Ocean Rig has just provided an update on recent contracts. We haven’t seen much movement on the floater side in drillers’ fleet status reports so far (see Ensco (ESV) fleet status report, Rowan (RDC) fleet status report and Noble Corp. (NE) fleet status report), so an update from a floater pure-play is very interesting.
Here’s what Ocean Rig had to say:
- Ocean Rig Poseidon got a one-well contract from Chariot Oil & Gas (OTCPK:OIGLF) offshore Namibia. Currently, the rig is scheduled to work for Tullow in Namibia in the third quarter of 2018. The new job comes in direct continuation of Tullow work.
- Ocean Rig received a letter of intent from a European major for a firm two-well program and two optional wells offshore West Africa. The contract will be performed by Ocean Rig Poseidon after it finishes the work for Chariot Oil & Gas.
- Lundin (OTCPK:LNDNF) has exercised another option for Leiv Eiriksson. Currently, the firm employment is secured until December 2018 and the remaining options imply that the rig will work until the third quarter of 2019. I fully expect that the rig will stay employed well into the next year due to favorable market dynamics in the North Sea.
- Ocean Rig has concluded negotiations with Total (NYSE:TOT) regarding the contract of Ocean Rig Skyros. The outcome is very favorable for the company: the dayrate for the remaining duration of the contract (until Q3 2021) will remain fixed at $573,000.
Ocean Rig’s CEO rather optimistically commented on the floater market:
“We are pleased with the progress of the floater market and expect further developments in the coming months that may increase the utilization of the company’s drilling units into 2019. The conclusion of the Skyros discussions removes any uncertainties with respect to the company’s estimated contract backlog and solidifies our strategic relationship with Total. We currently see higher levels of inquiry in the market that we expect will translate into higher utilization in the coming months for the overall floater fleetâ€.
While the comments are optimistic, the current data is not. There are few rigs available in West Africa right now: besides Ocean Rig Poseidon, Pacific Bora and Titanium Explorer are in warm stacked mode according to data from InfieldRigs. In this light, further employment of Ocean Rig Poseidon is not surprising. However, most other Ocean Rig’s rigs remain unemployed. In fact, most are in cold stacked mode which puts them at the end of the queue among rigs that search for work. It is not surprising that Ocean Rig shares showed little if any reaction to the news:
For Ocean Rig, sustainable upside will be impossible without tangible improvements on the floater side of the market. However, with the most critical contract now confirmed, I see no downside either, so, should the stock drop back to the $23-24 territory again, I’d consider it for a range play.
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