(DryShips story updated to provide further commentary from the company's COO)

NEW YORK ( TheStreet) -- DryShips ( DRYS) hopes to move a step closer to selling off a chunk of its offshore energy exploration business in an IPO "within the next two quarters," the company's operating chief, Pankaj Khanna, said Thursday.

In an interview with TheStreet during a shipping-industry investor conference here, Khanna said DryShips expects to win long-term charter contracts on "at least two" of the four so-called ultra-deepwater drillships currently being built for the company at a shipyard in South Korea.

DryShips already has two offshore drilling vessels in operation, one in the Black Sea and the other off the coast of Ghana, in West Africa.
DryShips' Leiv Eiriksson, a deepwater oil-drilling vessel

Investors have been hotly anticipating the announcement of a charter deal from DryShips for some time.

That's because the charters are crucial to a drillships IPO. Only by hiring out two of the oil exploration vessels -- capable of operating at depths of up to 10,000 feet below the surface -- can DryShips guarantee the kind of cash flow necessary to create an independent company and float shares to the public.

"The time table for a public offering is still based on getting two charters," Khanna said. "That's the minimum requirement for doing an IPO."

DryShips also still owes the shipyard -- Samsung Heavy Industries -- about $900 million for two of the four drillships now being built.

Khanna said DryShips has made bids with six or seven oil exploration charterers in its effort to score the fixtures. "We've participated in every tender that's been out there," Khanna said. ("Tender" refers to the bidding processes run by energy giants such as Petrobras ( PZE) or Exxon Mobil ( XOM) for the services of these types of drilling rigs.)

One bid in particular appears to be close. "There's a contract we've been working on for the last month or so," Khanna said, hopefully. "But I can't say anything more than that right now."

Even if those outstanding bids don't result in charter contracts for its drillships, Khanna said, the company will still be able to make due on the $900 million funding gap, with $500 million coming from bank financing and the rest from DryShips' cash reserves, which stood at $1 billion as of Dec. 31.

DryShips has been planning an IPO of its drillships business since 2008. It aims to sell about 20% of the venture's equity to the public in the first step of an eventual spin off.

Last fall, the company had anticipated signing at least one contract before the end of 2009. Khanna, who admitted to perhaps being a bit too optimistic with his expectations, blamed the delay on exploration companies not wanting to take extra liabilities onto their balance sheets at the end of last year. "We were hearing that people were ready to move," he said. "But they just took longer."

In 2010, however, energy concerns have "much larger" budgets for oil and gas exploration and production, Khanna said. "It's much easier for them now to take on those liabilities." As a result, he said, "A number of these companies are actively looking right now."

The subject of the company's drillship operation has become such a hot topic among investors that it has overwhelmed nearly all other concerns about DryShips, which has in the past run into trouble with its creditors and shown a propensity to dilute shareholders with huge at-the-market equity offerings.

The company's chief executive and founder, George Economou, has also come in for criticism in the past for a lack of transparency in some of his business dealings.

But, these days, it's all about the drillships business, which Khanna said could eventually have an enterprise value of more than $5 billion and add another $8 to $12 to DryShips' stock price. That, however, is a best-case scenario since it assumes perfect execution on the part of the company in obtaining charter contracts and floating shares of the drillships business in a timely manner, Khanna added. If the company were to break-up and liquidate the drillships business today, he said, it would be worth up to $7 a share.

"Whichever way you look at it today, DryShips is a very cheap buy," Khanna said of the company's stock price, which ended trading Thursday at $5.66, down 16 cents, or 2.8%, on lighter-than-average volume. "You're buying a free option on my drillships."

Khanna sat down with TheStreet at a conference put together by a shipping-industry investor-relations and PR firm called Capital Link at the Metropolitan Club in Midtown Manhattan. (Capital Link serves as DryShips' IR and PR firm.) Also in attendance were top executives for Paragon Shipping ( PRGN), Navios Maritime Holdings ( NMM), Safe Bulkers ( SB) and Star Bulk Carriers ( SBLK), among others.

On Friday, Khanna and about 20 others will ring the opening bell at the Nasdaq stock market to celebrate DryShips' fifth anniversary as a public entity. Economou, however, won't be there. He had another commitment, Khanna said.

DryShips fans may note that the company's IPO was in February 2005, not March. Nasdaq opening bell ceremonies are evidently tough tickets. "The only slot we could get was the 26th of March," Khanna said.

-- Reported by Scott Eden in New York

Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.

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