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DryShips Inc. (DRYS)
Q2 2008 Earnings Call
August 22, 2008 8:30 am ET
Paul Lampoutis - Vice President of Capital Link, Investor Relations
George Economou - Chairman and Chief Executive Officer
Jay Goodgal - Castalia Advisers
Douglas Mavrinac - Jefferies & Co.
Gregory Lewis - Credit Suisse
Natasha Boyden - Cantor Fitzgerald
Omar Nokta - Dahlman Rose
Wayne Atwell - Pontis Capital Management
Jacob Miller - Aim Capital
Frazer Parker - Praxient Capital
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This conference call contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect the company’s business prospects and results of operation. Such risks are more fully discussed in the company’s filings with the Securities and Exchange Commission. I will now pause for a second and allow you to read the safe harbor statement.
Mr. George Economou, Chairman and CEO of DryShips will be representing the company today. Following this presentation we will open the call to questions (Operator Instructions) I must advise you that this call is being recorded today Friday, August 22 2008. On that note, I will hand on the presentation to Mr. Economou.
We are on Slide 3. We are pleased to report another quarter with solid financial returns. Included in the first quarter results, the capital gain and the sale of three vessels of $135.8 million and a non-cash gain of $12.2 million associated with the valuation of interest rate swaps; excluding these items, net income would amount to $151.8 million or $3.60 per share.
Slide 4, as you know analysts typically exclude gain from vessel sales; however, we have completely shown in 2006 that we can complement our operating earnings with well timed sales in sales activity. In 2006 and 2007, selling prices activity contributed 15% and 28% respectively of total earnings, while in 2008 and 2009 we have no sales to date.
We expect S&P gains to contribute another 79.5% and 15.6% of the earnings projected by analysts. Going forward we will continue to aggressively pursue arbitrage opportunities in the second hand market in an effort to actively manage the age and quality of our fleet while contributing to the total earnings of DryShips.
Slide 5, as of June 30, 2008 DryShip’s net debit utilization ratio adjusted for present market value of the fleet stood at approximately 30% and at the same time DryShip’s cash balance was $402 million. This not only provides the company with increased stability to continue to grow the strategy but simply allows DryShip to take advantage of business opportunities as they arise from a position of strength.
Slide 6, we have recently fixed four vessels, one Capesize and three Panamax’s on long term charges. With the recent charges we have managed to secure record consolidated rates that indicate the strength of the current market. This will provide a layer of secured avenue and will cover our fixed cost in the foreseeable future while still maintaining significant operating leverage. As you can see from this slide, the finished average on the total voyage days for the next four years i.e., until 2011 is about 50% leaving also significant upside potential.
Slide 7, Ocean Rig provides necessary (Inaudible) in order for us to tackle our strategy. Ocean Rig is a pure ultra deep water rig company with the operational expertise and a proven track record in the ultra deep water drilling segment. In addition Ocean Rig has a high level of contracted cash flow and no significant capital expenses going forward. We believe that Ocean Rig’s big management bench, it’s asset and counted portfolio as well as its operational expertise are a strategic value to DryShip and warrant the price that was offered to it’s shareholders.
Slide 8, this slide provides the employment stages of Ocean Rig throughout the deep water rig. Ocean rig has already secured a concept for the Eirik Raude. It will commence volume completely with started contracts in September 2008 at the rate of $607,000 per day for three years which are now for two years. At the time of the announcement in March 2008 which is a world record and the highest rate ever paid for an Ocean Rig water outlet; however one month later it will announce the fore fixtures of rates even higher than this.
Ocean Rig makes available the Leiv Eiriksson which becomes open in Q3 2009. We expect the output project value of day rate to continue given that the Leiv Eiriksson is only one of the very few available rigs up to the end of 2009.
Slide 9, I would now move on to discuss the most recent market developments. Taking a look at the Baltic Dry Index or BDI we can see from the dark blue lines representing 2008 that the market has reached historic highs earlier this year. The seasonal slowdown we are witnessing these days is expected to reverse as China comes back from the Olympics and demand picks up again. We expect the tight supply and demand balance and the continued strong input of iron ore and coal into Southeast Asia and particularly China to continue for the balance of the year.