ENSCO PLC (NYSE:ESV) recently announced that it struck an acquisition deal in which it will acquire Atwood Oceanics, Inc. (NYSE:ATW) and the deal could be significant for the oil industry.
Ensco is expected to receive four new ultra deepwater drillships from the acquisition of Atwood. The acquisition is entirely a stock deal in which Ensco was supposed to pay a 33 percent premium as of May 26. Atwood is a significantly smaller company but both of them have been struggling. However, there is speculation that the deal could end up encouraging more similar deepwater acquisitions that might help increase the bargaining power of the rig lessors.
“Acquisition is a large bet on long-term recovery in this industry,” claim investors.
The acquisition has been described as a big bet on dayrates recovery. If it ends up being successful, it might lead to an industry consolidation and this might help the lessor recover their bargaining capacity. Investors in the energy sector have been having a hard time for some time ever since crude prices dropped from $100 per barrel to less than $50. Lessors have been trying to recover since then and regaining their bargaining capacity would be a significant step. However, there seems to be little hope of crude ever returning to its previous highs.
Offshore rig lessors were some of the investors that were hit the hardest by the changing oil prices. Analysts believe that a consolidation might be the only way that they can move forward. Some of the major rig lessors such as Seadrill Ltd (NYSE:SDRL) are on the verge of bankruptcy.
Ensco’s acquisition of Atwood will end up being a bad move for the company if the dayrates remain within the same range for the next three years. However, if they go down and stay within the $350,000- $400,000 range, the synergies might go up and it could end up making a significant positive impact. However, there is still a certain degree of risk involved in the deal.
Ensco stock closed the latest trading session on Wednesday at $5.69, following a 6.75 percent gain compared to the value of the stock at the previous close.
