June 28, 2010 / 12:16 PM / 9 years ago

Noble Corp to buy Frontier Drilling for $2.16 billion

NEW YORK (Reuters) - Offshore oil and gas driller Noble Corp (NE.N) said it would buy Norway’s privately held Frontier Drilling for $2.16 billion, adding seven vessels to its fleet even as much of the Gulf of Mexico remains effectively closed to new operations.

The deal, plus new drilling contracts with Royal Dutch Shell (RDSa.L) that will add $4 billion to Noble’s backlog of work, indicate the industry is preparing to increase offshore exploration even as BP Plc’s (BP.L) well continues to pour oil into the Gulf in the worst spill in U.S. history.

Shares of Noble, which owns the second-largest fleet of offshore drilling rigs behind Transocean Ltd (RIGN.S), rose 3.3 percent.

“This acquisition is a highly complementary extension of our mid- and deepwater presence and positions us for additional growth in new market segments that can provide further opportunities for Noble and our customers,” Chief Executive Officer David Williams said in a statement.

New deepwater drilling in the Gulf has come to a stop because of the spill at BP’s Macondo well, which has been spewing oil since its April blowout.

A U.S. judge blocked the federal government’s moratorium on new drilling in waters deeper than 500 feet, but the U.S. Interior Department has said it plans to release new rules blocking drilling as it crafts regulations designed to increase safety.

Noble said it had resolved the status of its units contracted to Shell in the Gulf of Mexico and would allow the oil giant to suspend contracts at a reduced rate. The contracts will resume at their full terms and normal rates once drilling resumes, Noble said.

Noble also negotiated a three-year extension on its Noble Jim Thompson rig operating in the Gulf at a reduced rate of $336,200 per day.

That is significantly lower than the mid-$400,000 daily rate that rigs were bringing in before the spill, according to Argus Research analyst Phil Weiss.

ALL-CASH DEAL

Williams said Noble remains on the lookout for new chances to expand its fleet, and that the spill in the Gulf had not affected the Frontier deal.

“For us, no, I don’t think it had a big impact. It may have for the other parties, but for us it was complicating noise,” he told a conference call.

Noble’s all-cash acquisition of Frontier, officially known as FDR Holdings Ltd, will add to cash flow immediately and to earnings from early 2011, the company said. It expects the purchase to close in July.

Carlyle Group and Riverstone Holdings are investors in Frontier.

Noble said it would fund the acquisition with a combination of cash, a drawdown on its bank credit facility, and an $800 million bridge loan.

The deal will add about $3.2 billion in gross contract backlog over, Noble said.

Frontier, which is domiciled in Norway and headquartered in Houston, is building two ultra-deepwater drillships designed to operate in Arctic waters under a partnership with Shell.

In addition, Frontier owns five other vessels, including the Frontier Driller, which is operating in the Gulf of Mexico.

Noble was advised by Simmons & Co International as well as Barclays Capital (BARC.L) and SunTrust Robinson Humphrey Inc (STI.N) in the transaction with FDR. Goldman, Sachs & Co (GS.N) acted as financial advisor to Frontier.

Noble shares rose 3.3 percent to $30.25 in afternoon trading on the New York Stock Exchange.

Additional reporting by Michael Erman and Megan Davies in New York and Arup Roychoudhury in Bangalore; Editing by John Wallace and Lisa Von Ahn

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