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Noble (NE) to Acquire Diamond Offshore, Expand Drilling Fleet

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Noble Corporation plc (NE - Free Report) has signed a merger agreement to acquire a rival drilling firm, Diamond Offshore Drilling (DO - Free Report) , in a cash and stock transaction valued at $1.59 billion. Following the acquisition, Noble is expected to operate a giant fleet of 41 rigs, including 28 floaters and 13 jack-ups. The combined backlog for Noble is likely to be worth $6.5 billion.

Upon the closure of the transaction, Diamond Offshore shareholders will receive 0.2316 shares of NE with a cash compensation of $5.65 per share of Diamond Offshore’s common stock. Diamond Offshore shareholders will own 14.5% of NE’s outstanding shares. Per the terms of the agreement, Noble’s board will expand to include one member from DO’s board of directors. To fund the cash portion of the deal, Noble has secured a $600 million committed bridge financing facility.

The acquisition should allow Noble to consolidate its existing fleet of 14 operational and 15 total dual BOP seventh-generation drillships, positioning the offshore driller as a leading provider of drillship services, boasting a top-tier fleet within the industry.

Notably, the inclusion of the Ocean GreatWhite semi-submersible rig signifies a substantial enhancement in Noble's capabilities. This rig, recognized for its high-specification design, is adept at operating in harsh environments. Moreover, the addition of the remaining five semi-submersible rigs should contribute significantly to NE’s contracted free cash flow.

The transaction has been approved by the board of directors of both companies and is expected to conclude by the first quarter of 2025, subject to customary closing conditions and the approval of DO shareholders.

Noble’s management has stated that the acquisition will strengthen its position in the industry with the addition of four 7th-generation drillships and one of the most high-spec harsh environment semisubmersible rigs to its fleet. Diamond Offshore’s fleet of midwater and deepwater rigs also boasts a high utilization rate of more than 85% and a robust forward contract coverage. The merger, supported by a substantial backlog of $2.1 billion and anticipated cost synergies of nearly $100 million, is expected to increase Noble's free cash flow per share and facilitate higher returns to shareholders.

Diamond Offshore has highlighted that the merger with Noble should provide long-term benefits for its shareholders by creating a fully scaled platform that is capable of consistently delivering value to shareholders and customers while also gaining access to NE’s dividend program.

The announcement of the aforementioned acquisition came nearly two years after Noble completed its merger with Maersk Drilling in October 2022. Per Reuters, Noble’s merger with Diamond Offshore confirms that the offshore drilling sector is currently experiencing significant consolidation.

Noble’s fleet has won more work in the past few months, along with the expansion of the existing scope of work. The company has a significant amount of work tucked under its belt for its rig fleet, amounting to the substantial backlog.

Zacks Rank and Key Picks

Currently, NE has a Zacks Rank #5 (Strong Sell) and DO carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the energy sector are Archrock Inc. (AROC - Free Report) and SM Energy (SM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

SM Energy is an upstream energy firm operating in the prolific Midland Basin region and the South Texas region. For 2024, the company expects its production to increase from the prior-year reported figure, signaling a bright production outlook.

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