Overview: DryShips’ Ocean Rig and operating strengths

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DryShips’ operating strengths

DryShips differs from its peers—Navios Maritime Holdings (NM), Navios Maritime Partners (NMM), Safe Bulkers (SB), and Diana Shipping (DSX)—mainly due to its significant ownership in Ocean Rig UDW (ORIG). This adds a significant strength to the company’s revenue and profits.

Following the completion of the Ocean Rig UDW private placement, DryShips currently owns 59.4% of Ocean Rig UDW’s market value, which was worth ~$1.49 billion on June 26, 2014.

Ocean Rig, a registered international offshore drilling contractor, provides oilfield services for offshore oil and gas exploration, development, and production drilling. It has a specialization in the ultra-deepwater and harsh-environment segment of the offshore drilling industry.

Trading at a market cap of $2.52 billion, the company records a dividend yield of 3.97%.

Fleet profile

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Through its majority owned subsidiary, Ocean Rig UDW Inc., DryShips owns and operates 13 offshore ultra-deepwater drilling units, comprising of two ultra-deepwater semisubmersible drilling rigs and 11 ultra-deepwater drillships. Four of the vessels are scheduled to be delivered to Ocean Rig UDW Inc. during 2015, 2016, and 2017.

As of Dec 31, 2013, Ocean Rig UDW comprised of DRYS entire offshore drilling segment, which represents approximately 76% of total assets and 79% of total revenues.

Valuations

On the offshore side, Ocean Rig continues to execute on its business plan. With a modern fleet, strong balance sheet, and solid contract backlog of $5 billion, Ocean Rig is undervalued with the stock trading at a significant discount to its peers. The company records a forward enterprise value (or EV) to earnings before interest, taxes, depreciation, and amortization (or EBITDA) of 7.18 as compared to 6.44 recorded by Atwood Oceanics Inc. (ATW) and industry average of 6.72.

Some of the value unlocking initiatives to the company are $25 million quarterly dividend declared for 1Q14, payable on May 30, 2014 (~$14.8 million to DRYS) and DRYS targeting a continuing master limited partnership (or MLP) initial public offering (or IPO) process before the end of the year.

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