Rowan Sells Land Rigs For $510 Million, Will Pump Proceeds Into Offshore Expansion

Rowan Cos. Inc. (RDC) on Wednesday said it will sell its fleet of land rigs to Ensign Energy Services Inc. (ESI.T, ESVIF) for $510 million, a deal that reshapes the Houston company into a purely offshore driller and highlights the growing value of rigs positioned in booming U.S. basins.

In May, Rowan sold its manufacturing arm LaTourneau Technologies for $1.1 billion to Joy Global Inc. (JOYG). As they did after the LeTourneau sale, Rowan executives said they planned to pump the proceeds from the land rigs into bolstering its offshore business, particularly its push into deep-water drilling.

Rowan said it expects to net $370 million in after-tax proceeds from Wednesday's deal.

The announcement pushed shares 2.8% higher to $38.63.

"We believe that investors should begin to focus more on the undervalued nature of the company's shares as well as its attractiveness as a takeover target," analysts with Jefferies & Co. wrote in a client note. The analysts added that they "don't believe management is actively marketing the company" but that the "the underlying value" of its assets is "undeniable."

Rowan now owns a fleet 29 shallow-water rigs located in the U.S., Middle East, Trinidad and North Sea. It also expects two new shallow-water rigs to be delivered later this year and has ordered a pair of ultradeep-water drillships scheduled for completion in 2013 and 2014.

Wednesday's deal also underscores the growing interest in U.S. land rigs that are strategically positioned to tap into booming oil and natural gas basins. Rowan's 31 rigs are located primarily in Louisiana and Texas.

Ensign's U.S. fleet will grow to about 115 rigs and push the Canadian company's presence beyond its current confines in California and the Rocky Mountains region.

When Rowan said in May that it would pursue a sale of its land division some analysts said they thought the rigs would fetch $400 million.

Rowan's sale as well as Chesapeake Energy Corp.'s (CHK) $315 million acquisition of Bronco Drilling earlier this year marks two deals that have netted the sellers close to what it would cost to replace the divested rigs if they were built new, the Jefferies analysts said.

Shares of Ensign recently traded 2.68% higher at $19.91 on the Toronto Stock Exchange.

-By Ryan Dezember, Dow Jones Newswires, 713-547-9208, [e-mail]