Ocean Rig - What You Need To Know About The 2015 Annual Report Form 20-F

| About: Ocean Rig (ORIG)
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Summary

On April 1, 2016, ORIG filed the form 20-F which is the annual report 2015.

ORIG is currently in discussions with shipyard to reschedule the newbuilds again -- OR Santorini, OR Crete and OR Amorgos. It is an important positive move.

I have been puzzled by the price per share that seems oversold and I bought back ORIG recently.

Image: Semi-submersible OR Leiv Eiriksson.

This article is an update of my previous article on Ocean Rig UDW (NASDAQ:ORIG), published on February 25, 2016.

ORIG is a new offshore drilling company providing oilfield services for offshore oil and gas exploration, development and production drilling.

The company is based in Nicosia, Cyprus. Ocean Rig was a subsidiary of DryShips, Inc. (NASDAQ:DRYS).

Ownership relationships between ORIG, DRYS, and CEO George Economou

Effective Date

ORIG Shares Outstanding

Ocean Rig Shares Owned by DryShips

Ocean Rig Shares Owned by CEO George Economou

Number of Shares Percentage of Shares Outstanding Number of Shares Percentage of Shares Outstanding
March, 30, 2016 138,666,384

56,079,533

40.44%

7,421,860

5.35%

On April 1, 2016, ORIG filed the form 20-F which is the annual report 2015. An interesting document about the company financial situation and some important indication regarding the fleet status.

Commentary:

I will comment on a few topics that I consider important, when it comes to understand the company.

1 - The fleet status as of March 30, 2016.

Page 38 - The company indicates the fleet status as of March 30, 2016 in details. The day rates are clearly visible and the company indicates that the backlog is $2.6 billion as of 03/30/16.

ORIG 4/1/2016 2016 2017 2018 2019 2020 2021

Dayrate

$K/d

Eirik Raude (Terminated dispute) 0,0 2,0 2,0 0,0 0,0 0,0 (500)
Leiv Eiriksson 7,0 0,0 0,0 0,0 0,0 0,0 145
SemiSub total 7 2 2 0 0 0
Olympia (Terminated dispute) 0,0 3,0 3,0 0,0 0,0 0,0 (500)
Poseidon 9,0 6,0 0,0 0,0 0,0 0,0 537.127
Mykonos 9,0 12,0 3,0 0,0 0,0 0,0 476.348
Corcovado 9,0 12,0 6,0 0,0 0,0 0,0 512.000
Mylos 6,0 0,0 0,0 0,0 0,0 0,0 651.310
Skyros 9,0 12,0 12,0 12,0 12,0 9,0 558.203
Athena 9,0 6,0 0,0 0,0 0,0 0,0 706.026
Apollo (termination fee/month) 9,0 12,0 4,0 0,0 0,0 0,0 (553)
Santorini 0,0 0,0 0,0 0,0 0,0 0,0 N/A
Crete 0,0 0,0 0,0 0,0 0,0 0,0 N/A
Amorgos 0,0 0,0 0,0 0,0 0,0 0,0 N/A
Drillship total 60 63 28 12 12 9
3rd Mt Cerrado 9 12 0 0 0 0 10.000 Est.
Total months 143 142 60 24 24 18

Detail backlog per Rig:

T/D = Terminated, compensation disputed.

T/N = Termination, compensation negotiated.

T/C= Termination with compensation agreed.

Rig name Backlog Comp.
Eirik Raude T/D 62
Leiv Eiriksson 30 -
Olympia T/N 92
Poseidon 242 -
Mykonos 343 -
Corcovado 415 -
Mylos 117 -
Skyros 1105 -
Athena 318 -
Apollo T/C 415
Santorini A -
Crete A -
Amorgos A -
3rd Mt Cerrado 6 -
Total 2,577 569

As we can see, ORIG has an actual backlog of $2.577 billion and also up to $569 million that the company will potentially receive as compensation for the early terminations.

OCR Falklands Drilling Inc., a subsidiary of the Company, commenced arbitration proceedings against Premier Oil Plc. and Noble Energy Falklands Ltd. for terminating the contract on February 12, 2016 for the drilling unit Eirik Raude.

On March 7, 2016, two of the Company's subsidiaries commenced arbitration proceedings against Total E&P Angola for the termination of the contract with the drilling unit Ocean Rig Olympia.

The company confirmed that the Leif Eiriksson will work for a 3-wells contract in the North Sea for $145k/d.

2 - Ocean Rig has a strong relationship with Dryship and M. George Economou.

Ownership relationships between ORIG, DRYS, and CEO George Economou

Effective Date

ORIG Shares Outstanding

Ocean Rig Shares Owned by DryShips

Ocean Rig Shares Owned by CEO George Economou

Number of Shares Percentage of Shares Outstanding Number of Shares Percentage of Shares Outstanding
March, 30, 2016 138,666,384

56,079,533

40.44%

7,421,860

5.35%

Also, M. Anthony Kandylidis owns 1,684,512 shares (1.2%) and the money management firm Adage Capital Partners LP from Boston, owns 8,507,457 shares (6.1%).

3 - Some interesting numbers from the balance sheet, illustrated with graphs.

a - Revenue.

b - EBITDA

c - Earnings.

4 - ORIG is currently in discussions with shipyard to reschedule the newbuilds -- OR Santorini, OR Crete and OR Amorgos.

On page 37:

In addition, we have contracts to construct three seventh generation drilling units at a major shipyard in Korea, the Ocean Rig Santorini, the Ocean Rig Crete and the Ocean Rig Amorgos. These newbuilding's are scheduled for delivery in 2017, 2018 and 2019, respectively and we are currently in discussions with the shipyard to reschedule our newbuilding construction program. The estimated remaining total construction payments for these drilling units amounted to approximately $1.8 billion in aggregate as of December 31, 2015.

5 - Payment schedule for the three newbuilds.

The Company has advanced $148,632 to the yard for the Ocean Rig Santorini, which is equipped with two blow-out preventers and is scheduled for delivery in 2017. The total project cost is estimated to be approximately $679,470.

The Company has also advanced $108,400 and $76,600, respectively, to the yard for each of the new two drilling units under construction, the Ocean Rig Crete and the Ocean Rig Amorgos, which are scheduled for delivery in 2018 and in 2019 respectively. The total project cost for the construction of each drilling unit is estimated to be approximately $743,000.

6 - The Company filed a registration statement with the SEC.

Page 46, it is indicated:

On March 11, 2016, we filed a registration statement with the SEC in connection with a possible redomiciliation of our company from the Republic of the Marshall Islands to the Cayman Islands. As of the date of this annual report, the redomiciliation is not effective.

Commentary:

ORIG filed its 20-F annual report and we learn a few important elements.

The fleet status had a few uncertainties and the filing clears that out. The day-rates were clearly indicated and I was able to confirm the backlog of $2.6 billion.

However, in the $2.6 billion backlog, ORIG is not indicating approximately $569 million in compensation fee of which $415 million have already been agreed and $154 million are disputed and the company commenced arbitration proceedings early this year.

One puzzling element is why the company has filed a re-domiciliation from the Republic of the Marshall Islands to the Cayman Islands?

Finally, I was pleased to learn that ORIG was in discussions with the shipyard to reschedule the three newbuilds that are supposed to be delivered in 2017, 2018 and 2019. I am hopeful these discussions will be positive and that ORIG will be able to delay delivery another 18-months to 2019, 2021, 2022, and eventually cancel one or two drillships the OR Crete and Amorgos.

I am pleased that the company is doing a good job on several important topics, such as delaying the newbuilds and reduce the debt aggressively by repurchasing the 2017 and 2019 notes, at a very good discount. ORIG indicated that the gain from repurchasing the notes was $189.174 million in 2015. We know that the company continued to repurchase the debt in March.

M. George Economou said:

As of today (March 9, 2016), we have bought $369.0 million of our 7.25% Senior Unsecured Notes due in 2019 and $340.3 million of our 6.5% Senior Secured Notes due in 2017.

The remaining is $131 million of the 7.25% Senior Unsecured Notes due in 2019 and $459.7 million of the 6.5% Senior Secured Notes due in 2017.

A total of $590.7 million left that can be acquired at a discount of 45%-55% discount.

ORIG cash position as of April, should be approximately $780-$800 million, and if the company is succeeding in retiring the entire 2017/2019, I estimate a cash cost of approximately $330 million which is leaving approximately $460 million.

Conclusion:

The market is quite depressed, and it is difficult to see the light at the end of the tunnel, right now. However, ORIG backlog and cash on hand are two important positives, that can produce wonders. The company has demonstrated that it is determined to take any action that can help survive this terrible bear cycle.

I have been puzzled by the price per share that seems oversold and I bought back ORIG recently. I would like the company to continue its effort and eventually make a cash tender offer for the 2017/2019 remaining and eventually start aggressively a $50 million share buyback program, that could take advantage of the depressed price per share.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I trade ORIG actively

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