Dryships Results for Q3 2010

DryShips Inc. (NASDAQ: DRYS), a global provider of marine transportation services for drybulk cargoes and offshore oil deepwater drilling, announced its unaudited financial and operating results for the third quarter and nine-month period ended September 30, 2010.

Third Quarter 2010 Financial Highlights
For the third quarter of 2010, the Company reported net income of $49.3 million, or $0.18 basic and diluted earnings per share. Included in the third quarter 2010 results are various items, totaling $49.7 million, or $0.2 per share which are described below. Excluding these items, net income would have amounted to $99.0 million or $0.38 per share.

Included in the third quarter 2010 results are non-cash amortization of debt issuance costs, including those relating to our convertible senior notes, totaling $9.4 million, or $0.04 per share.

Included in the third quarter 2010 results are various one time gains relating to various claim settlements of $8.7 million, or $0.03 per share.

Included in the third quarter 2010 results are losses incurred on our interest rate swaps, amounting to $49.0 million, or $0.19 per share.

Basic earnings per share for the third quarter of 2010 includes a non-cash accrual for the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, amounting to $3.4 million, which reduces the income available to common shareholders.

The company reported adjusted EBITDA of $168.1 million for the third quarter of 2010. George Economou, Chairman and Chief Executive Officer of the Company commented:

“We are pleased to report another solid quarter of operating results. The strategic decision to fix out our dry bulk fleet has paid off as our time chartered fleet continues to outperform the spot market. With over 80% of our shipdays in 2011 fixed out at around $37,000 per day we believe we will again outperform the spot market next year. On the ultra deepwater drilling business, the two semisubmersibles continue to perform at high utilization rates on highly profitable contracts.

“The ultra deepwater market has turned a corner in the last couple of months and we believe that current enquiry from operators matches or may even exceed the supply available in 2011. This is even before the full impact of the unfolding regulations in the Gulf of Mexico are felt by the older rigs operating in the region. Asset prices for ultra deepwater rigs with early delivery have strengthened considerably as a result of strong interest to purchase new assets from several drillers.

“After a long hiatus in terms of announced fixtures we are now starting to see deals being concluded and expect the next three to six months to be very active. We believe rates for ultra deepwater rigs bottomed in the low-$400,000 per day range in the third quarter of 2010 and are now trending upwards. The employment contract we announced in October and the Letter of Intent we announced last week reduced our available capacity in 2011 from five rigs to three and we are confident that the remaining three drillships will find employment in the near future. On the financing side we are working with a number of banks on options for the first two drillships and are optimistic that we will obtain the requisite financing in time for the delivery of the first drillship. Ocean Rig is well positioned in the ultra deepwater drilling sector with the most leverage to the firming market. We remain committed to the sector and believe Ocean Rig UDW is a strong platform to build a leading pure play in the ultra deep water drilling segment.”

Financial Review: 2010 Third Quarter
The company recorded net income of $49.3 million, or $0.18 basic and diluted earnings per share, for the three-month period ended September 30, 2010, as compared to a net income of $31.4 million, or $0.11 basic and diluted earnings per share, for the three-month period ended September 30, 2009. Adjusted EBITDA, which is defined and reconciled to net income later in this press release, was $168.1 million for the third quarter of 2010 as compared to $139.9 million for the same period in 2009.

Included in the third quarter 2010 results are various items totaling $49.7 million, or $0.2 per share, which are described at the beginning of this press release. Excluding these items, our adjusted net income would have amounted to $99.0 million, or $0.38 per share.

Basic earnings per share for the third quarter of 2010 includes a non-cash accrual for the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, amounting to $3.4 million, which reduces the income available to common shareholders.

For the drybulk carrier segment, net voyage revenues (voyage revenues minus voyage expenses) decreased by $6.7 million to $108.1 million for the three-month period ended September 30, 2010, as compared to $114.8 million for the three-month period ended September 30, 2009. For the offshore drilling segment, revenues from drilling contracts increased by $8.7 million to $110.4 million for the three-month period ended September 30, 2010 as compared to $101.7 million for the same period in 2009.

Total vessel and rig operating expenses and total depreciation and amortization decreased to $43.5 million and $48.5 million, respectively, for the three-month period ended September 30, 2010 from $54.5 million and $49.4 million, respectively, for the three-month period ended September 30, 2009. Total general and administrative expenses declined to $18.0 million in the third quarter of 2010 from $22.9 million during the comparative period in 2009.

Interest and finance costs, net of interest income, increased at $18.4 million for the three-month period ended September 30, 2010, compared to $16.3 million for the three-month period ended September 30, 2009.

Recent Events
On October 15, 2010, Ocean Rig UDW Inc. signed agreements relating to a five well contract for exploration drilling off the coast of Ghana and Cote d’Ivoire with subsidiaries of Vanco Overseas Energy Limited for a period of about one year with one drillship, commencing in the second quarter of 2011. Under the agreements, Vanco is operator and LUKOIL Overseas its majority co-venturer.

The gross value of the agreements is approximately $160 million, exclusive of agency fees and commissions. The Company has the option to use either the Ocean Rig Corcovado (H1837) or the Ocean Rig Olympia (H1838). The contract may be extended for an additional year prior to the completion of operations on the second well program.

On November 11, 2010, Ocean Rig UDW Inc. received a Letter of Intent for the Eirik Raude from a British exploration company. The Letter of Intent is for a two well contract for exploration drilling offshore the Falkland Islands for a period of about 90 days, commencing in the fourth quarter of 2011, immediately after the completion of the current contract. The gross value is approximately $77 million, exclusive of agency fees and commissions. There are three further optional wells that could extend the contract by 135 days. The contract is subject to final documentation.

In October and November 2010, the Company issued and sold 36,882,000 common shares through its at-the-market offering, resulting in net proceeds of $162,7 million, after deducting various commissions. To date the Company has issued and sold 52,359,400 common shares pursuant to the at-the-market offering, resulting in net proceeds of $226.0 million.