Transocean Ltd. (RIG) is betting on "imminent recovery in the ultra deep water" market and continued strong oil prices after announcing a $2.7 billion deal with Ocean Rig UDW Inc. (ORIG) this morning.
Switzerland-based oil drilling leader will now have a large base of ships and rigs to attack underwater black gold, far away from its land-locked headquarters. This morning, market reaction is muted as shares are falling by 0.5% as of 8.21 a.m. in New York.
Looking ahead, the move aims to take advantage of an oil market recovery that has brought the Brent Crude Index from lows below $30 two years ago to about $80 as of Friday's close.
"The combination of constructive and stable oil prices over the last several quarters, streamlined offshore project costs, and undeniable reserve replacement challenges has driven a material increase in offshore contracting activity," Transocean CEO and President Jeremy Thigpen said in a statement this morning.
The acquisition provides the oil giant with a veritable armada of drilling ships, indicating the company feels that oil prices will continue to make the investment worth it.
Per a press release, the company will now command 57 floaters, with 17 of the top 50 ultra-deepwater drillships in the oil industry, that it can direct to waters off the coast of Brazil, Norway, and West Africa as rising oil prices embolden the company amidst associated costs with ultra deepwater drilling.
For Ocean Rig shareholders, the deal offers $32.28 per share, a 16% premium on Friday's closing price of $27.08.
The premium is likely to placate activist shareholder Paul Singer, whose Elliott Management has held the company under siege since last year, beginning shortly after its Chapter 15 bankruptcy restructuring in March 2017.
This deal's announcement comes just one year after the hedge fund announced it would be seeking advisers to help find an agreeable deal for shareholders.
A conference call explaining the dea has been set for 11:30 a.m. in New York today.