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DryShips Goes All-In on Drilling

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DryShips (Nasdaq: DRYS  ) is starting to look more like a drilling company than a shipping company these days. Four ultra-deepwater drillships are currently under construction, and the company recently announced that it has secured the option to build four more sister ships.

As drybulk businesses continue to struggle thanks to low shipping rates, so do stocks such as DryShips and Diana Shipping (NYSE: DSX  ) , which have languished since the 2008 global economic crisis. But the ultra-deepwater drilling business has held up relatively well and is quickly becoming the star of DryShips' fleet.

However, this deal doesn't come without risks. DryShips paid $24.8 million for the option on each ship, so $100 million goes down the tubes if the market takes a turn for the worst and the ships aren't built. And it isn't as if demand for the ships being built is knocking anyone's socks off.

The company has only one of the four drillships currently being constructed under contract. The first ship, set for delivery in January, is still without a firm contract. (It appears the one contract signed will be for the second ship.)

Then there's the issue of competition in the ultra-deepwater market. Fifteen new drilling units are expected to come available in 2011, and DryShips needs to find work for three of them.

On the surface, I like the move into ultra-deepwater drilling, as it provides a better revenue stream for DryShips, but this seems like an awfully big move. DryShips doesn't have the experience or resources of a Transocean (NYSE: RIG  ) in the drilling game, so the competition will be steep.

Time will tell whether the move into drilling will pay off. DryShips has one year to show progress in its Ocean Rig business before committing to the build, and there is a lot of work to do before all the ships have contracts.

Interested in reading more about DryShips? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Drilling deeper:

Fool contributor Travis Hoium has  no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Fool owns shares of Transocean. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (5)

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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 November 25, 2010, at 6:37 AM, dimika50 wrote:

    You are clueless. Stop trying to manipulate this stock. Leave it alone and mind your 1 million of your company's assets that you invested just before the 2008 boom.

  • Report this Comment On November 26, 2010, at 11:40 AM, GeorgeDIos wrote:

    Please stop manipulating stocks. You own DRYS' competitor stocks. So you want to crush DRYS so as to derive up your stock's price. If you continue, we'll have to report you to the SEC and law enforcement. How many defamation article you fool have written in just past week agsainst DRYS ?

    Fools have lost people's confidence. 15 years ago, you haave real research and fair practice. Now all you do is to manipulation of sstocks. You need to change.

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Related Tickers

10/26/2016 3:59 PM
DRYS $0.37 Down -0.02 -4.28%
DryShips CAPS Rating: **
DSX $2.50 Down -0.01 -0.40%
Diana Shipping CAPS Rating: ****
RIG $10.32 Up +0.29 +2.89%
Transocean CAPS Rating: ****