Ocean Rig and Dryships Battle Twin Headwinds

Eirik Raude (file image)

By MarEx 2016-03-09 21:29:30

Ocean Rig and its largest stakeholder Dryships reported their fourth quarter 2015 earnings today, posting significant losses as they battle dual headwinds in offshore drilling and bulk shipping.

Ocean Rig reported a net loss of $175 million on revenues of $475 million in Q4, overwhelmingly due to a $400 million impairment on the value of its drillships and harsh environment semisubmersibles. 

The firm has recently suffered three early contract terminations – by Premier Oil, for the Eirik Raude, by an ENI subsidiary for Ocean Rig Olympia and by Total E&P Congo for Ocean Rig Apollo – and it has begun arbitration proceedings to dispute the Raude and Olympia actions. All three are being stacked, leaving Ocean Rig with seven rigs and drillships on hire out of thirteen. 

George Economou, CEO of Ocean Rig, said that “terminations act as a reminder of the extremely challenging times facing the offshore drilling industry. The prospects for the industry remain bleak with limited visibility of new contracts and are likely to remain so at least until 2018.” 

Not all is bleak, though; Ocean Rig has about 90 percent contract coverage this year for currently operating rigs/drillships, with a bit over 50 percent next year. The firm has also gained a contract with Lundin Norway for the use of the Leiv Eiriksson semi-sub, starting in the third quarter 2016 - the firm hasn't released the day rate or contract duration, but the vessel's backlog was given as $24 million.

Greece-based firm Dryships, also run by Mr. Economou, reported a dire fourth quarter, due in part to Ocean Rig’s results.

Dryships' revenues have dropped severely, cut by the downturn in its dry bulk business – to $25 million for the quarter, down from $600 million year over year – but the firm took an added loss of $300 million writing down the value of its stake in Ocean Rig, which stands at about 40 percent of outstanding shares. 

Ocean Rig's stock is trading in the range of $1, down from $20 two years ago.

Dryships has also announced a restructuring program for its maturing debt facilities. “Three . . . bank facilities have matured and the Company has not made the final balloon installment. For the remaining bank facilities, the Company has elected to suspend principal repayments to preserve cash liquidity,” the firm said.