Pacific Drilling Emerges as Deepwater Takeover Target

By Dinesh Nair, David Wethe and Brooke Sutherland

(Bloomberg) — Pacific Drilling SA, an offshore oil-rig contractor, is gaining discover as a takeover candidate.

The $786 million firm, managed by Israeli billionaire Idan Ofer, operates among the latest, most subtle rigs for drilling in water greater than 2 miles (3.2 kilometers) deep.

The year-long rout in crude oil has eroded the worth of energy-related corporations, slicing Pacific Drilling’s market worth by about two-thirds. The firm is now cheaper than most of its friends.

“They’re trading well below replacement value for the rigs that they own,” James West, an analyst at Evercore ISI in New York, stated in a telephone interview.

The depressed valuation is growing Pacific Drilling’s attract for operators trying to strengthen their presence in ultradeep water drilling. Already, the corporate has attracted curiosity from bigger rivals resembling Ensco Plc, Transocean Ltd. and Seadrill Ltd. within the final 12 to 18 months, in line with an individual accustomed to the matter. One of these approaches was made as not too long ago as this 12 months, the individual stated, asking to not be recognized as the knowledge is personal.

Pacific Drilling, which is legally primarily based in Luxembourg and operates out of Houston, isn’t actively exploring a sale and the approaches up to now have been rebuffed, in line with the individual.

Amy Roddy, a consultant for Pacific Drilling, stated the corporate doesn’t touch upon hypothesis of any transaction. A consultant for Quantum Pacific, Ofer’s holding firm, additionally declined to remark. Representatives for Ensco and Transocean didn’t reply to requests for remark, nor did a London-based consultant for Seadrill.

Pacific Drilling shares climbed as a lot as 7.1 p.c in early buying and selling on Friday in New York, and had been at $3.85 as of 10:06 a.m.

Deal Pressure

The drop in oil has pressured producers to chop their budgets. That interprets into slashed earnings and valuations for energy- companies suppliers, creating an incentive for them to mix and insulate themselves from the downturn.

Halliburton Co., the second-biggest supplier of oilfield companies, agreed in November to purchase Baker Hughes Inc. within the business’s greatest deal but.

There had been $243 billion of oil and gasoline offers final 12 months — essentially the most in at the least 12 years. With Royal Dutch Shell Plc planning to purchase BG Group Plc for about $80 billion together with debt, 2015 is on observe to surpass that. More offers are prone to comply with as corporations search to pool capital.

Rig Woes

Rig contractors have been coping with the double blow of a glut of latest deepwater rigs and waning demand. More than 70 new rigs are anticipated to roll out of the development yards and enter an already oversupplied international market over the following two years, West of Evercore ISI stated.

Whereas up to now, corporations have chosen to construct their very own rigs with a view to develop, that’s not the case.

“Building your own is kind of out,” West stated. Rig homeowners are as a substitute trying to purchase present corporations that have already got contracts for his or her vessels, he stated.

Five of Pacific Drilling’s seven vessels are below contract, working off the coast of Nigeria and within the U.S. Gulf of Mexico. The firm is constructing an eighth rig that’s anticipated to be out there for work within the fourth quarter.

Pacific Drilling could also be pressured to promote sooner or later if oil costs don’t enhance. The firm has $3 billion of debt — greater than thrice its present market worth.

–With help from Matthew Monks in New York and Aaron Kirchfeld in London.