Transocean in biggest offshore drilling deal since oil price collapse

Enterprise value of purchase of Songa Offshore is about $3.4 billion

The Songa Endurance platform. Transocean has bought the companyu in the biggest offshore drilling deal in three years. Courtesy Songa Offshore

Transocean agreed to buy Songa Offshore in the biggest offshore drilling industry deal since oil prices collapsed three years ago.

The enterprise value is about US$3.4 billion, half of which is Songa debt assumed by the combined entity, the companies said. The 47.5 Nowegian kroner a share offer implies an equity value for Norway’s Songa of about $1.2bn. The transaction, pre-accepted by 77 per cent of Songa investors, will be settled in shares, cash and a convertible bond.

Songa shares surged as much as 37 per cent on a deal that will add four harsh-environment, semi-submersible rigs to Transocean’s fleet. Those vessels - on long-term contracts with Norwegian oil producer Statoil - will boost the contract backlog of the world’s largest offshore driller by 40 per cent to $14.3bn as the industry recovers from the worst slump in a generation.

"The acquisition will strengthen Transocean’s position as the leading offshore driller with exposure to deep- and harsh-water markets,” said the Transocean chief executive Jeremy Thigpen. “Songa Offshore is an excellent strategic fit.”

Songa shares were 30 per cent higher at 44.30 kroner as of 10:40am in Oslo.

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The offer is “attractive” for Songa, while Transocean gets a “very strong backlog,” said Vidar Lyngvaer, an analyst at SpareBank 1 Markets.

The transaction follows Transocean’s sale of its entire fleet of jack-up rigs to Borr Drilling for $1.35bn earlier this year, and rival Ensco’s proposed acquisition of Atwood Oceanics for $863 million. The collapse of oil prices in 2014 coincided with an influx of new rigs into the market.

Transocean’s purchase of Songa also includes three additional semi-submersible rigs, pushing the combined company’s fleet to 51 floating rigs, in addition to four drill ships under construction. Transocean said it may scrap some of the older units.

Apart from Songa debt, the deal’s $3.4bn enterprise value includes an estimated $660m Transocean convertible bond, $540m of Transocean equity and $480m of cash. The deal is expected to close during the fourth quarter, the company said.

The deal would make Perestroika, Songa’s biggest owner, Transocean’s largest shareholder with a stake of about 12 per cent. Perestroika’s owner and Songa chairman Frederik W Mohn would join Transocean’s board.