You know those dreams where you try to scream, but no sound comes out? That's how I feel when I watch investors climb aboard this vessel in distress. 

Enormous waves from the financial tsunami continue to churn up the ocean of risk for companies with substantial debt, which led me to announce a gaping hole in the side of DryShips (NASDAQ:DRYS) in early February. Shares have moved sideways since, although with gut-wrenching volatility. 

DryShips released earnings this week, permitting a timely reality check for the battered shipper. The company lost a cool $1 billion in the fourth quarter, after a $700 million goodwill impairment from the Ocean Rig acquisition. Even after backing out a barrage of special items, the $0.43 per share in adjusted earnings missed analysts' estimates by $0.23.

Although the company acquired waivers for some of the covenants it had recently breached, others remain pending, which forced the reclassification of $1.8 billion from long-term to short-term debt. Meanwhile, massive share dilution continues to absorb buyer interest, as the company completes a $500 million share offering and doles out 6.5 million shares in lieu of cancelled ship orders.

Now, for the surprising counterargument
With all of those warnings and caveats in place, we are now free to discuss the flipside: DryShips could potentially survive these debt burdens and reward intrepid investors with substantial long-term gains. Such a scenario sits well outside of my personal comfort zone of risk to reward, but I understand that Fools eager to recapture capital might be game for a high-risk speculative play. If DryShips were to gain waivers for the $1.8 billion in short-term debt, this company's story could shift rather abruptly.

Key to this counterposition are the remaining charter contracts secured during the pre-collapse era of drybulk rates, and the recent three-year contract signed with Petrobras (NYSE:PBR) for one of its semi-submersible drilling rigs. The $630 million contract yields an estimated dayrate of $575,000 for the rig, which compares favorably to the record rate booked by Transocean (NYSE:RIG) last summer.

While DryShips could potentially survive to thrive, I continue to prefer the relative safety of less-impaired drybulk shippers such as Diana Shipping (NYSE:DSX) and Navios Maritime Holdings (NYSE:NM). Investors seeking exposure to offshore drilling, furthermore, might be better served by pure-play specialists like Transocean or Atwood Oceanics (NYSE:ATW). If you must climb aboard DryShips, please be aware of the risks.

Further Foolishness:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.