Anticipated acquisition by Seawell Holding (UK) Limited of Noble Drilling (UK) Limited

Affected market: Contract platform drilling

No. ME/3503/08

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 13 March 2008. Full text of decision published on 28 March 2008.

Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.

PARTIES

Seawell Holding (UK) Limited (Seawell) is a provider of contract platform drilling services to the offshore oil and gas industry. Its core business is platform drilling, engineering and well intervention (including upgrade and modification) services. Seawell's turnover during 2006 amounted to some £43 million.

Noble Drilling UK Limited (Noble UK) is also a provider of contract platform drilling, engineering and well intervention services. Its turnover in 2006 was £33 million.

TRANSACTION

Seawell is proposing to acquire the entire issued share capital of Noble UK from its parent company, Noble Corporation (Noble). For its part, Noble intends to withdraw from contract platform drilling in order to focus on its core activity: mobile offshore exploration services for oil and gas reservoirs.

Seawell submitted a Merger Notice to the OFT on 30 January 2008. The extended statutory deadline for the OFT to reach a decision is 13 March 2008.

JURISDICTION

As a result of this transaction, Seawell and Noble UK would cease to be distinct. The parties overlap in the supply of contract platform drilling services and their combined share of such services provided on operational oil and gas platforms in the North Sea section of the UK Continental Shelf (UKCS) is above 25 per cent, and as a consequence the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

None of the customers and competitors who engaged with the OFT expressed any concerns over the competitiveness of the market post-merger. All agreed with the proposition that there would be a continuing incentive for drilling contractors to bid aggressively in future. One customer pointed to benefits in the merger to the extent that it increased Seawell's portfolio of activity and gave it better scope to manage deployment of crews between platforms according to need (that than having to pay crews to be on standby for the lack of ability to deploy them elsewhere). Another customer saw an advantage in the merger removing the uncertainty of Noble's intention to exit the market. As already mentioned, one competitor commented that the merger could result in an overall reduction in prices bid by competing suppliers in future tenders. 

ASSESSMENT

The parties overlap in the supply to the oil and gas industry of skilled manpower deployed in the provision of contract drilling services on offshore platforms.

Taking a cautious approach, the available evidence indicates that the appropriate product frame of reference to consider for the purpose of this merger analysis is that for the supply of contract platform drilling services and that the geographic focus of the OFT's analysis should be the North Sea section of the UK Continental Shelf.

A majority of customers and competitors agreed with a proposition that the parties' combined market shares should be assessed using a proxy consisting of the number of 'active strings' (see paragraph 10) on platforms that are in operational (as opposed to idle or preserved) mode. On such a measure, the merged entity would have seven (an increment of two) out of a total of 14 service contracts on platforms currently in full operational mode in the UKCS. Of the two remaining drilling contractors in this region, KCA Deutag currently operates 6 active strings, the remaining string being operated by Odfjell.

Despite the acquisition reducing the number of contract bidders from four to three, the OFT considers, on the basis of third party comments and in particular in the absence of third party concerns, that the merged entity will be constrained by the on-going buyer power of customers, in particular the ability of those customers to exploit their strong bargaining position in tenders (for example, through 'multi-sourcing' awards), and also the ability to sponsor new entry in the event of the post-merger market failing to deliver on service and/or price.

All third parties agreed with the proposition that the market for the supply of platform drilling services will remain competitive and that a strong incentive will remain for the remaining bidders to bid aggressively. No customers or competitors expressed any concerns over the competitiveness of the market post-merger.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1).

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