Offshore drilling giant Transocean Ltd. (RIG - Free Report) recently signed an agreement to sell 15 jack-up drilling rigs to the Norwegian offshore drilling contractor Borr Drilling.
The transaction will involve the sale of Transocean’s entire jack-up fleet which is used in exploration drilling in shallow water. The sale includes 10 operational rigs and five new rigs which are under construction at Singapore’s Keppel FELS Limited. Out of the five rigs which are yet to be completed, three will be delivered between 2017 and 2018 and the remaining two in 2020.
The deal is valued at $1.35 billion and includes remaining contract backlogs and yard installments. Borr has already paid an initial consideration and will fund the remaining amount through private placement of equity.
Subject to satisfactory closing conditions and approvals from the board of directors of both the companies, the deal is scheduled for closure in May.
Offshore drilling industry had been hit badly by the plummeting oil prices since 2014. As a result, oil explorers had to slash production leaving much of the fleets unutilized. Subsequently, the offshore jack-up market is becoming oversupplied prompting the owners to restructure the operations to preserve cash.
By divesting its jack-up fleet, Transocean will be able to reduce its rig count without hurting the bottom line. The deal would help the company to monetize its jack-up fleet and reduce significant capital expenditure which in turn will reduce Transocean’s debt. It would further help the company to streamline its portfolio by focusing on deepwater floaters exclusively.
Borr was established last year to buy assets at a cheaper rate from rig firms during the slump. Last year, it had acquired two rigs from the bankrupt Hercules Offshore. The current deal with Transocean is Borr’s largest acquisition and will enable the company to become competitive by acquiring fairly modern jack-up fleet at a huge discount.
Zacks Rank & Key Picks
Switzerland-based Transocean is the world’s largest offshore drilling contractor and leading provider of drilling management services. The company currently carries a Zacks Rank #3 (Hold).
The company has outperformed the Zacks categorized Oil and Gas Drilling industry over the last six months. During the aforesaid period, shares of Transocean rallied almost 27% while the broader industry gained around 17%.
Some better-ranked players in the same industry include Pioneer Energy Services Corp. (PES - Free Report) , Parker Drilling Company (PKD - Free Report) and Precision Drilling Corporation (PDS - Free Report) . All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pioneer Energy Services reported a positive average earnings surprise of 2.9% in the trailing four quarters.
Parker Drilling posted positive earnings surprise in each of the last four quarters, the average being 13.8%.
Precision drilling reported positive earnings surprise in each of the last four quarters, the average being 36.3%.
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