Offshore Drillers Feel Urge to Merge
Source: Seeking Alpha, Toby Shute (11/3/10)
"Deepwater drilling market has a very bright future."
Speculation surrounding a sale of Pride is nothing new. Seadrill built a ~10% stake in the company in 2008 and still holds it. Pride has increased its attractiveness as a takeover target by jettisoning its undesirable mat-supported jack-up business, Seahawk Drilling, last year. That spinoff left the firm quite leveraged to the deepwater drilling market, which has a very bright future barring an unexpected oil-price collapse.
Ensco and Seadrill have squared off recently. In May, Ensco made a partial tender offer for the shares of Scorpion Offshore. Seadrill trumped this offer (with a modest 1.25%/share premium) and picked up the company.
Seadrill is by far the more aggressive industry consolidator. Its chairman has even spoken about combining with industry heavyweight Transocean (NYSE:RIG; SIX:RIGN), making clear that no target is too ambitious. I would definitely tap Seadrill as the most likely Pride partner. Pride itself said Seadrill's high-quality assets would be a good strategic fit.
Struggling Seahawk is looking at asset-sale transactions, recapitalization, sale or merger. It's hard to imagine any current operator would buy or merge with Seahawk, given the near-term drag on performance. A financial sponsor of some sort might see the merits of eating some losses with an eye to rebound a year or two down the line. As I've outlined in the past, Seahawk's earnings power under such a scenario could make the shares worth >$20. The problem is that such a rebound would require a return of demand for the drilling of shallow-water GOM wells—not the deep-shelf variety McMoRan Exploration is targeting.