International shipping company DryShips Inc. has increased the floatation size and pricing of it’s majority owned subsidiary Ocean Rig UDW Inc. (ORIG - Snapshot Report) that will further reduce its stake in the deepwater oil drilling unit. The sale proceeds from the issue of shares will be received by DryShips as the selling shareholder.
Although, in 2007, DryShips acquired a majority stake in Ocean Rig but in the recent years it has partially divested the division and currently holds a 65% stake in the company. The Norwegian shipping company has increased the offering of Ocean Rig common shares to 7,500,000, which will translate into a total issue proceed of about $126.4 million. The issue, which is expected to close on Feb 14, 2013 will cut DryShips’ stake in the unit to 59.4%.
The drybulk shipping industry is cyclical in nature with volatility in charter hire rates and profitability. Though DryShips’ legacy drybulk shipping cargo division and newly formed oil tanker division continue their pathetic performances, the oil rig business is delivering good results for the company.
The acquisition of 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.
The offshore drilling division continues to flourish buoyed by rising expenditures from oil companies and success in ultra deep water oil field discoveries. The deepwater oil drilling segment is currently witnessing shortages of rigs throughout the world, as the energy companies have raised the level of production.
At the end of the third quarter of 2012, Ocean Rig had approximately $4.5 billion of order backlog over the next three years. We believe the company is issuing the shares to purchase more high quality drillship fleets, which will boost DryShips’ top line going forward.
Other Stocks to Consider
Some other stocks in the shipping industry that are currently performing well are Frontline Ltd. (FRO - Snapshot Report) and StealthGas Inc. (GASS - Snapshot Report) . Frontline currently have a Zacks Rank #2 (Buy) while StealthGas carries a Zacks Rank # 3 (Hold).
Currently, DryShips carries a Zacks Rank #3 (Hold).