Transocean, GlobalSantaFe set for merger of equals

Sept. 1, 2007
Transocean Inc. and GlobalSantaFe Corp. have approved a definitive agreement for a merger. The estimated enterprise value of the combined company will be roughly $53 billion.

Transocean Inc. and GlobalSantaFe Corp. have approved a definitive agreement for a merger. The estimated enterprise value of the combined company will be roughly $53 billion. The combined company will be known as Transocean Inc. and will retain principal offices in Houston and trade on the New York Stock Exchange with the symbol RIG.

Transocean shareholders will receive $33.03 in cash and 0.6996 shares of the combined company for each share of Transocean they own. GlobalSantaFe shareholders will receive $22.46 in cash and 0.4757 shares of the combined company for each share of GlobalSantaFe they own. The total number of shares outstanding of the combined company after the transaction will be about 318 million shares.

The combined current revenue backlog of $33 billion, together with the greater financial strength of the combined company, will enable a $15 billion recapitalization while retaining the financial flexibility to invest for future growth. Financing by affiliates of Goldman, Sachs & Co. and Lehman Brothers Inc. will provide for shareholders of both companies to receive an aggregate payment of $15 billion in cash. The combined company intends to dedicate its first two years of free cash flow to reducing debt.

The combination will create an organization with approximately 20,000 personnel, providing a full range of offshore drilling services in the world’s key regions. The combined company will have a technologically advanced fleet with a substantial presence in ultra-deepwater and deepwater drilling and additional growth from newbuild rigs.

Robert L. Long

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Robert L. Long, who will continue to serve as CEO after the merger, said, “GlobalSantaFe’s outstanding rig fleet complements Transocean’s, and the combined company will have a global fleet of 146 rigs. This transaction will enhance our high-end floater fleet, including five newbuild ultra-deepwater units, while growing our position in the worldwide jackup market, especially in the Middle East, West Africa, and the North Sea. In addition, we will be positioned to better offer the full scope of drilling services to customers in all geographical areas as we focus on incident-free, efficient operations and further developing our talented workforce. GlobalSantaFe has an outstanding management team, as well as operational and support staff, which when combined with Transocean’s will produce a top-notch team.”

Current GlobalSantaFe president and CEO Jon A. Marshall, who will serve as Transocean’s president and COO following the merger, said “The $15 billion cash payment allows us to achieve a more appropriate capital structure and deliver immediate value to our combined shareholders. The combined company will have a broader customer base, particularly with the increasingly important national oil companies, greater exposure to the growing deepwater business and increased, low-risk organic growth prospects from the combined deepwater newbuild program. The enhanced operational capability of a more geographically diverse rig fleet will produce significant benefits for our customers and provide substantial growth opportunities for our people.”

Following the merger, Robert E. Rose, currently GlobalSantaFe’s chairman, will serve as Transocean’s chairman, and Robert L. Long will continue as Transocean’s CEO.

It is anticipated that the shareholders of both Transocean and GlobalSantaFe will be subject to tax only with respect to the cash received by them. The cash received by Transocean shareholders will be accounted for as a special dividend in combination with a reverse stock split.

Simmons & Co. International provided a fairness opinion to the board of GlobalSantaFe. Baker Botts LLP is acting as legal counsel to Transocean, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to GlobalSantaFe.

GlobalSantaFe owns or operates a contract drilling fleet of 37 premium jackup rigs; 6 heavy-duty, harsh environment jackups; 11 semisubmersibles, and 3 dynamically positioned, ultra-deepwater drillships, as well as two semisubmersibles owned by third parties and operated under a joint venture agreement. In addition, an ultra-deepwater semisubmersible is under construction and scheduled for delivery in early 2009.

Transocean Inc. has a fleet of 82 mobile offshore drilling units. The company’s fleet consists of 33 semisubmersibles and drillships, 20 other floaters, 25 jackups and other assets utilized in the support of offshore drilling activities worldwide. The company has contracts for the construction of 4 newbuild enhanced enterprise-class drillships and a current equity market capitalization in excess of $31 billion.

Following the merger announcement, Standard & Poor’s Ratings Services lowered its corporate credit ratings on Transocean Inc. and GlobalSantaFe Corp. to ‘BBB+’ from ‘A-’. Both ratings were placed on CreditWatch with negative implications.

The transaction constitutes a sizeable recapitalization, with $15 billion in debt-financed cash distributions to be paid to Transocean and GlobalSantaFe shareholders. Pro forma the transactions, the combined entity will have approximately $17 billion in total debt.

“The downgrades reflect the planned transaction’s considerable debt component, which will noticeably weaken consolidated credit measures (we expect pro forma debt to upcycle EBITDA to exceed 3x at close), and indicate a clearly more aggressive posture by management toward rewarding its shareholders,” said Standard & Poor’s credit analyst Jeffrey Morrison.

Initially, management will fund the $15 billion cash portion of the financing through a syndicated bridge facility. Upon close of the transaction, the bridge facility will likely be refinanced with a combination of short, medium, and long term debt issues–to allow management some flexibility with regard to future debt retirement.

According to S&P, the negative CreditWatch listing reflects the potential for ratings to be lowered additionally or affirmed in the near term. The company believes the combined entity will hold an investment-grade rating, given very strong revenue and cash flow backlog, a favorable near- to intermediate-term rig contracting environment, expected market position enhancement resulting from the merger, and the potential for material deleveraging to occur over the next two years.

The CreditWatch listing will be resolved upon successful close of the merger and following a full review of the combined entity’s business risk profile and ultimate capital structure. OGFJ

Noble Denton acquires Poseidon Maritime

Noble Denton Group, the global offshore and marine consulting firm, has acquired Poseidon Maritime (UK) Ltd. for £2.4 million. The company plans to retain all staff after the merger.

(From left) Scott Martin, CFO, Noble Denton Group; Peter Napier, managing director, Poseidon Maritime (UK) Ltd.; and R.V. Ahilan, European regional managing director, Noble Denton

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Poseidon was established in Aberdeen to provide marine and marine safety consultancy services, primarily to the offshore oil and gas exploration and production industry. Its primary focus is to maximize business continuity and operational safety for its clients, particularly in regard to dynamically positioned vessels.

Noble Denton has more than 300 employees oil and gas industry centers in Europe, North and South America, the Middle and Far East. The company is backed by two investment groups, Ferncliff TIH and HitecVision.

David Sutton, CEO of Noble Denton Group, said: “Our vision is to provide a client-focused and fully-integrated marine and engineering consultancy service to the oil and gas industry on a global scale. Poseidon has a long standing, well proven, track record of delivery and together we are absolutely committed to a performance-driven service based on the highest technical standards.”

Peter Napier, managing director of Poseidon, said: “Joining forces with Noble Denton enables us to enhance our presence in Houston, New Orleans and Singapore where we have already secured many high profile, long-term clients.”

This transaction was initiated and arranged for Poseidon by Aberdeen-based mergers and acquisitions specialists, Chate & Co. OGFJ

Pride to sell Latin America land, E&P services segments for $1 billion in cash

Pride International Inc. has entered into a definitive agreement to sell its Latin America land-based drilling and workover business and its E&P services business to GP Investments Ltd., a private equity firm in Latin America. The transaction, which is subject to customary closing conditions, is expected to close by the end of the third quarter of 2007.

GP Investments will pay $1 billion in cash at closing for the two business segments. Proceeds, which are expected to be largely free of taxation, could be utilized for general corporate and strategic purposes, including potential funding for the construction of the company’s two ultra-deepwater drillships and other future growth opportunities.

The Latin America land business is comprised of 73 land drilling rigs, 135 workover rigs, and two lake drilling barges. The E&P services business provides a wide range of services to complete, maintain, and enhance production from oil and gas wells, including pressure pumping, integrated, directional drilling, and other well services. Combined 2006 revenues for these two business segments totaled $823.9 million, while combined revenues for the six months ended June 30, 2007 were $472.8 million. The businesses 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 located in Kazakhstan and Pakistan.

Pride president and CEO, Louis A. Raspino, stated, “With the close of the transaction, contract drilling operations of Pride International will be almost exclusively offshore, with an increasing focus on deepwater and other high specification assets. Following the completion of this transaction, the percentage contribution to Pride’s earnings from operations by our deepwater and midwater floating rig fleets will increase significantly and would have represented in excess of 60% of earnings from operations during the second quarter of 2007 after excluding the results from the Latin America land-based operations.”

Goldman, Sachs & Co. is acting as financial advisor to Pride, and Baker Botts LLP is acting as legal counsel to the company. Pride International, headquartered in Houston, is one of the world’s largest drilling contractors. OGFJ

PXP to acquire Pogo for $3.6B

Plains Exploration & Production Co. will acquire Pogo Producing Co. in a stock and cash transaction valued at nearly $3.6 billion. Under the terms of the agreement, Pogo stockholders will receive 0.68201 shares of PXP common stock and $24.88 of cash for each share of Pogo common stock which represents a total consideration of roughly $60 per Pogo share. Total consideration for outstanding Pogo shares is 40 million PXP shares and about $1.5 billion in cash.

“Along with asset diversification and significant cost savings, the combined company will have a total estimated reserve potential of 1.4 billion barrels of oil equivalent. This transaction almost doubles PXP’s production with the addition of substantial producing properties and significant growth potential in Texas, primarily the Panhandle, Permian, and Gulf Coast, plus the prolific Madden Field in Wyoming and the San Juan Basin in New Mexico. Since most of the Pogo assets are complementary to the profiles of the PXP assets, with long production lives and low decline rates, PXP will now be positioned to create one of the ‘best-in-class’ MLPs in the E&P marketplace,” commented James C. Flores, chairman, president, and CEO of PXP.

Paul G. Van Wagenen, chairman, president, and CEO of Pogo stated, “This transaction with Plains Exploration & Production Company creates a combined company with impressive financial and operational strength able to successfully capture the best of opportunities in our industry.”

Post closing, which is subject to customary approvals, PXP stockholders will own roughly 66% of the combined company and Pogo stockholders will own the remaining 34%.

Flores will remain the chairman, president, and CEO and PXP’s current executive staff Winston M. Talbert, executive VP and CFO; John F. Wombwell, executive VP and general counsel; and Doss R. Bourgeois, executive VP exploration and production, will continue in their current capacities. Two members of the Pogo board will join the PXP board at closing.

Lehman Brothers Inc. acted as financial advisor to PXP. Goldman, Sachs & Co. and TD Securities Inc., acted as financial advisor to Pogo.

Houston-based PXP is an independent oil and gas company primarily engaged in the upstream activities of acquiring, developing, exploiting, exploring, and producing oil and gas onshore and offshore California, Colorado, and the Gulf Coast region of the US. OGFJ

Saudi Aramco, Schlumberger to develop new technology for downhole valves

Saudi Aramco and Schlumberger will jointly develop new technologies for intelligent completions that will lead to electrically-activated downhole control valves, and would therefore facilitate a theoretically unlimited number of intelligent laterals per well.

“ERC wells are intelligent multilateral wells that do not require individual control lines from the wellhead to each lateral or zone, and therefore theoretically allow an unlimited number of intelligent laterals,” said Amin Nasser, vice president of petroleum engineering and development at Saudi Aramco.

Saudi Aramco pioneered intelligent Maximum Reservoir Contact wells, which attain more than 5km of contact with the reservoir through intelligent side laterals of the main wellbore that can be partially or fully opened and closed from the surface. Saudi Aramco’s most recently developed field, Haradh Increment III, completed in early 2006 with a production capacity of 300,000 b/d, relies on 32 such intelligent MRC wells.

“Smart MRC wells can only have a limited number of laterals (4 to 5), however, because each downhole control valve requires a mechanical control line to the wellhead,” explained Muhammad Saggaf, manager of Saudi Aramco’s EXPEC Advanced Research Center.

“ERC wells would relax this requirement by replacing the mechanical lines with electric activation. We envision ERC wells of fifty to a hundred intelligent laterals that would efficiently drain the reservoir and ultimately maximize economic recovery,” Saggaf added.

The development project will be executed by a technical team comprised of researchers from Saudi Aramco’s EXPEC ARC and Schlumberger research and technology centers that include the Schlumberger Dhahran Research Center.

Permanent installation of intelligent completion systems depends on the reliability of the downhole actuation system. The new technology will employ inductive coupling at the connections between the laterals and the main wellbore to ensure long-term operational integrity. OGFJ