Ocean Rig misses 3Q profit forecasts

Ocean-Rig-Apollo

Ocean Rig, an international contractor of offshore deepwater drilling services, announced its unaudited financial and operating results for the quarter ended September 30, 2016.

Third Quarter 2016 Financial Highlights

  • For the third quarter of 2016, the Company reported a net income of $38.9 million, or $0.47 basic and diluted earnings per share.
  •  The Company reported Adjusted EBITDA(1) of $219.6 million for the third quarter of 2016.

Recent Highlights

  • Fleet wide utilization for the third quarter of 2016 was 97.43%.
  • On December 5, 2016, the Ocean Rig Corcovado completed its 5-year special survey and drydock. The rig was off-hire for about 61 days and the Company expects total project costs including refurbishment of existing equipment to be in the range of $36 to $40 million.
  • On September 28, 2016 Lundin Norway AS (“Lundin”) exercised one of its options for a fourth well that will now keep the Leiv Eiriksson employed until approximately the end March 2017. The Company is in discussions with Lundin to potentially extend the current drilling program to the end of 2017.
  • On September 15, 2016, the Company received a partial payment of approximately $23.4 million from Total E&P Angola in connection with the arbitration proceedings for the termination of the Ocean Rig Olympia contract.
  • The Company is in discussions with ConocoPhillips about the early termination of the contract for the Ocean Rig Athena which is currently sitting idle in Las Palmas. Should discussions be successful then the Ocean Rig Athena would be available for alternative employment in the first quarter of 2017.
  • The Company continues to explore and consider various strategic alternatives with its financial and legal advisors, which may include a possible restructuring under US bankruptcy laws or another jurisdiction.

(1) Adjusted EBITDA is a non-GAAP measure; please see later in this press release for reconciliation to net income

Financial Review: 2016 Third Quarter

The Company recorded net income of $38.9 million, or $0.47 basic and diluted earnings per share, for the three-month period ended September 30, 2016, as compared to a net income of $138.4 million, or $0.94 basic and diluted earnings per share, for the three-month period ended September 30, 2015.

Revenues decreased by $102.1 million to $335.0 million for the three-month period ended September 30, 2016, as compared to $437.1 million for the same period in 2015.

Drilling units’ operating expenses decreased to $103.7 million and total depreciation and amortization decreased to $83.1 million for the three-month period ended September 30, 2016, from $135.5 million and $90.3 million, respectively, for the three-month period ended September 30, 2015. Total general and administrative expenses remained the same in the third quarter of 2016 as in the same period in 2015, amounting to $23.2 million.

Interest and finance costs, net of interest income, decreased to $55.3 million for the three-month period ended September 30, 2016, compared to $67.2 million for the three-month period ended September 30, 2015.

Operating Fleet

The table below describes our operating fleet profile as of December 12, 2016:

Total backlog as of December 12, 2016 amounted to $1.8 billion.

Unit Year built Redelivery
Leiv Eiriksson 2001 Q1 – 17
Ocean Rig Corcovado 2011 Q2 – 18
Ocean Rig Poseidon 2011 Q3 – 17
Ocean Rig Mykonos 2011 Q1 – 18
Ocean Rig Skyros 2013 Q3 – 21
Ocean Rig Athena 2014 Q2 – 17

Note: The units Eirik Raude, Ocean Rig Olympia, Ocean Rig Apollo, Ocean Rig Mylos and Ocean Rig Paros, have completed their preservation works and are currently cold stacked in Greece, remaining available for further employment.

Ocean Rig UDW Inc.
Financial Statements
Unaudited Interim Condensed Consolidated Statements of Operations
(Expressed in thousands of U.S. Dollars except for share and per share data) Three Months Ended September 30, Nine Months Ended September 30,
2015 2016 2015 2016
REVENUES:
Revenues $ 437,174 $ 335,043 $ 1,272,473 $ 1,295,606
EXPENSES:
Drilling units operating expenses 135,479 103,676 431,190 360,674
Depreciation and amortization 90,318 83,102 267,468 251,868
General and administrative expenses 23,236 23,171 76,647 68,976
Legal settlements and other, net (604 ) (1,128 ) (3,234 ) (7,805 )
Operating income 188,745 126,222 500,402 621,893
OTHER INCOME/(EXPENSES):
Interest and finance costs, net of interest income (67,172 ) (55,340 ) (202,332 ) (170,032 )
Gain from repurchase of senior notes 52,213 52,213 125,001
Gain/ (Loss) on interest rate swaps (6,217 ) 2,071 (16,278 ) (4,476 )
Other, net (5,630 ) 5,498 (13,256 ) 5,488
Income taxes (23,539 ) (39,521 ) (66,336 ) (94,856 )
Total other expenses, net (50,345 ) (87,292 ) (245,989 ) (138,875 )
Net income attributable to Ocean Rig UDW Inc. $ 138,400 $ 38,930 $ 254,413 $ 483,018
Net income attributable to Ocean Rig UDW Inc. common stockholders $ 137,702 $ 38,812 $ 253,238 $ 481,835
Earnings per common share, attributable to common stockholders, basic and diluted $ 0.94 $ 0.47 $ 1.82 $ 4.73
Weighted average number of common shares, basic and diluted 146,670,990 82,335,348 138,885,188 101,858,241
Ocean Rig UDW Inc.
Unaudited Condensed Consolidated Balance Sheets
(Expressed in Thousands of U.S. Dollars) December 31, 2015 September 30, 2016
ASSETS
Cash, cash equivalents and restricted cash (current and non-current) $ 747,485 $ 754,746
Other current assets 500,637 324,378
Advances for drilling units under construction and related costs 394,852 629,091
Drilling units, machinery and equipment, net 6,336,892 6,176,748
Other non-current assets 40,354 15,516
Total assets 8,020,220 7,900,479
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total debt, net of deferred financing costs 4,328,468 3,919,421
Total other liabilities 416,987 271,480
Total stockholders’ equity 3,274,765 3,709,578
Total liabilities and stockholders’ equity $ 8,020,220 $ 7,900,479
SHARE COUNT DATA
Common stock issued 160,888,606 160,888,606
Less: Treasury stock (22,222,222 ) (78,301,755 )
Common stock issued and outstanding 138,666,384 82,586,851

Adjusted EBITDA Reconciliation

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, class survey costs, impairment loss, loss on sale of assets, gain from repurchase of senior notes and gains or losses on interest rate swaps. Adjusted EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined by United States generally accepted accounting principles, or U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to that reported by other companies. Adjusted EBITDA is included herein because it is a basis upon which the Company measures its operations. Adjusted EBITDA is also used by our lenders as a measure of our compliance with certain covenants contained in our loan agreements and because the Company believes that it presents useful information to investors regarding a company’s ability to service and/or incur indebtedness.

The following table reconciles net income to Adjusted-EBITDA:

(Dollars in thousands) Three Months Ended
September 30,
Nine Months Ended
September 30,
2015 2016 2015 2016
Net income $ 138,400 $ 38,930 $ 254,413 $ 483,018
Add: Net interest expense 67,172 55,340 202,332 170,032
Add: Depreciation and amortization 90,318 83,102 267,468 251,868
Add: Income taxes 23,539 39,521 66,336 94,856
Add: (Gain)/ loss on interest rate swaps 6,217 (2,071 ) 16,278 4,476
Add: Class survey costs 4,808 9,841
Less: Gain from repurchase of senior notes (52,213 ) (52,213 ) (125,001 )
Adjusted EBITDA $ 273,433 $ 219,630 $ 754,614 $ 889,090

Drill Rigs Holdings Inc – Supplemental Information

Leiv Eiriksson

The Leiv Eiriksson commenced its contract with Lundin Norway AS on July 18, 2016. The unit is currently drilling its third well. During the third quarter, the unit achieved utilization of 92.68%. On September 28, 2016 Lundin exercised one of its options for a fourth well that will now keep the Leiv Eiriksson employed until the end March 2017. The Company is in discussions with Lundin to potentially extend the current drilling program to the end of 2017.

Eirik Raude

The Eirik Raude is currently in its stacking location in Greece and is available for alternative employment.

Summary Financials of Drill Rig Holdings Inc.:

Year ended
December 31, 2015
Nine months ended
September 30, 2016
(Dollars in thousands)
Total assets $ 742,778 $ 623,691
Total debt, net of financing fees 794,103 797,381
Shareholders equity (95,897 ) (244,224 )
Total cash and cash equivalents $ 43,339 $ 1,915
Nine months ended
September 30, 2015
Nine months ended
September 30, 2016
(Dollars in thousands)
Total revenue $ 298,484 $ 56,195
EBITDA $ 182,865 $ (3,276 )

 EBITDA reconciliation of Drill Rig Holdings Inc.:

(Dollars in thousands) Nine months ended September 30,
2015 2016
Net Income/ (loss) $ 70,207 $ (90,914 )
Add: Net interest expense 42,126 41,853
Add: Depreciation and amortization 60,960 38,537
Add: Income taxes 9,572 7,248
EBITDA $

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