In what could be a prelude to further mergers to come, shallow-water driller Hercules Offshore (NASDAQ:HERO) has reached an agreement to acquire its Houston neighbor and larger fellow drilling contractor TODCO (NYSE:THE) for $2.3 billion. The deal would create the world's fourth-largest fleet of shallow-water rigs.

Terms of the proposed deal would involve TODCO shareholders receiving 0.979 shares of Hercules stock and $16 in cash for each share they own. The deal would value TODCO's shares at $42.01 each, for a 28% premium to the company's Friday close. Hercules would issue 56.9 million shares of stock and dish out $930.7 million in the transaction.

Once combined, the company would operate a fleet of 33 jack-up rigs, 27 barge rigs, 64 liftboats, three submersible rigs, nine land rigs, and one platform rig. Jack-up rigs typically operate in offshore waters to depths of about 300 feet. They're called jack-ups because, when they reach the drill site, their legs are weighted with water and sunk into the sea floor for stability before the body of the rig is raised hydraulically to begin drilling. As a result, jack-ups provide maximum operating stability in unstable conditions, both in the Gulf of Mexico and elsewhere.

Similarly, submersible rigs -- as their name implies -- are submerged during operations to achieve similar stability. Barge rigs typically drill in shallower locations, often including inland waterways.

As crude oil prices have risen to their current level in the $55 to $60 range -- they averaged a nominal $27.69 as recently as 2003 -- energy producers have increased their exploration and production activities, both on land and offshore. As a result, the "day rates" charged by drilling contractors have increased appreciably, rendering their business considerably more attractive.

And while most of the investment luster recently has been associated with the deep-water drillers, such as Transocean (NYSE:RIG) and Diamond Offshore (NYSE:DO), it seems to me that there is considerable value to be achieved through a combination of a pair of shallow-water drillers such as Hercules and TODCO. Indeed, the combined company should benefit in the areas of operations, financial results, marketing, and capital spending.

On that basis, and given my belief that additional combinations could occur in this sector -- along with my oft-expressed feeling that energy commodities prices are unlikely to drift appreciably lower for any extended period of time -- I believe this impending combination should be of interest to Fools with an oil and gas orientation.

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He welcomes your comments or questions. The Fool has a disclosure policy.