Unlock the Editor’s Digest for free with Roula Khalaf, Editor of the FT, selecting her favorite stories in this weekly newsletter. The offshore oil rig industry has seen a significant consolidation as Noble Corporation announced its acquisition of US rival Diamond Offshore in a $1.6 billion cash and shares deal. This move will make Noble and Transocean the dominant players in the sector, with a combined third of the global supply of deepwater rigs.
The deal is seen as a win-win for both companies, with Noble paying the equivalent of $350 million per Diamond rig, a significant discount compared to the cost of a new rig. With planned cost cuts of $100 million annually, Noble expects to see an increase in free cash flow, leading to a 25% lift in dividends for shareholders. The optimism surrounding the deal is reflected in the rise in share prices for both companies following the announcement.
The increasing demand for deepwater rigs has led to a rise in day rates, with rentals climbing to $450,000 daily. This, coupled with operating expenses, allows drillers to clear around $300,000 per day. Companies like TotalEnergies have opted to hedge these rising costs by purchasing drillships, highlighting the preference for leasing rather than owning rigs in the industry.
While the sector’s fortunes are beginning to improve, companies like Seadrill and Eldorado are potential targets for consolidation deals due to their appropriate fleets. As the industry moves towards acquiring extra capacity rather than building it, the future looks promising for deepwater drillers after years of belt tightening.
Overall, the consolidation in the offshore oil rig industry is a reflection of the improving market conditions and the increasing demand for deepwater drilling equipment. Companies like Noble Corporation and Diamond Offshore are leading the way in this consolidation trend, setting the stage for further acquisitions and deals in the sector. With rising day rates and operational efficiencies, the future looks bright for deepwater drillers as they navigate the evolving landscape of the oil and gas industry.
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