Profitable first quarter for Ocean Rig

Ocean Rig UDW, an offshore drilling company owned by the Greek shipping magnate George Economou, has reported its first quarter net profit was $41.4 million.

This means the company has returned to 1Q profit, as the same quarter in 2014, Ocean Rig UDW reported a net loss of $1.5 million.

Revenues from drilling contracts increased by $41.3 million to $402.1 million, as compared to $360.8 million in the first quarter of 2014.

George Economou, Chairman and Chief Executive Officer said he was happy with the result and the fact that the company has achieved a record rig utilization of 99%.

He added: “In early March we took delivery of the Ocean Rig Apollo, a 7th generation UDW-capable drillship, and our team completed the mobilization and acceptance testing in a record time of only 54 days. In connection with the delivery of the Ocean Rig Apollo we drew down $462 million from the previously arranged bank facility which comes at very attractive terms to the Company.”

Capex management

As oil companies reduce capex due to low oil prices, which leads to delays for new exploration project, drilling contractors suffer as their rigs are left without work, or with a bleak outlook for new deals. Economou explains how his company is tackling this issue:

“We continue to diligently manage our CAPEX program by deferring installments and pushing out construction as evidenced by the new delivery dates of the Ocean Rig Crete and Ocean Rig Amorgos in 2018 and 2019, respectively. This agreement significantly reduces our CAPEX obligations for the next two years through the market downturn and we are now left with only one un-contracted newbuilding drillship for delivery in 2016, for which we are in ongoing discussions to postpone its delivery if no contract opportunities materialize in the near-term.

Challenging market

Economou added: “The market remains challenging with limited visibility of new contracts and is likely to remain through the near term. However, a number of data points make us feel more optimistic about the mid-term prospects of the floater market. In particular, we believe that the significant increase in scrapping and stacking of older units will lead to a sharp reduction of the available floater fleet.”

As for the scrapping part, in its quarterly presentation, Ocean Rig has revealed that market weakness has lead to 20 rigs built before 2005 being scrapped in the last 5 months.

According to the presentation, 22 older floaters are currently cold stacked, with another 22 idle/warm stacked and expected to be either scrapped outright or cold stacked. Ocean Rig has only two rigs built before 2005, Eirik Raude and Leiv Eiriksson semi-submersibles, built in 2001 and 2002, respectively.

Delays, not cancellations

Economou expects oil prices will eventually stabilize, which will lead to new contracts for his young fleet of ultra-deepwater drillships, of which the oldest was made in 2011.

Economou said: “At the same time, while oil companies have sharply reduced their E&P spending for now, they are not cancelling projects but rather postponing their decisions. As the oil price stabilizes, project costs continue to decline and oil companies focus on reserve replacement and maintaining production, drilling activity will pick up and preference will be given to new assets.”

“Ocean Rig is in a unique position with its modern high specification fleet, a solid backlog of almost $4.7 billion, no immediate debt maturities and about $500 million of free cash on its balance sheet, to withstand a prolonged market downturn. We continue to look for ways to increase shareholder value and as a result, our Board of Directors declared the fifth consecutive quarterly cash dividend of $0.19 per share to our shareholders, for the first quarter of 2015.”

Ocean Rig owns and operates 13 offshore ultra deepwater drilling units in total, comprising of 2 ultra deepwater semisubmersible drilling rigs and 11 ultra deepwater drillships, 1 of which is scheduled to be delivered to the Company during 2015, 1 of which is scheduled to be delivered to the Company during 2016 and 2 of which are scheduled to be delivered during 2018 and 2019.

Offshore Energy Today Staff