Seadrill's NYSE Listing Could Spark M&A Activity

Seadrill could be a natural buyer for Pride or Ensco and could also provide the catalyst needed for further consolidation

Stephen Ellis 20 April, 2010 | 11:41AM
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Seadrill's listing on the New York Stock Exchange could spark some merger and acquisition activity as the offshore drilling industry deals with a stagnant near-term outlook. The jack-up and mid-water markets still look weak, as increased tendering activity hasn't translated into a step change in rig utilisation or day rates yet. The deep-water market remains at a standstill pending the outcome of the Petrobras rig tenders later this year, which we think could be a catalyst for deep-water day rates to move upward.

That being said, we are intrigued to see Seadrill listed on the NYSE. The company owns a stake in Pride International as well as Scorpion Offshore, and we think the NYSE listing offers Seadrill currency for further M&A activity. For example, CEO Alf Thorkildsen indicated that Seadrill plans to take full control of Scorpion Offshore in the next few months. Seadrill could be a natural buyer for Pride or Ensco, which would add more deep-water rigs to its operations. The company could also be the catalyst the rest of the industry needs for further consolidation, as we can see scenarios for Noble-Ensco and Diamond Offshore-Pride pairings as well. We think all of the major offshore drillers have viewed themselves as buyers during the downturn, and not necessarily as sellers, which is a perception that has hindered further consolidation. Any merger activity would be a long-awaited competitive response to Transocean's acquisition of GlobalSantaFe in 2007, and as a result, we could finally have a serious contender to Transocean's dominance in deep water.

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Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.