Analysts View On Transocean LTD (NYSE:RIG) Acquisition Of Songa


As per the latest article published on Forbes, there appears to be some difference in the analyst community on Transocean LTD (NYSE:RIG) acquisition of Norwegian driller Songa Offshore. Tudor, Pickering, Holt termed the acquisition an excellent strategic fit, particularly provided the firm’s recent contracting accomplishment in the North Sea market.

The firm considers the deal will add to Transocean EBITDA, net debt/EBITDA and operating cash flow provided Songa’s robust fleet quality, which comprises four new, purpose-made floaters functioning under long-term deals with Statoil ASA and an extensive backlog. This reinforces the team opinion that offshore rig merger and acquisition is just getting begun.

The details

Kurt Hallead of RBC Capital Markets approves the deal, stating that Transocean will get a backlog of top-tier clients worth a projected $2.1 billion along with top-quality assets he anticipates to be in brisk demand when existing deals end. He expects the contract adding $432 million in its EBITDA to a projected $1.32 billion for this year.

Hallead added that they consider this development as a material positive indication for consolidation and a change in the offshore market. Following on the Atwood/Ensco contract, they consider are likely to witness more consolidation as major operators purchase high-quality rigs and close old ones.

On contrary, Seaport Global Securities considers the contract is a negative for Transocean. There is considerable industrial logic behind improving company’s already robust position in the tough environment floater industry in Norway, the implied contract value of $850 million/working rig and $485 million/total rig is staggering, even for latest generation rigs with a robust backlog position. In addition, under two-thirds of the deal price is debt/cash, lessening Transocean’s hard-earned measures to enhance its liquidity and balance sheet position.

Seaport Global Securities expressed that for the broader industry, the contract does little to resolve the long-term organizational over-capacity in the offshore drilling industry. While acknowledging that the company may select to scrap some of Songa’s older resources, they consider the contract falls short of the large-scale alliance they consider as must to the long-term feasibility of the industry.