Transocean's Norwegian Buyout Highlights Value in Drillers (RIG, BP, NOV, PDS, SDRL, DVR, HERO, VTG, PKD, PDC)

Transocean Ltd. (NYSE: RIG) must think that its dispute with BP plc (NYSE: BP) over responsibility for the explosion of its Deepwater Horizon platform in April 2010 is either going to take years to settle or be settled in Transocean’s favor. The company announced this morning that it would acquire all the outstanding shares of Norwegian driller Aker Drilling for $1.43 billion in cash plus the assumption of about $800 million in Aker’s outstanding debt.

Aker owns and operates two ultra-deepwater platforms in the North Sea and has two more on order. The new rigs will cost $900 million. Aker’s contract backlog totals just over $1 billion, and Transocean claims that the acquisition will be “immediately accretive” to earnings.

Some consolidation has already hit the drilling business, with National Oilwell Varco, Inc.’s (NYSE: NOV) recent acquisition of a privately held floating production storage and offloading firm. Other large drillers like Seadrill Ltd. (NYSE: SDRL) and Diamond Offshore Drilling, Inc. (NYSE: DO) may also be on the lookout for expansion. Possible targets include Precision Drilling Corp. (NYSE: PDS), with a market cap of around $4 billion is half the size of Diamond and about a third the size of Precision. Cal-Dive International Inc. (NYSE: DVR) with a market cap of about $292 billion could be an even more appealing target.

Other possible targets include Hercules Offshore, Inc. (NASDAQ: HERO) with a market cap of about $540 million, Vantage Drilling Co. (AMEX: VTG) with a market cap of about $420 million, Parker Drilling Co. (NYSE: PKD) with a market cap of about $700 million, and Pioneer Drilling Co. (NYSE: PDC) with a market cap of $720 million.

Precision Drilling’s trailing P/E ratio has fallen from around 58 in April to around 27 today. It’s forward P/E is down from 13.57 to 10.92 since we put the company on our list of energy value stocks.  The company operates onshore in North America and internationally, so it was largely unaffected by the moratorium in the Gulf of Mexico. Precision’s shares are up nearly 3.5% after about an hour of trading, to $14.69, in a 52-week range of $6.02-$18.18.

Cal Dive cannot put up a positive trailing P/E, and it’s forward P/E is just 7.74. It’s price/book ratio is 0.77. The company was hit by the Gulf drilling moratorium, and its business — putting real people deep underwater — is not filled with competitors. Unfortunately, many of the newest offshore fields are too deep for the company’s divers. Still, this could be a growing business offshore of Africa. Cal Dive’s shares are up more than 4.5%, to $3.13, in a 52-week range of $2.97-$8.19.

Hercules Offshore has even more troubles, with no trailing P/E and no positive forward P/E either. The price/book ratio is a mere 0.54. Revenue rose in the most recent quarter, and the company said dayrates were rising as demand increased in the US Gulf of Mexico. Hercules shares are up more than 7.5%, to $3.99, in a 52-week range of $2.05-$6.99.

Vantage Drilling’s numbers look about equal to Hercules’s. No positive P/E either trailing or forward, and a price/book ratio of 0.57. The company’s problem is long-term debt, which last quarter cost Vantage more than $25 million. Vantage shares are up more than 5.75%, to $1.47, in a 52-week range of $0.97-$2.26.

Parker Drilling’s trailing P/E is a nosebleed-level 143.84, and its forward P/E is 9.10. The stock’s price/book ration is 1.10. The company beat analysts’ expectation for earnings in the second quarter and is expected to earn $0.12/share in the current quarter, compared with just $0.01 last year. Parker’s drilling activities are either onshore or in shallow offshore waters. Parker shares are up more than 6%, to $6.11, in a 52-week range of $3.58-$7.45.

Pioneer Drilling is another onshore driller with a non-existent trailing P/E, but a forward P/E of 15.32. The price/book ratio is 1.74. Pioneer’s shares are up nearly 4%, to $13.34, in a 52-week range of $5.23-$18.00.

Paul Ausick