Major offshore drilling contractor Transocean has moved to purchase Cyprus-headquartered Songa Offshore in a US$3.4 billion deal, the two companies announced today (15 August). Transocean expects the merger to close in Q4 2017.
The Songa Endurance. Image from Songa Offshore.
Transocean says the deal will strengthen the company’s “industry-leading position” with the addition of Songa’s four Cat-D harsh environment, semisubmersible drilling rigs on long-term contracts with Statoil in Norway; and Songa’s three semisubmersible drilling rigs.
Once merged, the combined companies will have a $14.3 billion backlog, and 51 mobile offshore drilling units, consisting of 30 ultra deepwater floaters, 11 harsh environment floaters, three deepwater floaters and seven midwater floaters, the companies said in a joint statement.
Transocean also has four ultra-deepwater drillships under construction, including two contracted with Shell for 10 years each.
“Consistent with Transocean’s strategy of recycling older less capable rigs, Transocean anticipates re-ranking the combined fleet, which may result in additional rigs being recycled,” Transocean said.
Transocean expects annual expense synergies to reach about $40 million.
“Songa Offshore is an excellent strategic fit for Transocean. With this combination, we add four new state-of-the-art Cat-D semisubmersible rigs to our existing fleet, further enhancing our position in the harsh environment market,” says Jeremy D. Thigpen, Transocean president and CEO. “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.”
As part of the combination, Songa Offshore and Transocean have discussed the future strategy of the Songa Offshore assets and organization. The intention is for the combined company to establish a Harsh Environment Center of Excellence in Norway to serve the North Sea and other external harsh environment markets, according to Songa.
"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," says Frederik Wilhelm Mohn, chairman of Songa Offshore.
Last week, Transocean was positive in its Q2 2017 report, as it experienced a busy period of rig contracts and extensions. The company also anticipates nearly 60 floater programs that could begin within the next 18 months.
In late-May, Transocean sold off is entire jackup fleet to Borr Drilling in a $1.35 billion deal.
Analysts weigh in
“Transocean’s (RIG) $3.4 billion acquisition of Songa Offshore, in our view, is a defensive move that we believe caused the offshore driller underperformance,” Barclays said in a 15 August report.
“First, it suggests RIG is still cautious about the medium-term outlook (somewhat in contrast to its 2Q17 comments) as it seeks the protection of $4.1 billion of Statoil revenue backlog related to four harsh environment semisubmersible rigs,” Barclays said.
Barclays said the deal is defensive on the surface, allowing Transocean to pursue additional mergers and acquisitions for assets with less contract coverage.
“During this downturn, RIG has retired 33 older floaters, sold its entire jackup fleet to Borr Drilling and now with this transaction gains a stronger fleet/foothold in the North Sea,” Barclays said. “The next step is likely to add on to its ultra deepwater rig fleet or build out the harsh weather fleet (midwater or jackups)."