Tuesday 15 August 2017

Rig behemoth Transocean is taking over Norwegian rival Songa Offshore in a deal valued at around $3.4 billion.

The deal will see Transocean swell its active fleet to 51 units, although it warned that there is likely to be more scrapping across its fleet as a result of the combination.

The price of Nkr47.50 ($5.96) per Songa share is a 37% premium on the five-day closing average, with Transocean saying it represents an enterprise value of Nkr 26.4 billion, which it equated to around $3.4 billion.

Zug, Switzerland-headquartered Transocean said the combination would generate expected annual cost and operational synergies of some $40 million, with the deal seen closing in the fourth quarter.

Transocean said the $3.4 billion deal value is comprised of:

$1.7 billion net assumed Songa Offshore debt

$660 million estimated Transocean Inc convertible bond

$540 million estimated Transocean Ltd equity

$480 million estimated Transocean cash

The 51 rigs that will make up the active fleet of the combined company comprise 30 ultra-deepwater floaters, 11 harsh-environment floaters, three deep-water floaters and seven mid-water floaters. Transocean also has a quartet of ultra-deepwater drillships on order.

Transocean is getting seven semi-submersibles from Songa, including its four Cat-D units: Songa Endurance, Songa Enabler, Songa Equinox and Songa Encourage. All four are currently working for Statoil on the Norwegian continental shelf.

Songa also has three older semisubs: the Songa Delta, Songa Dee and Songa Trym. The company said in its July fleet status report that all three remained stacked but "marketed for new employment". They may, however, become scrapping candidates after the combination.

Frederik Wilhelm Mohn, Songa's chairman and controller of its largest shareholder, will join the Transocean board.

Transocean chief executive Jeremy Thigpen said: "Songa Offshore is an excellent strategic fit for Transocean. With this combination, we add four new state-of-the-art Cat-D semi-submersible rigs to our existing fleet, further enhancing our position in the harsh environment market.

"We also demonstrate our continued commitment to the Norwegian market and strengthen our technical and operational presence in that region.

"Importantly, we add approximately $4.1 billion in contract backlog to our already industry-leading backlog of $10.2 billion, which provides us with even more visibility to future cash flows in this challenging market."

Mohn added: "The combined company will have an unparalleled backlog backed by strong counterparties. By adding Songa Offshore's four Cat-D rigs to Transocean's existing harsh environment fleet, the combined company will be the leader within this segment, which is showing signs of recovery."

Transocean also said that, as part of the deal, it will establish a harsh-environment centre of excellence in Norway, although with the proviso that this would be done "to the extent practical and commercially viable".

Transocean's splurge comes after it sold off its entire jack-up fleet to Norwegian start-up Borr Drilling for $1.3 billion.

The Songa purchase is the latest in a wave of consolidations in the rig market, also following Ensco's all-stock purchase of Atwood Oceanics for around $839 million, announced at the end of May.