Oil investments saw a good deal of merger and acquisition action earlier this year. Noble Corporation (NYSE: NE) has rekindled the acquisition trend today with news of merger plans with FDR Holdings Ltd. for a price tag of $2.16 billion. Noble Corp. is trending up on the news, with NE stock up about 3.5% as of this writing.
The earlier deals primarily big services companies. Schlumberger Ltd. (NYSE: SLB) agreed to acquire Smith International, Inc. (NYSE: SII) for $11 billion. Baker Hughes Inc. (NYSE: BHI) closed a $6.6 billion deal for BJ Services. Halliburton Co. (NYSE: HAL) is going to pay about $240 million for Boots & Coots, Inc. (AMEX: WEL). That’s a pretty good list.
Today’s deal brings Noble six drillships plus an FPSO, a floating production, storage, offloading vessel. According to Noble, FDR’s fleet brings with it a total of 23 rig years of contracts worth $3.2 billion in gross revenue, or $2.0 billion net to Noble. The deal is expected to close by the end of July and be immediately accretive to Noble’s cash flow. FDR’s rigs will boost earnings in 2011.
Noble included in this announcement new agreements with Royal Dutch Shell plc (NYSE:RDS-A) for two ten-year contracts on ultra-deepwater drillships and a “multi-year extension” on a contracted deepwater semi-submersible. Noble said that the new agreements with Shell add about $4 billion to its backlog spreading over 25 rig years.
As part of the deal, Shell and Noble agreed on terms that would allow Shell to suspend contracts in the Gulf of Mexico, if necessary, during a federally-mandated moratorium on drilling in the Gulf. Noble has agreed to a reduced suspension rate and operations support. Once normal drilling activity resumes, the contracts with Shell will also resume a original daily rates and at original length of contract terms.
Ever since the Obama administration imposed a drilling moratorium there’s been some question about how rig owners and production companies would react. Anadarko Petroleum Co. (NYSE:APC) filed suit in federal court seeking to void its contract with Noble for an idled rig in the Gulf. While more lawsuits are certainly possible, even likely, far more likely are more deals like the one that Noble struck with Shell. At some point, life for drillers and producers in the Gulf will return to some version of normality, and negotiated deals like this one will serve everyone’s interest better than expensive and nasty court fights.
