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Behind the Improving Cost Side of Ocean Rig

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General and administrative costs

Ocean Rig (ORIG) recorded general and administrative expenses of $26.9 million in 2Q16, as compared to $19 million in 1Q16. These costs were also higher than the $25.4 million recorded in 2Q15.

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Per-day expenses

Ocean Rig’s direct and onshore rig operating expenses in the second quarter averaged $113,000 per day. That’s lower than $131,000 per day in the previous quarter and $149,000 per day in 2Q15.

Ocean Rig and other offshore drillers (XLE) such as Diamond Offshore Drilling (DO), Rowan Companies (RDC), Noble (NE), Seadrill (SDRL), Ensco (ESV), and Atwood Oceanics (ATW) are trying to cut costs to weather this downturn.

Rig operating expenses

Ocean Rig’s rig operating expenses in the second quarter were $111 million, as compared to $142 million in 2Q15. It declined by $35 million from 1Q16. The company reduced its cost on idle units and started various cost-saving initiatives at the start of the current downturn.

The company has a presence in many locations with high operating costs, including Brazil, Angola, and Norway. The company mentioned in earlier calls that in spite of this, it has successfully managed to reduce costs while maintaining high operating efficiency.

Margins

With its cost-saving initiatives, the company’s operating-expense-to-revenue ratio in the second quarter declined to 24.5% from the previous quarter’s 28.6% and from 38% in 2Q15.

In this depressed industry scenario, it’s extremely important to reduce costs and raise EBITDA (earnings before interest, taxes, depreciation, and amortization) and maintain profit margins. Notably, Ocean Rig’s 2Q16 EBITDA was 2.6% higher than in 1Q16.

Continue to the next part for a look at analyst estimates for ORIG.

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