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DryShips Inc. (DRYS - Analyst Report) is gradually converting itself into an ultra-deep water drilling company rather than continuing as a simple drybulk cargo operator. The acquisition of Ocean Rig UDW Inc. (ORIG - Snapshot Report) turned out to be a major positive. Though DryShips’ legacy drybulk shipping cargo division and newly formed oil tanker division continued their pathetic performances, the company’s majority owned deepwater oil drilling unit Ocean Rig continued to support DryShips’ overall financials.

Recently, Ocean Rig has won a new drilling contract in West Africa. The contract is for 84 days and has an estimated backlog of $67.5 million. This contract can be extended further for another well for an additional duration of about 40 days. The offshore drilling division continues to flourish buoyed by high oil prices, rising expenditures from oil companies and success in ultra deep water oil field discoveries. At the end of 2011, Ocean Rig has $2.3 billion of order backlog.

Ocean Rig’s asset and contract portfolio diversified DryShips’ assets and sources of cash flow. Furthermore, Ocean Rig’s operational expertise provided DryShips with the necessary platform to compete in the ultra-deep water drilling sector. In the previous quarter, total revenue of Ocean Rig was approximately $237.7 million, up by an enormous 132.3% year over year.  We believe the demand for deep water drilling services will boost in near future attributable to the discovery of several large deep water oil reservoirs. Ocean Rig has high quality drillship fleets, which will enable oil explorers to operate even under harsh environment.

On October 5, 2011, DryShips completed partial spin-off of the Ocean Rig division for the first time.  The company currently holds 73.9% share of Ocean Rig. Management announced that in the near future, the company may further reduce its stake to improve the parent company’s cash position.

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