Dealmaking is continuing across the global energy sector as Noble Corp. plc, one of the world’s largest ultra-deepwater drillers, has agreed to buy Diamond Offshore Drilling Inc. in a cash-and-stock transaction worth about $1.6 billion.
The merger between the oilfield services companies, both headquartered near Houston, would create one of the top ultra-deepwater drillers in the world.
Noble CEO Robert Eifler discussed the reasoning for the merger during a conference call.
There is an “abundance of industrial logic” to merging the companies, Eifler explained. “Over the past three years, Noble has been very active and purposeful” with its merger and acquisition (M&A) strategy “to create a leading offshore driller that could credibly aim to become first choice with customers, employees and shareholders.
“Bringing Diamond onto this platform is the next logical step in this journey.”
In late 2021, Noble merged with Denmark’s Maersk Drilling Co.
“We have stated consistently that following the successful integration of the transformative Maersk drilling combination, Noble is now at a sufficient scale that any further M&A would have to be considered highly selectively,” Eifler said. “And indeed, this opportunity is uniquely well aligned with our growth roadmap and our commitment to driving shareholder value through strong execution for our customers, free cash flow generation and returning capital to shareholders.”
The merger is one of many announced over the past few months by U.S.-based exploration companies and oilfield services firms. One of the largest was announced late last month by ConocoPhillips and Marathon Oil Corp.
Big Backlog
Noble’s backlog now stands at $6.5 billion, with Diamond’s at $2.1 billion. Diamond has 12 global offshore floaters, which when combined, would give Noble a fleet of 41 offshore rigs, including 28 floaters and 13 jackups.
From a fleet perspective, Eifler said the transaction would create “the leading operator of tier one drillships…Tier one drillships all compete at the top echelon with the highest dayrates in the industry.”
As part of the deal, Noble would gain entry into working in harsh environments with Diamond’s Ocean Gray White drillship.
Diamond’s other five semisubmersibles “have been over 85% utilized over the past three years and have strong forward contract coverage representing close to $800 million out of Diamond’s $2.1 billion of total backlog,” Eifler said.
The companies also have “complementary positioning of our operations and customer coverage. We have a great deal of customer diversity, but over 80% of Diamond’s backlog is contracted to customers that are not current Noble customers on the floater side.”
The management teams are targeting $100 million of total cost synergies, 75% expected within the first year.
Diamond CEO Bernie Wolford also discussed the transaction during the conference call.
“From a Diamond perspective, we've been pretty transparent about the imperative to gain a more efficient scale,” he said. “This combination with Noble is an ideal path to attain that scale…”
The transaction, unanimously approved by each board, is set to be completed by early 2025. With regulatory approval, Diamond shareholders would own about 14.5% of Noble’s outstanding shares. Diamond shareholders are to trade each share for 0.2316 shares of Noble, plus up to $5.65/share.
Wood Mackenzie’s Leslie Cook, principal analyst of the upstream supply chain, explained the benefits of the merger – and the potential impact on dayrates.
“We have been predicting offshore rig market consolidation for some time,” Cook said. Because there is “little appetite from owners to add new rigs as rig demand is flattening out, we believed growth would be inorganic. It therefore comes as little surprise that the first major deal in the upstream service sector has been announced.
“Noble has grabbed first mover advantage, and solidified its status in the top two offshore rig contractors.”
According to Cook, 60%-plus of the Noble-Diamond total floater backlog is with four drilling contractors.
“While we believe this will have little impact on dayrates in the shorter term, we do believe that the consolidation of the market will afford rig contractors more control in the medium and long term. With dayrates currently reaching $500,000/day, this will be an ongoing concern for operators adhering to capital discipline and planning for long-term drilling programs.”
