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Offshore rig contractor, Noble Corporation (NE - Analyst Report) announced plans to spin off half of its fleet into a separate company to concentrate on its high-specification assets operating in deeper waters.

The new company would own and operate the majority of standard specification drilling units in the Noble fleet, comprising five drillships, three semisubmersibles, 34 jackups, two submersibles and one FPSO. The operations of the Hibernia platform will also be handled by the new company.

According to the statement, the separation is likely to involve an initial public offering (IPO) of about 20% of the new company’s shares in a tax-free distribution of the new stock to the existing Noble investors. In case of an IPO, Noble anticipates that the new company would file a registration statement with the U.S. Securities and Exchange Commission in late 2013 or early 2014.  

Noble expects shareholders approval in the second quarter of 2014, while the spin-off is projected to be completed by the end of 2014.

As the old oil discoveries become obsolete and new challenges are faced in finding new supplies, offshore players are pushing into deeper waters and harsher environments. This requires rigs equipped with advanced technologies, which are highly priced.

The primary reason for the separation is for Noble to proceed with its development of high-specification and deepwater drilling rigs. This will help it to enhance its fleet through continuous execution of newbuilds. In view of the growing ultra deepwater rig market, Noble will be advantageously positioned to grow its backlog and hence earnings. The separation would allow both the companies to have a more focused business approach and operational strategy as well as will boost the valuation of their assets.

Noble carries a Zacks Rank #3 (Hold). However, Zacks Ranked #1 (Strong Buy) stocks – China Petroleum & Chemical Corp. (SNP - Analyst Report), SM Energy Company (SM - Analyst Report) and Range Resources Corp. (RRC - Analyst Report) – are good buying options for the short term.

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