Borr Drilling boosts stake in Atwood amid Ensco takeover

Norway-based newcomer in the offshore drilling sector, Borr Drilling, has increased its stake in the U.S.-based offshore driller Atwood Oceanics to almost 10 percent as market for modern jack-up rigs shows signs of improvement. 

Atwood is currently in the process of being acquired by the UK rival Ensco in an all-stock offer made back in May. Investors from both companies agreed to vote on the merger on October 5.

In its financial report for the first half of the year, Borr said it had acquired more than 5% of the outstanding shares in Atwood Oceanics taking its total holding to 9.7% of the company.

“The board view the investment as opportunistic and well supported by the value of its assets and solid operations. The investment further supports Borr’s strategy to play an active role in the much needed consolidation in the rig market, with special focus on the jack-up segment,” the driller explained.

Earlier this week, the company listed on Oslo Stock Exchange with new ticker BDRILL. The listing is expected to improve the liquidity in the shares, raise the awareness of the company and secure Borr Drilling’s access to the capital market as the company continues to grow.

The company also made some management changes. Namely, effective August 30, Erling Lind resigned from the board and the board resolved to appoint Jan Rask to fill the vacant seat. At the same time, Tor Olav Trøim was appointed chairman of the board, after Lind’s departure.

In addition, the company is engaged in discussions with its largest shareholder, Schlumberger, to develop a broader strategic relationship. An executive has been hired to act as the focal point for the development of this partnership in order to manage the interface and opportunity set that arises out of collaboration. Potential areas of interest include, but are not limited to, field development and decommissioning opportunities, integration of commercial models and technology development and deployment.

Improvement in jack-up market

According to Borr, the jack-up market has continued to show improvement in recent months and the company’s interaction with oil companies continues to indicate preference for modern and highly capable rigs.

Namely, since the start of the year, marketed utilization for Independent Cantilever (IC) jack-up rigs that are less than 10 years old has improved by 3 percentage points to 72% today. During the same period marketed utilization for IC jack-ups older than 10 years has decreased 4 percentage points to 66%.

Borr further noted that contracting activity continues to improve and, year-to-date, the number of new contract awards is 18% higher than the same period last year. Tendering activity is increasing, in particular in West Africa, the Middle East and South East Asia regions, the driller said.

With oil companies’ preference for modern rigs, and as many as 78 jack-ups built prior to 2000 have been sitting idle for more than two years, the company expect scrapping activity to increase going forward. Having a modern fleet of highly capable jack-up rigs, the company remains optimistic about future contract opportunities.

New M&A opportunities ahead?

The current acquisition cost for newbuildings and modern jack-up rigs are lower or in line with where prices were when the last major rig cycle started in 2003, Borr stated in its report. The current price levels are significantly lower than current yard construction costs, and more than 50% down from the peak prices in 2013. This, together with the fact that half of the global jack-up fleet is more than 30 years old, limits the downside risk for these investments and creates an attractive risk reward opportunity, the company deducted.

Borr Drilling believes that a consolidation of the modern jack-up market is a key factor to take out cost inefficiencies and improve the flexibility and service quality that offshore drillers can offer their customers. Borr has the ambition to be at the center of this development both in terms of consolidation of the sector and the development of services provided to clients.

As a result, the company continues to monitor and evaluate opportunities for growing the fleet through M&A and standalone asset acquisitions. “We remain confident of the long term potential of our fleet strategy of concentrating on high specification modern rigs and believe that emerging evidence indicates the jack-up sector is the first responding segment of the offshore rig market.

“It is Borr’s target to use the current distressed rig market to build an industry leading jack-up operator over the next year,”  the company concluded.

Offshore Energy Today Staff