The drilling moratorium in the Gulf of Mexico makes rig contractors Pride International Inc. and Rowan Cos. attractive merger and acquisition candidates, Sanford Bernstein & Co. said today.
Scott Gruber, an analyst at Sanford Bernstein, wrote in a note that rental rates for rigs are likely to head lower because of the “market disrupting” six-month moratorium on U.S. deep-water drilling coupled with a supply of new rigs being built in the next few years.
Rates for drillers in general are projected to be down about 33 percent from current spot rates in deep water and 45 percent for rigs operating in middle water depths, he wrote.
Pride, the Houston-based oil and natural-gas driller with rigs working from Brazil to India, owns or manages 27 offshore units operating mostly in deep water. Rowan, the Houston-based drilling contractor that makes its own rigs, operates mostly in shallow water with its 28 offshore rigs. The company also has 32 land rigs.
“The Gulf oil spill and deep-water drilling moratorium could hardly come at a worse time for the offshore drillers,” Gruber wrote today in a note to investors. “With equity valuations compressed, this suggests that M&A is on the horizon.”
Suzanne McLeod, a spokeswoman for Rowan, said the company believes in a diversified fleet.
“If anything, we’d like to be an acquirer,” McLeod said today in a telephone interview. “We continue to monitor opportunities on the deep-water asset side.”
Kate Perez, a spokeswoman for Pride, said in a telephone interview the company doesn’t comment on “rumors and speculation.”
Pride and Rowan are cited as acquisition targets based on the combination of attractive assets, low stock prices, attractive geographic exposure and the tax benefits for certain international drillers who might buy them, Gruber said today in an e-mail.
Rowan has fallen 21 percent and Pride has dropped 23 percent since the April 20 rig explosion in the Gulf of Mexico.
While the drop in stock prices may make drillers more attractive to potential buyers, the companies generally aren’t in bad enough financial shape to welcome a takeover offer, said Lewis Kreps, an analyst at C.K. Cooper in Dallas.
“Almost every offshore driller has a very good balance sheet right now,” Kreps said.
The explosion aboard the Deepwater Horizon rig, which was leased to BP Plc, sank the rig and damaged the undersea well, causing it to gush as much 40,000 barrels a day, according to estimates by government scientists. That prompted the government to call a temporary halt to Gulf deep-water drilling while safety issues are studied.
U.S. Interior Secretary Ken Salazar told a Senate committee June 9 the drilling halt may end sooner than the six months.
Pride rose $1.21, or 5 percent, to $25.30 at 4:01 p.m. in New York Stock Exchange composite trading. Rowan rose $1.57, or 6.7 percent, to $25.17.