Ensco (ESV) Acquires Atwood Oceanics, Broadens Customer Base

Oil and natural gas driller Ensco plc (NYSE:ESV) completed the acquisition of Atwood Oceanics, Inc.

On May 30, Ensco revealed plans to acquire Atwood in an all-stock deal worth $839 million. Per the agreement, Atwood’s shareholders will obtain 1.60 shares of Ensco for each share of Atwood’s common stock for a total value of $10.72 per share. The price is based on Ensco’s closing share price of $6.70 on May 26. This corresponds to a premium of about 33% to Atwood’s closing price on the same date. On completion of the transaction, shareholders of Ensco and Atwood will own about 69% and 31%, respectively, of the outstanding shares of the former. No financing conditions are attached to this transaction.

The combined company will have a fleet of 63 rigs comprising ultra-deepwater drillships, versatile deep- and mid-water semisubmersibles and shallow-water jackups, along with a diverse customer base of 27 national oil companies, supermajors and independents.

Within the fleet of 26 floating rigs (semisubmersibles and drillships) are 21 ultra-deepwater drilling rigs that are capable of drilling in water depths of 7,500′ or greater, with an average age of five years. Interestingly, the fleet is believed to be among the youngest and most capable in the industry. The jackup fleet is also estimated to be the largest in the world with 37 rigs, including 27 premium units. These jackups are all equipped with multiple advanced features as requested by clients for shallow-water drilling programs, such as increased leg length, expanded cantilever reach, greater hoisting capacity and offline handling capabilities.

Owing to the complementary nature of the companies’ products, Ensco will be able to provide a complete range of offshore drilling equipment for the production of oil and gas post merger completion.

Management expects this acquisition to drive Ensco's earnings and cash flow per share through cost synergies of approximately $45 million next year and $60 million in 2019. The combined entity will have a broader customer base, greater exposure to the deepwater drilling business and a wider array of products.

Ensco’s prospects look bright as the company has been able to clinch new orders despite commodity price volatility. This is clearly reflected in its substantial project backlog. Shares of the company have gained 12.7% compared with the industry’s increase of 7.9% over the last three months.

Zacks Rank & Key Picks

Currently, Ensco, headquartered in London, carries a Zacks Rank #3 (Hold). A few better-ranked players in the energy sector include First Solar Inc (NASDAQ:FSLR) , Lonestar Resources US Inc (NASDAQ:LONE) and Alliance Resources Partners LP (NASDAQ:AHGP) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

First Solar designs, based in Tempe, AZ, manufactures and sells solar electric power modules using a proprietary thin-film semiconductor technology. The company delivered an average positive earnings surprise of 524.24% over the last four quarters.

Lonestar Resources is an oil and gas company, headquartered in Fort Worth. The company delivered a positive earnings surprise of 62.5% in the preceding quarter.

Alliance Resources Partners is a diversified producer and marketer of coal to major U.S. utilities and industrial users. The firm delivered an average positive earnings surprise of 29.76% over the last four quarters.

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