Mergers within the oil and gas services sector began heating up again.
- Ensco International Inc., Dallas, said it will acquire Houston-based Chiles Offshore Inc. for $578 million, based on Ensco's May 14 closing price. Ensco also will assume $140 million in debt. Both companies' boards have approved the transaction.
- Italy's Saipem SPA, a unit of ENI SPA, has entered into a definitive agreement with Bouygues Construction SA to acquire the company's 51.1% majority stake in Bouygues Offshore SA in a deal valued at close to 1 billion euros.
- Key Energy Services Inc., Midland, Tex., the world's largest well-servicing firm, signed a definitive merger agreement with Q Services Inc., Houston, one of the largest privately held US production-services companies, through a stock exchange and debt assumption valued at $265 million, officials said.
Ensco-Chiles deal
Under terms of the deal, Chiles stockholders will receive 0.6575 share of Ensco common stock plus $5.25/share in cash for each share of Chiles's common stock. The combined company will have a total fleet of 56 offshore drilling rigs, which includes Chiles's rig currently under construction. The firm's asset base will also include Ensco's 28 Gulf of Mexico oil field support vessels. Combined, the new company's fleet will include 43 premium jack ups, 21 in the Gulf of Mexico and 22 elsewhere.
"We believe that this is a prudent way for Ensco to grow, adding to the high-end of our jack up fleet, without impacting industry supply, and without increasing our financial leverage," said Ensco Chairman and CEO Carl F. Throne. William E. Chiles, Chiles president and CEO, will join Ensco as an executive officer upon completion of the merger.
The transaction, which is expected to close within 90-120 days, is still subject to Chiles stockholder approval and other regulatory approvals.
Reaction
Following the merger announcement, analysts gave the deal mixed assessments.
"Despite the fact that Ensco paid a 25% premium on a price-per-rig basis, we believe the acquisition is positive given that the company receives existing contracts, relations with major oil companies, and experienced personnel, which are in short supply," said Kurt Hallead, an Austin analyst with RBC Capital Markets, a unit of RBC Dain Rauscher Inc.
Hallead added that the acquisition would enable the new company to utilize Chiles's five ultra premium rigs, which are less than 3 years old, to drill for natural gas in the deep shelf area of the Gulf of Mexico.
"We believe that strategically this acquisition makes sense for Ensco," said James Stone, managing director, oil field services equity research for UBS Warburg LLC, "but we believe that the cost of this acquisition was too high." Stone figured that the total cost, including assumed debt, would equate to $143.6 million/rig-an "exorbitant" price, considering the cost to build each rig averaged $110 million.
Saipem's acquisition
Saipem's May 8 offer of 60 euros/ share-which is being billed by the company as "the largest cross-border acquisition in Europe in the oil field services sector"-is a 25% premium over Bouygues Offshore's 1-month average share price, according to Saipem.
Bouygues Construction's board has recommended shareholders accept Saipem's offer. Saipem, meanwhile, has been reported as saying that it would extend another 60 euros/share offer for the remaining public shares of Bouygues Offshore once it receives antitrust clearance for its first deal; antitrust clearance is expected by the end of June or the beginning of July.
"The new group would be a truly worldwide contractor," Saipem noted about the deal, adding that the combined firm's operations would maintain a "strong" presence in West Africa, the former Soviet Union, Central Asia, North Africa, the Middle East, and Southeast Asia.
"The combination of Saipem's recognized construction capabilitiesellipseand Bouygues Offshore's powerful engineering and project management capabilities would create a truly formidable globalellipsecontractor," Saipem said.
For fiscal year 2001, Saipem and Bouygues Offshore have reported combined revenues of 3 billion euros and a net income of 214 million euros.
Key-Q Services deal
Under terms of the merger agreement, based on current projections of Q Services' balance sheet by the time the deal closes in late June or July, Key expects to issue $185-190 million of its common stock, at a price of $11-13/share. It also will assume $80 million of Q Services debt.
Q Services has more than 1,200 employees in 50 operating locations, primarily offshore and on land along the Texas-Louisiana Gulf Coast, as well as in Northwest Texas, New Mexico, and Oklahoma. Its three main business lines include:
- Fluid hauling services, with 350 vacuum trucks, 700 pressure-pumping tanks, and 26 active salt-water disposal wells.
- Pressure pumping, acidizing, and cementing services operating under the name of American Energy Services.
- Fishing and rental tools, operating as QTS Fishing & Rental Tools.
Synergies
Because Key and Q Services operate in adjacent and overlapping areas, officials said, the merger should produce an estimated $10 million annually in synergies and cost savings. It's also expected to be "immediately and significantly accretive" to Key's earnings and cash flow.
The acquisition will further strengthen Key's balance sheet, officials said. Its net debt-to-capitalization ratio at closing is expected to improve to 38% from 41% at the end of March.
The combined companies will have $1.5 billion in assets and 1,500 well service rigs, 2,050 oil field service vehicles, 2,000 pressure-pumping tanks, 120 disposal wells, 79 drilling rigs, expanded fishing and rental tools, and a substantial high-quality pressure-pumping business.
"We will be even better prepared to serve our customers-we can deliver an increased range of services, bring a larger base of equipment to bear, and allow our customers to enhance their profitability by reducing the number of vendors they must use," said Francis D. John, Key chairman and CEO.
Key currently owns 1,478 well service rigs and 1,641 oil field service vehicles, as well as 79 drilling rigs. It operates in all major onshore oil and gas producing regions of the continental US, as well as in Argentina and Canada.
