Ocean Rig: Focus On The Facts – Ocean Rig UDW Inc. (NASDAQ:ORIG)

Before the open Friday, Ocean Rig UDW (ORIG) completed a reverse split and emerged from bankruptcy. The investment community wants to focus on the debt restructuring details of the deepwater driller, but equity investors should focus on the new financial facts that impact the stock.

After the split, the stock trades at $24 for a market value of roughly $2.2 billion. The recent past and ongoing struggles in the sector make the stock one difficult to initially consider to own, but one should let the facts tell the story.

Ocean Rig provided the following key projected financial information as of September 30:

  • Total cash of at least $690 million.
  • Assets of about $2.9 billion.
  • Debt of about $567 million.
  • Backlog of about $1.2 billion.
  • Common shares outstanding of 91.6 million.

In essence, the company has a book value of about $3.0 billion and trades about $800 million below book value. One shouldn’t be surprised if Ocean Rig continues to trade far below book value until backlogs start growing in the sector.

Just Friday, Transocean (RIG) decided to scrap another six rigs and take a $1.4 billion charge. A big question for Ocean Rig is the quality of the listed asset values of rigs. The IHS market valuation report for the bankruptcy court lists an average FMV of about $165 million per rig. The valuation only jumps to $202.5 million for the rigs not cold stacked which is far below the cost to build a new deepwater rig.

The listed asset values reportedly include $570 million for newbuilding installments and about $650 million associated with the Ocean Rig Apollo. The values for some of the newest rigs on the market appear trough level valuations while the Apollo clearly has no value near $650 million.

While rig valuations are clearly influx and highly dependent on future contracts, the projected financials for the next few years appear solid. All of the contracted revenue in 2018 and beyond is highly dependent on the Ocean Rig Skyros that helps the company generate…

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