Transocean Acquires Ocean Rig for $2.7 Billion as Oil-Market Stability Bolsters Offshore Demand

Transocean (RIG) will acquire Ocean Rig UDW (ORIG) for $2.7 billion including debt, adding the latter’s drillships to its energy services sector portfolio after rising oil prices brings growing demand for offshore oil production activity.

Steinhausen, Switzerland-based Transocean said its shareholders will own about 79% of the combined company while current Ocean Rig investors will hold about 21%. Annual cost synergies are pegged at about $70 million.

The deal has been approved by both companies’ boards and comprises 1.6128 newly issued shares of Transocean plus $12.75 in cash for each Ocean Rig share, bringing an implied value of $32.28 per Ocean Rig share, based on the Aug. 31 market close.

“The combination of constructive and stable oil prices over the last several quarters, stream-lined offshore project costs, and undeniable reserve replacement challenges has driven a material increase in offshore contracting activity,” said Transocean’s chief executive, Jeremy Thigpen. The deal “better positions us to capitalize on what, we believe, is an imminent recovery in the ultra-deepwater market.”

Ocean Rig’s fleet comprises nine ultra-deepwater drillships and two semisubmersibles for harsh environments. There are another two drillships under construction, which are expected to be delivered in the third quarters of 2019 and 2020.

The acquisition comes about a year after Ocean Rig completed a restructuring to manage its debt load, including a 1-for-9,200 reverse stock split and an exchange of $3.7 billion in debt for new company equity, and other cash and debt. Ocean Rig’s stock was up about 11% in Tuesday trading while Transocean investors pushed the shares down by almost 7%.

“This strategic combination of Ocean Rig and Transocean creates a world-class fleet perfectly positioned for the market recovery while reducing fragmentation that currently exists in offshore drilling,” said Pankaj Khanna, Ocean Rig’s CEO who took the position as of Jan. 1.

Transocean also said it will retire two floaters including the ultra-deepwater drillship C.R. Luigs and the midwater floater Songa Delta, which be recycled “in an environmentally responsible manner.” More rigs may be recycled as Transocean re-ranks its combined fleet.