Is Ocean Rig Hiding Something From Investors?

About: Ocean Rig UDW Inc. (ORIG)
by: Vladimir Zernov

The earnings season is behind, but Ocean Rig has not even released the date of its third-quarter report.

The company's shares are on the move after the OPEC deal and, perhaps, on anticipation that something is in the works behind the curtain.

However, nothing in recent reports suggests any correlation between the release date and the content of the report.

Nevertheless, it will be a very interesting event. I discuss the key topics that I will be looking for when the company finally reports its third-quarter results.

Ocean Rig (NYSE: ORIG) is the only driller keeping investors in the dark - the company has yet to report its third-quarter results. Meanwhile, the company's shares are building momentum, first fueled by the DryShips (NYSE: DRYS) rally and supported by oil's rebound after the OPEC deal.

The date of the earnings release has not been made public. Back in 2015, Ocean Rig announced the date of the earnings release on December 3 and reported results on December 7.

This year, Finviz estimates that Ocean Rig will publish its earnings on December 16 after market close, but such guess is as good as any until the company officially states the date of the earnings release.

The delay makes market participants wonder if something is in the works and the company is about to announce something material. In my view, such speculation is in part responsible for the recent upside in Ocean Rig shares. However, if we look at recent earnings releases, nothing in the date of the release gave any clue for what will be announced.


EPS result

Content of the report

December 7, 2015

$0.58 vs. $0.46 estimate

Nothing special despite the late date. Continued cost improvements led to better-than-expected results. Stock rebounded a little after the report.

March 8, 2016

$0.75 vs. $0.78 estimate

Continued bond buybacks and cost improvements. New work for Leiv Eiriksson. Arbitration regarding OR Olympia and OR Raude. Stock corrected significantly after the pre-earnings run-up.

May 19, 2016

$1.17 vs. $0.72 estimate

No new bond repurchases. Ocean Rig has no plan for OR Paros. Mysterious Ocean Rig Investments does not get much explanation. Stock rallies on enthusiasm over the headline beat.

August 11, 2016

$1.83 vs. $1.11

Nobody looks at earnings or balance sheet as Ocean Rig mentions bankruptcy as a possibility. The stock is crushed.

All in all, I don't think that the earnings delay means anything material. Out of the four recent reports, the most delayed report was the most uneventful. Here's what I will be looking for in the company's third-quarter report when it is published:

1. Bond buybacks. Bond buybacks are mentioned in the comment stream of every Ocean Rig article. The absence of bond buybacks in the third-quarter report will deliver a death blow to the theory. At the same time, if Ocean Rig indeed bought its bonds at a discount, additional upside is possible on the day of the report. I continue to believe that bond buybacks are not a silver bullet in the current situation, but I always respect market sentiment. Significant amount of bond buybacks will lead to a short-term rally in Ocean Rig shares.

2. Restructuring talks. Ocean Rig is more or less silent since the second-quarter earnings release. The company lost ownership of Ocean Rig Apollo in exchange for the release from the loan guarantee and the reduction of the prepayment of Apollo loan. That's the last public development in the company. In this light, it is especially interesting to hear what the company will have to say about its negotiations with creditors. I don't expect that much light will be shed on this topic, but any hint is valuable.

3. Apollo prepayment. As discussed above, the company was able to reduce the mandatory prepayment for Apollo loan. However, by what amount? This remains a mystery that will most likely be answered in the third-quarter report or the earnings call.

4. Leiv Eiriksson status. Leiv Eiriksson finishes its work in December and the recent spike in oil prices makes a good case for follow-on work. I'd be surprised if the rig does not get the follow-on job.

5. Dispute. Ocean Rig has ongoing dispute with Premier Oil regarding the termination of Ocean Rig Raude. The company mentioned commencement of arbitration proceedings in the first-quarter report and did not return to the topic ever since. Perhaps, it's high time to share some information on the issue.

Bond buybacks and restructuring news will be the key drivers for Ocean Rig shares after the report is published. The stock is on the move right now, so any news (positive or negative) will likely bring even more volatility. It is possible that even the press release telling the date of the earnings report will be considered as good news by the market.

However, short-term trading action and long-term perspectives are often different, as was highlighted in August when Ocean Rig CEO George Economou publicly addressed the possibilities of restructuring and even bankruptcy. Many investors believe that this was just another genius move by the colorful CEO, but I continue to see significant challenges for Ocean Rig from the fundamental point of view.

Ocean Rig's third-quarter report will be the last big event of the year for those interested in offshore drillers. It will be interesting to see whether the company has something to report or it will be a rather dull report like in December 2015. Time will tell, stay tuned.

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.