Offshore drilling firms Seadrill Limited and Aquadrill (ex-Seadrill Partners) on Thursday announced a definitive merger agreement under which Seadrill will acquire Aquadrill in an all-stock transaction.
When the transaction is completed, Seadrill shareholders and Aquadrill unitholders will own 62% and 38% of the common shares in the new company, respectively.
Based on Seadrill's 30-day volume-weighted average share price of US$31.25 on the NYSE as of December 22, 2022, the deal gives Aquadrill an implied equity value of about US$958 million.
"The combination creates an industry-leading offshore drilling company, with a modern and high specification fleet and a streamlined cost structure. The company will be well-placed to realize estimated annual run rate synergies of at least US$70 million. The company will also be well-positioned for further growth given its stronger credit and liquidity profile, and to provide attractive cash flows," Seadrill said in a statement.
Simon Johnson, Seadrill's President and Chief Executive Officer, said, "At Seadrill we seek to deliver safe and effective operations as the bedrock for generating returns for our shareholders. Seadrill and Aquadrill have a long and rich strategic and operational management history. Our shared heritage will promote efficient integration of the two companies. I look forward to welcoming the Aquadrill fleet back into the Seadrill family." Steven Newman, Aquadrill's Chief Executive Officer, said, "We believe this combination will create the most value for our shareholders and will create an excellent platform for high quality service delivery to our customers."
The transaction has been approved by the Boards of Directors of both Seadrill and Aquadrill. The required approval of Aquadrill's unitholders has also been obtained. The transaction does not require Seadrill shareholder approval.
Seadrill said the merger would create "a leading offshore driller with best-in-class fleet" which will be in a strong position to serve a broader range of customers, with one of the youngest and most technologically advanced fleets in the industry, and a combined backlog of US$2.8 billion.
The company will own 12 floaters, seven of which are 7th generation drillships, three harsh environment rigs, four benign jack-ups, and three tender-assisted rigs. Additionally, seven rigs will be managed under a variety of strategic partnerships.
Seadrill also said that the new company would have "a diversified portfolio of contract coverage, with additional active fleet capacity to deploy in a rising market environment across critical basins in the Golden Triangle."
With the merger come synergies and savings of "at least US$70 million annually on a run-rate basis." All synergies are expected to be fully realized within two years of closing the transaction.
Synergies are expected to be generated through a combination of: management fee optimization; G&A and overhead cost savings; logistics, supply chain and inventory efficiencies; and capital expenditure savings.
The company should benefit from an enhanced cash flow profile and a strengthened balance sheet, with significant credit and liquidity improvement, and with access to a potentially lower cost of capital, Seadrill said.
Following completion of the transaction, Aquadrill will become a wholly owned subsidiary of Seadrill. Subject to necessary regulatory approvals being obtained the transaction and is expected to close in mid-2023.
The merged company will remain named Seadrill Limited and will continue to be domiciled in Hamilton, Bermuda. Julie Robertson and Simon Johnson will continue in their respective roles as Chair of the Board of Directors, and President and Chief Executive Officer.
As of November 30, 2022, Seadrill and Aquadrill had a combined cash balance of about US$628 million, including around US$133 million in restricted cash, and a combined debt balance of around US$521 million.