which has 136 rigs.
London-based Ensco has rigs deployed in the U.S. Gulf,
Europe, the Middle East and Asia, and the deal will add Pride's
five rigs off Africa's west coast and nine off Brazil.
Ensco did not have rigs in South America before it agreed
to move an idle rig in the Gulf of Mexico to French Guiana in
December. Then just last week, it struck a deal to move a rig
to Brazil from Australia. [ID:nN02227488]
State oil company Petrobras (PETR4.SA) plans to invest $224
billion between 2010 and 2014 to tap into billions of barrels
of oil from ultra-deepwater fields off Brazil, with $119
billion of that going toward exploration and production.
That will require dozens of deepwater drilling rigs that
can operate in water depths of 10,000 feet; and while Petrobras
has said it plans to build many of its own rigs, drilling
contractors hope to win a substantial share of that market.
Pride and Ensco have a total of 21 deepwater rigs available
or being built, equal to Noble but behind Transocean's 44,
giving it a strong position in the most lucrative market
segment, which often pays rig owners more than $500,000 a day.
Ensco said rig construction would absorb much of the new
company's cash flow in the next few years. Combined, they have
added 12 new vessels in the past few years, and would have the
second-youngest deepwater fleet, after Seadrill Ltd (SDRL.OL).
Seadrill, an acquisitive Norway-listed company, had long
been seen as Pride's natural buyer, since it owns nearly 10
percent of Pride's shares. Seadrill Chief Financial Officer Esa
Ikaheimonen told Reuters the Ensco offer looked like a "decent
number" and said the deal would be positive for the sector.
Drillers will buy more rigs in the coming years as they try
to challenge Transocean, which bought GlobalSantaFe for about
$15 billion in 2007, but experts said buying drilling companies
is tough and that Pride was a special target. [ID:nN07221472]
The deal is like to draw antitrust scrutiny in the United
States, Britain and perhaps Brazil, because of the importance
of the energy sector and the size of the transaction. But it is
unlikely to be blocked, said Bruce McDonald, a former U.S.
deputy assistant attorney general, who is now with law firm
"Based on what they say about their fleet profiles and
geographic strengths, it does seem like they're more
complementary," he said. "I don't have reason to think that any
of the agencies would block them."
Pride and Ensco's combined company, which would be based in
Britain, will seek annual cost savings of $50 million by 2012,
and the deal should add to Ensco's earnings in 2011 and 2012.
Pride shareholders would receive 0.4778 newly issued Ensco
share plus $15.60 cash for each Pride share. The deal would be
financed through a combination of existing cash on the balance
sheet and newly issued Ensco shares and debt. Total cash paid
to Pride shareholders would be about $2.8 billion.
Ensco has commitments from Deutsche Bank and Citibank to
finance the incremental debt required for the deal. Ensco's
lead adviser was Deutsche, while Citi also served as financial
adviser and Baker & McKenzie LLP acted as its legal adviser.
Pride's outstanding bonds rose, since Ensco's offer
involves the assumption of $1.9 billion of its debt.
Pride's most actively traded bonds, its 6.875 percent
senior notes due August 2020, climbed 4.5 points to a high of
114.25, versus 109.75 on Friday, according to Thomson Reuters
Tradeweb. The bonds later fell back to 112.75.
CDS of Pride tightened 60 basis points to 108.25 before
easing to 119.0. (See debt commentary at: [ID:nN07231752])
Houston-based Pride was advised by Goldman Sachs and its
legal advisers are Baker Botts LLP and Wachtell, Lipton, Rosen
Pride shares rose 15.7 percent to $39.80 on the New York
Stock Exchange, while Ensco ended 4.2 percent lower at $51.13.
(Additional reporting by Michael Erman, Brian Ellsworth in Rio
de Janiero; Diane Bartz in Washington, and IFR analyst Rachelle
Horn; Editing by Gerald E. McCormick, Steve Orlofsky and