Noble Corporation Acquiring Diamond Offshore in $3.6 Billion Deal

In a blockbuster transaction in the offshore drilling sector, Noble Corporation plc (NYSE:NE) announced today that it has agreed to acquire Diamond Offshore Drilling, Inc. (NYSE:DO) in an all-stock and cash deal valued at $3.6 billion. The combination will create one of the largest offshore drilling contractors, with a massive fleet and diverse global footprint.

Deal Terms
Under the agreement, Diamond Offshore shareholders will receive 0.2316 shares of Noble stock plus $5.65 in cash for each Diamond share they own. This represents an 11.4% premium over Diamond’s closing share price on June 7th. Upon closing, Diamond shareholders will own approximately 14.5% of the combined company.

Noble has secured $600 million in committed bridge financing to fund the cash portion of the deal. One member of Diamond’s board will join Noble’s expanded board once the transaction is completed.

Strategic Rationale
This transaction brings together two leading offshore drillers with complementary capabilities and customer bases. The combined company will boast an impressive fleet of 41 rigs, including 28 floaters and 13 jackups, with a $6.5 billion backlog providing strong revenue visibility.

Of particular note, Noble will acquire four of Diamond’s 7th generation ultra-deepwater drillships along with the harsh environment semi-submersible Ocean GreatWhite. These high-spec assets augment Noble’s already formidable ultra-deepwater fleet, cementing its pole position as the leader in this critical offshore segment.

On the other side, Noble brings additional scale in jackup rigs and geographic diversity. The companies cited synergy opportunities around operational excellence, safety culture, and customer relationships as key strategic benefits.

Noble management forecast at least $100 million in annual cost synergies, with 75% achieved within a year of closing. The deal is expected to be immediately accretive to Noble’s free cash flow per share.

Return of Capital Emphasis
Illustrating the combined company’s commitment to shareholder returns, Noble’s board approved a 25% increase to its quarterly dividend to $0.50 per share starting in Q3 2024. This represents an annualized dividend of $2.00 per share.

Noble has prioritized generous capital returns in recent years as offshore drilling activity and dayrates have recovered. With enhanced scale, efficiencies and cash flow from this acquisition, Noble is well-positioned to continue growing its dividend over time.

Management Comments
“This acquisition enables Noble to continue our journey of delivering superior innovation and value to a broad range of the leading offshore operators across the world,” stated Noble CEO Robert Eifler. He highlighted the drillship additions and accretion to free cash flow as key drivers.

Diamond CEO Bernie Wolford noted “This combination is an ideal outcome that provides Diamond shareholders both immediate and long-term upside potential as part of a more fully scaled platform that can deliver customer and shareholder value on a through-cycle basis.”

Neal Goldman, Chairman of Diamond, added “We have created tremendous value for our shareholders and customers that has culminated in a strategic merger that will continue to add value for all.”

Path to Completion
The deal is subject to customary closing conditions including regulatory approvals and a vote of Diamond’s shareholders. It is expected to close by Q1 2025 after securing the necessary approvals.

With the financial incentive of an 11.4% premium, supportive comments from leadership, and strategic benefits like increased scale and cost synergies, this transaction has a high likelihood of being consummated as proposed in the coming months.

Greenfire Shares Drop After SPAC Merger Completes

Greenfire Resources, a Calgary-based oil sands company, began public trading on the New York Stock Exchange on Thursday through a merger with a special purpose acquisition company (SPAC). However, shares of Greenfire fell sharply on its debut, dropping around 11% in morning trading.

Greenfire combined with M3-Brigade Acquisition III Corp, a SPAC sponsored by New York-based private investment firm Brigade Capital Management. The deal, first announced in December 2022, valued Greenfire at $950 million.

The new company, Greenfire Resources Ltd, is now listed on the NYSE under the ticker “GFR”. But investors reacted negatively to the stock early on. After opening at $9.80 per share, GFR declined over 37% to around $6.10 by Friday morning.

SPAC deals have faced increased skepticism from investors amid high market volatility this year. Many companies that went public via SPACs have seen their share prices sink below initial trading levels. This broader SPAC downturn could be contributing to the weak debut for Greenfire.

Greenfire operates steam-assisted gravity drainage (SAGD) facilities in Alberta’s prolific oil sands region. It has a 75% stake in the Hangingstone expansion project, which came online in 2017, and 100% ownership of the adjacent Hangingstone demonstration facility. Both produce bitumen using steam injection to mobilize viscous oil sands deposits.

The company raised approximately $42 million through a private placement that closed concurrently with the SPAC merger on September 20. It also put in place $300 million in new senior secured notes and a $50 million senior secured credit facility to boost liquidity.

According to Greenfire’s management, the company will prioritize debt reduction in the near-term to strengthen its financial position. It also plans to increase production at its existing facilities through techniques like infill drilling and debottlenecking.

For example, Greenfire is currently drilling extended reach “refill” wells at the Hangingstone expansion site. These wells are intended to produce incremental volumes from between existing well pairs. No new drilling has occurred at the project since its commissioning in 2017.

In the long-term, Greenfire aims to generate free cash flow thanks to controlled capex spending and its high quality oil sands reservoirs. The company believes it has a structural cost advantage compared to some other SAGD operators in the Athabasca region.

Greenfire says its assets have long-life reserves and relatively low decline rates versus conventional oil and gas resources. For instance, the Hangingstone demonstration project has maintained steady production for nearly 20 years without new wells. This could support continued output for decades.

The company intends to initiate a shareholder returns policy over time once it has made sufficient progress on debt reduction. It also plans to evaluate potential acquisition opportunities to drive further growth down the line.

But in the short-term, investors seem cautious on the newly public company as oil prices waver. Energy stocks have seen significant volatility in 2022. Greenfire traded down double-digits in its NYSE debut as traders reacted hesitantly.

Its success at boosting production from existing assets through relatively low-cost techniques like infill drilling may dictate whether shares can rebound over the coming months. For now, the market is taking a wait-and-see approach with the SPAC-backed oil sands operator.

Explore other SPAC Mergers via SPACtrac reports from Noble Capital markets

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