Hercules Offshore Goes to the Well

The drilling services outfit ponies up $2.3 billion to buy Todco in an effort to boost its Gulf of Mexico presence

Hercules Offshore (Hero) said Mar. 19 that it is buying Todco (THE) for around $2.3 billion, in the latest example of how companies in the energy industry continue buying one another up with the cash they made recently amid high energy prices.

The Houston oil and natural gas driller, which offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and other operations, is trying to improve its competitive position in the U.S. Gulf of Mexico. Todco has a fleet of drilling services rigs in the area's shallow water. The companies plan to complete their merger in mid-2007, after which Todco shareholders expect to own around 64% of the combined company while Hercules Offshore shareholders will take about 36%.

The agreement represents $42.01 per share of consideration for Todco shareholders -- $16 cash and 0.979 of a Hercules Offshore share. With the shares at a 25% premium to Todco's average closing price over the last 30 days as of March 16. After the news investors sold Hercules Offshore stock by 4.7% to $25.32 per share on the Nasdaq March 19, while Todco's stock gained 19.7% to $39.24 per share.

Hercules Offshore is planning to fund its acquisition through existing cash on hand and a loan from UBS Investment Bank, which the oil services company has promised to repay using cash from operations in the years ahead.

"Looking forward, Hercules Offshore will continue to focus on seeking strategic growth opportunities, expanding our geographic diversity and maintaining our status as a low-cost provider," CEO Randy Stilley said in a press release March 19.

Hercules Offshore isn't the only one. Energy companies have been gobbling one another up in recent years as a means of stepping up growth. Recent deals include Anadarko Petroleum's plans, announced in June, 2006, to pay $21.1 billion in cash for rivals Kerr-McGee of Oklahoma City and Western Gas Resources of Denver. Anadarko (APC) is aiming to position itself as a leader in the deepwater Gulf of Mexico and the Rockies.

In another example, Occidental Petroleum (OXY) on Aug. 7 announced the acquisition of oil and gas assets from Plains Exploration & Production for $865 million, in a deal intended to expand the Los Angeles–based company's existing operations in California and the Permian Basin in West Texas (see, 8/28/06, "A Gusher of Energy Deals").

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