Shipping Stock on Watch: DryShips Inc. (NASDAQ: DRYS)
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    Top Nasdaq Stock – DryShips Gains 35% in November on Drilling Contracts and Strong Earnings

    DryShips Inc. (NASDAQ: DRYS) stock price is up 35% since the beginning of November sustained by the announcement of the second drilling contract awarded to DRYS in less than two months. Moreover, the spike in the company’s stock price was sustained by stronger than expected earnings for Q3 2010 and positive guidance issued by several key shipping players in the first half of November. The company ended the November 15 trading session at $5.49, compared to $4.07 on November 1.

    DryShips is an owner and operator of drybulk carriers and offshore oil deep water drilling units that operate worldwide. The company owns a fleet of 39 drybulk carriers (including newbuildings), comprising of 7 Capesize, 30 Panamaxand and 2 Supramax, with a combined deadweight tonnage of more than 3.5 million tons and 6 offshore oil deep water drilling units, comprising of 2 ultra deep water semisubmersible drilling rigs and 4 ultra deep water newbuilding drillships.

    The company started out as a drybulk shipper and entered the deepwater drilling business in 2008. The decision proved to be successful, given the oversupply of ships that deteriorated freight rates for drybulk shipping.  More interesting, the company generates about half of their revenue from 39 drybulk carriers, and the other half from 6 deep water offshore drilling rigs that it leases out.

    DryShips’ revenue for Q2 2010 increased 8% to $224.2 million. The company recorded net income of $8.7 million, or $0.02 basic and diluted earnings per share, for Q2 2010, as compared to a net income of $51.5 million, or $0.24 basic and diluted earnings per share, for Q2 2009. Adjusted EBITDA was $152.3 million for the second quarter of 2010 as compared to $74.2 million for the same period in 2009.

    In October, DryShips announced that its fully owned subsidiary Ocean Rig UDW Inc. has signed contracts with subsidiaries of Vanco Overseas Energy Limited for projects in which Vanco is operator and LUKOIL Overseas is majority co-venturer, for a five well contract for exploration drilling offshore Ghana and Cote d’Ivoire for a period of about one year with one drillship, commencing in the second quarter of 2011. The value of the contracts is approximately $160 million. DRYS has the option to use either OceanRig Corcovado or the OceanRig Olympia. The contract may be extended for an additional year or an additional well, prior to the completion of operations on the second well in the program.

    The above contract was followed by a second announcement in November that DryShips’ subsidiary Ocean Rig UDW Inc. has received a Letter of Intent for the Eirik Raude from a British exploration company. The Letter of Intent is for a two well contract for exploration drilling offshore the Falkland Islands for a period of about 90 days, commencing in the fourth quarter of 2011, immediately after the completion of the current contract. The contract value is approximately $77 million. There are three further optional wells that could extend the contract by 135 days.

    While the company is still burdened by a huge amount of debt closing to $3 billion, the exposure to the deepwater drilling operations positions DryShips better for a rapid recovery among its dry bulk shipping peers. The recovering demand for oil has already translated into a surge in deepwater drilling activities that are expected to push upward the drilling rates, resulting in stronger cash flows to DryShips.

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