Dryships 4Q & Year End Operating Results

Thursday, March 26, 2009

DryShips Inc. (NASDAQ: DRYS), a global provider of marine transportation services for drybulk cargoes, announced its unaudited financial and operating results for the fourth quarter and year ended December 31, 2008.

Financial Highlights: For the fourth quarter of 2008, the company reported a loss of $1.02 billion or $18.42 per share. Included in the fourth quarter results are a non-cash loss of $700.5 million or $12.68 per share related to the impairment of goodwill associated with the acquisition of Ocean Rig ASA, a loss related to contract termination fees and forfeiture of vessel deposits of $160.0 million or $2.90 per share, a non cash loss of $177.0 million or $3.20 per share associated with the valuation of the Company’s interest rate swaps , a loss on the sale of one vessel of $3.0 million or $0.05 per share, amortization of stock based compensation of $9.5 million or $0.17 per share and a gain on the contract cancellation of one vessel of $9.1 million or 0.16 per share . Excluding these items, Net Income would amount to $23.5 million or $0.43 per share.

For the year ended December 31, 2008, the company reported a loss of $361.3 million or $8.11 per share. Included in the year ended December 31, 2008 results are a non-cash loss of $700.5 million or $15.71 per share related to impairment of goodwill associated with the acquisition of our wholly-owned subsidiary Ocean Rig ASA, a loss related to contract termination fees and forfeiture of vessel deposits of $160.0 million or $3.59 per share, a non cash loss of $207.9 or $4.66 per share associated with the valuation of the Company’s interest rate swaps , a gain on the sale of eight vessels of $223.0 million or $5.00 per share, amortization of stock based compensation of $31.5 million or $0. 71 per share and a gain on the contract cancellation of one vessel of $9.1 million or 0.20 per share. Excluding these items, Net Income would amount to $506.2 million or $11.35 per share.

Other Developments
Negotiated the cancellation of a total 17 contracts associated with vessel acquisitions previously announced worth about $2.0 billion at the time of the announcements.

The company has raised approximately $380.0 million in gross proceeds through its ATM Equity OfferingSM under the Prospectus Supplement filed on January 28, 2009. Merrill Lynch & Co. acted as sales agent in the offering.

Reached a definitive agreement with Nordea Bank Plc, DnB NOR Bank ASA and HSH Nordbank regarding a covenant waiver in connection with the $800 million Primelead facility.

The company’s wholly-owned subsidiary, Ocean Rig ASA , has received a Letter of Award from Petrobras for a 3-year period employment contract for exploration drilling in the Black Sea. The contract is expected to commence in direct continuation from the current contract with Shell. The contract value is approximately $630 million including an estimated 60 days of mobilization, disassembly/reassembly of the derrick structure and an incentive bonus of 8%.

George Economou, Chairman and Chief Executive Officer of the Company commented, “Since the collapse of the world economy in the latter part of 2008 we have taken a proactive approach implementing innovative steps to address the current market environment. DryShips has dramatically reduced its capital expenditures while minimizing the use of cash. The cancellation of 17 contracts associated with vessels previously announced wor th $2 billion have dramatically reduced remaining CAPEX in 2009 to $149.6 million excluding payments associated with our newbuilding drillships.

“We have shored up the balance sheet by raising significant amounts of fresh equity for DryShips in an extremely difficult environment enhancing our liquidity position. These actions have garnered the support of our bankers as demonstrated by the waiver obtained by our three main lenders on the Primelead facility. These three lenders, acting as agents or direct lenders, represent 75% of the total loans outstanding. The latest fixture of the Leiv Eiriksson justifies the decision taken about a year ago to diversify into the ultra deep water offshore drilling segment by acquiring Ocean Rig ASA. In combination with the fixed revenue from the second operating rig and the period employment secured at the peak of the drybulk market for over 50% of our vessel operating days, we estimate our fixed EBITDA for the next three years will total approximately $1.70 billion.

“DryShips is ahead of the curve in facing the challenges of tomorrow. We remain cautiously optimistic about the future as we continue to build the Company for the long term.”

Following the acquisition of Ocean Rig during 2008, the company has two reportable segments, the drybulk carrier segment and the offshore drilling rig segment. For the quarter ended December 31, 2008, Net Voyage Revenues (Voyage Revenues less Voyage Expenses) amounted to $117.1 million as compared to $223.5 million for the quarter ended December 31, 2007. For the quarter ended December 31, 2008, revenues from drilling contracts following the acquisition of Ocean Rig amounted to $87.5 million. The company did not earn any revenues from drilling contracts in the quarter ended December 31, 2007, as Ocean Rig was not part of Dryships. Operating Loss from both segments was $794.3 million for the quarter ended December 31, 2008, as compared to Operating Income of $211.9 million for the quarter ended December 31, 2007. Total Net Loss, from both segments, for the quarter ended December 31, 2008 was $1.02 billion or $18.42 Loss per Share calculated on 55,230,433 weighted average fully diluted shares outstanding as compared to the Net Income of $194.4 million or $5.35 Earnings per Share (EPS) calculated on 36,323,586 weighted average fully diluted shares outstanding for the quarter ended December 31, 2007. Total EBITDA(1) , from both segments, for the quarter ended December 31, 2008 was $(932.2) million as compared to $228.0 million for the quarter ended December 31, 2007.

Results for Year ended December 31, 2008
Following the acquisition of Ocean Rig during 2008, the company has two reportable segments, the drybulk carrier segment and the offshore drilling rig segment. For the year ended December 31, 2008, Net Voyage Revenues (Voyage Revenues less Voyage Expenses) amounted to $808.1 million as compared to $550.9 million for the year ended December 31, 2007. For the year ended December 31, 2008, revenues from drilling contracts amounted to $219.4 million. The company did not earn any revenues from drilling contracts in the year ended December 31, 2007, as Ocean Rig was not part of Dryships. Total Operating Loss, from both segments, was $14.0 million for the year ended December 31, 2008, as compared to Operating Income of $531.8 million for the year ended December 31, 2007. Total Net Loss, from both segments, for the year ended December 31, 2008 was $361.3 million or $8.11 Loss per Share calculated on 44,598,585 weighted average basic and fully diluted shares outstanding as compared to Net Income of $478.3 million or $13.40 EPS calculated on 35,700,182 weighted averages fully diluted shares outstanding for the year ended December 31, 2007. Total EBITDA(1), from both segments, for the year ended December 31, 2008 was $(100.4) million as compared to $601.0 million for the year ended December 31, 2007.

Other Significant Events
The company has previously reported a definitive and a preliminary agreement with certain lenders relating to the waiver of breaches of loan covenants. The company remains in discussions with its other lenders concerning current breaches of loan covenants. Pending the outcome of such discussions, the company has reclassified approximately $1.8 billion in debt as short-term.

The company has previously announced the cancellation of agreements to acquire three Capesize newbuildings from unaffiliated third parties in exchange for the retention by the sellers of cash deposits and cash payments in the amount of $66.4 million, and the payment by the Company to the sellers of an additional $50.0 million in cash or common shares. In connection with the closing of the transaction, the provision regarding the $50.0 million additional payment was modified so that the Company issued a total of 11,990,405 common shares to the sellers. The company expects to incur a loss of approximately $116.4 million associated with this transaction which will be recorded in the first quarter of 2009. As of March 24, 2009, the Company has issued and outstanding 153,855,405
common shares.

The company expects to close the previously announced cancellation of the nine Capesize vessels next month. The company expects to record losses in association with the cancellations in the first quarter of 2009.

(www.dryships.com)

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