$Ocean Rig UDW Inc.(ORIG)$

Ocean Rig (ORIG) Management on Q2 2016 Results - Earnings Call Transcript

Q2 2016 Earnings Conference Call

August 12, 2016 8:00 AM ET

Executives

Anthony Argyropoulos – Capital Markets Special Advisor to CEO

Anthony Kandylidis – Executive Vice President

Analysts

Lukas Daul – ABG Sundal Collier

Sandro Patti – Gladwyne Investments

Mark McCabe – KDP Investment

Scott McFadden – Pineno Levin & Ford

Steven Karpel – Credit Suisse

Peter Wollman – Invesco

Operator

Thank you for standing by ladies and gentlemen and welcome to the Ocean Rig Conference Call on the Second Quarter 2016 Financial Results. We have with us Mr. Anthony Argyropoulos, Capital Market Special Advisor to CEO and Mr. Anthony Kandylidis, Executive Vice President of the company. At this time, all participants are in a listen only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions]. I must advise you that this conference is being recorded today.

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 two of the slide presentation. Risks and uncertainties are further described in the reports filed by Ocean Rig with the U.S. Securities and Exchange Commission.

And I will now, pass the floor to one of your speakers Mr. Kandylidis. Please go ahead, sir.

Anthony Kandylidis

Thank you. Good morning, everyone and thank you for participating in Ocean Rig’s first quarter earnings conference call. I’m starting with slide three. For the first quarter of 2016, Ocean Rig posted a U.S. GAAP net income of $156.1 million or $1.83 per share. Our fleet’s strong operating performance during the quarter resulted in net revenue of about $453 million and EBITDA for the quarter of $326.5 million. Addressing some of the recent highlights, I want to start with the agreement we reached with Samsung related to the constructions three of our drill ships. Under this agreement, we have rescheduled certain installments, postponed the delivery of the first two of these drill ships currently under construction and amended certain other terms including the contract price.

The Leiv Eiriksson completed, as planned its 15-year class survey and scheduled equipment and winterization upgrades related to its next contract, and on July 18, mobilized location in Norway to commence its previously announced contract with Lundin Norway AS. On June 16, we reached an agreement with Repsol Sinopec to terminate the contract of the Ocean Rig Mylos operating offshore Brazil against full payment of the remaining backlog. On April 27, we reached an agreement with ENI to settle the dispute related to the termination of the contract of the Ocean Rig Olympia against a total payment of $54 million and the extension of 81 days for the contract of the Ocean Rig Poseidon at a daily gross operating rate of $115,000.

Now I turn over the presentation to Mr. Anthony Argyropoulos.

Anthony Argyropoulos

Thank you, Anthony. Turning to slide four, in Q2 of this year our ultra-deepwater fleet achieved 96.3% operational utilization rate over available contracted drilling days which exclude mobilization, uncontracted and special survey days. We also remain focused on reducing operating costs without compromising safety and efficiency. Our average daily OpEx of units in operation in the second quarter was about $113,000 a unit per day. Excluding lower costs associated with idle units benefiting from various cost savings, initiatives in our robust management system focused on performance and efficiency.

Moving on to slide six, the average term of our contracts is 1.8 years, taking into account only our six unit operating fleet, we’re under contract for 100% of remaining 2016 and 68% for full year 2017. Our units Eirik Raude, Ocean Rig Olympia, Ocean Rig Apollo and Ocean Rig Paros have completed their preservation works and are currently cold stacked in Greece, remaining of course available for further employment. The unit Ocean Rig Mylos is presently undergoing preservation works in Las Palmas before going to its final stacking location also in Greece.

Turning to slide seven, during the quarter, we had 973 calendar days of which 380 days were uncontracted and 77 days were spent for class surveying to the Leiv Eiriksson and Poseidon. Thus our fleet available contracted drilling days for the quarter amounted to 516 days. During the quarter, we experienced 19 days fleet-wide of zero rate downtime and as a result, we’re earning revenue for 497 days. So our fleet-wide contracted operating efficiency rate that is our revenue earning days over our available contracted drilling days was 96.3% during the quarter.

Our daily direct and onshore rig operating expenses this quarter excluding OpEx for the idle units Olympia, Eirik Raude, Leiv Eiriksson while in Paros and Apollo for all of their respective idle days averaged $113,000 versus $131,000 during the first quarter of 2016 and $149,000 in Q2 of 2015 both of these referenced periods exclude OpEx of idle units Skyros and Olympia for their respective idle days. The improvement is driven more importantly from various cost savings initiatives we put in place at the start of this [indiscernible].

I move on to slide eight our income statements to tie all the revenue and operating expense items. During the quarter, we had $420.9 million in revenue and $31.7 million in amortization of deferred revenue, for total revenue of $452.6 million. Our direct and onshore rig operating expenses were $78.5 million, maintenance and other expenses were $22.1 million and the amortization of deferred expenses was $10.9 million. So during the quarter against our $452.6 million in revenues, we had $111.4 million in total rig expenses. Depreciation was $82.8 million, G&A expenses $27.0 million and net interest expense for the quarter was $55 million. Finally, we paid $26.6 million in taxes or about 6% on revenues.

Turning to slide nine, our debt has a weighted average maturity of 3.9 years and our next maturity due is in October of 2017 pertaining to 6.5% secured notes. Our free cash balance today is about $855 million however, pro forma 2016 CapEx statements related to our new buildings and the required prepayment of our commercial bank loan related to the termination of the Apollo contract with [indiscernible], we expect a free cash balance to be closer to $500 million.

Turning to slide 10, on August 11, we reached an agreement with Samsung Heavy Industries related to the construction of our three drill ships which provides for the rescheduling of certain yard installments, the postponement of the delivery of the first two of these drill ships currently under construction and the amendment of certain other terms including the contract price. The bottom-line is that this transaction provides Ocean Rig with optionality to continue the construction of at least two of these high-spec drill ships that could provide competitive advantage when the market recovers.

Now turn over the presentation to Anthony Kandylidis to provide you with an industry update and closing remarks.

Anthony Kandylidis

Thank you, Anthony. Moving on to slide 12, the market conditions continue to deteriorate, with 59 rigs already scraped and the 125 rigs or 42% of the current floater fleet being cold stacked or warm stacked. On the supply side, a total of 68 additional rigs expected to come off contract within the next 12 months, with no employment prospects available. At the same time, excluding Brazilian and Chinese built units, there is an order book of an additional 26 rigs, 22 of which are uncontracted. On the demand side, things are no better either. Oil Prices have taken a slump from the back of massive oversupply which have resulted in big budget cuts in E&P companies.

As a result, drilling contracts are becoming more and more susceptible to cancellations by the oil companies. We estimate that to-date there have been 48 cancellations of drilling contracts for floater units, 34 of which are for units built after 1997. The oil prices and the budget cuts have kept -- activity for new projects low and generally limited to smaller projects for 2016. To conclude, at this stage, we can see no imminent recovery in sight and thus we believe that we should prepare ourselves for a lower for longer scenario. We do not expect recovery any time before 2020 and accordingly are considering adjustments to our business and capital structure.

Moving on to slide 14, I would like to summarize where the company is today. Ocean Rig is a large global pure play ultra deepwater capable drilling company with premium assets surrounded by an experienced management team. Our focus remain on containing cost, adjusting available capacities for new market conditions and maintaining efficiency in order to create value for all stakeholders. Given the ongoing distressed market environment as well as the consensus view that the recovery may not appear for several years, we have engaged financial and legal advisors to assist in our ability over capital structure and alternatives that may be available to pursue.

In the recent period, we have been approached by several our debt-holders who have in certain cases also retained legal counsel and financial advisors. While we have not made any specific decisions, it is evident to the company and the number of its creditors that its debt obligations will need to be amended for exchange for new debt and/or equity security and some debt holders may have little or no recovery on their investment. We continue to explore and consider alternatives which may include the possibility of reorganization under U.S. bankruptcy laws or another jurisdiction so that we can ride out this very difficult cycle with feasible prospects for strong long-term success.

We have now reached the end of our presentation and I open the floor to questions.

Question-and-Answer Session

Operator

Thank you very much indeed gentlemen. We now begin the question-and-answer session. [Operator Instructions]. Thank you for holding and our first question from ABG comes from the line of Lukas Daul. And your line is now open.

Lukas Daul

Thank you. Good morning or good afternoon guys. Just a few questions on the numbers on the status, the OpEx decline that we have achieved in this quarter, it’s quite amazing, it’s like $20,000 quarter over quarter. I mean is this sustainable or is there one-off behind that, can you sort of talk a little bit what we should may be expect from you going forward?

Anthony Argyropoulos

I think that obviously that further improvements on OpEx will be difficult to achieve but we hope that the number achieved during this quarter will be very close to the rest of the year as some of the cost cutting measures that we have implemented are catching up.

Lukas Daul

Alright. Good. Then on your cold stacked drill ships, can you say a little bit about what is this sort of stacking cost per day and what is the operational readiness of those rigs? What kind of capital and time they need to come back to work?

Anthony Argyropoulos

Yeah, I think from the moments the rigs are cold stacked and depending on the level of preservation, we estimate the daily cost should be less than $10,000 a day. In terms of reactivation, we believe that this can be achieved between 60 and 90 days with a total cost of around $30 million.

Lukas Daul

Okay. I mean you view sort of the first one had cold stacked the new ultra deepwater drill ships, could you just sort of elaborate little bit on what you have done to sort of put it in that -- thrusters, rotating equipment etcetera?

Anthony Argyropoulos

Yeah, I mean sure we have an extensively, a very detailed preservation plan which among other things involves the removal of thrusters to a safe location so they can be properly maintained and serviced, and the full preservation of the drilling and - equipment. We estimate that the total preservation costs are in the region of $3 million to $4 million.

Lukas Daul

And then finally, the 15 year survey on the Leiv Eiriksson, what was the cost of it?

Anthony Argyropoulos

The total cost of the survey including the upgrades which we can split about 50-50 was about $20 million.

Lukas Daul

Okay. Excellent. Thank you and good luck.

Anthony Argyropoulos

Thank you.

Operator

Thank you very much indeed. And your next question from Gladwyne comes from the line of Sandro Patti. And your line is now open.

Sandro Patti

Hi, guys, Anthony can you guys hear me?

Anthony Kandylidis

Sure.

Sandro Patti

My first question would be around the Apollo situation, are the monthly payments you discussed in the previous call, they coming in from [indiscernible]

Anthony Kandylidis

Yes. They are.

Sandro Patti

And with the same kind of magnitude you explained last time like 95% of the rate for certain number of amount and then…

Anthony Kandylidis

Correct.

Sandro Patti

That’s agreed. Okay. And then when you adjusted the cash balance from $800 million to back to $500 million, roughly $200 million of that is the Samsung deal and $150 million is Apollo Bank repayment?

Anthony Kandylidis

Correct.

Sandro Patti

Okay. On the Samsung deal, I mean after achieving such a great deal I mean it lowers your CapEx balance for the next 18 months by quite a lot, do you think -- how much more time does that buy you in terms of allowing the company of avoiding a covenant breach on either the DOV or DFHI loan?

Anthony Argyropoulos

Well I think that in terms of the covenants on the term loans, it looks like we’re in good shape until at least the second half of next year.

Sandro Patti

Okay. And then I mean just for me to understand how guys think, I mean when I look at ORIG, Ocean Rig today and of course as you guys explained very well the market is a very, very difficult market. But the business has ample cash balance, it’s probably on my mark free cash flow positive particularly now that you guys have solved the CapEx problem until the end of 2017. The cash balance will grow until the end of 2017 and rig values are very depressed now as you guys have shown by buying relatively new rig for $65 million. Just for me to understand your rationale, if you don’t have a permanent reach and you have cash and the business is free cash flow positive, why do you think there is a need to – is there a hard catalyst to do the restructuring or reach up to 11 this year? I mean wouldn’t it make more sense to wait until the end of ‘17 and may be at that point the oil price is different and the drilling market is different?

Anthony Kandylidis

Well I’ll let AA take it.

Anthony Argyropoulos

Well Sander[ph] I think the general idea here and as we disclosed I think we’re stating a little bit the obvious. We’re not saying that we will necessarily file for bankruptcy, all we’re saying is that we have – we as well as our creditors I think recognize the fact that our debt needs to be restructured, let restructure/change, the securities to right-size our capital structure. Now whether this happens let’s say out of court, in court, in the U.S. court, in a foreign jurisdiction, all of these things are under – we’re exploring and of course in our creditors have several ideas and views that they have expressed to us. All we’re doing with this announcement is saying that this is where we are today, this is going on in full disclosure. Now whether something happens in ‘16 in ‘17 this is something that has not been determined yet.

Sandro Patti

Okay. Thank you guys.

Anthony Kandylidis

And if I may add I think to answer this point we are taking a long-term view here, okay? And you’re absolutely right, we are cash flow positive by the end of ‘17 but at the same time we’ll be down to three operating rigs.

Sandro Patti

Yeah.

Anthony Kandylidis

So having three rigs with flat $3 billion $4 billion of debt is surely unsustainable long-term. [indiscernible]

Sandro Patti

Yeah I’m asking the question simply because there are many what people used to love about your company that you guys used to have such a strong backlog and ample cash. Now you’re even cutting off at – level, and all your competitors which -- many of your competitors are in much worse shape and they are actually build as much runway as possible right? You guys are the ones that naturally you look like you have runway until the end of 2017 because there’s cash, there’s no covenant breach. So, you see what I’m saying?

Some people are forced to do things today but if you need to mark-to-market your fleet today, it doesn’t look too good right? So, out of the two between a bad outcome today and a potential outcome in 18 months, for you guys have the flexibility to choose. I would have thought that may be playing for time would have made more sense, because many of your competitors don’t have this kind of – they are not in such flexible position.

Anthony Kandylidis

No, no understood. As AA said, we are looking at all options. The problem is that our market view has changed as well and you see it recovering much later than the end of this year.

Sandro Patti

Okay. Thank you.

Operator

Thank you very much indeed. Thank you. [Operator Instructions]. You now have a question from KDP Investment from the line of Mark McCabe. And your line is now open.

Mark McCabe

Hi. I guess I’m going to ask the same question that the previous person has asked, but may be little more in detail. Again, I don’t understand why you feel a need to possibly [indiscernible] or whatever actually you might take, I mean I’m looking at your balance sheet you have $200 million - over the next couple of years and then you have a long runway I mean debt that you have you can easily pay from cash on hand even from where currently selling at a discount which it is. After that then you have a long runway to 2021, I mean 4-5 years from now [indiscernible] you guys are printing money again. So again, why not just pay down the existing debt over the next year or two and then hopefully a recovery in oil prices?

Anthony Argyropoulos

Yeah because as we said before and as Anthony Kandylidis mentioned about our market view, the reality is this is not the forum for us to debate every single point. But the cash that we have which pro forma is around $500 million and even though there’s some build ups through ‘17 not massive but there is some, even that cash first of all it’s not sufficient for us to pay down our debt. Secondly our debt has…

Mark McCabe

Did you say it’s not sufficient?

Anthony Argyropoulos

It’s not. We have $4.1 billion of debt…

Mark McCabe

No, no, but you don’t have debt… I mean most of that $4 billion is due to 2021.

Anthony Argyropoulos

Well there is debt due in 2017 and there are covenants we alluded to in ’17, $460 million.

Mark McCabe

Yeah $460 million is probably selling at…

Anthony Argyropoulos

Correct.

Mark McCabe

And you have $900 million of cash on the balance sheet now.

Anthony Argyropoulos

We have $865 million which pro forma for SHI and B&B[ph] is $500 million. And as Anthony mentioned, we have three operating rigs with $4.1 billion of debt. Our runway is not -- if we had runway until 2021 you mentioned, then obviously we wouldn’t be having this discussion right now. Also at the same time, our view is that it’s better to engage in these discussions now that the company has some financial flexibility remaining, some contract backup remaining as opposed to waiting until there’s literally almost nothing left. So that’s basically the reason why we are having these discussions today.

Mark McCabe

All right. I’m going to -- it but alright. Thanks.

Operator

Okay. Thank you very much indeed. Thank you. At the moment, we have a follow up question from ABG from the line of Lukas Daul. And your line is open sir.

Lukas Daul

Thank you. Thanks guys for the follow up. I was wondering about the notion of you changing your market view and now you’re calling the market to being in the bad shape until 2020 which is quite different from what some of your peers have been saying instead of alluding to some sort of an activity rebounding in 2018. Can you just say a little bit about what has sort of changed your view? What are you seeing that makes you relatively sort of depressed for the next three to four years?

Anthony Kandylidis

Well I think first of all we look at the supply side and just the sheer number of rigs that are coming off contract or being delivered to bill by the yards combination with the very low tender activity because yes, some of our competitors reported there has been a pickup in activity but in reality the numbers of wells offered are really few. So there are tenders but you think about -- here, 2017 -- frankly unless you see a massive shift on the oil pump and its appetite to increase E&P spending every quarter, then there is no recovery in sight. So we think it’s actually going to get worse before it gets better.

Lukas Daul

Okay. Understand. And do you sort of incorporate in your view that your cold stacked rigs might have a harder time competing with rigs that are rolling off or being warm when chasing new work? Is it part of your sort of…

Anthony Kandylidis

I think it’s fair to say that we of course realize that we have to reduce capacity so that’s our contribution to that. So we realize that hot rig gets picked before cold or warm rig and the warm rig before the cold rig. So yeah that is taking lot of time.

Lukas Daul

Okay. Thanks. Thanks for the color.

Operator

Thank you very much indeed sir. Now from Pineno Levin & Ford, you now have a question from the line of Scott McFadden. And your line is open sir.

Scott McFadden

Good morning gentlemen or good afternoon. First of all, congratulations on a good operating quarter. I guess I’m trying to understand last quarter you bought a new rig, relatively new for 65 million, immediately put into cold stacked. And you mentioned today that cost of bringing it out of cold stack would be I believe you said $20 million to $30 million. Has the market deteriorated so much in the last quarter that if you had that opportunity today, would you still buy a drill ship? Anthony?

Anthony Kandylidis

Yes sure. I think obviously when we bought that rig we knew exactly what we were doing taking into cold stack. So I think for us it was a matter of value. So the answer is probably yes we will do it again.

Scott McFadden

Alright. And let me follow up on the debt, my question’s really been asked but I guess I’m trying to clarify a little bit. Obviously when the market does pick up and if your competitors are right and they are more optimistic and the market starts to turn in 2018 or 2019, clearly day rates initially will be below what rigs are rolling off contract today. So, I guess I’m trying to further understand are you doing some modeling that one or two or three rigs might go back to work but the day rates might be 200k to 250k a day, is that the reason to maintain the net $500 million of liquidity?

Anthony Kandylidis

Truly I don’t quite understand the question. I think that the liquidity we have is now but because of the huge debt burden that we have at some point after 2017 where most of our existing contracts expire, we’re going to be burning cash quickly. So it’s just a bucket to get us through year and a half from now.

Scott McFadden

Okay. So you haven’t done any modeling X number of rigs go back to work at lower day rates, I mean obviously once the market does turn, cash flow is not going to be what it was a year or two years ago, that’s my point.

Anthony Argyropoulos

No, no, you’re absolutely correct. We have looked at that and that’s part of the issue, even if utilization picks up, rates are not going to pick up that fast. And that’s part of the problem.

Scott McFadden

Okay. All right. Thank you very much.

Operator

Thank you very much indeed. Now from the line of Newmont[ph] Capital we have a question from Mark Gold. And your line is open sir.

Unidentified Analyst

Good morning, good afternoon. Let me appreciate you having the call and I appreciate your candor on the call. I have couple of specific questions and kind of an industry question. The first question is if you exclude your debt obligations, if you look at your contractual obligations vis-à-vis ships and – how did they break down and what did they aggregate?

Anthony Argyropoulos

Over what period is that?

Unidentified Analyst

Just standing here looking out into the future. As of today if you look forward, you have X number of dollars I’m assuming for ship purchases, commitments and so on and you may have some other debt obligations, pension obligations or whatever categorizes debt commitments. Excluding debt on balance sheet.

Anthony Argyropoulos

Excluding debt on the balance sheet, okay, the only commitments we would have remaining are the new buildings.

Unidentified Analyst

Right. And what would they aggregate in total?

Anthony Argyropoulos

Based on the new agreement that we have, it would be approximately $1.3 billion in total on a fully delivered basis.

Anthony Kandylidis

Between now and 2019 right, so next two years 150 to 200 we need to pay nothing else.

Unidentified Analyst

So sorry, I guess just so I could rephrase it, so just sitting here today looking out at total commitments 29k, 20k or 20 whatever, total commitments is $1.3 billion of contractual commitments, is that we should think about it?

Anthony Kandylidis

Well potentially yeah it can be an – number.

Unidentified Analyst

Got you. And then the other question is in your view, where do oil prices have to go for it to be economical again for people to start employing drilling?

Anthony Kandylidis

Yeah, it’s a very difficult question to answer, but I would say it has to be above $60 at least.

Unidentified Analyst

And I’m assuming that’s location specific in terms of – the way to think about it or…

Anthony Kandylidis

It’s location, it’s size – specific, it’s lot of factors that fuel companies take into account. And more importantly, whatever the price it has to be stable. So whatever the number is 60 or 70, it has to go there and have to stay there for at least a couple of years before the oil companies start spending again because of the long lead time of the offshore projects.

Operator

Is that question finished Mr. Gold?

Unidentified Analyst

Yes it is, thank you very much. You have a good day. Thank you.

Operator

Thank you very much. Thank you. Now your next question from Nomura comes from the line of Mariana Hakushma[ph]. And your line is now open.

Unidentified Analyst

Hi, I have a question regarding the cash balance. What entities hold the cash or few entities, where would the cash resides I guess.

Anthony Kandylidis

Well the cash resides in the various subsidies of the company.

Unidentified Analyst

Okay. Is it possible to give and I guess if, I’m thinking you have different obligation[ph] under different credit facilities and I guess if we try to tie cash residing with different subsidiaries so how would you, is it possible to somehow quantify by different subsidiary baskets let’s say DOV subsidiaries…

Anthony Argyropoulos

What I would suggest is we’re going to be filing our full financials in 6-K later today or before Monday. So in there, there is some sort of breakdown along what you are describing. So this is information we will include with our financial statements.

Unidentified Analyst

Because I didn’t see that breakout before, so that would be something new right?

Anthony Argyropoulos

No, it’s there every time.

Unidentified Analyst

It is? Like in consolidating statements, is that what you mean?

Anthony Kandylidis

We provide selective financial information for each credit facility at the end of the day, all in front of the document on the -- after the MD&A section.

Unidentified Analyst

Okay, okay.

Anthony Kandylidis

So they are already in the – you can see the previous quarter and we’ll file this quarter as well.

Unidentified Analyst

Okay. And then another question regarding the bonds that you bought back, previously you indicated that those bonds were not retired. Is that still the case?

Anthony Kandylidis

Yes.

Unidentified Analyst

Okay. So which entity then holds those bonds then?

Anthony Kandylidis

It’s a subsidiary of Ocean Rig.

Unidentified Analyst

Okay. But what’s the name of that subsidiary?

Anthony Kandylidis

We don’t disclose the name of the subsidiary.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you very much indeed. Now your next question comes from Credit Suisse comes from the line of Steven Karpel. And your line is now open.

Steven Karpel

Good morning.

Anthony Kandylidis

Good morning, Steven.

Steven Karpel

I’d like to understand you talked about the commitments -- you’ve obviously taken the cash from 850 to 500 then the $1.3 billion in aggregate. Can you explain where those commitments are? Is that a commitment of the entire company or just of certain entity?

Anthony Kandylidis

Yes, these are commitments of a single purpose company that have the contracts with Samsung, to the extent that there is no longer a guarantee from the parent, it’s really an option for us. So it’s a contingent commitment.

Steven Karpel

Under the new agreements now, when do you have to make significant payments? And I ask, given that your -- while you said yes, there seems to be some hesitation if you would buy a new rig today. When do you have to -- was that a low price to previous transaction, when do you have to make a significant payment to decide if you’d like to continue along to buy another rig as part of the Samsung deal?

Anthony Kandylidis

It’s not before 2018 and the amount of money enrolled is not more than $35 million per rig. We will provide more information on the Samsung deal again when we file our financials later tonight where all these details will be spelled out.

Steven Karpel

I heard the cold stack price, how much can you have gotten to a warm stack? What do you think a warm stack would be today?

Anthony Kandylidis

On a per day basis?

Steven Karpel

Correct.

Anthony Kandylidis

I think the figure I’ve read from other competitor is around $30,000 to $40,000 which is about right, sounds about right.

Steven Karpel

On a new rig, as you sit idle, what are you accruing or what would need to be accrued in terms of capital for reactivation, if I think towards a special survey and such on a yearly basis?

Anthony Kandylidis

Well I don’t think we accrue on a yearly basis, I think we estimate in general that following a period of cold stacking of two to three years to reactive a rig including the special survey, you’re looking over a cost of about $30 million and that will depend of course on the actual condition of the equipment and the survey positions.

Steven Karpel

Thank you.

Operator

Thank you very much indeed sir. Now from Invesco your next question comes from the line of Peter Wollman. And your line is now open sir.

Peter Wollman

Thank you and thank you guys for spending this time and giving the candor that you’re giving. Most of my questions have been answered but I do have one follow up on, I just want to be clear on this. You said that the bonds that you previously purchased have not been retired, so I’m just clarifying so if nothing retired, I assume there is still -- you receive interest on these bonds now when you pay interest payments?

Anthony Kandylidis

Correct.

Peter Wollman

Okay. And then as well can you vote these bonds? Can you vote on amendments, waivers, consents etcetera?

Anthony Kandylidis

Listen, I’m not a lawyer so I can’t answer that question. I think that if I remember in a regular -- normally you cannot vote these bonds I think, but I don’t know what the answer is in case of a procedure.

Peter Wollman

And then do you intend on retiring them or do you intend to keeping them outstanding?

Anthony Kandylidis

At this stage, we don’t intend to retire them.

Peter Wollman

Well given your commentary on trying to fix your balance sheet, seems like it would make sense to retire them, I mean that’s a pretty typical action from a company in this situation.

Anthony Argryopoulos

It doesn’t really make any difference in terms of actual cash flow to us.

Anthony Kandylidis

But that’s something that our advisors are working on how to build that.

Peter Wollman

Because the interest is earned by Ocean Rig so it’s not paid out.

Anthony Kandylidis

Yeah, it’s paid to ourselves.

Peter Wollman

Okay. Thank you.

Operator

Thank you very much indeed sir. And now we have a follow up question from Gladwyne from Sandro Patti. And your line is open.

Sandro Patti

Hey guys. Hi. Just one thing for me, the six drilling contractor our last – what entity are they?

Anthony Kandylidis

What do you mean?

Anthony Argyropoulos

They are linked to [indiscernible]

Sandro Patti

But the legal entity holds the contract, because I think the contractor could be outside the silo securing the loans or the bonds.

Anthony Kandylidis

No, all the contracts are held by companies that are within the silos, with the exception of certain contracts in Angola and Brazil where there is a small element that goes to local subsidiaries outside the silos.

Sandro Patti

Okay. And then the one -- okay. Thank you again. And then one last thing there’s more like a consideration than a question, I mean the fact that you guys now look at the pile of that $4.1 billion and say successive, I get it given the market. I guess what the market is being surprised by is the fact that the company did for example if you just look at outflows $65 million in – last quarter 30 million plus in dividends plus the $120 million of loan to the parent dry ships that never came back. I mean if you add all of that up over time, we’re talking about hundreds of millions of dollars that of course would help the conversation, but this is just a consideration. Thank you for your time.

Anthony Kandylidis

Thank you.

Operator

Thank you. And is your question finished Mr. Patti?

Sandro Patti

Yes. Thank you.

Operator

You’re welcome. Thank you very much sir. And as there are no further questions, I shall pass the floor back to you both for closing remarks. Thank you gentlemen.

Anthony Kandylidis

Well thanks everyone for participating in our second quarter conference call and we look forward to speaking to you again on our third quarter conference call.

Operator

Thank you very much indeed, many thanks to our speakers today. That does conclude our conference today. Thank you all for participating. You may now disconnect.

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