The UK’s Competition and Markets Authority (CMA) has flagged concerns over the proposed merger of Noble and Maersk Drilling, saying it could increase costs and reduce service quality for oil and gas producers in the UK North Sea.
The proposed merger deal, first announced in November, would result in one company brought together under the Noble Corporation name, which would be jointly listed on the New York Stock Exchange and Nasdaq Copenhagen.
The CMA opened an investigation into the £2.6 billion deal in February, seeking to determine whether it would fulfil the merger provisions of the Enterprise Act 2002, or result in a “substantial lessening of competition” within the UK market for goods and services.
Its investigation focussed on the drilling contractors’ overlapping activities in the supply of jack-up rigs, used for drilling by UK customers in the North Sea.
Following the first phase of its investigation, the regulator said the merger did raise competition concerns over jack-up supplies across north west Europe – comprising the UK, Denmark and the Netherlands.
In particular, the CMA noted that as two of the four main suppliers in the market, Noble and Maersk have frequently competed against each other for contracts in the past.
The regulator added it was concerned that the combined businesses “would not face sufficient competition after the merger”, and that this could lead to “higher prices and lower quality services” for oil and gas producers in the North Sea.
The CMA’s senior director of mergers, Colin Raftery, said: “Offshore drilling services are critical for oil and gas producers. Our investigation showed that Noble and Maersk have competed closely in the past and face only limited competition.
“We’re therefore concerned that the loss of competition that this deal would bring about could result in higher prices or lower quality services, increasing operating costs for oil and gas producers in the UK North Sea.”
Noble and Maersk Drilling now have five working days to offer proposals to the CMA to address its concerns.
Both firms have already said they “expect it will be necessary” to sell certain North sea jack-ups to satisfy the CMA.
In a mid-April update they noted that the likely “Remedy Rigs” comprise the Noble Hans Deul, Noble Sam Hartley, Noble Sam Turner, Noble Houston Colbert and a CJ-70 design rig, which is expected to be the Maersk Innovator, or potentially the Noble Lloyd Noble.
Following their initial five day response period, the CMA has a further five working days to consider whether to accept these proposals, or whether to refer the case on for further “Phase 2” investigation, which would be carried out by a group of independent panel members.
‘Largest market cap in industry’
Maersk Drilling employs around 2,400 people and is headquartered in Denmark, while Noble currently has 2,300 employees and contractors worldwide. Both companies have offices in Aberdeen.
Analyst firm Esgian last year said their merger could bring the largest market capitalisation in the industry at as much as $3.4billion, surpassing rival Valaris at $2.8billion.
The terms of the deal would see Maersk Drilling and Noble Corporation shareholders own 50% each of the combined firm.
Delivering potential synergies of $125m, it was unanimously approved by both companies’ boards.
The pair have said that duration and outcome of the CMA review process remains uncertain, but if they were to obtain phase 1 clearance then the deal is still expected to close in mid-2022.