* Ensign to buy Rowan land rig division for $510 mln
* Marks Rowan’s exit from onshore rig business
* Rowan to deploy proceeds into offshore drilling
* Rowan stock rises 4 pct, Ensign 3 pct (Adds analysts’ comments in paragraphs 7 and 12, link to Dealtalk, interview)
By Krishna N Das
BANGALORE, July 20 (Reuters) - Canada’s Ensign Energy Services , an oilfield services provider, said it will acquire 30 land drilling rigs from U.S. company Rowan Companies Inc for $510 million to expand into the oil-rich shale fields in southern United States.
Global exploration and production companies have piled on to the shale fields -- underground rock formations rich in oil and gas -- as crude oil prices CLc1 LCOc1 continue to rise. This boom in U.S. onshore drilling has helped sales at most services providers, including the world’s No. 2, Halliburton .
Ensign, which provides drilling, production testing and well services to the oil and gas industry, is already present in the Rocky Mountain region and California. Buying the 30 high-power rigs from Rowan will help it tap into new discoveries in Louisiana, Alabama and Oklahoma.
“It’s good for Ensign to expand their U.S. operations,” said Duncan Williams analyst Lewis Kreps, adding that the price Rowan is receiving for the rigs is “OK, and over $600 million would have been good.”
Separately, Rowan said the deal, for which it expects to obtain regulatory approval within 60 days, also includes working capital of about $30 million.
As of February, Rowan had 18 land rigs in Texas, eight in Louisiana, two in Oklahoma and one each in Alabama and Alaska. Its rigs are ideal for extended-reach drilling in shale fields such as the Haynesville, Deep Bossier and Eagle Ford -- mostly oil rich.
“While Ensign has historically been known to purchase assets at trough-of-cycle valuations, this is a unique opportunity to own a set of strong assets while expanding Ensign’s previously concentrated U.S. footprint into higher growth regions,” BMO Capital Markets analyst Michael Mazar said.
As all of Rowan’s rigs are of over 1,500 horsepower, Ensign will be better equipped to compete with larger U.S.-based rivals like Nabors Industries and Patterson-UTI .
Wednesday’s deal will take Ensign’s global drilling fleet to 340 marketed drilling rigs, with 115 rigs located in the United States.
The transaction follows Rowan’s exit from onshore drilling business. It has already divested its drilling and mining gear unit to Joy Global to focus on the lucrative deepwater market.
“We expect that our after-tax proceeds, estimated at about $370 million, will be redeployed into our offshore drilling business and recently announced deepwater expansion,” Rowan Chief Executive Matt Ralls said.
Jefferies & Co analyst Judson Bailey said that following Rowan’s sale of its land rigs “for a better-than-expected (price), its investors should begin to focus more on the undervalued nature of the company’s shares as well as its attractiveness as a takeover target”.
Calgary, Alberta-based Ensign said the deal will be funded through its existing working capital, available credit lines and a new term facility of up to $400 million from HSBC.
Goldman Sachs advised Houston-based Rowan on the deal.
Ensign shares rose 3 percent to a near three-year high of C$19.95 in morning trading on Wednesday on the Toronto Stock Exchange.
Shares of Rowan climbed 4 percent to a two-week high of $39.15 on the New York Stock Exchange. (Reporting by Krishna N Das in Bangalore; Editing by Maju Samuel)