As of December 2012, roughly 80% of the partnership’s contracted revenue was secured by charters running longer than three years. In other words, Navios Partners managed to minimize the charter renewal risk and gain some extra time until a full industry recovery.
Ocean Rig to the rescue?
With dry bulk and tanker spot rates moving around historic low levels, DryShips’ cash-generating capacity could not counterbalance its capital expenditures. The firm’s efforts to optimize its fleet profile heavily burdened its balance sheet, resulting in a debt-to-equity ratio that crushes the industry’s median. So it is no wonder why the shipper decided to sell, via novation, two of its new building tankers.
So far, Ocean Rig is the life jacket that keeps DryShips afloat. Over the years, the company’s stake in the offshore driller gave it flexibility in addressing the capital needs of its shipping segment. DryShips acquired a majority stake in Ocean Rig in 2007. Last year, it announced the public offering of 10 million Ocean Rig common shares, reducing its stake to 65%. After the latest public offering, DryShips will receive gross proceeds of over $126 million.
Above all, as the oil rig business continues to flourish, DryShips benefits from the much-needed cash inflows. Ocean Rig has an overall healthy balance sheet, backed by a solid increase in cash and cash equivalents. For the nine months ended September 2012, Ocean Rig experienced an overwhelming year-over-year growth — around 54% — in revenues from drilling contracts. This growth was partially offset by one-time charges associated with the deployment of its fleet. But still, the driller ended the third quarter of 2012 with an order backlog of more than $4 billion. Last month, it signed another contract with an estimated backlog of over $100 million, including mobilization and demobilization.
Looking ahead
From my point of view, DryShips should convert itself into an ultradeepwater driller, instead of continuing to struggle in a shipping industry well-defined by overcapacity. The fundamentals in the drilling business are considerably favorable, offering unique opportunities. Oil companies’ capital expenditures and level of production are projected to remain elevated suggesting strong demand for drilling rigs.
Ocean Rig is well positioned to benefit from this positive outlook and is poised for outstanding growth. EPS this year, as well as over the next five years, is expected to grow at an amazing pace. DryShips should take advantage of the shortage of drilling units worldwide and invest in expanding its operations in the space.
The article Is There Hope for this Struggling Shipper? originally appeared on Fool.com and is written by Fani Kelesidou.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
