DryShips Inc. Reports Financial and Operating Results for the First Quarter 2011
May 12, 2011, Athens, Greece. DryShips Inc. (NASDAQ: DRYS), or the Company, a
global provider of marine transportation services for drybulk and petroleum cargoes, and
through its majority owned subsidiary, Ocean Rig UDW Inc., of off-shore contract
drilling oil services, today announced its unaudited financial and operating results for the
first quarter ended March 31, 2011.
Drilling Segment Employment Update
• On May 5, 2011, the Company signed a new drilling contract for the Leiv Eiriksson with Borders & Southern Petroleum plc for performance of exploration drilling offshore the Falkland Islands. This contract replaces the previous contract with Borders & Southern plc for the Eirik Raude. The Leiv Eiriksson will perform the scheduled drilling program in direct continuation after completion of the drilling campaign for Cairn Energy offshore Greenland. The contract is for drilling two wells for a period of about 90 days, including three further optional wells. The contract value is approximately $80 million.
George Economou, Chairman and Chief Executive Officer of the Company commented: “We are delighted to have secured two long-term drilling contracts from the biggest player in the ultra deepwater drilling market, which is a testament to Ocean Rig’s operational track record and the quality of our assets. Following these contracts we now have three of our drillships on contract to Petrobras. These two contracts are the culmination of our efforts since we entered the drilling segment three years ago. We have now secured contracts for all of our initial newbuilding drillships and doubled our backlog to over $2 billion. Ocean Rig has delivered on all its promises during the last few months by:
- Solidifying its balance sheet through the $500 million private placement in December 2010.
- Completing the financing of four of its newbuilding drillships through the $800 million Nordea facility, the restructuring of the $1.1 billion Deutsche Bank facility and the placement of $500 million of 9.5% senior unsecured notes. - Increasing the backlog to over $2 billion.
Ocean Rig has entered into the next phase of its development and is in a unique position to capitalize on the positive ultra deepwater market fundamentals. By exercising two of our four options to build additional 7th generation drillships, Ocean Rig is now the largest pure player in the ultra deepwater sector with the most sophisticated assets available for charter at a time when oil companies are increasing their E&P spending. For DryShips the diversification in the drilling space is paying off at a particularly opportune time given the challenging drybulk and tanker markets. During the next few months we plan to take active steps to monetize DryShips’ most prized asset, its shares of Ocean Rig common stock, through a public listing in the U.S.
Turning to the shipping side, we are well prepared to weather the current storm. We have a good backlog on the drybulk fleet with long-term time charters. This backlog enables us not only to comfortably service our debt but also allows opportunistic acquisitions. On the tanker side we continue to take delivery of our state of the art tankers and secure the appropriate level of debt along the way. While the bulk shipping markets remain challenging we are encouraged by the high scrapping activity, the slippage in delivery and the strong demand fundamentals of drybulk commodities and oil markets.”
Selected Recent Developments
• On April 29, 2011, the Company took delivery of its newbuilding Aframax tanker, Daytona.
• On April 27, 2011, the Company exercised the second of its four 7th generation newbuilding drillship options and entered into a shipbuilding contract for a total yard cost of $608.0 million. The Company paid $207.4 million to the shipyard in connection with the exercise of the option. Delivery of this hull is scheduled for October 2013.
• On April 27, 2011, the Company completed the issuance of $500 million aggregate principal amount of 9.5% senior unsecured notes due 2016 offered in a private placement. The net proceeds from the notes offering amounted to approximately $487.5 million.
• On April 27, 2011, the Company entered into an agreement with all lenders under the two $562.5 million Loan Agreements to restructure the agreements. The principal terms of the restructuring are as follows: (i) the maximum amount permitted to be drawn is reduced from $562.5 million to $495.0 million under each facility; (ii) in addition to the guarantee already provided by DryShips, Ocean Rig UDW provided an unlimited recourse guarantee that will include certain financial covenants that will apply quarterly to Ocean Rig UDW; (iii) the Company is permitted to draw under the facility with respect to the Ocean Rig Poseidon based upon the employment of the drillship under its drilling contract with Petrobras Tanzania, and on April 27, 2010, the cash collateral deposited for this vessel was released; and (iv) the Company is permitted to draw under the facility with respect to the Ocean Rig Mykonos provided the Company has obtained suitable employment for such drillship no later than August 2011.
• On April 20, 2011 the Company entered into a $32.3 million secured term loan facility with an international lender to partially finance the construction cost of the newbuilding tanker Daytona.
• On April 18, 2011, the Company entered into an $800 million Syndicated Secured Term Loan Facility to partially finance the construction costs of the Ocean Rig Corcovado and the Ocean Rig Olympia. This facility has a five year term and is repayable in 20 quarterly installments plus a balloon payment payable with the last installment. The facility bears interest at LIBOR plus a margin. The facility is guaranteed by DryShips and Ocean Rig UDW and imposes certain financial covenants on both entities. On April 20, 2011, the Company drew down the full amount of this facility and prepaid its $325 million Bridge Loan Facility.
• On April 18, 2011, the Company exercised the first of its four 7th generation newbuilding drillship options and entered into a shipbuilding contract for a total yard cost of $608 million. The Company paid $207.6 million to the shipyard in connection with the exercise of the option. Delivery of this hull is scheduled for July 2013.
• On April 12, 2011 the Company concluded an order for two 176,000 dwt Capesize dry bulk vessels for an aggregate contract price of $108.4 million, with an established Chinese shipyard. The vessels are expected to be delivered in the third and the fourth quarter of 2012, respectively.
• On March 30, 2011, the Company took delivery of its second newbuilding drillship Ocean Rig Olympia.
• On March 23, 2011, the Company took delivery of its newbuilding Suezmax tanker, Vilamoura.
• On March 16, 2011, the Company’s vessel, Oliva, was reported to have run aground in a group of islands in the South Atlantic Ocean. The vessel was declared a total actual loss. As of the date of this press release, we have collected substantially all of the insurance proceeds.
First quarter 2011 Financial Highlights
• For the first quarter of 2011, the Company reported net income of $25.8 million, or $0.07 basic and diluted earnings per share. Included in the first quarter 2011 results are various items, totaling $30.3 million, or $0.08 per share which are described below. Excluding these items, net income would have amounted to $56.1 million or $0.15 basic and diluted earnings per share.
Included in the first quarter 2011 results are:
o Incremental costs associated with class survey of Leiv Eiriksson in the first quarter 2011 of $8.9 million, or $0.02 per share. Next survey is scheduled for 2016.
o Losses incurred on our interest rate swaps, amounting to $3.9 million, or $0.01 per share.
o Non-cash amortization of debt issuance costs, including those relating to our convertible senior notes, totaling $17.5 million, or $0.05 per share.
• Basic earnings per share for the first quarter of 2011 includes a reduction to net income amounting to $2.5 million relating to the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, which reduces the income available to common shareholders.
• The Company reported adjusted EBITDA of $107.1 million for the first quarter of 2011.1
Financial Review: 2011 First quarter
The Company recorded net income of $25.8 million, or $0.07 basic diluted earnings per share, for the three-month period ended March 31, 2011, as compared to a net income of $13.3 million, or $0.04 basic and diluted earnings per share, for the three-month period ended March 31, 2010. Adjusted EBITDA, which is defined and reconciled to net income later in this press release, was $107.1 million for the first quarter of 2011 as compared to $116.5 million for the same period in 2010.
Included in the first quarter 2011 results are various items totaling $30.3 million, or $0.08 per share, which are described at the beginning of this press release. Excluding these items, our adjusted net income would have amounted to $56.1 million, or $0.15 per share.
Basic earnings per share for the first quarter of 2011 includes a reduction to net income amounting to $2.5 million relating to the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, which reduces the income available to common shareholders.
For the drybulk and tanker carrier segment, net voyage revenues (voyage revenues minus voyage expenses) decreased by $15.3 million to $91.6 million for the three-month period ended March 31, 2011, as compared to $106.9 million for the three-month period ended March 31, 2010. For the offshore drilling segment, revenues from drilling contracts increased by $29.0 million to $109.3 million for the three-month period ended March 31, 2011 as compared to $80.3 million for the same period in 2010.
Total vessel and rig operating expenses increased by $14.5 million to $62.9 million for the three-month period ended March 31, 2011, as compared to $48.4 million for the three-month period ended March 31, 2010, while total depreciation and amortization increased by $8.7 million to $55.9 million for the three-month period ended March 31, 2011 as compared to $47.2 million for the three-month period ended March 31, 2010. Total general and administrative expenses decreased to $25.7 million in the first quarter of 2011 from $27.2 million during the comparative period in 2010.
About DryShips Inc. DryShips Inc., based in Greece, is an owner of drybulk carriers and tankers that operate worldwide. Through its majority owned subsidiary, Ocean Rig UDW, Inc., DryShips owns and operates 8 offshore ultra deepwater drilling units, comprising of 2 ultra deepwater semisubmersible drilling rigs and 6 ultra deepwater drillships, 4 of which remain be delivered to the company during 2011 and 2013. As of the day of this release, DryShips owns a fleet of 39 drybulk carriers (including newbuildings), comprising 9 Capesize, 28 Panamax and 2 Supramax, with a combined deadweight tonnage of over 3.4 million tons, and 12 tankers (including newbuildings), comprising 6 Suezmax and 6 Aframax, with a combined deadweight tonnage of over 1.6 million tons.
DryShips Inc.’s common stock is listed on the NASDAQ Global Select Market where it trades under the symbol "DRYS".
DryShips Inc. press release