A revival of deepwater exploration driven by a scramble to secure new supplies is spurring consolidation among offshore drilling rig contractors.
Noble snapped up smaller US rival Diamond Offshore in a cash-and-stock deal worth $1.6bn last week, marking the company's third acquisition in recent years designed to expand the size of its fleet and cut costs. Deepwater drilling is making a comeback — led by huge discoveries off the coast of Namibia where an estimated 10bn bl of oil has been found — after producers previously slashed exploration budgets and focused on short-cycle projects such as shale.
Offshore spending is due to increase by the low to mid-double digits this year, according to investment management firm Evercore ISI. And as onshore shale exploration slows in the US, companies are looking at deepwater projects, which also offer the benefit of lower carbon emissions intensity.
SLB — formerly known as Schlumberger — the world's biggest oil service firm, sees the potential for more than $100bn in global offshore investment decisions this year and next. A lack of newbuilds coming out of the pandemic-related downturn — in contrast to the oversupply seen in previous years — is helping to push up rig rates, boosting cash flow for contractors including Noble.
"We're very positive in our outlook on the deepwater market," Noble chief executive Robert Eifler says. "We see our customers making longer-term plans, we see budgets up, we see FIDs [final investment decisions] up. And we see a general return of interest to deepwater development and exploration."
With drilling costs rising, TotalEnergies recently paid $199mn for a 75pc stake in a joint venture with Vantage Drilling that will own the Tungsten Explorer drillship. "Through this innovative partnership, TotalEnergies will be able to hedge deep-offshore drilling costs," chief executive officer Patrick Pouyanne says. The drillship has already been used in Namibia, Cyprus and Congo.
As a result of its latest acquisition, Noble will own and operate a fleet of 41 rigs — 28 floaters and 13 jackups. Its combined backlog of drilling contracts will stand at around $6.5bn, with a "wide diversity of customers and regions of operation", according to the contractor. The company says its 15 new-generation drillships with dual blowout preventers will make up the industry's "leading tier-one drillship fleet".
Noble pursuit
"Noble's acquisition is highly strategic, and the addition of 12 offshore floaters is expected to strengthen the company's revenue and cash flow visibility through the long-duration offshore upcycle," Evercore managing director James West says. Noble acquired ultra-deepwater rig specialist Pacific Drilling in 2021 after emerging from bankruptcy protection following a slump in oil demand and prices. The following year it closed a merger with Denmark's Maersk Drilling.
While the Maersk deal took over a year to close, Eifler said the regulatory landscape was "much more straightforward" in the case of the Diamond deal, which Noble expects to be completed by the first quarter of 2025. Noble, based in Texas, anticipates pre-tax savings of $100mn/yr, after an initial reduction of $75mn in the first year. The company plans to hike its dividend by 25pc to reflect the expected boost to free cash flow from the deal.
The latest takeover has prompted speculation among analysts that other industry deals could follow. "The next obvious acquisition candidate among established drillers is Seadrill in our view, in addition to smaller companies like Eldorado/Vantage and assets owned by shipyards," bank Pareto Securities analyst Bard Rosef says.
