My two conclusions from the Ensco (ESV) bid to buy Price International (PDE).

First, the Deepwater Horizon disaster in the Gulf of Mexico has put a big premium on owning the newest deep-water drilling rigs. The theory is that with regulatory scrutiny getting tighter and international standards increasingly demanding state-of-the-art technology, companies with newly built rigs will have an edge in getting business and in what they can charge for that business. 

After buying Pride Ensco will own 74 rigs, second only to Transocean’s (RIG) fleet of 138. 21 of that 74 will be ultra-deep and deep-water rigs. But just as important—and maybe more important post-Deepwater Horizon—the combined company will have the second youngest fleet in the drilling industry. No. 1 isn’t Transocean but Norway’s SeaDrill (SDRL). SeaDrill, by the way, owned 9.4% of Pride International before the Ensco bid.  SeaDrill hasn’t yet announced what it will do with its share of Pride International but so far it looks like SeaDrill won’t launch a rival offer.

On the logic of this deal, if Ensco liked Pride International enough to pay a 16% premium to the stock price before the deal, investors should love SeaDrill. Yet that stock is down almost 1% today. I guess because the assumption is, and I think it’s correct, that no one is likely to launch a bid for SeaDrill.

Second, the deal has put other drilling stocks into the Wall Street rumor mill. The names I’m hearing are drillers Rowan Companies (RDC) and Diamond Offshore (DO), and Weatherford International (WFT), an oil service company. None were up yesterday, the day when the Ensco bid was announced, with declines ranging from 1.035 for Rowan to 0.56% for Weatherford.

But I don’t think we’re seen the last deal in this space.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of SeaDrill and Weatherford as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/