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Observe: Noble Company (NYSE:NE) has been lined by me beforehand, so buyers ought to view this as an replace to my earlier articles on the corporate.
On Thursday, main offshore driller Noble Company (“Noble”) introduced the sale of 5 jackup rigs to competitor Shelf Drilling (OTCPK:SHLLF) for $375 million in money in an anticipated transfer to deal with regulatory considerations concerning its proposed merger with Maersk Drilling:
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The Treatment Rig Sale Settlement consists of the rigs Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert, and Noble Lloyd Noble (the “Treatment Rigs”) and all associated help and infrastructure. Related offshore and onshore employees are anticipated to switch with the Treatment Rigs. Following the sale, Noble expects to proceed to carry out the present drilling program for the Noble Lloyd Noble underneath a bareboat constitution association with Shelf Drilling till the second quarter of 2023 when the first time period of its present drilling contract is anticipated to finish. The constitution association would go the financial good thing about the drilling contract to Shelf Drilling. Drilling contracts for different Treatment Rigs are anticipated to be novated to the Purchaser, topic to the purchasers’ consent. Noble will present sure customary transition help providers to the Purchaser for a restricted time period. The Purchaser is anticipated to finance the acquisition by fairness and debt financings by the Purchaser and Shelf Drilling, however the buy will not be conditioned on such financing. The Treatment Rig Sale is anticipated to shut promptly following closing of the Enterprise Mixture (and following receipt of CMA approval).
Whereas each Noble and Maersk Drilling have been fairly clear about their perception within the monetary and strategic rationale underpinning the transaction remaining intact and compelling for all stakeholders no matter the required divestment of nearly all of Noble’s jackup rigs, I’m very dissatisfied by the phrases of the proposed transaction.
Understand that Shelf Drilling not solely will get 5 trendy jackup rigs together with all associated help and infrastructure but in addition picks up an estimated $250 million in backlog.
To place issues in perspective: The Noble Lloyd Noble is among the many largest and highest-specification jackup rigs on the earth and was delivered to the corporate at an estimated value of virtually $700 million simply six years in the past.
The lack of the corporate’s flagship and sole NCS-compliant jackup rig is especially disappointing given the superior money era potential of the unit.
The required sale of the Noble Houston Colbert additionally hurts because the rig only in the near past was awarded a 3.5-year contract offshore Qatar.
In sum, Shelf Drilling will get a totally operational subsidiary able to compete within the North Sea, an space the place the corporate has not been energetic up to now whereas Noble loses 1 / 4 of its complete fleet.
Fairly frankly, I’m not certain if the projected advantages of the proposed mixture with Maersk Drilling will actually make up for the lack of 5 trendy jackup rigs and their sizeable backlog.
Anyway, the $375 million in money proceeds from the sale will additional bolster the mixed firm’s liquidity.
Noble now expects to launch the alternate provide for shares of Maersk Drilling in August and the closing of the merger to happen close to the top of Q3, an roughly three-month delay relative to the unique timeline.
Please word that the UK antitrust watchdog has not but authorised the enterprise mixture. As well as, completion of the merger stays topic to acceptance by holders of at the least 80% of Maersk Drilling shares.
Backside Line
Suffice to say, Noble seems to be on the receiving finish of this deal as Shelf Drilling not solely acquires a fleet of contemporary jackup rigs but in addition enjoys the advantages of choosing up a totally operational subsidiary and an honest quantity of backlog.
Frankly talking, I might have most popular Noble to keep away from this hearth sale and reasonably terminate the merger with Maersk Drilling however each corporations have been steadfast of their perception within the strategic rationale of the transaction.
Effectively-founded recession fears have hit oil-related shares exhausting in latest weeks however I don’t anticipate any main influence on offshore drilling budgets presently.
That mentioned, with trade shares normally buying and selling in shut correlation with oil costs, buyers want to arrange for latest volatility to proceed.
Given the unsure outlook, I’ve lowered my publicity to oil-service and delivery shares fairly meaningfully in latest weeks. Nonetheless, I stay optimistic on the offshore drilling trade going ahead.
Two weeks in the past, I might have doubtless downgraded Noble primarily based on the disappointing divestment phrases however after the latest 30% sell-off, I made a decision to maintain my “purchase” ranking on the shares for now.
