Ensco Defends Atwood Merger

Summary

• Ensco published its Q2 results and held a conference call.
• The company actively argued in favor of the upcoming merger with Atwood.
• I remain very skeptical. The deal looks bad for Ensco shareholders and very good for Atwood shareholders.

Ensco's (ESV) second-quarter earnings release and earnings call were especially interesting given the upcoming merger with Atwood Oceanics (ATW). Fellow contributor Fun Trading has already written a nice summary of Ensco's results, so I won't do the same job twice. Instead, I'm going to focus on the most intriguing part of today's Ensco story -- the merger with Atwood.

I have previously written a critical article on the Ensco-Atwood merger (see here). Before I offer my commentary, I'd like to sum up Ensco management's reasoning for the merger. Here's what the company plans to accomplish:

1. Enhance floater segment with Atwood's drillships and semi-subs
2. Refresh the jack-up segment
3. Save money from synergies

Ensco also noted that it plans to:

1. Rationalize legacy assets
2. Be highly selective in reactivating rigs

Now let's go through the above-mentioned points one by one.

Enhance floater segment with Atwood's drillships and semi-subs: Ensco has eight drillships: DS-3, DS-4, DS-5, DS-6, DS-7, DS-8, DS-9 and DS-10. Ensco DS-3 and DS-5 are preservation stacked in Spain. Ensco DS-9 is available in Singapore. Ensco DS-6 will soon roll off contract in Egypt (in February 2018) and will also have to search for work. As the example of Ensco DS-4 showed, DS-3 and DS-5 could be reactivated if a suitable contract is found. Therefore, Ensco has three drillships that it can bid for work and this number will soon increase to four.

With the acquisition of Atwood, Ensco will get Atwood Advantage, Atwood Achiever and the newbuilds Atwood Admiral and Atwood Archer. Atwood Advantage's contract with Noble Energy (NBL) ended on July 31, and the rig will be idled in the Mediterranean and actively marketed. Atwood Achiever's work is expected to end in January 2018, after which the rig will have to find work again. Effectively, Ensco will have the task to find

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