Here Comes Sweet-Talking DryShips Again

Some people are so charismatic that it doesn't matter what they're selling.

DryShips (Nasdaq: DRYS  ) Chairman and CEO George Economou has yet to encounter a quarter he couldn't reshape into a message of confidence in the outlook for his company.

Do you have concerns about the impact of BP's disaster in the Gulf of Mexico upon the market for deepwater drillships? Once Curious George gets through with you, you may be whistling his dixie about how the spill is actually a positive development for the drillships industry.

Economou at least concedes that drillships exiting the gulf will lead to greater competition for contracts in the near-term. With four very expensive, uncontracted drillships under construction -- to be delivered this year and next -- that near-term environment matters most when assessing the suitability of this company as a speculative investment.

After managing to lose $63.8 million (or 28% of total revenue for the quarter) on financial derivatives known as interest rate swaps, DryShips rewarded shareholders for their undue loyalty with net earnings of $0.02 per heavily diluted share. That's a 92% drop in earnings from the comparable 2009 quarter (which already marked a 97% decline from the 2008 period!).

Looking to the drybulk side of the operation, DryShips saw voyage revenue improve 9% year over year. Given the prevailing weakness in charter rates, it's clear the company's transition to a focus on long-term contracts has shielded operations from some of this volatility. The timing of contract renewals within a large fleet, however, means that contracts are forged in good times and bad.

Accordingly, DryShips' fleet is employed at widely disparate dayrates. For example, a couple of Panamax vessels bring in more than $55,000 per day on the high end, while three vessels are contracted at less than $15,000 per day. Long-term contracting smoothes out the bumps, but it does not provide absolute protection. Economou would have investors believe that "DryShips is insulated from this seasonality" because all contracts are now fixed through the rest of this year, but the vast range of dayrates employed underscores just how relative such insulation truly is in the big picture.

In other news, DryShips recently appointed a new interim CEO for the Ocean Rig drillship subsidiary following the departure of former Transocean (NYSE: RIG  ) and Schlumberger (NYSE: SLB  ) executive David Mullen after only a two-year tenure. Who's the appointee? You guessed it: George Economou.

It never ceases to amaze me how adamant and loyal many DryShips speculators remain, despite the company's track record of abusing shareholder equity and embracing excessive risk. Conservative operators such as my top pick, Diana Shipping (NYSE: DSX  ) , or even counter-cyclical-growth-chaser Navios Maritime Holdings (NYSE: NM  ) , may not offer the same adrenaline rush, but this is simply not an environment where selecting adrenaline over safety makes a whole lot of sense.

I have not had much luck to date with my short-term, highly speculative, and even tongue-in-cheek outperform pick for DryShips over at CAPS. Whether you consider the stock investment-grade or risky speculation, at CAPS we only wager ideas. Join the free community today and voice your opinion about DryShips' suitability for investment capital.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. Petroleo Brasileiro is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has an extremely buoyant disclosure policy.


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