COMPANY NEWS: Transocean, GlobalSantaFe agree to merger of equals

Aug. 27, 2007
Offshore drilling contractors Transocean Inc. and GlobalSantaFe Corp. agreed to a merger of equals, creating a company valued at about $53 billion.

Offshore drilling contractors Transocean Inc. and GlobalSantaFe Corp. agreed to a merger of equals, creating a company valued at about $53 billion.

In other recent company news:

  • Houston-based drilling contractor Pride International Inc. has entered into a definitive agreement to sell its Latin America land drilling and workover and exploration and production services businesses to Brazilian private equity firm GP Investments Ltd. for $1 billion in cash.
  • El Paso Exploration & Production Co., a subsidiary of El Paso Corp., Houston, reported plans to acquire Peoples Energy Production Co. for $875 million.
  • PetroFalcon Corp., which has oil and gas operations in Venezuela through its wholly owned Caracas subsidiary Vinccler Oil & Gas, has agreed to buy Lundin Latina de Petroleos SA (Lundin LDPSA), Caracas, for $41 million in a cash-stock transaction. Lundin LDPSA is the wholly owned Venezuelan subsidiary of Swedish firm Lundin Petroleum AB.
  • Toreador Resources Corp. has sold all of its US properties for $19.1 million to RTF Realty Inc. of Dallas and plans to focus on its operations in the Black Sea off Turkey.

Transocean-GSF merger

The combined company, to be known as Transocean Inc., will retain principal offices in Houston. It will have a global fleet of 146 rigs and provide a full range of offshore drilling services in the world’s key regions. It will have a substantial presence in ultradeep and deepwater drilling and additional growth from newbuild rigs.

Robert L. Long, who will continue as chief executive officer of Transocean, said, “This transaction will enhance our high-end floater fleet, including five newbuild ultradeepwater units, while growing our position in the worldwide jack up market, especially in the Middle East, West Africa, and North Sea.”

Under terms of the agreement, Transocean shareholders will receive $33.03 in cash and 0.6996 share of the combined company for each Transocean share. GlobalSantaFe shareholders will receive $22.46 in cash and 0.4757 share of the combined company for each GlobalSantaFe share.

The aggregate total cash paid to both companies’ shareholders will be $15 billion, which will be funded through a bridge loan due 1 year after closing, which is expected by yearend, subject to the approval of both companies’ shareholders, regulatory clearances, receipt of funds under the committed financing, and other closing conditions.

Transocean has received a commitment letter from Goldman, Sachs & Co. and Lehman Bros. Inc. providing for this financing. Transocean expects to refinance the bridge loan with a mix of bank loans and debt securities.

The new company also will have a $33 billion revenue backlog. And the company intends to dedicate its first 2 years of free cash flow to reducing debt.

Following the merger, GlobalSantaFe Chairman Robert E. Rose will serve as chairman of Transocean, Transocean’s Chief Executive Officer Robert L. Long will continue in his role, and Jon A. Marshall will assume the position of president and chief operating officer.

Pride sells LatAm units

Pride’s sale of its Latin American businesses is expected to close by the end of the third quarter, subject to customary closing conditions, including a working capital adjustment of the purchase price.

The company’s Latin America land business is comprised of 73 land drilling rigs, 135 workover rigs, and two lake-drilling barges. Its E&P services business provides various services to complete, maintain, and enhance production from oil and gas wells.

Pride reported combined 2006 revenues of $823.9 million for the two business units, which operate in eight countries in Latin America.

Following the close of the transaction, Pride’s remaining land-based drilling and workover operations will consist of five land drilling and workover rigs in Chad along with two other land rigs in Kazakhstan and Pakistan.

Pride said proceeds from the sale, expected to be largely tax exempt, could be used for general corporate and strategic purposes, including potential funding for the construction of two ultradeepwater drillships and for future growth opportunities.

Pride recently placed a $680 million order with Samsung Heavy Industries Co. Ltd. for a newbuild drillship with advanced and dual-activity capability for use in ultradeep water (OGJ, July 16, 2007, Newsletter).

The drillship will be capable of drilling to a TVD of 40,000 ft in water as deep as 12,000 ft. It initially will be equipped for drilling in 8,000 ft of water, Pride said.

El Paso-Peoples deal

Peoples, which is a unit of Integrys Energy Group, owns an estimated 305 bcf of gas equivalent of proved reserves and owns 72 MMcfd of production.

The assets involve properties in Arkansas, Louisiana, Texas, and Mississippi. El Paso expects to close the transaction in the third quarter.

El Paso said it will finance much of the acquisition with proceeds from its previously announced divestiture program covering 220-270 bcf, or 10% of total reserves. Integrys said the sale fit into its strategy to sell noncore assets.

PetroFalcon-Lundin LDPSA deal

Following these transactions, Lundin Petroleum will become the largest shareholder in PetroFalcon, holding 42.5% of the shares.

Lundin plans to have two representatives on the board of PetroFalcon, a Venezuelan company. Lundin Petroleum is a Swedish independent oil and gas company with assets in Europe, Africa, Russia, and the Far East.

PetroFalcon will issue about 64 million shares to Lundin Petroleum, and PetroFalcon will receive Lundin Venezuela’s 5% interest in the Baripetrol joint venture in Venezuela, as well as $30 million in cash from the acquisition and private placement.

Baripetrol operates the Colon unit in western Venezuela and has gross production of 10,500 b/d of oil and 5 MMcfd of gas.

The agreements are subject to the negotiation of a sales agreement and to all required regulatory approvals, including the approval of the Venezuelan Ministry of Energy and Petroleum.

RTF buys Toreador assets

Toreador said it wanted to concentrate on developing Black Sea gas discoveries in the South Akcakoca subbasin’s (SASB) deeper water and on exploration in the sea’s Thrace basin.

The US properties, which consist primarily of nonoperated working interests in about 700 wells in five states, had proved reserves of 700,000 bbl of oil and 4.1 bcf of gas at yearend 2006, Toreador said.

The book value of the properties is about $10.3 million, Toreador said-about 4% of the aggregate book value of the company’s total oil and gas properties.

The deal is expected to close by Aug. 31 and the cash sale is effective from Sept. 1.

The properties have been sold on an “as is, where is” basis. Net proceeds from the sale will be added to Toreador’s working capital and used for possible modest debt repayment and for other strategic initiatives.

Toreador has begun preliminary planning to bring gas discoveries in the deeper portion of the SASB into production as soon as possible. It has just spudded an exploratory well in the Thrace portion of the Black Sea with its 50:50 Turkish industrial partner Hema Endustri AS.