DryShips Trades Higher on Drill Deal

Earlier this month DryShips announced it finally got a long term contract for one of its energy-exploration vessels.

DryShips said it received a "letter of agreement" from an unnamed U.S. oil company to explore for energy off the coast of West Africa for 300 days, which is atypical in length. Most charters have a longer term.

>>DryShips Jumps on DrillShips Deal

The contract, DryShips said, is worth $135 million. That translates into a rate of $425,000 a day, not including the cost of moving the ship to West Africa, which is "in line with recent contract awards," wrote Omar Nokta, a shipping analyst at the investment house Dalhman Rose, in a note to clients Tuesday.

The charter would apparently help DryShips find a loan to cover the more than $1 billion it still owes a South Korean shipyard for two drilling vessels it has on order there.

Investors have been waiting for such an announcement since last year.

Uncertainty surrounding the company's drillships business has dogged DryShips' stock for much of the last year. "The shares should now see an immediate lift and close the gap toward its 'real' equity value following this contract," Nokta wrote, though he added that the prospect of equity dilution from an at-the-market offering of stock by the company could still drag on the stock.

"At this point, it is still unclear how much of that offering has been/will be issued, as DryShips is now better positioned," he said.

Nokta maintained his hold rating on DryShips stock, but said that the contract news could mean that other charter deals are in the works, which would help lift the company's shares toward $7. That's where Nokta puts DryShips' net asset value, or NAV.

Word of the deal may have previously leaked out when DryShips stock leapt more than 8% on little news except an upgrade by a shipping analyst at Morgan Stanley (MS).

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