Ocean Rig UDW Inc. (ORIG)

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Ocean Rig UDW Inc. (ORIG)

Q3 2012 Earnings Call

November 15, 2012 08:00 am ET

Presentation

Executives

George E. Economou – Chairman, President and Chief Executive Officer

Analysts

Darren Hicks – Evercore Partners

Michael Urban – Deutsche Bank

Lukas Daul – SEB Enskilda

Lenny Bianco - Raymond James & Associates Inc.

Andreas Stubsrud - Pareto Securities AS

Lou Nardi - Global Hunter Securities

Operator

Thank you for standing by ladies and gentlemen, and welcome to the Ocean Rig conference call on the third quarter 2012 financial results. We have with us Mr. George Economou, Chairman and Chief Executive Officer; and Mr. [Anthony Argyropoulos], Capital Market Special Adviser to the CEO. At this time, all participants are in a listen-only mode. (Operator instructions)

I must advise you that this conference is being recorded today, Thursday, November 15, 2012. Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect current views with respect to future events and financial performance, and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

Please take a moment to read the safe harbor statement on page 2 of the slide presentation. Risks and uncertainties are further described in the report filed by Ocean Rig with the US Securities and Exchange Commission. And now I will pass the floor to one of your speakers today, [Mr. Argyropoulos]. Please go ahead, sir.

Unidentified Company Representative

Thank you, operator. Good morning and good afternoon to everyone. Thank you for participating in Ocean Rig’s third quarter earnings conference call. I’m starting with slide two. For the third quarter of 2012, Ocean Rig posted a US GAAP net loss of $12.2 million, or $0.09 per share. Included in the results are charges relating to the 10-year class special survey costs for the Eirik Raude, and mark-to-market losses incurred on our interest rate swaps.

In addition, we had a one time write-off of certain non-cash items associated with the early repayment of the $1 billion DNB facility. We repaid this facility in full with the proceeds over 6.5% Senior Secured Notes issued in September. The combined effect of these adjustments is $38.4 million, or approximately $0.30 per share. As a result, our adjusted net income for the third quarter of 2012 was $26.2 million, or $0.21 per share.

Turning to slide 3, recent developments. We are pleased to report that the Ocean Rig Poseidon and Ocean Rig Athena have been awarded three-year contracts by the European and US integrated oil company respectively. The additional backlog from these two contracts is approximately $1.5 billion. I also remind you that earlier in the quarter we signed a three-year contract with Repsol for the Ocean Rig Mylos for drilling in Brazil.

In accordance with our policy for sensible growth, we signed a contract to construct a seventh generation, ultra deepwater drillship, a sister ship to our 2013 new builds at Samsung Heavy Industries. We expect delivery of that unit in early 2015. Also during the quarter, our wholly owned subsidiary, Drill Rigs Holdings, issued $800 million in aggregate principal amount of 6.50% Senior Secured Notes due in 2017. We used $488 million of that to repay the amount outstanding under our $1 billion facility, and $292 million for general working capital purposes.

Lastly, I am happy to report as promised that we have received conditional commitments for the commercial tranche in one of the export credit agency tranches for the $1.35 billion loan to finance the remaining payments of the three new buildings that we are taking delivery of during the second half of next year. We expect to finalize this transaction during the first quarter of 2013.

Now moving on to company highlights. Turning to slide 5, I would like to take a moment to focus on our assets. As many of you know, our assets are all high specification, fifth to seventh generation ultra deepwater rigs. Our two semis are only two of 15 harsh environment semis worldwide. They are also winterized for operations in extreme climates, so pretty unique assets.

Including our latest new building, all of our eight drillships are built at Samsung, which is considered the premier yard for this asset type. They are considered among the most technologically advanced drillships in the world. The specific S10000E design of our drillships was originally introduced in 1998, and is widely accepted by customers. Including our four operating drillships, the ones delivered in 2011, a total of 59 drillships of the 127 worldwide have been ordered using this base design, so approximately 50%.

In addition, our soon to be seven sister drillships enable us to capture multiple efficiencies across the fleet, in spare parts, personnel training and other areas. Turning to slide 6, and where do we rank among our peers, in a short four years, and following an almost $9 billion investment we have grown our fleet not only to be among the top 5 or 6 global operators of ultra deepwater assets, but also to be a pure play focused exclusively in the ultra-deepwater space. And by the way, as we mentioned before we have among the most modern, high specification assets worldwide.

The key point to convey here is that the massive investment in our fleet is behind us, and the time to reap its financial benefits lies ahead of us. Turning to slide seven, following the awards under two of our LOIs, and assuming the remaining LOI of the Eirik Raude materializes into a contract, our backlog will be approximately $4.5 billion. Given that we are in the enviable position to have two more rigs available for start up in 2013, we should see our backlog increase further in the coming months.

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