SOURCE: Ocean Rig UDW Inc.

Ocean Rig UDW Inc.

November 14, 2012 17:27 ET

Ocean Rig UDW Inc. Reports Financial and Operating Results for the Third Quarter 2012

NICOSIA, CYPRUS--(Marketwire - Nov 14, 2012) - Ocean Rig UDW Inc. (NASDAQ: ORIG), or the Company, an international contractor of offshore deepwater drilling services today announced its unaudited financial and operating results for the third quarter ended September 30, 2012.

Third Quarter 2012 Financial Highlights

  • For the third quarter of 2012, the Company reported a net loss of $12.2 million, or $0.09 basic and diluted loss per share.

Included in the third quarter of 2012 results are:

  • Costs associated with the 10-year class survey for the Eirik Raude of $16.8 million, or $0.13 per share; 
  • Non-cash write offs associated with the full repayment of the $1.04 billion senior secured credit facility totaling $18.3 million, or $0.14 per share; and 
  • Non-cash mark-to-market losses on interest rate swaps totaling $3.3 million or $0.03 per share.

Excluding the above items, the Company's net results would have amounted to a net income of $26.2 million, or $0.21 per share.

The Company reported Adjusted EBITDA of $122.5 million for the third quarter of 2012, as compared to $132.6 million for the third quarter of 2011.(1)

Recent Events

  • Pursuant to the Company's previous announcements related to potential contract awards for the Ocean Rig Poseidon and Ocean Rig Athena, the Company has been awarded two three-year contracts for each rig for drilling in Angola from two different major international oil companies.

  • On September 20, 2012, the Company signed a contract to construct a seventh generation ultra-deepwater drillship at Samsung Heavy Industries Co Ltd., or Samsung. This seventh generation drillship is a "sister ship" to the Company's three newbuilding drillships currently under construction at Samsung, and is scheduled to be delivered in January 2015.

  • On September 20, 2012, the Company's wholly-owned subsidiary, Drill Rigs Holdings Inc., issued $800.0 million of aggregate principal amount of 6.50% Senior Secured Notes due 2017 offered in a private offering, resulting in net proceeds of approximately $782.0 million. The Company used a portion of the net proceeds of the sale of the notes to repay the full amount outstanding under its $1.04 billion senior secured credit facility.

  • On August 17, 2012, the Company entered into a drilling contract with Repsol for drilling operations offshore Brazil for our seventh generation drillship under construction scheduled to be delivered in July 2013, the Ocean Rig Mylos. The drilling contract has a three-year term, commencing upon delivery of the drillship from the shipyard, and has an estimated revenue backlog of approximately $700.0 million. Under the contract, Repsol also has options to extend the contract for up to two years beyond the initial three-year contract period.

  • In July 2012, the Company formally commenced syndication of a $1.35 billion senior secured term loan facility to partially finance our drillship newbuilding hulls Ocean Rig Mylos, Ocean Rig Skyros and Ocean Rig Athena. This facility will be led by DNB and Nordea and is expected to have a commercial tranche and two export credit agency or ECA tranches. The Company has received conditional commitments for the commercial tranche and one of the ECA tranches, and expects to finalize this transaction during the first quarter of 2013.

George Economou, Chairman and Chief Executive Officer of the Company commented:

"Adjusted for one-time factors, Ocean Rig reported solid results for the quarter, with our drilling units operating at acceptable levels of efficiency. The scheduled drydock of the Eirik Raude, which is scheduled to be completed in the fourth quarter of 2012, combined with costs mainly associated with two of our units preparing to work in Angola resulted in higher operating expenses. Following the completion of certain upgrades to the Leiv Eiriksson early next year, we look forward to having all six of our drilling units operating efficiently in their respective locations throughout the remainder of 2013. In addition, in 2014 we will enjoy the additional revenue contribution from our three newbuilding drillships scheduled to be delivered in 2013.

We have recently been awarded two three-year drilling contracts for the Ocean Rig Poseidon and the Ocean Rig Athena and still have one letter of intent for a drilling contract for the Eirik Raude. Assuming this contract materializes, our total backlog will reach approximately $4.5 billion over three years and will provide Ocean Rig with substantial cash flow visibility and growth.

During the quarter, our wholly-owned subsidiary, Drill Rigs Holdings, issued $800.0 million in senior secured notes to refinance indebtedness maturing in the second half of next year. We also continued to work with our banks and commenced the syndication process for a $1.35 billion credit facility to fund the installments and other expenses due on delivery of our three 2013 newbuildings. The syndication is progressing smoothly and we expect to finalize it early next year. We also placed an order with Samsung for an additional newbuilding to be delivered in the first quarter of 2015.

We believe the outlook for the ultra-deepwater drilling industry is very positive given the high level of demand we are continuing to witness for our units from all over the world. Oil company capital expenditures for 2012 and 2013 are projected to grow at a double-digit rate with most of this directed at exploration and production. An increasing number of large discoveries have also been announced in deepwater and ultra-deepwater in several new oil and gas provinces, which we believe will provide long-term demand for drilling units into the foreseeable future.

Given strong industry fundamentals and the fact that there are very few ultra-deepwater units available in 2013, we expect to further increase our already substantial backlog by entering into contracts for our two remaining units available in 2013. We continue to build on the Ocean Rig story and have positioned the company to build further on this strong platform to become the preferred contractor in the ultra deepwater sector."

Financial Review: 2012 Third Quarter

The Company recorded a net loss of $12.2 million, or $0.09 basic and diluted loss per share, for the three-month period ended September 30, 2012, as compared to a net income of $49.1 million, or $0.37 basic and diluted earnings per share, for the three-month period ended September 30, 2011. Adjusted EBITDA was $122.5 million for the third quarter of 2012, as compared to $132.6 million for the same period in 2011. (1)

Revenues from drilling contracts increased by $59.7 million to $285.7 million for the three-month period ended September 30, 2012, as compared to $226.0 million for the same period in 2011.

Rig operating expenses and total depreciation and amortization increased to $160.1 million and $56.5 million, respectively, for the three-month period ended September 30, 2012, from $84.6 million and $43.1 million, respectively, for the three-month period ended September 30, 2011. Total general and administrative expenses increased to $20.4 million in the third quarter of 2012 from $10.6 million during the comparative period in 2011.

Fleet List

The table below describes our fleet profile as of November 14, 2012:

 
Drilling Rigs / Drillships:
 
Unit Year built   Redelivery   Operating area   Backlog ($m)
Leiv Eiriksson 2001   Q4 - 12   Falkland Islands   $17
Leiv Eiriksson 2001   Q1 - 16   North Sea   $653
Eirik Raude 2002   Q1 - 13   West Africa   $75
Ocean Rig Corcovado 2011   Q2 - 15   Brazil   $420
Ocean Rig Olympia 2011   Q3 - 15   Angola   $580
Ocean Rig Poseidon 2011   Q2 - 13   Africa   $85
Ocean Rig Poseidon 2011   Q2 - 16   Angola   $781
Ocean Rig Mykonos 2011   Q1 - 15   Brazil   $390
Newbuildings              
Ocean Rig Mylos 2013   Q3 - 16   Brazil   $677
Ocean Rig Skyros 2013   N/A   N/A   N/A
Ocean Rig Athena 2013   Q1 - 17   Angola   $745
Newbuilding TBN 2015   N/A   N/A   N/A
  Total             $4,423
                 

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

   
   
Ocean Rig UDW Inc.  
   
Financial Statements  
Unaudited 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,
 
    2011     2012     2011     2012  
                                 
                                 
REVENUES:                                
Revenues from drilling contracts   $ 226,036     $ 285,662     $ 461,991     $ 712,152  
                                 
                                 
EXPENSES:                                
Drilling rig operating expenses     84,639       160,098       188,777       390,490  
Depreciation and amortization     43,095       56,538       108,003       168,025  
General and administrative expenses and other     10,566       20,369       32,324       60,252  
Legal settlements and other     -       (1,870 )     -       4,524  
                                 
Operating income     87,736       50,527       132,887       88,861  
                                 
OTHER INCOME/(EXPENSES):                                
Interest and finance costs, net of interest income     (17,020 )     (29,222 )     (24,600 )     (86,048 )
Loss on interest rate swaps     (15,542 )     (21,174 )     (34,158 )     (32,114 )
Other, net     1,738       (1,335 )     2,994       582  
Income taxes     (7,778 )     (10,975 )     (17,556 )     (32,603 )
Total other expenses     (38,602 )     (62,706 )     (73,320 )     (150,183 )
                                 
Net income/ (loss)   $ 49,134     $ (12,179 )   $ 59,567     $ (61,322 )
                                 
Earnings/ (loss) per common share, basic and diluted   $ 0.37     $ (0.09 )   $ 0.45     $ (0.47 )
Weighted average number of shares, basic and diluted     131,696,928       131,696,928       131,696,928       131,696,928  
                                 
                                 
 
Ocean Rig UDW Inc.
 
Unaudited Condensed Consolidated Balance Sheets
 
         
(Expressed in Thousands of U.S. Dollars)   December 31, 2011   September 30, 2012
         
ASSETS            
  Cash and restricted cash (current and non-current)   $ 432,978   $ 668,163
  Other current assets     188,471     220,664
  Advances for drillships under construction     754,925     835,033
  Drilling rigs, drillships, machinery and equipment, net     4,538,838     4,438,376
  Other non-current assets     100,143     83,143
  Total assets     6,015,355     6,245,379
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
  Total debt     2,735,765     2,895,331
  Total other liabilities     281,134     374,860
  Total stockholders' equity     2,998,456     2,975,188
  Total liabilities and stockholders' equity   $ 6,015,355   $ 6,245,379
             
               

Adjusted EBITDA Reconciliation

Adjusted EBITDA represents net income before interest, taxes, depreciation and amortization, gains or losses on interest rate swaps and class survey costs. 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 and efficiency. 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,
 
    2011   2012     2011   2012  
Net income/(loss)   $ 49,134   (12,179 )   59,567   $ (61,322 )
                         
Add: Net interest expense     17,020   29,222     24,600     86,048  
Add: Depreciation and amortization     43,095   56,538     108,003     168,025  
Add: Income taxes     7,778   10,975     17,556     32,603  
Add: Loss on interest rate swaps     15,542   21,174     34,158     32,114  
Add: Class survey costs     -   16,773     15,258     21,579  
Adjusted EBITDA   $ 132,569   122,503     259,142   $ 279,047  
                         

Drill Rigs Holdings Inc. - Supplemental Information

Leiv Eiriksson
The Leiv Eiriksson will commence its mobilization from the Falkland Islands to Norway in mid December. Upon arrival, the rig is scheduled to go on drydock at a Norwegian yard to complete scheduled equipment and winterization upgrades related to the Rig Management contract. It will then undergo acceptance testing at the drilling location in Norway and is expected to commence drilling operations that will last for three years on or before mid April. The Company will receive approximately $82.0 million for mobilization plus fuel costs and equipment upgrades. We estimate total upgrade costs to be approximately $90.0 million. All such revenues received and the majority of costs, including operating expenses, incurred during this period, will be capitalized and expensed through the duration of the Rig Management contract.

Eirik Raude
The Eirik Raude contract with Ophir Services finished in September 2012. The Eirik Raude then mobilized from Equatorial Guinea to Las Palmas, Spain, where she arrived on October 8, 2012 in order to commence its scheduled 10-year class survey. During the class survey works and drydock, the unit is earning zero revenue and operating expenses are accounted for on an "as incurred" basis. The majority of actual drydock- and class survey-related expenses currently expected to be up to $65.0 million will also be accounted for on an "as incurred" basis. The Eirik Raude is expected to leave the shipyard on or before December 15, 2012. While most of these expenses will be incurred in the fourth quarter of 2012, we already incurred approximately $17.0 million in expenses during the third quarter of 2012 and $5.0 million during the first half of 2012. Following the completion of the scheduled 10-year class survey, the Eirik Raude will mobilize to Liberia with expected mobilization fees of $15.0 million plus fuel costs to commence the contract with European Hydrocarbons.

   
Summary Financials:  
   
    Year Ended     Nine Months Ended  
    December 31, 2011     September 30, 2012  
(Dollars in thousands)                
Total revenue   $       $ 267,800  
Adjusted EBITDA             106,682  
Total assets     1,342,648       1,289,789  
Total debt, net of financing fees     (519,731 )     (780,415 )
Shareholders equity     (730,198 )     (452,558 )
Total cash and cash equivalents     41,669       66,200  
Capital expenditures (1)   $ (20,065 )   $ (19,712 )
 
(1) Capital expenditures represent additions to fixed assets in addition to items expensed for the Leiv Eiriksson and Eirik Raude class survey amounting to $0 and $21.6 million, respectively.
 
 
Adjusted EBITDA reconciliation:
 
(Dollars in thousands)   Three Months Ended
September 30,
    Nine Months Ended
September 30,
    2011   2012     2011   2012
Net income/ (loss)   $ 36,833   (6,947 )   99,746   87
Add: Net interest expense     11,813   10,292     16,783   23,566
Add: Depreciation and amortization     18,723   17,799     56,219   55,205
Add: Income taxes     668   4,775     3,550   6,245
Add: Class survey costs     -   16,773     15,258   21,579
Adjusted EBITDA   $ 68,037   42,692     191,556   106,682
                     
                     

Conference Call and Webcast: November 15, 2012
As announced, the Company's management team will host a conference call, on Thursday, November 15, 2012 at 8:00 a.m. Eastern Standard Time to discuss the Company's financial results.

Conference Call Details

Participants should dial into the call 10 minutes before the scheduled time using the following numbers: 1(866) 819-7111 (from the US), 0(800) 953-0329 (from the UK) or +(44) (0) 1452 542 301 (from outside the US). Please quote "Ocean Rig"

A replay of the conference call will be available until November 22, 2012. The United States replay number is 1(866) 247-4222; from the UK 0(800) 953-1533; the standard international replay number is +(44) (0) 1452 550 000 and the access code required for the replay is: 55592075#.

A replay of the conference call will also be available on the Company's website at www.ocean-rig.com under the Investor Relations section.

Slides and audio webcast:

There will also be a simultaneous live webcast over the Internet, through the Ocean Rig UDW Inc. website www.ocean-rig.com. Participants to the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

About Ocean Rig UDW Inc.

Ocean Rig is an international offshore drilling contractor providing oilfield services for offshore oil and gas exploration, development and production drilling, and specializing in the ultra-deepwater and harsh-environment segment of the offshore drilling industry. The company owns and operates 10 offshore ultra deepwater drilling units, comprising of 2 ultra deepwater semisubmersible drilling rigs and 8 ultra deepwater drillships, 3 of which remain to be delivered to the company during 2013 and 1 during 2015.

Ocean Rig' common stock is listed on the NASDAQ Global Select Market where it trades under the symbol "ORIG"

Visit the Company's website at www.ocean-rig.com

Forward-Looking Statement

Matters discussed in this release may constitute forward-looking statements. Forward-looking statements relate to Ocean Rig's expectations, beliefs, intentions or strategies regarding the future. These statements may be identified by the use of words like "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "project," "should," "seek," and similar expressions. Forward-looking statements reflect Ocean Rig's current views and assumptions with respect to future events and are subject to risks and uncertainties.

The forward-looking statements in this release are based upon various assumptions, may of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in Ocean Rig's records and other data available from third parties. Although Ocean Rig believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond Ocean Rig's control, Ocean Rig cannot assure you that it will achieve or accomplish these expectations, beliefs or projections described in the forward-looking statements contained herein. Actual and future results and trends could differ materially from those set forth in such statements.

Important factors that, in Ocean Rig's view, could cause actual results to differ materially from those discussed in the forward-looking statements include (i) factors related to the offshore drilling market, including supply and demand, utilization, day rates and customer drilling programs; (ii); hazards inherent in the drilling industry and marine operations causing personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by third parties or customers and suspension of operations; (iii) changes in laws and governmental regulations, particularly with respect to environmental matters; (iv) the availability of competing offshore drilling vessels; (v) political and other uncertainties, including risks of terrorist acts, war and civil disturbances; piracy; significant governmental influence over many aspects of local economies, seizure; nationalization or expropriation of property or equipment; repudiation, nullification, modification or renegotiation of contracts; limitations on insurance coverage, such as war risk coverage, in certain areas; political unrest; foreign and U.S. monetary policy and foreign currency fluctuations and devaluations; the inability to repatriate income or capital; complications associated with repairing and replacing equipment in remote locations; import-export quotas, wage and price controls imposition of trade barriers; regulatory or financial requirements to comply with foreign bureaucratic actions; changing taxation policies; and other forms of government regulation and economic conditions that are beyond our control; (vi) the performance of our rigs; (vii) our ability to procure or have access to financing and comply with our loan covenants; (viii) our ability to successfully employ our drilling units; (ix) our capital expenditures, including the timing and cost of completion of capital projects; and (x) our revenues and expenses. Due to such uncertainties and risks, investors are cautioned not to place undue reliance upon such forward-looking statements.

Risks and uncertainties are further described in reports filed by Ocean Rig UDW Inc. with the U.S. Securities and Exchange Commission.

Contact Information

  • Investor Relations / Media:

    Nicolas Bornozis
    Capital Link, Inc.
    (New York)
    Tel. 212-661-7566
    E-mail: oceanrig@capitallink.com