In Too Deep! Noble Corp To Spinoff Older Assets And Focus On Deepwater Drilling

By |
0 Comment
Noble Corporation (NE) is going deep after announcing plans to spin off a business holding most of its standard specification drilling units. The new company’s assets will include ‘five drillships, three semisubmersibles, 34 jackups, two submersibles, and one FPSO’ and also be responsible for the Hibernia platform operations. Noble will continue to own and operate its high-specification assets, ~35 rigs ‘with particular operating focus in deepwater and ultra-deepwater markets.’ The most recent fleet status report for the company can be found here.

Noble is not the first company in the space to pursue this type of transaction. Pride International executed a similar maneuver several years ago and it was acquired shortly thereafter by Ensco (ESV). Unfortunately, things didn’t end so well for its spinoff Seahawk Drilling which ended up being liquidated and sold off for chump change to Hercules Offshore (HERO). Another large company, Transocean (RIG), recently sold a fleet of its older rigs for $1b to a Dubai based PE firm.

While management claims this deal is about creating ‘more focused’ companies, this looks like a classic good asset versus bad asset deal. This Houston Chronicle piece notes that ‘older vessels drag down margins and increase expenses, while the newer fleets are more technologically advanced, have more deck space, and do not have as many preparation and maintenance issues.’ In other words, Noble’s fleet quality will improve drastically as a result of this transaction and they hope that means the stock will command a higher multiple. While the name popped a bit on the announcement, it hasn’t really moved much since as it has traded in a tight range over the past month.

Unlike most situations, this spinoff is subject to shareholder approval which it expects to seek during Q2 2014. Assuming favorable market conditions, Noble left itself open to the idea that it may pursue an IPO listing of up to 20% of the Newco prior to the spinoff. Noble will end up receiving whatever money is raised via the IPO or newly issued Newco debt and use it to pay down its own debt.

Disclosure: Author holds no position in any stock mentioned

(H/T PG for pointing this one out to us)

Related articles