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A Closer Look at Ocean Rig’s EBITDA Estimates

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Oct. 28 2015, Published 9:06 a.m. ET

Analyst estimates for Ocean Rig’s EBITDA

As we discussed previously in this series, Wall Street analysts expect 3Q15 revenues for Ocean Rig (ORIG) to remain similar to revenues in 2Q15, but expect to see a rise in 3Q15 costs. With this, they estimate a lower 3Q15 EBITDA[1. earnings before interest, taxes, depreciation, and amortization] for the company, compared to its 2Q15 EBITDA.

The total for the next four quarters of estimated EBITDA for Ocean Rig stands at $924 million against $1084 million EBITDA in the last four quarters. Going forward, analysts estimate a further fall in EBITDA. They estimate EBITDA in 2016 to be $787 million, and EBITDA in 2017 to be $641 million.

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EBITDA margin

In 2Q15, Ocean Rig achieved an EBITDA margin of 61%. This was higher than most of the other offshore drillers (IYE) such as Pacific Drilling (PACD), Seadrill (SDRL), Noble (NE), and Diamond Offshore (DO). Analysts predict a falling trend for Ocean Rig’s EBITDA margin.

Analyzing EBITDA estimates

The company will take delivery of one of its newbuilds, Ocean Rig Santorini. in 2Q16. Adding an uncontracted rig to its existing fleet could negatively impact the company’s EBITDA from 2Q16. As discussed previously in this series, analysts have probably estimated survey costs in 2016. This has might have lowered the EBITDA estimates. The company mentioned in its October fleet report that it will cold stack or scrap rigs that need to undergo the five-year special purpose survey, and will not incur the associated costs. Once this fact is incorporated into expense estimates, EBITDA estimates could rise. A change in EBITDA estimates may also affect valuations of the company.

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