Shares of Transocean Ltd. (NYSE: RIG) climbed 3.5% in midday trading on Friday, reaching $5.26, while Valaris Ltd. (NYSE: VAL) advanced a similar 3.5% to $78.23. The gains came as the fixed-ratio merger spread between the two offshore drilling companies remained nearly unchanged, expanding only four basis points to 2.4%.
The modest movement in the spread suggests that Friday's rally was driven more by sector-wide momentum than by a reassessment of the deal's probability. West Texas Intermediate crude oil gained 2.3% to $85.54, and Brent rose 1.5%, with both benchmarks on track for monthly increases exceeding 20%. All four major offshore drillers listed on U.S. exchanges saw their shares climb, including Noble Corp. (NYSE: NE), up 1.1% to $41.89, and Seadrill Ltd. (NYSE: SDRL), up 2.5% to $44.34.
The merger, announced in February, involves Valaris shareholders receiving 15.235 shares of Transocean for each Valaris share. Based on current prices, the exchange formula values Valaris at approximately $80.14, while its shares trade about $1.91 lower. This spread reflects ongoing risks related to completion and timing. If the closing occurs within 60 days, the gross spread would annualize at roughly 14.8%, though this figure excludes financing costs, taxes, slippage, and potential delays.
July 31 marks the earliest date both companies can certify substantial compliance with the Department of Justice (DOJ). After certification, a 60-day waiting period begins unless terminated earlier. The Committee on Foreign Investment in the United States (CFIUS) has already approved the transaction, but shareholder votes, antitrust approvals, and other closing conditions remain outstanding. Management continues to target completion in the second half of 2026.
The next major test for Transocean comes on August 5, when the company is scheduled to release its second-quarter results and publish its fleet status report after market close. The company's guidance suggests softer sequential economics, with contract drilling revenue projected between $930 million and $970 million, down from $1.081 billion in the first quarter. Operating and maintenance expenses are expected to rise to between $630 million and $660 million, up from $606 million. Revenue efficiency guidance is set at 96.5%, down 0.8 percentage point from the first quarter's 97.3%.
First-quarter results were solid, with revenue of $1.081 billion, adjusted EBITDA of $440 million, and free cash flow of $136 million. Principal debt stood at $5.137 billion at the end of Q1, a decrease of $549 million, but still representing approximately 87% of the company's equity market value as of Friday.
CEO Keelan Adamson has been vocal about the need to reduce leverage, stating in February that the company's debt level negatively impacts its equity value. Since May, Transocean has reported firm contract awards totaling $185 million, with a provisional agreement with Equinor ASA (NYSE: EQNR) expected to add over $1 billion. Much of this new activity is slated to begin in 2027 or 2028, and Adamson highlighted the seven rig-years as evidence of the strength and resilience of Norway's market.
Risks to the deal include potential DOJ remedies, postponed shareholder votes, rig outages, and lower oil prices, all of which could widen the spread. A decline in Transocean's share price would also reduce the value of the consideration offered to Valaris shareholders. Friday's trading suggests that while sentiment in the offshore drilling sector has strengthened, confidence in the merger's completion remains largely unchanged.
