China Merchants Group is said to explore offshore rig deals

[LONDON] State-owned conglomerate China Merchants Group is exploring acquisitions of offshore rig operators, which have struggled to recover from a collapse in oil-industry spending, people with knowledge of the matter said.

As part of this analysis, the Chinese firm has looked at various assets and companies including Seadrill and Shelf Drilling, the people said, asking not to be identified as the information is private.

Deliberations are at an early stage, and China Merchants hasn't made any formal offers, according to the people. It may opt to pick off assets as opposed to full takeovers, the people said.

China Merchants Group hasn't yet finalised the exact structure of any potential deals and could decide against pursuing the purchases, according to the people.

A full takeover of Seadrill would be difficult given the company's debt restructuring, which could impact the timing of any transaction, one of the people said.

China Merchants Group said in an emailed statement the company has not considered buying offshore drilling operators such as Seadrill and Shelf Drilling.

Shares of Seadrill rose as much as 29.5 per cent in Friday trading, the biggest intraday gain in more than four months. They were up 25.9 per cent to 1.75 kroner at 12.20pm in Oslo.

Crude oil prices have fallen by about half over the past three years as a supply glut hurts spending across the industry.

Seadrill, controlled by billionaire John Fredriksen, has been working for more than a year to relieve billions of dollars of debt incurred when crude prices started dropping in 2014.

The company has warned that the restructuring will likely involve filing for Chapter 11 bankruptcy protection and that shareholders will suffer steep losses.

A representative for Seadrill declined to comment, while Shelf Drilling didn't immediately respond to requests for comment.

Shelf Drilling reported a first-half net loss of about US$33 million this month, down from a profit a year earlier, as revenue declined and it took an impairment charge on its assets.

Its shares have fallen 15 per cent in Norwegian over-the-counter trading over the last 12 months, giving the company a market value of 5.32 billion kroner (S$926.95 million).

Hong Kong-based China Merchants Group runs businesses spanning ports, toll roads and shipping to real estate, financial services and offshore engineering. Its total profit rose 34 per cent to 111.2 billion yuan (S$22.904 billion) in 2015, according to its website.

The company's China Merchants Industry Holdings unit makes semisubmersible rigs and other offshore equipment at facilities in eastern China's Jiangsu province and the southern coastal city of Shenzhen. 

China Merchants Group is also a minority shareholder in the parent company of CIMC Raffles, which builds drilling platforms used by oil producers including China National Petroleum.

BLOOMBERG