DRYS $59.98 DryShips and the Oil Rush
posted on: April 02, 2008 | about stocks: DRYS
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Yesterday's front page of the Wall Street Journal highlighted John Fredriksen, Norway's richest man, for his brilliance at entering deep water drilling. His company Seadrill Ltd three years ago ordered two "ultradeep water" rigs able to drill at a 7500 feet depth. Now Seadrill Ltd has four of these deep water drill ships. Only 39 currently exist in the world.
That gives Mr. Fredriksen enormous pricing power. His units are in such demand he can charge major oil companies nearly $600,000 a day to use them. Similar rigs were earning about $70,000 a day just five years ago. With leasing rates like these, a vessel that cost half a billion dollars to build can pay for itself in as little as four years.
The article makes me think about another visionary, George Economou, CEO of DryShips (DRYS). His company has, up until recently, been solely involved in chartering dry bulk ships. Dry bulk leases have been extremely profitable (for instance, spot charters go for $134,000 a day for Cape ships at a cost of $ 6 - 7000 a day.)
Economou has entered deep water drilling and these drill ships bring an extraordinary upside for the company. Dryships has bought 30% of Ocean Rig, a company that owns 2 deep water drill ships and has an option to buy 2 drill ships. It is likely that Dryships will ultimately buy all of Ocean Rig and continue its venture into deep water drilling. This should give Dryships yet another highly profitable marine asset to lease, one which should pay off handsomely.
Disclosure: Author has a long position in DRYS
