Halliburton, Hunt Oil, and Rainwater

You know, George W Bush's Partner with Texas Rangers

Talking Deals;
Group May Gain Control of Penrod
By THOMAS C. HAYES
Published: March 29, 1990

LEAD: WITH the Hunt brothers of Texas removed from any role in the Penrod Drilling Corporation, a syndicate of 10 banks and an investor group headed by Richard E. Rainwater are expected to decide soon who will control the world's largest offshore oil and gas driller. If events work out, the group led by the Fort

WITH the Hunt brothers of Texas removed from any role in the Penrod Drilling Corporation, a syndicate of 10 banks and an investor group headed by Richard E. Rainwater are expected to decide soon who will control the world's largest offshore oil and gas driller. If events work out, the group led by the Fort Worth investor may end up controlling the company for far less than rival bidders have offered to buy it outright.

Several bidders for Penrod have emerged: The Tisch family has offered $450 million; the Rowan Companies, a Houston-based driller, offered $325 million; a Norwegian group has made a bid, and others higher than $500 million have been reported. But the Rainwater group may find that after negotiating with Penrod's creditors, its $95 million investment for a 27 percent stake in the company is enough to give it operating control.

The Rainwater-controlled Energy Service Company, a drilling company that is part of the Penrod investment group, is pushing for a recapitalization of Penrod that might include a public sale of common shares. Other drillers, including Odeco and the Western Company of North America, have been successful in selling stock in the last year, and a Penrod offering could draw a large crowd.

Penrod's lenders, headed by Manufacturers Hanover and First Chicago, could thus avoid new write-offs, recoup some past losses and have a role in whatever recovery unfolds in the coming years in the drilling industry.

Values for used drilling rigs are up more than 50 percent in the last year, to $16 million for models operating in 250 feet of water. Penrod has 39 offshore rigs, and 45 more rigs used for drilling on land. With oil prices firming, drilling budgets rising at big oil companies and prospects for further increases in the rigs' value, many Penrod lenders are unwilling to sell their notes at a discount, people close to the situation said.

Founded more than 60 years ago by H.L. Hunt, who was considered the world's richest man when he died in 1974, debt-laden Penrod has been starved for cash since oil prices plunged four years ago and leading oil companies pulled the plug on their drilling budgets.

At first, three of Mr. Hunt's sons who controlled Penrod, William Herbert, Nelson Bunker and Lamar Hunt, filed costly lawsuits to stall the banks' attempt to seize rigs to cover more than $750 million in unpaid loans. In a partial truce two years ago, the banks wrote off $250 million of the loans in exchange for 50 percent of Penrod's stock.

Last week, with a March 31 deadline looming for the first of 32 consecutive quarterly principal payments on $525 million in remaining principal and accrued interest, and Penrod's cash flow still depressed, the Hunts handed over the rest of their holdings.

The note holders, including the Rainwater group, agreed to drop a potential claim on up to $300 million in future profits from the Placid Oil Company, which the brothers still control.

The lenders' improving prospects at Penrod made their claim on Placid profits less important than removing the Hunts from the bargaining table at Penrod, said Russell E. Miller, an analyst at Alex. Brown & Sons Inc. in Baltimore.

The Rainwater group, a partnership consisting of Energy Service; Goldman, Sachs; Mr. Rainwater, and others, had paid $95 million to acquire $135 million of the Penrod bank debt, or 27 percent of the total, before the Hunts' departure last week. The Rainwater group's stock holding in Penrod has now doubled, to 27 percent.

Mr. Rainwater, once the principal deal maker for the Bass family, also of Fort Worth, entered the industry three years ago when he acquired a large stake in Blocker Energy. Blocker's debt-laden balance sheet was later restructured and the company's name was changed to Energy Service, or Ensco. Mr. Rainwater owns 21 percent.

Ensco operates in the Middle East, South America, Canada and the United States and has five offshore rigs and 24 land rigs. The company, which is listed on the American Stock Exchange, earned $2.6 million on $158.5 million in sales last year. It is also a supplier in the growing market of horizontal drilling equipment.

Does Mr. Rainwater intend to use the 27 percent stake in Penrod to squeeze more money from other Penrod bidders eventually? Or is he trying to become a catalyst for a reshaping of the world's offshore oil industry?

Mr. Miller of Alex. Brown said the Rainwater group was bargaining with each bank, searching for agreements either to acquire the debt or for the banks to ease the 1988 repayment terms and allow Ensco to take command of Penrod operations.

Others in the industry are not so sure. Two years ago, a Rainwater group delayed for several months the takeover by Halliburton Inc. of Gearheart Industries, a cash-short maker of gauges and other equipment used in testing well sites. Halliburton eventually paid $67 million for Gearhart debt that the Rainwater group had acquired for $33 million.

Still, control of Penrod could prove far more lucrative. Unlike most sectors of the oil industry, offshore drilling did not contract through bankruptcies, mergers and takeovers after prices collapsed in 1986, said James L. Carroll, an analyst at Paine Webber Inc., in New York. Many companies still have more debt than future revenues are likely to cover, he added.

''Whatever happens to the Penrod assets is very important to the whole offshore industry,'' Mr. Carroll said. ''If it ends up in the hands of other operators, you could see the beginnings of a major consolidation. This means whoever gets Penrod is going to be in an instant leadership position.''