DryShips Jumps on DrillShips Deal

DryShips Jumps on DrillShips Deal

By Scott Eden

ATHENS (TheStreet) -- DryShips(DRYS_) finally got what it was waiting for: a long term contract for one of its energy-exploration vessels.

DryShips said in a press release that it has a "letter of agreement" from an unnamed U.S. oil company to explore for energy off the coast of West Africa for 300 days, which is atypical in length; most charters have a longer term.

The contract, DryShips said, is worth $135 million. That translates into a rate of $425,000 a day, not including the cost of moving the ship to West Africa, which is "in line with recent contract awards," wrote Omar Nokta, a shipping analyst at the investment house Dalhman Rose, in a note to clients Tuesday.

The charter would apparently help DryShips find a loan to cover the more than $1 billion it still owes a South Korean shipyard for two drilling vessels it has on order there.

Investors have been waiting for such an announcement since last year. Not surprisingly, DryShips shares were advancing sharply in Tuesday's trading, up more than 10% to $4.92 on huge volumes. Turnover reached 32 million shares, compared with a daily average of 9.5 million.

Uncertainty surrounding the company's drillships business has dogged DryShips stock for much of the last year. "The shares should now see an immediate lift and close the gap toward its 'real' equity value following this contract," Nokta wrote, though he added that the prospect of equity dilution from an at-the-market offering of stock by the company could still drag on the stock.

"At this point, it is still unclear how much of that offering has been/will be issued, as DryShips is now better positioned," he said.

Nokta maintained his hold rating on DryShips stock, but said that the contract news could mean that other charter deals are in the works, which would help lift the company's shares toward $7. That's where Nokta puts DryShips' net asset value, or NAV.

Word of the deal may have leaked on Monday, when DryShips stock leapt more than 8% on little news except an upgrade by a shipping analyst at Morgan Stanley(MS_)

-- Written by Scott Eden in New York