Ocean Rig May File For Bankruptcy

now, let’s get back to discussing matters concerning the dismal state of our industry especially the hideous downturn in deepwater energy. I think we all know that as long as crude stays below $60/bbl that offshore is going to languish in depression. I seriously do not see any great increase in that price for several years at least and the overbuilding of equipment over the past decade has left companies overloaded with debt in a market of low rig utilization. Eventually someone has got to fall flat and I fear that will then be only the first domino to fall. I am only surprised that the first big bankruptcy has not happened yet.

[B]Ocean Rig May File For Bankruptcy[/B]

By MarEx 2016-08-12 18:18:55

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.

Double bad news, basically saying we are ok today but know we will be in trouble sometime in the future.
PS Nice to see you back

[QUOTE=powerabout;189064]Double bad news, basically saying we are ok today but know we will be in trouble sometime in the future.[/QUOTE]

I seriously wonder how long these companies can go which all now have multiple new drillships which either are not working or are working at 1/2 the rates they had been getting? There has got to be a massive cash burn taking place which obviously can’t be sustained forever. The only hope for them is lenders and bond holders being patient and not demanding their money as previously agreed. Certainly forcing a big drilling contractor into receivership will serve no one as the assets today are hardly worth anything in this market so nobody would be able to get more than a very small fraction of their investment back and the domino effect would further decimate the asset values as more and more equipment gets put up for sale. It would be an unprecedented bloodbath for everyone but then some lenders might panic and cause such carnage. If they don’t gird their loins then the ugliness of going over the cliff could only be one day away.

PS Nice to see you back

thanks, it’s good to be back…I just wished times were improving for us rather than continuing to be so depressed

As long as money is ‘free’ (near zero interest) zombie companies have been lurching from year to year by borrowing-to-repay. Maybe part of the reason companies are fine now but expect trouble in the future is an expectation of future rate hikes? Once money costs something the weak zombies will fold and sell their assets to stronger zombies until either all are gone or a miracle saves them.

Sad state in any case as the weakening of competition is the result the Saudis desire so I don’t expect miracles.

The Owners of Ocean Rig and Seadrill has other businesses to back them up. It is worse for the “single interest” companies that is totally dependent on the Oil and Gas industry.