Ocean Rig Sounds Bankruptcy Alarm, Causing Stock to Tank

Ocean rig olympia total drillship
The ultra deepwater drillship Ocean Rig Olympia. Photo credit: Ocean Rig

Ocean Rig shares crashed nearly 60% Friday after the deepwater drilling contractor announced that it could wind up filing for bankruptcy amid ‘extremely negative’ market conditions that are only expected to worsen.

By mid-afternoon trading shares of Ocean Rig (NASDAQ:ORIG) had fallen 58.12% to 90 cents.

The comments from the company come as it released its unaudited financial and operating results for the second quarter ending June 30, 2016, which reported a net income of $156.1 million, or $1.83 basic and diluted earnings per share.

The results also revealed that Ocean Rig has reached an agreement with Samsung Heavy Industries to re-schedule certain installments for three drillships currently under construction at SHI, as well as postpone delivery of the first two units.

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

“Despite the continued positive operational performance of the Company (fleet utilization for the second
quarter of 96.3%) the market conditions remain extremely negative. 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. 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.

“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 and alternatives that may be available to pursue. In the recent period, we have been approached by several of our debt holders who have in certain cases also retained legal counsel and financial advisors.

While we have not made any specific decisions, it is evident to the Company and a number of its creditors
that its 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. We continue to explore and
consider alternatives, which may include a possible reorganization under US bankruptcy laws or another jurisdiction, so that we can ride out this very difficult cycle with feasible prospects for strong, long-term
success.”

Ocean Rig currently owns and operates 10 offshore ultra deepwater drilling units, comprising of 2 ultra deepwater semisubmersible drilling rigs and eight ultra deepwater drillships. It also has three drillships under construction, with delivery scheduled for 2017, 2018 and 2019, respectively.