Offshore drillers Ensco plc and Rowan Companies plc announced yesterday that the companies will combine in an all-stock transaction. The agreement was unanimously approved by each company’s board of directors. The companies anticipate that the transaction will close during the first half of 2019.
Under agreement, Rowan shareholders will receive 2.215 Ensco shares for each Rowan share. Upon closing, Ensco and Rowan shareholders will own approximately 60.5% and 39.5%, respectively, of the outstanding shares of the combined company. Based on the closing price of each company’s shares on Oct. 5, the estimated enterprise value of the combined company is $12 billion. The total estimated revenue backlog for the combined company is approximately $2.7 billion, excluding ARO Drilling’s substantial backlog which is unconsolidated.
The combined company expects to realize annual expense savings of approximately $150 million, with more than 75% of it expected to be realized within one year of closing. As a result, the transaction is projected to positively affect cash flow in 2020 following the anticipated closing next year.
Rowan President and Chief Executive Officer Tom Burke will serve in the same capacity for the combined company. “By merging our high-quality rig fleets and infrastructure covering the world’s most prolific offshore basins, we increase our scale while maintaining a shared focus on high-specification assets that will include ultradeepwater drillships and versatile semisubmersibles, as well as harsh environment and modern jackups," Burke said in a statement. "Rowan shareholders also benefit from the addition of significant backlog and substantial scale in ultradeepwater operations. The combined entity’s talented workforce, unrivaled geographic and customer diversification, and solid financial position ideally position us to meet increasing customer demand for the most technologically-advanced drilling rigs as the offshore sector recovers.”
Ensco President and Chief Executive Officer Carl Trowell will serve as executive chairman of the combined company. “The combination of Ensco and Rowan will create an industry leader in offshore drilling across all water depths, with significant advantages to capitalize on future opportunities and better serve our customers," he said in a statement. "Through this combination, Ensco shareholders will uniquely benefit from Rowan’s strategic joint venture with Saudi Aramco, ARO Drilling, while all stakeholders will share in meaningful cost savings and even greater upside to improving market conditions as the industry recovery continues gaining momentum.”
Rowan sounded some positive comments about the market during its second-quarter earnings call in August. Burke commented on improvements in the price of oil from a year ago which “has created a more constructive environment for offshore drilling. Our discussions with customers and the cadence of tendering activity further supports this view.”
Burke discussed the Gulf of Mexico ultradeepwater drillship market. As of Aug. 1, there were 20 rigs contracted in the region, and only six have contract terms that expire by mid-2019. Some of these rigs, he said, have options that should keep them tied up beyond their original terms. “While some projects have been pushed from 2018 to 2019, we continue to see new opportunities appear in the region, both for majors and for independents. We are also keeping a close eye on the developing deepwater opportunities in Mexico.”
London-based VesselsValue said the acquisition makes Ensco the largest MODU owner by value, with a total fleet (live, on order and joint ventures) worth $8.4 billion, knocking Transocean from the top spot which they held for a month due to its merger with Ocean Rig. The Ensco-Rowan merged fleet is now the most valuable publicly listed cargo and offshore fleet on a U.S. stock exchange.
Head of Offshore, Charlie Hockless, commented on the merger:" Within the offshore industry, these continued mergers prove that consolidation is paramount to survival," said VesselsValue head of offshore, Charlie Hockless. "Even though the last few months have seen a recent strengthening in oil price, market values are still below average across all MODU types. Activity is predicted to pick up in 2019, and those who have financially restructured and consolidated in 2018 look to reap the benefits in what stands to be an exciting year next year."
Combined company highlights include:
- The combination will create a leading offshore driller by fleet size, geographic presence and customer base, with 82 rigs spanning six continents and collectively serving more than 35 customers, Ensco-Rowan said.
- The combined company’s rig fleet of 28 floaters and 54 jackups will be among the most technologically-advanced in the industry, Ensco-Rowan said.
- Within the fleet of 28 floating rigs (drillships and semisubmersibles) are 25 ultradeepwater rigs capable of drilling in water depths of greater than 7,500 feet, with an average age of six years – making this fleet among the youngest and most capable in the industry. The combined fleet will also have the second-largest fleet of the highest-specification drillships in the industry, with 11 of these seventh generation ultradeepwater rigs.
- The 54-rig jackup fleet will include 38 units that are equipped with many of the advanced features requested by clients with shallow-water drilling programs, such as increased leg length, expanded cantilever reach and greater hoisting capacity. Among the combined company’s jack-up fleet are seven ultra-harsh environment units and nine additional modern harsh environment rigs.
- The combined company will be the most geographically-diverse offshore driller with current operations and drilling contracts spanning six continents in nearly every major deep- and shallow-water basin around the world including the Gulf of Mexico, Brazil, West Africa, North Sea, Mediterranean, Middle East, Southeast Asia and Australia, Ensco-Rowan said..
- Ensco shareholders will gain exposure to the ARO Drilling joint venture and ultra-harsh environment jack-ups, along with a presence in Norway. Rowan shareholders gain access to Ensco’s strong relationships with large deepwater customers and wider geographic footprint, which includes a presence in Brazil, West Africa, Southeast Asia and Australia, along with a versatile semisubmersible fleet.
The combined company’s balance sheet is expected to have liquidity of approximately $3.9 billion, including $1.9 billion of cash and short-term investments. The total estimated revenue backlog for the combined company is approximately $2.7 billion, excluding ARO Drilling’s substantial backlog which is unconsolidated. The combined company will be based in the United Kingdom and have senior executive officers in London and Houston.