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DryShips Slowly Pulling Out of Drilling Business

Slowly but surely, DryShips (Nasdaq: DRYS  ) is getting out of the oil drilling game. The company is selling another 9 million shares of Ocean Rig with a potential 1.35 million shares going to the underwriter if there's an over-allotment. At $16 per share, that would put another $165.6 million worth of shares in the public markets.

The move has sunk shares of both companies this week, but it could be positive for the drilling arm over the long term. DryShips owned a 73.9% stake before the sale, and although this will only cut the stake by 8% at maximum, it's a start; the further away Ocean Rig can get, the better.

The company is the purest play on ultra-deepwater drilling, where Seadrill (NYSE: SDRL  ) , Transocean (NYSE: RIG  ) , and Noble (NYSE: NE  ) are focusing their attention. Just last week, the company signed a deal for its Ocean Rig Olympia that could be worth $652 million over the next three years. That's nearly $600,000 a day. Shallow water rigs don't bog down the company like some other drillers and the company's new builds haven't had any problems finding work.

The question is whether or not George Economou will continue to be CEO of DryShips and continue to cut its ownership stake. The man has a bad history of destroying shareholder value and profiting personally from deals with his companies. If Ocean Rig can get away it would be a good step.

For now, both stocks are sinking along with the market. But, as DryShips steps further away from Ocean Rig, the more I like the driller. Its market position is good and profits should only increase as more rigs are completed.

Interested in reading more about Ocean Rig? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium manages an account that owns shares of Seadrill. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of Seadrill. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (9) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 12, 2012, at 11:47 AM, petroglyph wrote:

    Run, don't walk, from any entity that George Economou controls. His record of self-dealing, at the expense of shareholders boggles the mind.

  • Report this Comment On April 12, 2012, at 12:04 PM, BudFox915 wrote:

    How do you know that "DryShips (Nasdaq: DRYS ) is getting out of the oil drilling game"?

    Is this a factual statement, or just a slanted assumption? Did the company announce they are "getting out of drilling game"? Did they rule out keeping any ownership in the entity as your article implied?

    Readers rely on facts, so clarification would be appreciated. Thank you.

  • Report this Comment On April 12, 2012, at 12:11 PM, ryangugino wrote:

    so frustrating... im down about 9k in drys. im not selling until the break even point.

  • Report this Comment On April 12, 2012, at 12:28 PM, DaveParikh wrote:

    This is the most STUPID headline I ever saw.

    A drop of stock ownership from 73,9% by just 8% means they are geting out of this business? By that logic (or lack of it), all original owners of Google, Microsoft, Apple, etc have gotton out of business since most of them have less than 10% of the company.

    I will keep the name "Travis Hoium" handy to never trust his opinion.

  • Report this Comment On April 12, 2012, at 1:57 PM, sammyhilliii wrote:

    I am hard pressed to find a positive headline from the Motley Fool about DRYS. Reuters, Marketwire and Seeking Alpha somehow manage to post both positive and negative information, but, if it's here, I don't see it.

    Have I missed something?

  • Report this Comment On April 12, 2012, at 3:25 PM, BudFox915 wrote:

    Why Yahoo would ever bother including anything written from Motley Fool (or The Street, or Seeking Alpha) in their "Headines" baffles me?? It drags down the quality of Yahoo and cheapens the brand.

    This arlicle is ANOTHER example of shoddy journalism.

  • Report this Comment On April 12, 2012, at 4:18 PM, Kingla wrote:

    The fool articles are generally poorly researched although the Economou comment rings true

    The same can't be said of seeking alpha. Some are really top notch and others a real joke.

    Hard to say if the DRYS strategy is to use the drilling biz to fund more ship acquisitions or if this is a needed liquidity event. Time will tell.

  • Report this Comment On April 12, 2012, at 5:23 PM, imacg5 wrote:

    DRYS needs the CASH.

    At December 31, 2011, the Company’s current liabilities exceeded its current assets by $171,182. In addition and as further discussed in Note 16 the Company’s expected short term capital commitments to fund the construction installments under the shipbuilding contracts in 2012 amount to $463,476. Cash expected to be generated from operations assuming that current market charter hire rates would prevail in 2012 may not be sufficient to cover the Company’s ongoing working capital requirements and capital commitments. The Company expects to finance its capital commitments with cash on hand, operational cash flow and debt or equity issuances.

  • Report this Comment On April 12, 2012, at 5:33 PM, imacg5 wrote:

    DRYS has 10 Panamax on Spot charter and one Cape on spot.

    Spot rates for Capes and Panas have average rates that are below break even this quarter. So their cash from operations is insufficient.

    The new ships on order are worth less than the price paid for them, which means the banks will reduce the amount of the loan , which means DRYS will need to provide more cash.

    Except for the four Ice-Class Panamax that were just ordered. Those have not fallen in value.

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