FOCUS-Schlumberger, Transocean
create drilling giant
(Adds detail on merger terms in para 3, closing stock prices in
para 12, new analyst quotes in para 18)
By Andrew Kelly
HOUSTON , July 12 (Reuters) - Oilfield services giant
Schlumberger Ltd.(NYSE:SLB - news) said on Monday it was
spinning off its marine drilling business, Sedco Forex, and merging
it with Transocean Offshore Inc. to create the world's biggest
offshore driller.
Schlumberger stockholders will own about 52 percent of the new company, which will be called
Transocean Sedco Forex, and will have a stock market value of some $6.3 billion.
Transocean(NYSE:RIG - news) stockholders will retain 101 million shares in their company while
109 million new shares, worth about $3.3 billion, will be issued to Schlumberger stockholders.
The merged company will have a fleet of 75 offshore drilling rigs active in all major offshore oil and
gas regions, including the North Sea, Gulf of Mexico, Asia, West Africa and Brazil.
It will be particularly strong in deepwater drilling and will have the youngest fleet operating in that
segment of the market, where some of the world's largest oil finds are being made.
Schlumberger's Chief Executive Euan Baird said that spinning off the company's capital-intensive
drilling business would allow Schlumberger to focus on strengthening other core services to oil and
gas companies, such as seismology and well evaluation.
Baird said in a conference call that Schlumberger, the world's second-largest provider of oilfield
services after Halliburton Co.(NYSE:HAL - news), had initiated the merger, approaching
Transocean in April and getting an immediate positive response.
Transocean Sedco Forex will become the world's biggest offshore driller, overtaking Diamond
Offshore Drilling Inc.(NYSE:DO - news), which has a market capitalization of $4.3 billion.
Transocean said the merger would lead to a modest drop in its earnings next year, but would boost
earnings in subsequent years. Schlumberger said only that Sedco Forex was expected to generate
15 percent of Schlumberger's total net income this year.
The deal is the first big merger in the fragmented offshore drilling industry since a round of
consolidation among major oil companies led to the formation of BP Amoco Plc (quote from Yahoo!
UK & Ireland: BPA.L)(NYSE:BPA - news) last year and plans to merge Exxon Corp.(NYSE:XON
- news) and Mobil Corp.(NYSE:MOB - news).
Wall Street's initial response was muted but as the day wore on other offshore drilling stocks ran up
gains of three to four percent on speculation that more mergers could follow.
Transocean closed 81.25 cents higher at $29.8125 and Schlumberger rose 50 cents to $64.8125.
Diamond Offshore was up $1.125 at $31.50, while Global Marine Inc.(NYSE:GLM - news) rose
50 cents to $16.875.
Oilfield service and drilling stocks took a hammering in 1998, due to weak oil prices. They rallied
strongly earlier this year in line with crude's recovery, but stock prices within the sector remain well
below the highs they attained in 1997.
Transocean's Chief Executive Michael Talbert, who will retain that position with Transocean Sedco
Forex, said the new company's unmatched geographical reach and technical capability would make
it an attractive partner for the new oil super-majors.
''They can deal with one company who can serve their needs on a global basis,'' Talbert said.
Andreas Vietor, an analyst with Hanifen Imhoff Inc., said Schlumberger appeared to have pursued
the merger to obtain a higher earnings multiple on Wall Street by spinning off the volatile drilling
business.
The deal might serve as a catalyst for further consolidation among drillers, he said, although he
expected some hesitancy in the near term as companies wait to see how mergers among the oil
majors would affect deepwater drilling programs.
Fred Mutalibov of Southwest Securities predicted that more consolidation would indeed follow, with
leading candidates, including Santa Fe International Corp.(NYSE:SDC - news), Global Marine and
Marine Drilling Companies Inc.(NYSE:MRL - news).
''We believe that size and diversity requirements will push offshore drilling contractors towards
significant merger and acquisition activitiy in the next two years,'' he said. |
