Dealmaking in Houston is as hot as the downtown pavement these days. Last week it was the Plains-Pogo deal, and this week local offshore drilling firms Transocean Inc. and GlobalSantaFe Corp. are proposing an $18 billion merger deal that will create the largest offshore drilling contractor by a mile. The new company will have a market capitalization of $52 billion and will have a 145-rig fleet, which is more than twice as many rigs as the fleet of the next largest competitor.
The deal comes amidst an unprecedented period for deep sea drilling contractors. With crude-oil and natural gas prices maintaining at historically high levels, exploration and production companies have been willing to pay top dollar to be able to tap reserves that often are often deep under the ocean. As a result, offshore drilling contractors are enjoying intense demand for deepwater rigs, which has increased lease rentals dramatically. Not surprisingly, the stock prices of most of the publicly-owned drilling contractors have been soaring for the past year or so.
Transocean, which is the much larger company (a $32 billion market cap to GlobalSantaFe’s $17 billion), is actually the acquiring company in the merger. Transocean shareholders will end up with around 66% in the combined company, while GlobalSantaFe shareholders will end up with the other 34%. But the really interesting aspect of the deal is that the merged company is going to borrow a cool $15 billion (Goldman Sachs and Lehman Brothers are handling that debt vehicle) to spread among the shareholders of the two companies even as debt offerings generally are being downsized in most other markets. The merged company will use its first two years of free cash flow to reduce that debt.
Thus, the bottom line is that the companies are borrowing $15 billion, giving it to their shareholders, and then will take advantage of the hot drilling market to pay the money back quite quickly out of cash flow. Why not just use the cash flow over the next several years and give that to shareholders? Not sure, but I suspect that the structure of the deal will save the merged company a boatload of taxes over the next several years.
Category Archives: News – Houston Local
The WSJ discovers The Hamptons of Houston
First it was the New York Times extolling Galveston as “the Hamptons of Houston.”
Now, Houstonian’s favorite getaway destination is getting the favored treatment from the Wall Street Journal:
Throughout its history, Galveston has been a striking testament to human persistence and ingenuity — and the power of denial. The island has a stomach-churning history of boom and bust. Its rise as a major Southern port city was cut short by the 1900 hurricane.
Protected by a new 17-foot sea wall, Galveston boomed again as the Sin City of the Gulf until Texas Rangers shut down its illegal gambling trade in the late 1950s. After that, eclipsed by the Port of Houston, Galveston limped through the remainder of the 20th century, struggling to pay the bills.
This century has seen Galveston’s fortunes rise again. The island is beloved in Texas as part of the state’s colorful past and also for its diverse appeal. Tourists flock to the historic districts and miles of public beaches, while fishermen and birders hang out along the jetties, bayous and surf. Out-of-town investors have revitalized the east end of the island, protected by the sea wall, where the original city and docks were built. Now it is a vibrant tourist spot packed with restaurants and shops against a backdrop of cruise ships and barnacle-covered fishing boats lined up along the docks.
Read the entire article.
Katrina evacuees and the enduring nature of poverty
In the summer of 2005, tens of thousands of citizens from the New Orleans area relocated to Houston and other cities in the aftermath of Hurricane Katrina, most of whom never returned to their former home. A substantial number of those evacuees were poor and largely unemployed in the depressed New Orleans-area economy that existed even prior to the destruction of Katrina. Thus, the hope was that those evacuees would be able to improve their living standard by starting anew in economically vibrant areas such as Houston.
Unfortunately, that has not been the case. As this Jacob Vigdor post notes, research on the Katrina evacuees is indicating that the syndrome of poverty is extremely difficult to change:
Should governments help residents of depressed regions move towards more prosperous areas? Evidence from Katrina evacuees suggests that such efforts are likely to fail. The fortunes of long-term evacuees are almost completely unrelated to the characteristics of the cities to which they relocated. [. . .]
What can the world learn from the experiences of Hurricane Katrina evacuees? As indicated in other recent research carefully examining the impact of residential location on employment, moving a poor, undereducated citizen from a declining urban area to the middle of a vibrant economy is not likely to be a quick, cheap way to find him or her a job. While participants in a voluntary relocation programme would almost certainly be exposed to less personal trauma than Katrina evacuees, the survival instinct alone appears to be insufficient to guarantee success. Particularly in nations with social welfare systems more generous than the American model, the result of any such programme seems quite likely to increase, rather than assuage, drains on the public budget in the short-to-intermediate term.
EZ-Tag, EZ-Increase
So, according to this NY Times article about MIT economist Amy Finkelstein’s research, EZ-Tags for electronic payment of tolls along tollroads makes it easier for government to increase the tolls (Tyler Cowen provides further analysis).
Everywhere but Houston, that is.
J. Fred Duckett, R.I.P.
As noted in the update to this earlier post, longtime Rice athletics, Stros, Oilers, UH Track, Texas Relays, Houston Livestock Show and Rodeo, Houston Marathon (and goodness knows what else!) announcer J. Fred Duckett died earlier this week. A visitation for the family will be held from 6-8 p.m. today at George H. Lewis Funeral Home (1010 Bering Drive) and a memorial service will be held at Autry Court on the Rice University Campus at 1:00 on Friday (park in the West Lot #4). The Rice University Athletic Department has also set up this webpage for friends of J. Fred to pass along their remembrances of this fine man, one of the many who make Houston such a special place to live.
That’s some leadership, eh?
It has not been a good week for local leadership. After Harris County Commissioners endorsed perfectly sensible congestion pricing for the overloaded Westpark Tollway — which is overloaded primarily because the local transit authority undermined the size of the project when it was built — the Commissioners revoked the sensible policy because some citizens yelled loud who didn’t want to pay the higher toll during rush hour or be inconvenienced by traveling the tollway at a time other than rush hour.
My goodness. Why didn’t County Commissioners simply call Houston’s urban policy wonk, Tory Gattis, to sort all this out in the first place?
Help for J. Fred
Charles Kuffner passes along the news that J. Fred Duckett — the longtime public address announcer for Rice University sports teams, the Stros, the Oilers, the Houston Livestock Show and Rodeo, the Texas Relays and many other events — is battling leukemia and in need of blood platelet donations. Kuff’s post has the information on how to arrange a donation, as does this post from the Rice forum. Please give if you can and pass along the information to anyone who has enjoyed J. Fred’s good-natured style over the years (no one who ever heard it will forget J. Fred announcing at Stros games “Jose Cruuuuuuuuuuuuuuuuuuuuuuzzzz!”).
Update: Sad news. J. Fred died on Monday, June 25. Charles Kuffner has more.
Saving for a boondoggle
Buried in this Chronicle article about increasing tolls on the Harris County toll roads and congestion on the Westpark Tollroad is the following nugget about yet another of the Metropolitan Transit Authority’s decisions that is contrary to its purpose of improving mobility in the Houston metro area:
Six months after the four-lane Westpark Tollway opened in 2004, traffic backups began occurring in certain areas, said Peter Key, toll road authority deputy director. Congestion has worsened since then.
The toll road authority would have preferred building a six- or even eight-lane tollway, Key said. The Metropolitan Transportation Authority, which owned the land in the area, was willing to sell only enough for a four-lane tollway, he said. Metro wanted to keep the remaining land in case it builds a commuter rail line along the tollway, Key said.
Metro vice president John Sedlak said Metro has considered using the corridor for rail for several decades and may build a light rail line along parts of the corridor, from the Hillcroft Transit Center to an undetermined distance east of the West Loop.
As noted in this previous post, Metro’s bias in favor of inefficient rail lines is a costly bet for Houstonians. Those who are driving the Westpark Tollroad on a daily basis are finding out that such costs far exceed even the formidable expense of building inefficient rail lines.
Father’s Day 2007
It’s a working Father’s Day for me this year, so I am passing along this Father’s Day post from a couple of years ago on a very special father. Here’s hoping that all fathers out there in the blogosphere have a joyous and fulfilling Father’s Day.
Elk gets his spikes right
Houstonian and Clear Thinkers favorite Steve Elkington apparently found a U.S. Open qualifier this year that allowed the competitors to wear spikes on their shoes. Elk fired a 36 hole score of 137 (64-73) to earn one of the 16 U.S. Open qualifying spots on Monday at the Colonial Country Club in Memphis, only the second time since 1999 that Elkington has qualified for the Open. 72 players were already exempt for the Open and Elkington nabbed one of the additional 83 spots that were up for grabs in sectional qualifying at 13 courses in the U.S., England and Japan on Monday. The Open will be held for a record eighth time next week at Oakmont, where Geoff Ogilvy will attempt to defend the title that he won last year at Winged Foot.
Speaking of local golf, the venerable Texas State Amateur Championship begins on Thursday and runs through Sunday at Whispering Pines Golf Club in Trinity, one of the best tracts in the Houston region. The 144-player field will be cut to the low 54 and ties after Friday’s second round. Former winners of the Texas State Am includes such noteworthy PGA Tour pros as Ben Crenshaw, Bruce Lietzke, Scott Verplank, Mark Brooks, Charles Coody and Bob Estes.