Timing and assets to be acquired played key factors as Ensco International Inc., Dallas, agreed to buy Houston-based Chiles Offshore Inc. for approximately $578 million in cash and stock. Post-deal Ensco's jackup fleet will consist of 43 rigs-second only to Global Santa Fe, which has 44. The combination will continue an offshore drilling consolidation that oil-service analysts consider necessary and beneficial. Mark S. Urness, an analyst with Salomon Smith Barney Inc., New York, says, "We've already seen more rational pricing in the latest down cycle, particularly in the Gulf of Mexico. So we can expect more consolidation. The ones that haven't been involved, such as Noble Corp. and Diamond Offshore Drilling Inc. still are in favor of it." "From an industry perspective, it's strategically positive," says James K. Wicklund, Banc of America Securities LLC, Houston. "Ensco adds five new state-of-the-art rigs to its fleet without adding any new net capacity. It also does so all at once, instead of the four or five years it would take through an internal building program. The negative is that investors want to see companies make acquisitions that are higher than their cost of capital. While this deal is expected to be accretive, the return on capital employed will be between 6% and 8%, he adds. "So from a financial perspective, our analyses show it to be a negative return on capital employed at least through 2003." Both analysts agree the deal is better than it appears initially. "Even though it seems like a pretty full price, these are high-quality assets and Chiles' operations are first-class," says Urness. "There are only about nine ultrapremium jackups in existence, with three more under construction. They have deepwater drilling capabilities, but aren't as expensive to construct as other models." -Nick Snow The battle for Australian Oil and Gas Corp. Ltd. intensified at press time as Parker Drilling Co., Houston, announced it would make a bid that values AOG at approximately A$153 million (US$88 million), or 6.25% more than one by Calgary-based Precision Drilling Corp. AOG management endorsed Precision's offer, which was higher than one made by Calgary-based Ensign Resource Service Group Inc., which already owns more than 16% of AOG common stock. Ensign responded to Precision's offer with a second bid. Parker Drilling said acquiring AOG would expand its international land fleet by 28 units to 69 rigs, and its total worldwide fleet to 107 rigs. It would increase Parker's presence in its existing Asia-Pacific markets of Indonesia and New Zealand, and let it enter new markets in Oman and Australia. AOG also has rigs in Argentina and Libya. "AOG fits well with our strategic plan to expand international operations into areas where we anticipate significant growth in the future," president Robert L. Parker Jr. said.