Noble Corp., the world’s second-largest offshore oil driller based on fleet size, agreed to buy FDR Holdings Ltd. from a private equity fund managed by the Carlyle Group and Riverstone Holdings LLC, valuing the drilling company at $2.16 billion.
The purchase is expected to add immediately to Noble’s cash flow and is likely to boost its earnings starting in 2011 when two so-called Bully-class rigs are expected to start working, the Geneva, Switzerland-based company said in a statement today.
The acquisition takes advantage of current low prices for drilling companies because of uncertainty around U.S. standards for deep-water drilling, said Philip Weiss, an analyst with Argus Research Co. in New York. Weiss has a “buy” rating on Noble, with a target price of $55 a share, and owns shares.
“Prices are cheap, and Noble’s a strong financial company, so it’s trying to take advantage of its position while prices are low,” he said. “I don’t think there’s anybody who thinks that deep-water activities are going to stop.”
The federal government suspended deep-water drilling for oil and natural gas after the Deepwater Horizon rig exploded on April 20 and sank two days later, causing the biggest oil spill in U.S. history. The rig was owned by Geneva-based Transocean and leased to BP Plc.
Noble rose 72 cents, or 2.5 percent, to $30 as of 4 p.m. in New York Stock Exchange composite trading. Noble has fallen 26 percent this year.
Noble, the largest supplier of jack-up rigs to Mexico, will gain six floating drilling rigs in the acquisition, including two joint-venture-owned Bully-class drillships, according to the statement.
The purchase of FDR, formerly known as Frontier Drilling, will give Noble an Arctic-class drillship and floating production vessel, which they do not currently have in their fleet, said Weiss. FDR, a Cayman Island-based company, bought all shares in Frontier Drilling in 2004, removing it from the Oslo Stock Exchange and making it a closely held company.
After the deal’s expected closing by the end of July, Noble will still have less than half the number of rigs in Transocean Ltd.’s fleet, according to Noble’s presentation slides today.
Noble is still looking for more acquisitions, said Chief Executive Officer David Williams.
“There’re still opportunities out there,” he said today on a conference call with analysts and investors. “We’re not done by any means.”
The FDR deal is an extension of Noble’s mid- and deep-water presence and positions it for growth in new market segments, he said.
Noble said it will pay cash for the company, using its existing bank credit facility and an $800 million bridge credit line. The $2.16 billion price includes Frontier’s debt. Frontier currently has approximately $311 million of non-recourse project financing, and construction obligations on the two Bully rigs.
Noble ended the first quarter with no net debt, Weiss said.
“They’re using their balance sheet to expand their fleet when it’s a good time to be doing it,” Lewis Kreps, an analyst at C.K. Cooper & Co. in Dallas who rates Noble shares “buy” and doesn’t own any, said in a telephone interview. “The combination with Shell and Frontier, all of it meshed together quite well.”
If the purchase of FDR is completed, Noble said it has agreements with Royal Dutch Shell Plc for 10-year contracts for two ultra-deepwater drillships.
One is Noble’s Globetrotter drillship under construction and set for delivery in the second half of 2011. The other could be a newly built ship or one that Noble acquires from another contractor or from a ship yard, Williams said.
Shell will be able to immediately suspend the contracts, if necessary, on any rigs operating in the Gulf of Mexico during U.S. limitations on deep-water drilling, according to Noble’s statement. As it stands today, that would impact a total of three rigs for Noble and FDR, Williams said on the call.
Shell will pay Noble a suspension rate, should the drilling plans be put on hold.
Noble was advised by Simmons & Co., Barclays Capital and SunTrust Robinson Humphrey. Goldman Sachs acted as financial adviser to FDR and FBR Capital Markets acted as adviser to certain shareholders of FDR, according to the statement.