Borr Drilling, a newcomer in the offshore drilling services sector, has made a binding tender agreement to offer to purchase all outstanding shares in Paragon Offshore.
Total acquisition price for all outstanding shares is estimated at $232.5 million, Borr Drilling said on Thursday.
Borr has received commitments from holders of 67.9% of Paragon’s shares for its tender offer which will be made to all shareholders in Paragon. Paragon has approximately $180 million of cash and approximately $215 million of liabilities linked to debt and working capital.
Paragon had as of January 31, 2018 a revenue backlog of $204 million. The takeover will include certain costs relating to change of control and termination of personnel contracts.
Borr said the acquisition will be financed through cash on balance sheet and issuance of equity and/or debt instruments. Borr currently has authorization to issue 46.7 million shares within its current mandate. The board of the Borr has approved the transaction and major shareholders have expressed support for the deal.
Borr is expected to start the offer on February 26 and the offer will remain open for 20 business days, unless extended.
Under terms of the tender offer agreement, each shareholder of Paragon will receive, for each outstanding share validly tendered and not properly withdrawn in the offer cash in an amount equal to $42.28 per share.
The acquisition is expected to close in March 2018, and is subject to customary closing conditions.
Jay Swent, Paragon’s President and Chief Executive Officer, said, “We believe this is an excellent outcome for Paragon’s stakeholders. Although Paragon is well positioned to manage through the cycles of the intensely competitive offshore drilling industry, this opportunity minimizes the risk of the investment outcome for our stakeholders at an attractive price.”
When it comes to Paragon’s financial position, the driller in July 2017 completed its corporate and financial reorganization and emerged from Chapter 11, eliminating approximately $2.3 billion of secured and unsecured debt.
Becoming the world’s largest premium jack-up rig operator
Paragon is an international driller with a fleet of 32 drilling units as per January 2018. This fleet includes two modern units of the JU-2000E design, the Prospector 1 and Prospector 5 built in 2013 and 2014 currently located in the North Sea.
Borr noted that these rigs in particular will complement its fleet and further consolidate its position in the premium jack-up segment. Additionally, it provides a solid base for growth in the recovering North Sea rig market, the company said.
Paragon’s portfolio also includes a semi-submersible MSS1 scheduled to go on a long-term contract for TAQA in the North Sea starting in March. The Prospector 1 and five of Paragon’s older jack-ups are currently working in the North Sea, India and Middle-East, with four additional jack-ups under contract or committed, including Prospector 5. In addition, there are 21 older uncontracted jack-ups stacked in different locations.
Borr’s fleet comprises 15 jack-up drilling rigs and 11 units under construction with deliveries scheduled from 2018 to 2020.
According to Borr, following completion of the transaction, Borr will own 24 premium jack-ups built after 2000, and become the world’s largest premium jack-up rig operator.
Case for consolidation
With the current oversupply in the market, Borr said that consolidation and divestment to non-drilling activities is needed and anticipated. The board views the four older units that are stacked in Scotland to be non-core. During the first quarter of 2018, Borr is planning to divest at least one of these rigs to a counterparty on terms that it will be used for non-drilling activities.
Commenting on the announcement, Borr CEO, Simon Johnson, said: “We are acquiring an experienced organization, solid management systems, and quality assets at attractive prices. By integrating a very capable operating platform, Borr will be qualified based on the historical track record to tender, win contracts and operate in most jurisdictions.”
Chairman Tor Olav Troim commented: “As almost 50% of the global rig fleet is more than 30 years old, responsible owners should take steps to rationalize their fleets and consolidate the fragmented market. Borr wants to be at the forefront of this initiative. Borr will, as communicated, focus on operating modern, high-spec assets.
“In view of this strategy the board will evaluate the future of the uncontracted older jack-ups which are part of the Paragon fleet. Based on the anticipated high reactivation cost, safety standards and drilling efficiency it is likely that most of these units will not be marketed for new drilling contracts.”
Also on Thursday, Borr Drilling posted operating revenues for 4Q 2017 of $0.1 million and total operating expenses of $62.4 million.
At the end of 2017, the company had total assets of $1.67 billion compared to $158.1 million at the end of 2016.
The increase in total assets of the company is primarily driven by the acquisition of ten jack-up drilling rigs and five newbuildings under construction at Keppel from Transocean, the completed asset acquisition of the two Hercules jack-up drilling rigs and the acquisition of nine jack-up drilling rigs from PPL.
Offshore Energy Today Staff