DryShips' Growth Prospects Aren't All That Dry
A snapshot of the numbers
The Greek company reported mixed fourth-quarter results, which saw revenue from its drilling segment grow a whopping 132% while its voyage (drybulk and tanker) segment figures slid 20% year on year. Eventually, the bottom line was marred because of net impairment losses of $27 million. DryShips ended the fourth quarter incurring a net loss of $6.2 million, in contrast to a net income of $124 million a year ago.
Drybulk segment: A bleak outlook
As forecasted by analysts, the dry bulk segment was hit pretty badly with revenue falling 23%. The company had to sell three vessels, which resulted in impairment losses totaling $32.6 million. Rating agency, Moody's had correctly predicted that the drybulk segment would be among the hardest hit in 2011 due to "a continuing oversupply of ships." Which means that there's a long list of pending orders for new ships to be delivered without any real increase in demand. Total pending orders are almost half the entire tonnage on water, out of which an overwhelming 80% of the ships are to be delivered by 2012. Looking at these forecasts, it's fair to assume that the demand-supply mismatch will not be resolved anytime soon.
Additionally, DryShips is awaiting the delivery of at least 12 new ships by 2014. It seems that the dry spell, as far as revenue is concerned, from its fleet is most likely to continue for the next couple of years. In the drybulk segment, the company has only 56% of the total operating days of 2012 remaining under fixed rate charters. There's uncertainty for the rest of the days, which might mean that the containers could simply end up idling in ports.
Deepwater drilling: As exciting as it can get
Management, however, got its call on deepwater drilling right. With just nine rigs in its fleet, Ocean Rig's backlog orders are worth a massive $2.3 billion. Brazil's exciting ultra deep prospects saw the country's state run exploration & production giant Petrobras (NYS: PBR) award 15-year drilling contracts to drilling companies. Among them is Ocean Rig, which will be playing a vital role, with five of its ultra-deep units booked at an average day rate of $548,000.
Another drilling project, this time in the Norwegian Continental Shelf -- with a revenue backlog of $653 million -- should commence by the fourth quarter of this year. All in all, the company's drilling projects are geographically well diversified among the most lucrative prospects -- from the North Sea to the West African Coast to offshore Brazil. Ocean Rig's strategy to modernize its fleet is paying off. The 6th and 7th generation rigs -- procured since 2011 -- have made the biggest difference. The company could hold its own in the extremely competitive deepwater drilling market. Ocean Rig has already extended its contract with Korean shipbuilder Samsung to construct three additional 7th generation drillships. These prospects look absolutely mouthwatering.
Foolish bottom line
DryShips will remain afloat and will probably race ahead thanks to its majority stake in Ocean Rig. Companies in this industry take years to mature, and DryShips seems to be on the right path. Again, there are a lot of concerns, such as the volatile situation in Greece, that might pull this company down. However, after digging deep into the company's business, I don't see anything on the immediate horizon that would seriously affect its growth.
We at The Motley Fool will help you stay up to speed on the top news and analysis on DryShips. You can start subscribing now by adding the company to your free watchlist.
At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Petroleo Brasileiro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.