The major consolidation in the global drilling market may be the needed development that finally lifts the unsatisfying daily rates following a long downturn.

The first comments on the merger between US Noble Corp and Danish Maersk Drilling suggest as much, with statements highlighting that the concentration could help push up the rates, which have been fallen so low that drilling companies have struggled for a couple of years now to keep their businesses in operation.

ShippingWatch has spoken with leading analyst firms about how the major fusion will affect the market.

"By merging these two, you get a more concentrated market by removing one player. The entire company will have a good position in the UDW market with 20 floaters, and they will have a much larger position in the North Sea. Here, they will have 19 jackups that can work on both the Norwegian and British side," says Gustaf Amlé, analyst at Fearnley Securities, to ShippingWatch.

"I think this will bring about better discipline in the market, which, again, is positive, and I think it will contribute to higher daily rates."

To Fredrik Stene, Vice President of Equity & Credit Research at Clarksons Platou Securities, the merger of the two companies doesn't come as a major surprise. Rumors have been swirling for a while, he says, and he is convinced that the consolidation will improve the market.

"In most mergers, analysts are interested in finding out if there is one winner or if both companies are winners. And it is often linked to synergies. Here, they've attempted to put a figure on it of USD 125 million in run rate, which makes sense since both companies' fleets operate in the same geographies," Stene tells ShippingWatch.

"If you put a multiple on it, e.g. six times EBITDA, it becomes 750 million in value added as a result of this merger."

This corresponds to an added value for the Noble stock of approximately USD 5.6 on an equivalent stock basis, and the analyst sees this as quite significant.

According to Fredrik Stene, this also led to a significant uptrading of the Maersk Drilling stock following the announcement of the merger.

Strengths of merger

The merged drilling company will have several advantages, and the consolidated company's finances are looking positive, says Gustaf Amlé.

"The size and market position will be the new company' strength, as well as the fact that the company will have a balance sheet with relatively little debt. We're talking approximately USD 10-20 million in net debt per rig, which isn't a high number. In addition to this, liquidity of USD 900 million. All in all, a robust platform," says the analyst.

Frederik Stene also forecasts a strong future for the merged company.

"On the floater side, the company will have a relatively large fleet with good coverage and customer relations. You get the best of both worlds when the companies merge. They did well individually, and it will not get worse when they merge," he says.

Norwegian investor disapproves

Not everyone views the merger in such a positive light, however. Norwegian investor Øystein Stray Spetalen, founder of investment company and carrier Standard Drilling and a shareholder of Noble, is critical of the merger.

The consolidation has been approved by both companies' boards and by three of Noble's major shareholders, while Standard Drilling is considering voting against the merger.

Standard Drilling assesses that the valuation of Noble has been set too low and that the value of Noble's seven 7G floaters should be equal to the value of Maersk Drilling's five CJ70 jackup rigs.

Fredrik Stene doesn't share this view, as he finds the valuation reasonable.

"The exchange ratio appears to be based on a fair valuation of both fleets. I think this is a trade intended to have both companies come out as winners."

English Edit: L. N. Barnes

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