Ocean Rig May File For Bankruptcy

The George Economou-controlled offshore drilling firm Ocean Rig had an unusual earnings announcement Friday. Revenue for the first half of 2016 was up year over year, at nearly $1 billion; the firm beat analysts' expectations for quarterly profits. However, in light of the negative long-term outlook for offshore, the firm said that it was already reviewing "strategic alternatives," including bankruptcy.

"Given the ongoing distressed market environment as well as the consensus view that a recovery may not occur for several years we have engaged financial and legal advisors to assess the viability of our capital structure," Ocean Rig wrote. "It is evident to us . . . that our debt obligations will need to be amended or exchanged for new debt and/or equity securities, and some debt holders may have little or no recovery on their investment. Notwithstanding that we do not have any material debt maturities before October 2017, we continue to explore and consider alternatives, which may include the possibility of a reorganization under U.S. bankruptcy laws."

The announcement sent the firm's Nasdaq-listed stock tumbling, down nearly two thirds of its value to settle at $0.83, down from $20 two years ago. 

Chief executive and founder Economou explained the move in terms of the larger market picture. "Oil companies continue to reduce their offshore budgets and as more floaters come off contract in the next six months, an already grossly oversupplied market is expected to worsen," he said in a statement. "In this current and anticipated poor market environment which we expect to persist for an extended period of time, we believe it is prudent to focus on maintaining liquidity and de-levering the company."

In its announcement, ORIG joins a number of offshore firms' bankruptcy warnings and filings in recent months, including Paragon Offshore, Hercules Offshore and Vantage Drilling.
 
The announcement may also have a certain irony: just four months ago, Ocean Rig bought a high-specification ultra-deepwater drillship, the Cerrado, at a bankruptcy auction for $65 million. The rig’s previous owners, Brazilian firm Schachin Group, entered receivership in 2015.