DryShips’ contract win eases funding concerns, shares up

Greek drybulk shipper and deepwater driller DryShips Inc received its first contract for one of its four new rigs, easing financing concerns that have been plaguing the company for nearly two years.
DryShips, which started out as a dry bulk shipper before foraying into the deepwater drilling business in 2008, have struggled to get contracts for its rigs in spite of funnelling money into the offshore segment.
Shares of the company, which have shed about one-third of their value in the last six months, rose 9% Tuesday morning on Nasdaq to touch $4.85 — their highest in seven weeks.
"It proves the sceptics wrong … there have been a lot of concern in the industry that the company would be not be able to get contracts, especially following the Macondo spill in the Gulf of Mexico," Scott Burk of Oppenheimer & Co said.
The contract, valued at $135 mln and subject to final documentation, was awarded to DryShip's offshore unit Ocean Rig UDW Inc.
It involves drilling four wells off the coast of West Africa and is expected to commence in the first or second quarter of 2011, lasting about 300 days.
DryShips did not name the company which awarded the contract.
"It is not exactly the contract we were looking for. We were looking for longer contracts. But nevertheless it is a positive," said Cantor Fitzgerald analyst Natasha Boyden, who rates the stock "buy".
Tuesday's deal will employ one of the four ultradeepwater drillships the company is slated to take delivery next year. Analysts said daily rate of about $450,000 was pretty good for the company as it was in line with contract rates earlier this summer.
DryShips, which currently has two functional rigs, had struggled to win contracts for the four rigs under construction, hampering its bid to get financing for the same.
"The award of the contract noted today, though not particularly long in duration, should help alleviate the debt portion of this funding gap," Lazard Capital Markets said in a note. The company has long-term debt of about $1.1 bln.
Chief Executive George Economou said Tuesday's development would serve as a catalyst toward securing bank financing on preferred terms.
The contract is also expected to pave the way for contracts for the rest of the company's three new rigs.
In July, the company's drilling unit chief David Mullen had resigned, inviting skepticism on the company's ability to compete for contract tenders.