By Vibeke Laroi Sept. 3 (Bloomberg) — Seadrill Ltd. , the Norwegian oil-rig company controlled by billionaire John Fredriksen , may seek a merger with Houston-based Pride International Inc. as it shifts its focus toward deep-water drilling. Seadrill already controls directly and indirectly a 9.5 percent stake in Pride, a Houston-based offshore driller for oil and natural gas which has rigs from India to Africa. The Norwegian company said last week it wants to streamline its business and put more resources into deep-water operations, where demand has held up more strongly than for shallow-water fields as oil prices declined from last year’s peak. Pride is also focusing increasingly on deep-water and other technologically challenging drilling projects. “We think there could be good, attractive opportunities going forward, also from the point of view of single-asset acquisitions,†Chief Executive Officer Alf Thorkildsen said in an interview at an Oslo oil conference yesterday. Asked if Pride may be a possible merger partner, he said “yes, it could be.†“They have assets that are close to what we have, and that is where we are at the moment,†he said, adding Seadrill is not in talks with Pride or any other companies about a possible merger. He said it’s too early to say if deals will be struck. Pride operates a fleet of 24 rigs, including two deepwater drillships, 12 semisubmersible rigs, seven independent leg jackups and three managed deepwater rigs. It also has four ultra-deepwater drillships under construction for delivery in 2010 and 2011, according to its Web site. Seadrill has 42 units, including 10 under construction, that operate in the Gulf of Mexico, China, Brazil, Nigeria and Indonesia. Rig Strategy Seadrill, based in Hamilton, Bermuda, and run from Norway, acquired a stake of almost 10 percent in Pride in April last year, describing it as a “financial investment.†That made Seadrill the largest single shareholder and prompted the U.S. company to protect itself by lowering a threshold triggering a rights plan to 10 percent from 15 percent. Seadrill said as long ago as November 2006 that it may be looking to take over a U.S. oil-rig competitor. It booked a $615 million loss on investments for the fourth quarter of last year relating to stakes in Pride and two other companies, Scorpion Offshore Ltd. and SapuraCrest Petroleum Bhd. Seadrill has a market value of 41.5 billion kroner, or $6.9 billion, while Pride’s market capitalization is $4.5 billion. Rates Decline Seadrill is the second-largest rig operator in the ultra- deepwater market, where rigs are in short supply and contracted for many months in advance. Last week, on a conference call for analysts, Seadrill cited “reasonable prospects†for the deepwater business, where demand remains stable, and a continued uncertain outlook for the more fragmented jack-up rig market, which has been hit by lower demand from oil explorers. Jack-up rigs have retractable legs that extend to the seafloor and are the most common type used for shallow-water drilling. Last month Pride completed the spinoff of Seahawk Drilling Inc. , a former wholly owned unit which owns 20 jackup rigs operating in the Gulf of Mexico. That move echoed the new strategy Seadrill has outlined for itself. Thorkildsen told the conference in Oslo yesterday that day rates for jack-up rigs have halved on average from a year ago to about $100,000 while rates for deepwater rigs have fallen less, to about $500,000 a day from $625,000. Scorpion Fleet Seadrill told analysts last week it is studying setting up a separate company for its jack-up rig holdings, saying the market needs to consolidate. Yesterday Thorkildsen said Seadrill may seek to combine its jack-up rigs with those of Scorpion Offshore in a bid to gain market share. “We own 40 percent of Scorpion, so it’s not unnatural to have a kind of discussion,†Thorkildsen said. “It’s about seeing if we can do it with someone, and Scorpion could be one of them.†He said he doesn’t see combining Seadrill’s jack-up rigs with Pride’s. Scorpion, also based in Hamilton, Bermuda, operates jack-up rigs offshore Brazil, Vietnam, Venezuela and Malaysia, and has plans for the Arabian Gulf. Seadrill’s review of its strategy is taking place as merger and acquisition opportunities increase in the oil and gas industry while smaller companies seek cash to fund operations. Seadrill reported on Aug. 27 a 73 percent jump in second- quarter net income to $364 million, beating the $236.6 million median estimate of 14 analysts surveyed by Bloomberg. The company also said it is looking to set up a U.S. listing to broaden its investor base. To contact the reporter on this story: Vibeke Laroi in Oslo at vlaroi@bloomberg.net
