Note: Noble Corporation (NYSE: NO) I have been covered by myself previously, so investors should see this as an update of my previous articles on the company.
On Thursday, major offshore drilling rig Noble Corporation (“Noble”) announced the sale of five jackup platforms. to competitor Shelf Drilling (OTCPK: SHLLF) for $ 375 million in cash in a planned move regulatory concerns regarding its proposed merger with Maersk Drilling:
The Remedy Rig sale agreement includes the Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert and Noble Lloyd Noble platforms (the “Remedy Rigs”) and all related support and infrastructure. Associated offshore and onshore personnel are expected to be transferred with the Remedy Rigs. Following the sale, Noble expects to continue conducting the current drilling program for Noble Lloyd Noble under a barefoot rental agreement with Shelf Drilling until the second quarter of 2023, when the main term of its contract is expected to end. current drilling. The chartering agreement would pass on the economic benefit of the drilling contract to Shelf Drilling. Drilling contracts for other remedial equipment are expected to be new to the buyer, with customer consent. Noble will provide certain usual transition support services to the buyer for a limited period of time. The buyer is expected to finance the acquisition through capital and debt financing by the buyer and Shelf Drilling, but the purchase is not conditional on such financing. The sale of Remedy Rig is expected to close quickly after the business combination closes (and after receiving CMA approval).
While both Noble and Maersk Drilling have been fairly clear about their belief in the financial and strategic rationale behind the transaction it remains intact and compelling for all stakeholders, regardless of the necessary divestment of most jackup platforms. Noble, I am very disappointed with the terms of the proposed transaction.
Note that Shelf Drilling not only gets 5 modern jackup kits that include all related support and infrastructure, but also collects an estimated volume of $ 250 million.
To put things in perspective: The Noble Lloyd Noble is among the largest and highest specification jackup platforms in the world and was delivered to the company at an estimated cost of nearly $ 700 million just six years ago.
The loss of the company’s flagship and the only NCS-compatible jackup platform is especially disappointing given the unit’s superior cash-generating potential.
The obligatory sale of the Noble Houston Colbert it also hurts, as the platform recently received a 3.5-year contract off the coast of Qatar.
In short, Shelf Drilling gets a fully operational subsidiary ready to compete in the North Sea, an area where the company has not been active so far while Noble loses a quarter of its entire fleet.
Frankly, I’m not sure if the expected benefits of the proposed combination with Maersk Drilling will really offset the loss of five modern jackup teams and their significant backlog.
Anyway, the $ 375 million in cash from the sale will further bolster the combined company’s liquidity.
Noble now expects to launch Maersk Drilling’s stock exchange offer in August and the closing of the merger will take place towards the end of the third quarter, a delay of approximately three months compared to the original schedule.
Please note that the UK antitrust agency has not yet approved the business combination. In addition, the completion of the merger is subject to acceptance by the holders of at least 80% of the shares in Maersk Drilling.
Suffice it to say that Noble seems to be the recipient of this deal, as Shelf Drilling not only acquires a fleet of modern jackup platforms, but also enjoys the benefits of getting a fully operational subsidiary and a decent amount of delay.
Frankly, he would have preferred Noble to avoid this sale of fire and rather end the merger with Maersk Drilling, but both companies have been firm in their belief in the strategic reason for the transaction.
Well-founded fears of recession have hit oil-related stocks hard in recent weeks, but I don’t expect any major impact on offshore drilling budgets right now.
That said, with industry stocks typically trading in close correlation with oil prices, investors need to be prepared for recent volatility to continue.
Given the uncertain forecast, I have reduced my exposure to oil service and shipping stocks quite significantly over the past few weeks. However, I remain positive about the offshore drilling industry in the future.
Two weeks ago, I probably would have downgraded Noble based on the disappointing divestment terms, but after the recent 30% sale, I decided to keep my “buy” rating of the shares for now.