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Athens, Greece-DryShips Inc. (NASDAQ: DRYS), an international shipper of dry bulk and petroleum cargos, and through its deepwater drilling subsidiary, Ocean Rig UDW Inc., today issued their financial and operating results for the third quarter ending September 30, 2012.
Dryships reported a $51.3 million net loss for the quarter , or 13 cents per share, compared with a profit of $25.0 million, or 7 cents per share, a year earlier. Ocean Rig also posted a net loss of $12.2 million for the quarter compared to a net income of $49.1 million in the same period last year.
George Economou, Chairman and CEO of Dryships, commented on the company’s results:
“The shipping market continues to be severely depressed. Both tanker and drybulk spot charter rates have been at historic low levels – well below cash breakeven rate – for some time. Unfortunately this is coming at a time when our lucrative legacy charters continue to expire on a staggered basis. We have contract coverage of 33% and 22% of the calendar days for 2013 and 2014, respectively.
The deteriorating economic situation in Europe, together with BASEL III capital requirements, have led to a number of shipping banks with large portfolios to exit the sector. High profile restructurings and payment defaults have started to take their toll on the few remaining lenders. This comes at a time when we have significant capital expenditures to finance our drybulk and tanker newbuilding programs. The lack of liquidity is further exacerbated by falling assets values, which continued to decline during the quarter.
The optimization of our drybulk and tanker newbuilding programs is our top priority right now and we are in discussions with the shipyards in this respect to reduce and prolong our CAPEX program. We are in a challenging environment so these negotiations will be difficult and drawn out but we believe a win-win solution could be found.
Our shareholding in Ocean Rig UDW Inc. provides some flexibility in addressing the capital needs of our shipping segment. For example, we have recently pledged (and will continue to pledge) some of our Ocean Rig shares to our banks to remedy covenant breaches. We continue to be bullish about the prospects for Ocean Rig. The backlog currently stands at $4.5 billion over three years and provides Ocean Rig with substantial cash flow visibility and growth. Given strong industry fundamentals and the fact that there are very few ultra-deepwater units available in 2013, we expect to further increase our already substantial backlog by entering into long-term contracts for our two remaining units available in 2013. We continue to build on the Ocean Rig story and have positioned the company to build further on this strong platform to become the preferred contractor in the ultra-deepwater sector.”
Economou on Ocean Rig:
“Adjusted for one-time factors, Ocean Rig reported solid results for the quarter, with our drilling units operating at acceptable levels of efficiency. The scheduled drydock of the Eirik Raude, which is scheduled to be completed in the fourth quarter of 2012, combined with costs mainly associated with two of our units preparing to work in Angola resulted in higher operating expenses. Following the completion of certain upgrades to the Leiv Eiriksson early next year, we look forward to having all six of our drilling units operating efficiently in their respective locations throughout the remainder of 2013. In addition, in 2014 we will enjoy the additional revenue contribution from our three newbuilding drillships scheduled to be delivered in 2013.
We have recently been awarded two three-year drilling contracts for the Ocean Rig Poseidon and the Ocean Rig Athena and still have one letter of intent for a drilling contract for the Eirik Raude. Assuming this contract materializes, our total backlog will reach approximately $4.5 billion over three years and will provide Ocean Rig with substantial cash flow visibility and growth.
During the quarter, our wholly-owned subsidiary, Drill Rigs Holdings, issued $800.0 million in senior secured notes to refinance indebtedness maturing in the second half of next year. We also continued to work with our banks and commenced the syndication process for a $1.35 billion credit facility to fund the installments and other expenses due on delivery of our three 2013 newbuildings. The syndication is progressing smoothly and we expect to finalize it early next year. We also placed an order with Samsung for an additional newbuilding to be delivered in the first quarter of 2015.
We believe the outlook for the ultra-deepwater drilling industry is very positive given the high level of demand we are continuing to witness for our units from all over the world. Oil company capital expenditures for 2012 and 2013 are projected to grow at a double-digit rate with most of this directed at exploration and production. An increasing number of large discoveries have also been announced in deepwater and ultra-deepwater in several new oil and gas provinces, which we believe will provide long-term demand for drilling units into the foreseeable future.
Given strong industry fundamentals and the fact that there are very few ultra-deepwater units available in 2013, we expect to further increase our already substantial backlog by entering into contracts for our two remaining units available in 2013. We continue to build on the Ocean Rig story and have positioned the company to build further on this strong platform to become the preferred contractor in the ultra deepwater sector.
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