All Investable stock, Ocean Rig UDW Inc. (NASDAQ:ORIG) announced yesterday that one of its subsidiaries has acquired the 6th generation ultra deepwater drillship Cerrado, being sold through an auction, for a purchase price of $65 million, which will be funded with available cash on hand.
The drillship was built at Samsung Heavy Industries in 2011 to similar design specifications as the Company’s existing 6th generation drillships built at Samsung, and will be renamed the Ocean Rig Paros upon its delivery to Ocean Rig.
Another subsidiary of the Company has been acting as the manager of the drillship for its previous owners. The transaction is expected to close upon completion of the judicial auction procedure.
Investors reacted positively to the news, with the share price jumped 3.4% or $0.05, to close at $1.52.
About Ocean Rig UDW Inc.
Ocean Rig is an international offshore drilling contractor providing oilfield services for offshore oil and gas exploration, development and production drilling, and specializing in the ultra deepwater and harsh-environment segment of the offshore drilling industry.
There’s no doubt its been a tough 12 months for Ocean Rig, with its share price falling over 77%.
With that in mind, lots of investors will be asking the question, “is now the right time for Ocean Rig to be buying an Ultra Deep Water drill-ship”.
While I agree that at current oil prices, the timing may appear to be poor, I would argue that now is precisely the right time make these purchases, when the price is unquestionably cheap. Ocean Rig is paying $65 million for drillship Cerrado compared to the sale of Deepsea Metro II, which was recently auctioned and sold for $210 million on March 15, 2016.
According to Dutch law firm, ekvandoorne.com:
The drilling rig Deepsea Metro II was auctioned and sold for USD 210mln on 15 March. The vessel was anchored in Curacao waters. The Court of First Instance of Curacao granted the order for the auction at the request of the executing party, DVB Bank America NV. DVB was assisted by partner and maritime law expert Mayesi Hammoud.
If like me you believe that we’ll see a recovery in oil prices and the Ultra Deep Water market, then now is clearly a good time to buy undervalued Ocean Rig.
In terms of its valuation, according to the All Investable Stock screen here at The Acquirer’s Multiple, the company has an Enterprise Value of $4,135 million and operating earnings of $703 million, giving it an Acquirer’s Multiple of 5.88. The company is also trading on a price-to earnings ratio of just 2.77.
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