By OGJ editors
HOUSTON, May 21 -- In a combination of major offshore drilling contractors, Ensco International Inc., Dallas, has signed a definitive agreement to acquire Houston-based Chiles Offshore Inc. for $578 million, based on Ensco's May 14 closing price. Ensco will also assume $140 million in debt. Both companies' boards have approved the transaction.
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 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, managing director, 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 ultrapremium 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.