DryShips' Drill Rigs: Best in a Class of One?

Updated to include comments from DryShips' Chief Operating Officer, Pankaj Khanna

NEW YORK (TheStreet) -- It remains one of the riskier stocks around. Breaches in loan covenants that have required waiver after waiver. A rather non-transparent management structure led by a cult-figure CEO. A volatile core business.

What's not to love?

Given the many risks and potential pitfalls to investing in its stock, it's arguably difficult to describe DryShips(DRYS), the Athens-based shipping company, as the best in its class. Better to reserve that distinction for its more conservative, and transparent, peers.

Still, under the leadership of its love-him/hate-him chief executive, George Economou, the company has made a bold bid to diversify itself away from the erratic, cyclical, increasingly China-dependent dry-bulk trade. So much so that we have chosen to give DryShips a new distinction: best in a class of one.

The strategy is not new. It began in 2007, when DryShips purchased a 30% stake for $405 million in a Norwegian company called Ocean Rig. Ocean Rig operated two highly specialized vessels, outfitted with drilling tackle and designed to explore for crude and natural gas wells in extremely deep waters. (DryShips has since bought the rest of Ocean Rig, paying about $1.4 billion more and using about $800 million in short-term bridge financing to fund the investment.)

At the time, critics asked what, other than being waterborne, this new line of business had to do with dry bulk. Some investors wondered why Economou would spoil one of the major things DryShips then had going for it, in their minds: offering a large, relatively liquid pure-play dry-bulk stock in which to put money to work. Now there was this new, highly complicated side-operation to attempt to value and understand. One hedge fund, run by Steven Abernathy, dumped its DryShips stake after learning of the move.