Updated: Ensco to takeover Atwood Oceanics

Ensco is set to acquire Atwood Oceanics in an all-stock transaction worth some US$839 million, creating a company with the largest jackup fleet in the world.

Image from Ensco.

Ensco and Atwood entered the definitive merger deal today (30 May), which was unanimously approved by each company’s board of directors.

Under the terms of the merger agreement, Atwood shareholders will receive 1.60 shares of Ensco for each share of Atwood common stock for a total value of $10.72 per Atwood share based on Ensco’s closing share price of $6.70 on 26 May 2017. Upon close of the transaction, Ensco and Atwood shareholders will own approximately 69% and 31%, respectively, of the outstanding shares of Ensco plc. There are no financing conditions for this transaction, the two companies said in a joint statement.

Ensco says it expects to realize annual pre-tax expense synergies of approximately $65 million for full year 2019 and beyond; and 2018 cost synergies are projected to be more than $45 million.

Ensco expects the acquisition to strengthen its position as the leading offshore driller with exposure to deep- and shallow water markets that span six continents.

The deal is still subject to approval by the shareholders of Ensco and Atwood, as well as other customary closing conditions. Ensco and Atwood intend to file a joint proxy statement/prospectus with the Securities and Exchange Commission as soon as possible. The companies anticipate the deal could close as soon Q3 2017.

Upon closing the deal, Ensco will add six ultra deepwater floaters, including four of the most capable drillships in the industry, and five high-specification jackups.

The combined company will have a fleet of 63 rigs, comprised of ultra deepwater drillships, versatile deep- and mid-water semisubmersibles and shallow water jackups, along with a diverse customer base of 27 national oil companies, supermajors and independents.

The combined fleet will be among the most technologically advanced in the industry, says Ensco. Within the fleet of 26 floating rigs (semisubmersibles and drillships) are 21 ultra deepwater drilling rigs, capable of drilling in water depths of 7500ft or greater, with an average age of five years – establishing this fleet among the youngest and most capable in the industry.

The jackup fleet will be the largest in the world, composed of 37 rigs, including 27 premium units. These jackups are all equipped with many of the advanced features requested by clients for shallow water drilling programs, such as increased leg length, expanded cantilever reach, greater hoisting capacity and offline handling capabilities.

The combined company will have operations and drilling contracts spanning six continents, including the Gulf of Mexico, Brazil, West Africa, Middle East, North Sea, Mediterranean and Asia Pacific.

Ensco’s executive management will continue with Carl Trowell as president and CEO; Carey Lowe as executive VP and COO; and Jon Baksht as senior VP and CFO.

Ensco plc’s chairman will continue to be Paul Rowsey and the board of directors will include Carl Trowell, plus two members from Atwood’s current board effective at closing.

Ensco will continue to be housed in the UK and senior executive officers will be located in London and Houston.

“The combination of Ensco and Atwood will strengthen our position as the leader in offshore drilling across a wide range of water depths around the world – creating a broad platform that we can build upon in the future. This acquisition significantly enhances our high-specification floater and jackup fleets, adding technologically advanced drillships and semisubmersibles, and refreshing our premium jackup fleet to best position ourselves for the market recovery,” says Ensco CEO Carl Trowell.

“By bringing together our high-specification rig fleets, technology and innovation, and talented rig crews, we plan to continue delivering high levels of operational and safety performance to an even larger group of clients. We will remain one of our industry’s best capitalized companies,” says Trowell. “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.”

“The combination is an ideal strategic fit,” says Atwood CEO Rob Saltiel. “We believe the combined company will offer an unmatched rig fleet and workforce. These attributes, anchored by a strong balance sheet, should enable the company to thrive as market conditions improve and allow Atwood shareholders to fully participate in the market recovery.”

Analysts weigh in

Rystad Energy called the merger “the first merger between two well-respected offshore drilling contractors,” as the analyst compared it to the several “second-hand rig transactions” that includes a number of rigs changing hands such as Borr Drilling’s acquisition of Transocean’s jackup fleet and Shelf Drilling’s acquisition of three Seadrill jackups.

“Consolidation has been long overdue and the Ensco-Atwood merger is the first step towards a less fragmented industry" says Liz Tysall, Sr. offshore rig analyst at Rystad Energy. "The combined fleet will have 63 rigs – 26 floaters and 37 jackups giving Ensco the largest blended fleet as compared to other offshore drilling contractors with fleets including both floaters and jackups.”

Excluding newbuilds, the average age of the combined floater fleet is less than 10 years while the average age of the jackup fleet is 20 years. According to Rystad Energy’s RigCube database, combined the two companies will have just under 55 years of contracted rig backlog.

According to VesselsValue, the combined fleet values ranks the deal as the third-highest valued fleet of MODUs in the world. 

“Prior to yesterday's acquisition of Atwood for an all share deal value at $839 million, Ensco had a total fleet of 58 MODU’s consisting of 37 jackups, 13 semisubmersibles, seven ultra deepwater drillships, one jackup newbuild, and one ultra deepwater drillship newbuild with total value of $3.8 billion,” says VesselsValue Offshore Analyst Rob Day. “Ensco will take over Atwoods nine MODU’s with live value of $1.1 billion and two newbuild ultra deepwater drillships, the Atwood Admiral ordered in 2012 for $635 million and the Atwood Archer ordered in 2013 for $635 million.”

“With this shrewd move Ensco is now the third top MODU owner by value, beaten only by Sete Brazil and Transocean,” says Day.

What does this merger tell us, VesselsValue asks?

“Has the bottom of the market been reached and is Ensco taking full advantage to acquire cheap vessels? With the recent transactions in the sector for example the Tor Olav Troim acquiring all Transoceans jackup rigs for $1.35 billion you can see why people may be thinking this,” says Day. “However, the more likely scenario here is that this is a big owner taking advantage of a cash strapped smaller owner. Atwood’s latest quarterly report announced a loss of $29 million. Therefore, this a deal which benefits both sides: Ensco has acquired a competitor’s fleet at reduced cost, while Atwood can take advantage of their strengthened position in the market and all the annual savings that brings.”