DryShips Inc.’s (DRYS) fully-owned subsidiary Ocean Rig UDW received a $135 million long-term contract from a U.S.based oil company to explore energy off the coast of West Africa for 300 days. This is DryShips first contract for one of its four new rigs, after moving into the deepwater drilling business in 2008, which has been facing financial concerns ever since. The contract involves drilling four wells off the coast of West Africa and is expected to commence in the first or second quarter of 2011. 
 
DryShips has been facing severe problems to find charter contracts for at least two out of the four new drillships, which are scheduled to be delivered by the next year. The company desperately needs new agreements to hire out those vessels, failing which DryShips may not be able to get the remaining $1 billion of financing to pay for the newbuildings. We believe this contract would enable DryShips to get loan to cover more than $1 billion it still owes a South Korean shipyard for two drilling vessels has been placed on order there.
 
Yesterday, DryShips shares on NASDAQ increased more than 8.5% to $4.85 based on the contract news.
 
DryShips acquired Ocean Rig in July 2009. Ocean Rig’s asset and contract portfolio diversified DryShips’ assets and sources of cash flow. Furthermore, Ocean Rig’s operational expertise provided DryShips with the necessary platform to compete in the ultra deep water (UDW) drilling sector. So far, the company drilled 79 deep and ultra deepwater wells in 11 locations for 16 customers.
 
DryShip continues to face stiff competition from Eagle Bulk Shipping Inc. (EGLE), Excel Maritime Carriers Ltd. (EXM) and Genco Shipping & Trading Ltd. (GNK).
 
We maintain our long-term Neutral recommendation on DryShips. It is currently a short-term Zacks #3 Rank (Hold) stock.
 
DRYSHIPS INC (DRYS): Free Stock Analysis Report
 
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