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Archer Finances Great White Energy Services Acquisition
Last month, Archer Limited agreed to acquire Great White Energy Services (“GWES”), a company which provides horizontal and directional drilling services, pressure control and pressure pumping for $742 million. The acquisition gives Archer an entry point into the rapidly expanding “frac” market in the US as well as effectively doubling Archer’s US coil tubing and directional drilling capacity.
Soon thereafter, the financial markets collapsed and the company renegotiated the purchase price with the seller obtaining a price reduction of $112 million to $630 million. Initially, the company planned to issue 12.7 million new shares at a price of NOK 35 in a private placement directed towards its two largest shareholders, Seadrill Limited and Lime Rock Partners V.L.P to partially finance the purchase. The offering would have raised $82 million in proceeds to Archer. In fact, due to increased demand the offering was oversubscribed with the company issuing 30 million shares at NOK 30 raising gross proceeds of NOK 900 million. Allocated 14.5 million shares, Seadrill will own approximately 145.8 million shares corresponding to a 39.81% of the issued and outstanding shares.
Buying Shares – Seadrill and Golar LNG Buyback Shares
The Fredriksen companies have been busy buying shares lately as a result of certain triggering events. In the case of Seadrill, the parity value of the five year convertible bond issue due in 2012 exceeded 130% of par value for at least 20 days out of a period of 30 consecutive trading days allowing Seadrill to redeem the bond at par plus accrued interest. This, in turn, will likely result in the bondholders exercising their conversion rights. Of the original $1 billion, there is $749.5 million in bonds outstanding. Should all the bondholders convert all the remaining bonds at the $27.80 conversion price (Wednesday’s closing price was $33.59, making the exercise a no brainer), Seadrill will have to issue approximately 27 million new shares. In order to reduce the total outstanding number of shares, Seadrill began to repurchase shares and has since acquired 1.65 million shares at an average price of NOK 184.11 bringing its holdings of treasury shares to approximately 1.8 million.
The Next Best Great Thing
Based upon all the activity in Norway, the harsh environment is the flavor of the moment. Just in the past few weeks, equity offerings for Aker Drilling and Discovery Offshore are in process or were just concluded. Not to let a good thing go by, Mr. Fredriksen decided to create a new drilling company focusing entirely on harsh environment operations, which has been named North Atlantic Drilling Limited (“NADL”) reflecting its chosen operating area in the North Atlantic Basin. Seadrill Limited will spin off six of its nine harsh environment units into the new company. NADL’s new fleet, with an average age of 11.2 years, will consist of 3 semi-submersibles, 1 drillship and 2 jack-ups, one of which will deliver next quarter. All but the newbuilding are currently working in Norway. A seventh unit currently in the final stages of negotiation will also join the fleet when delivered.
“…Ask and you shall receive…”
The overriding theme of capital being available to existing companies continues. Both DHT Holdings Inc. (“DHT”) and Teekay Tankers Ltd successfully concluded overnight follow-on equity offerings last week and both were well received.
DHT initially announced plans to offer 8 million shares in an underwritten public offering, “subject to market conditions.” Market conditions were certainly good with the transaction approximately 3 times oversubscribed. The offer was upsized approximately 93% to 15.5 million shares, which included an exercised underwriter’s option to purchase up to 2.025 million shares to cover overallotments. The shares were offered at a discount range of 8-10% of the closing price on February 3rd of $5.08. The strong demand resulted in the transaction being priced at $4.65/share equal to a discount of 8.4%. Proceeds will be used for general corporate purposes, which may include, without limitation, vessel acquisitions, business acquisitions or other strategic alliances, reduction of outstanding borrowings, capital expenditures and working capital.
Skunked in New York, Success Outside
Having been unsuccessful in New York in its efforts to sell up to $400 million of ten-year senior unsecured notes in December, Ship Finance International Limited played it safe and stayed closer to home in its latest capital raising effort. The earlier effort, which was tied to a tender offer for its 8.5% Senior Notes due 2013, was stymied by weakening market conditions in the debt capital markets due to the sovereign debt issues in Ireland. Although investors pulled back from the new issue market, the Ship Finance story, we understand, was well received. In concluding our story, we wrote: “Now more than ever, in a world where information flows at the speed of light, it is not merely fundamentals that determine your future, but macro events as well. A quiet news week may be just what the doctor ordered.”
Offshore Drilling Interest Unabated
If you want to market an offshore drilling transaction, particularly a start-up, Oslo must be one of the first stops, if not the only, on your itinerary. This is clearly evident from the following two deals which closed last month. The appetite for offshore appears to be nearly insatiable.
Prospector Offshore Drilling S.A.
In early December, Prospector Offshore Drilling S.A. successfully closed it private placement of 35 million shares at a subscription price of $2/share. Total gross proceeds amounted to $70 million. As part of the offering the Skeie Group and the management team agreed to subscribe for a minimum of$15 million, of which the latter on its own agreed to subscribe for $1.6 million. Post-issue there will be 35.445 million shares outstanding, with new investors owning 98.74%. Proceeds will be used for the initial down payments for the construction of two high specification harsh environment (“HS/HE”) jack-up drilling rigs as well as project management costs and SG&A until delivery of the first rig. While the rigs are classed as HS/HE, they can operate in the North Sea but are not suitable for Norway and the Arctic, where the delivery cost of a compliant rig is in excess of $500 million, more than double the cost of the Prospector rigs.
Offshore Drilling Interest Unabated
If you want to market an offshore drilling transaction, particularly a start-up, Oslo must be one of the first stops, if not the only, on your itinerary. This is clearly evident from the following two deals which closed last month. The appetite for offshore appears to be nearly insatiable.
Prospector Offshore Drilling S.A.
In early December, Prospector Offshore Drilling S.A. successfully closed it private placement of 35 million shares at a subscription price of $2/share. Total gross proceeds amounted to $70 million. As part of the offering the Skeie Group and the management team agreed to subscribe for a minimum of$15 million, of which the latter on its own agreed to subscribe for $1.6 million. Post-issue there will be 35.445 million shares outstanding, with new investors owning 98.74%. Proceeds will be used for the initial down payments for the construction of two high specification harsh environment (“HS/HE”) jack-up drilling rigs as well as project management costs and SG&A until delivery of the first rig. While the rigs are classed as HS/HE, they can operate in the North Sea but are not suitable for Norway and the Arctic, where the delivery cost of a compliant rig is in excess of $500 million, more than double the cost of the Prospector rigs.
“The Market Is Hot” – The Theme of Yield Continues
While the action in bonds this week continued in Norway, New York joined the fray with Ship Finance’s latest offering. The beauty of Norway’s market is its speed and simplicity but Wall Street is the place for longer tenor dollar denominated deals such as Ship Finance’s ten year senior unsecured offering.
Lots of Moving Parts, But a Pure Play at the End – BW Offshore to Merge and Divest
The on-going saga of the merger between BW Offshore (“BWO”) and Prosafe Production may have reached its denouement. Back in July, BWO made a voluntary exchange offer for all the shares of Prosafe it did not own. The offer was conditioned on the outcome of the sale of Prosafe’s turret and swivel business to National Oilwell Varco (“NOV”) for $165 million. If the business were unsold the BWO would offer 1.2 shares in BWO plus NOK 2 in cash for each share of Prosafe. However if the business were sold, the cash portion of the consideration increased to NOK 5.25. Prosafe’s management was unexcited by the offer and stated, using the term of art, that it was evaluating strategic and financial alternatives, as the offer did not reflect the fair value of the company. As a consequence of being in play, the sale of Prosafe’s turret business was put on hold pending the outcome of the BW offer and its disposition remains uncertain today.
Seawell Goes Global – Seadrill Subsidiary Acquires Allis-Chalmers Energy
Last Friday, Seawell Limited, a majority (73.8%) owned subsidiary of Seadrill, announced that it had entered into a definitive merger agreement providing for the acquisition of Allis-Chalmers Energy by Seawell in a transaction valued at approximately $890 million, including assumed debt. The new company will rank in the top ten of the leading oil service companies.
With highly complimentary services, the combined oil service company will operate its Drilling and Well Services offerings with a global footprint covering more than 30 of the world’s key oil and gas regions. The combined Drilling Services offering will include platform drilling, land contract drilling, modular rigs, maintenance of drilling systems, directional drilling technology, underbalanced drilling, facility engineering services, rig and riser inspections, and oilfield rentals. The company will be able to provide its customers with fully integrated drilling services, both onshore and offshore, with more than 4,000 experienced drilling crew members and senior directional drillers. The Well Services offering will include electric and mechanical wireline services, production logging services, coil tubing services, ultrasonic investigation logging services, down-hole cameras, and advanced well fishing services. Analyst estimates project that the new company would generate $1.3 billion in revenues and $195 million in EBITDA in 2010.
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