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DryShips Inc. Reports Financial and Operating Results for the Second Quarter 2013

ATHENS, GREECE--(Marketwired - Aug 7, 2013) -  DryShips Inc. ( NASDAQ : DRYS ), or DryShips or the Company, an international provider of marine transportation services for drybulk and petroleum cargoes, and through its majority owned subsidiary, Ocean Rig UDW Inc., or Ocean Rig, of offshore deepwater drilling services, today announced its unaudited financial and operating results for the second quarter ended June 30, 2013.

Second Quarter 2013 Financial Highlights

  • For the second quarter of 2013, the Company reported a net loss of $18.2 million, or $0.05 basic and diluted loss per share.

  • The Company reported Adjusted EBITDA of $112.3 million for the second quarter of 2013, as compared to $140.2 million for the second quarter of 2012. (1)

Recent Events

  • On August 1, 2013, the Company entered into two supplemental agreements related to two bank loans dated October 5, 2007 and March 13, 2008, respectively, to amend certain terms and cure a shortfall in the security cover ratio, and pledged an aggregate of 5,450,000 of its shares of Ocean Rig as additional security under the loans.

  • On July 30, 2013, Ocean Rig signed definitive documentation with Total E&P Congo, following the previously announced Letter of Award, for its ultra deepwater drillship Ocean Rig Apollo. The contract is for a three-year drilling campaign offshore West Africa, with an estimated backlog of approximately $677 million, and is expected to commence in the first quarter of 2015.

  • On July 19, 2013, Ocean Rig received a Letter of Award for its ultra deepwater drillship Ocean Rig Skyros from a major oil company. The Letter of Award is for a six-year contract for drilling offshore West Africa, with an estimated backlog of approximately $1.3 billion. The contract is expected to commence in direct continuation of the previous contract for the Ocean Rig Skyros with Total E&P Angola before the first quarter of 2015.

  • In July 2013, Ocean Rig entered into a $1.9 billion senior secured term loan facility, comprised of tranche B-1 term loans in an aggregate principal amount equal to $1,075.0 million and tranche B-2 term loans in an aggregate principal amount equal to $825.0 million, with respective maturity dates in the first quarter of 2021 and the third quarter of 2016.

  • On July 10, 2013, Ocean Rig entered into a drilling contract with Total E&P Angola for a five-well program or a minimum of 275 days for its ultra deepwater drillship Ocean Rig Skyros for drilling offshore West Africa, with an estimated backlog of approximately $190 million. The Ocean Rig Skyros is expected to commence this contract upon delivery from the shipyard in November 2013.

  • On May 23, 2013 and June 18, 2013, the Company took delivery of its two VLOCs under construction in China and drew down the maximum amount available under the secured term loan facility with China Development Bank.

George Economou, Chairman and Chief Executive Officer of the Company, commented:

"We continue to be defensive about the short-term prospects of the shipping markets. Asset prices seem to be holding up but we do not expect any positive development in drybulk and tanker charter rates this year. As a result we have focused this year on reducing our breakeven levels. We lowered our newbuilding capital expenditures significantly and are now focusing on other areas. 

As part of this effort, during the second quarter of 2013, we accelerated our discussions with our lenders to lower our debt service requirements. So far, we concluded an agreement with a lender to, among other things, defer certain principal installments until maturity. As part of this transaction, we provided a pledge of Ocean Rig shares, underlining our commitment to reach viable solutions with our lenders.

We are cautiously optimistic expecting a sustainable recovery in 2014 and beyond and believe DryShips is well positioned to take advantage of the ensuing recovery in charter rates in the drybulk and tanker sectors.

In terms of our shareholding in Ocean Rig UDW Inc., we are pleased with Ocean Rig's solid results for the quarter. In addition, Ocean Rig's consummation of the $1.9 billion term loan transaction was vital, not only in terms of the net cash flow it will generate, but also in terms of the additional financial flexibility for Ocean Rig that it will provide. As the largest shareholder in Ocean Rig, we believe it is optimally positioned in the ultra-deepwater drilling market and we continue to be positive about the prospects for Ocean Rig, whose contract backlog currently stands at approximately $6.0 billion."

Financial Review: 2013 Second Quarter
The Company recorded a net loss of $18.2 million, or $0.05 basic and diluted loss per share, for the three-month periods ended June 30, 2013 and 2012, respectively. Adjusted EBITDA was $112.3 million for the second quarter of 2013, as compared to $140.2 million for the same period in 2012.(2)

For the drybulk carrier segment, net voyage revenues (voyage revenues minus voyage expenses) amounted to $42.4 million for the three-month period ended June 30, 2013, as compared to $58.6 million for the three-month period ended June 30, 2012. For the tanker segment, net voyage revenues amounted to $9.1 million for the three-month period ended June 30, 2013, as compared to $8.5 million for the same period in 2012. For the offshore drilling segment, revenues from drilling contracts decreased by $3.7 million to $259.8 million for the three-month period ended June 30, 2013, as compared to $263.5 million for the same period in 2012.

Total vessels', drilling rigs' and drillships' operating expenses and total depreciation and amortization decreased to $142.5 million and increased to $85.8 million, respectively, for the three-month period ended June 30, 2013, from $167.3 million and $84.1 million, respectively, for the three-month period ended March 31, 2012. Total general and administrative expenses remained approximately the same at $37.2 million in the second quarters of 2013 and 2012, respectively.

Interest and finance costs, net of interest income, amounted to $56.0 million for the three-month period ended June 30, 2013, compared to $49.8 million for the three-month period ended June 30, 2012.

(1) Adjusted EBITDA is a non-GAAP measure; please see later in this press release for reconciliation to net income.

(2)  Adjusted EBITDA is a non-GAAP measure; please see later in this press release for a reconciliation to net income.

Settlement with Cairn Energy

In July 2013, Ocean Rig reached an out of court settlement with Cairn Energy to receive compensation amounting to $5.0 million against an outstanding receivable of $11.0 million. As a result, during the second quarter of 2013, Ocean Rig wrote off $6.0 million. This agreement is subject to definitive documentation.

Fleet List
The table below describes our fleet profile as of July 31, 2013:

              Gross        
  Year           rate   Redelivery
  Built   DWT   Type   Per day   Earliest   Latest
Drybulk fleet                      
                       
Capesize:                      
Rangiroa 2013   206,000   Capesize   $23,000   Apr-18   Nov-23
Negonego 2013   206,000   Capesize   $21,500   Mar-20   Feb-28
Fakarava 2012   206,000   Capesize   $25,000   Sept-15   Sept-20
Mystic 2008   170,040   Capesize   $52,310   Aug-18   Dec-18
Robusto 2006   173,949   Capesize   $26,000   Aug-14   Apr-18
Cohiba 2006   174,234   Capesize   $26,250   Oct-14   Jun-19
Montecristo 2005   180,263   Capesize   $23,500   May-14   Feb-19
Flecha 2004   170,012   Capesize   $55,000   Jul-18   Nov-18
Manasota 2004   171,061   Capesize   $30,000   Jan-18   Aug-18
Partagas 2004   173,880   Capesize   $11,500   Jun-14   Oct-14
Alameda 2001   170,662   Capesize   $27,500   Nov-15   Jan-16
Capri 2001   172,579   Capesize   $10,000   Nov-13   Mar-14
                       
Panamax:                      
Raraka 2012   76,037   Panamax   $7,500   Jan-15   Mar-15
Woolloomooloo 2012   76,064   Panamax   $7,500   Dec-14   Feb-15
Amalfi 2009   75,206   Panamax   Spot   N/A   N/A
Rapallo 2009   75,123   Panamax   Spot   N/A   N/A
Catalina 2005   74,432   Panamax   Spot   N/A   N/A
Majorca 2005   74,477   Panamax   Spot   N/A   N/A
Ligari 2004   75,583   Panamax   $9,250   Sep-13   Nov-13
Saldanha 2004   75,707   Panamax   Spot   N/A   N/A
Sorrento 2004   76,633   Panamax   $24,500   Aug-21   Dec-21
Mendocino 2002   76,623   Panamax   Spot   N/A   N/A
Bargara 2002   74,832   Panamax   Spot   N/A   N/A
Oregon 2002   74,204   Panamax   $9,650   Sept-13   Nov-13
Ecola 2001   73,931   Panamax   Spot   N/A   N/A
Samatan 2001   74,823   Panamax   Spot   N/A   N/A
Sonoma 2001   74,786   Panamax   Spot   N/A   N/A
Capitola 2001   74,816   Panamax   Spot   N/A   N/A
Levanto 2001   73,925   Panamax   Spot   N/A   N/A
Maganari 2001   75,941   Panamax   Spot   N/A   N/A
Coronado 2000   75,706   Panamax   Spot   N/A   N/A
Marbella 2000   72,561   Panamax   Spot   N/A   N/A
Redondo 2000   74,716   Panamax   $9,250   Sept-13   Nov-13
Topeka 2000   74,716   Panamax   $8,450   Oct-13   Dec-13
Ocean Crystal 1999   73,688   Panamax   Spot   N/A   N/A
Helena 1999   73,744   Panamax   Spot   N/A   N/A
                       
Supramax:                      
Byron 2003   51,118   Supramax   Spot   N/A   N/A
Galveston 2002   51,201   Supramax   Spot   N/A   N/A
                       
                       
              Gross        
  Year           rate   Redelivery
  Built   DWT   Type   Per day   Earliest   Latest
Newbuildings                      
Panamax:                      
Newbuilding Ice -class Panamax 1 2014   75,900   Panamax   Spot   N/A   N/A
Newbuilding Ice -class Panamax 2 2014   75,900   Panamax   Spot   N/A   N/A
Newbuilding Ice -class Panamax 3 2014   75,900   Panamax   Spot   N/A   N/A
Newbuilding Ice -class Panamax 4 2014   75,900   Panamax   Spot   N/A   N/A
Tanker fleet                      
Suezmax:                      
Bordeira 2013   158,300   Suezmax   Spot   N/A   N/A
Petalidi 2012   158,300   Suezmax   Spot   N/A   N/A
Lipari 2012   158,300   Suezmax   Spot   N/A   N/A
Vilamoura 2011   158,300   Suezmax   Spot   N/A   N/A
Aframax:                      
Alicante 2013   115,200   Aframax   Spot   N/A   N/A
Mareta 2013   115,200   Aframax   Spot   N/A   N/A
Calida 2012   115,200   Aframax   Spot   N/A   N/A
Saga 2011   115,200   Aframax   Spot   N/A   N/A
Daytona 2011   115,200   Aframax   Spot   N/A   N/A
Belmar 2011   115,200   Aframax   Spot   N/A   N/A
                       
                       

Drilling Rigs/Drillships:

Unit Year built   Redelivery   Operating area   Backlog ($m)
               
Leiv Eiriksson 2001   Q2 - 16   Norway   $542
Eirik Raude 2002   Q3 - 13   Ireland   $14
      Q3 - 14   Sierra Leone, Ivory Coast   $217
Ocean Rig Corcovado 2011   Q2 - 15   Brazil   $292
Ocean Rig Olympia 2011   Q3 - 15   Gabon, Angola   $432
Ocean Rig Poseidon 2011   Q2 - 16   Angola   $721
Ocean Rig Mykonos 2011   Q1 - 15   Brazil   $265
Newbuildings              
               
Ocean Rig Mylos (Expected delivery Aug. 2013)

2013
 

Q3 - 16
 

Brazil
 

$662
Ocean Rig Skyros (Expected delivery Nov. 2013) 2013   Q4 - 14   Angola   $187
      Q4 - 20   Angola   $1,266(1)
Ocean Rig Athena (Expected delivery Dec. 2013) 2013   Q1 - 17   Angola   $752
Ocean Rig Apollo (Expected delivery Jan. 2015) 2015   Q1 - 18   Congo   $677
Total             $6,027
   
(1) Letter of Award is subject to definitive documentation.
   

Drybulk Carrier and Tanker Segment Summary Operating Data (unaudited)

(Dollars in thousands, except average daily results)

Drybulk   Three Months Ended June 30,     Six Months Ended June 30,  
    2012     2013     2012     2013  
Average number of vessels(1)     35.4       36.6       35.7       36.3  
Total voyage days for vessels(2)     3,200       3,326       6,481       6,566  
Total calendar days for vessels(3)     3,218       3,328       6,503       6,568  
Fleet utilization(4)     99.4 %     99.9 %     99.7 %     100 %
Time charter equivalent(5)   $ 18,319     $ 12,756     $ 20,213     $ 12,085  
Vessel operating expenses (daily)(6)   $ 5,313     $ 5,930     $ 5,484     $ 5,496  
             
Tanker   Three Months Ended June 30,     Six Months Ended June 30,  
    2012     2013     2012     2013  
Average number of vessels(1)     6.1       10       5.5       9.7  
Total voyage days for vessels(2)     552       910       1,005       1,758  
Total calendar days for vessels(3)     552       910       1,005       1,758  
Fleet utilization(4)     100 %     100 %     100 %     100 %
Time charter equivalent(5)   $ 15,310     $ 10,004     $ 15,583     $ 11,349  
Vessel operating expenses (daily)(6)   $ 8,690     $ 6,371     $ 8,096     $ 7,704  
                                 
(1) Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in that period.
(2) Total voyage days for fleet are the total days the vessels were in our possession for the relevant period net of dry-docking days.
(3) Calendar days are the total number of days the vessels were in our possession for the relevant period including dry-docking days.
(4) Fleet utilization is the percentage of time that our vessels were available for revenue generating voyage days, and is determined by dividing voyage days by fleet calendar days for the relevant period.
(5) Time charter equivalent, or TCE, is a measure of the average daily revenue performance of a vessel on a per voyage basis. Our method of calculating TCE is consistent with industry standards and is determined by dividing voyage revenues (net of voyage expenses) by voyage days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, as well as commissions. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with revenues from our vessels, the most directly comparable U.S. GAAP measure, because it assists our management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. TCE is also a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods. Please see below for a reconciliation of TCE rates to voyage revenues.
(6) Daily vessel operating expenses, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs is calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period.
   
   

(In thousands of U.S. dollars, except for TCE rate, which is expressed in Dollars, and voyage days)

Drybulk   Three Months Ended June 30,     Six Months Ended June 30,  
    2012     2013     2012     2013  
Voyage revenues   $ 62,487     $ 48,315     $ 139,508     $ 93,797  
Voyage expenses     (3,865 )     (5,890 )     (8,508 )     (14,448 )
Time charter equivalent revenues   $ 58,622     $ 42,425     $ 131,000     $ 79,349  
Total voyage days for fleet     3,200       3,326       6,481       6,566  
Time charter equivalent TCE   $ 18,319     $ 12,756     $ 20,213     $ 12,085  
                                 
Tanker   Three Months Ended June 30,     Six Months Ended June 30,  
    2012     2013     2012     2013  
Voyage revenues   $ 10,161     $ 27,858     $ 17,637     $ 55,645  
Voyage expenses     (1,710 )     (18,754 )     (1,976 )     (35,694 )
Time charter equivalent revenues   $ 8,451     $ 9,104     $ 15,661     $ 19,951  
Total voyage days for fleet     552       910       1,005       1,758  
Time charter equivalent TCE   $ 15,310     $ 10,004     $ 15,583     $ 11,349  
                                 
                                 
                                 
Dryships Inc.  
   
Financial Statements  
Unaudited Condensed Consolidated Statements of Operations  
   
(Expressed in Thousands of U.S. Dollars
except for share and per share data)
  Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2013     2012     2013  
                                 
REVENUES:                                
Voyage revenues   $ 72,648     $ 76,173     $ 157,145     $ 149,442  
Revenues from drilling contracts     263,491       259,835       426,490       506,279  
      336,139       336,008       583,635       655,721  
                                 
EXPENSES:                                
Voyage expenses     5,575       24,645       10,484       50,142  
Vessel operating expenses     22,251       25,533       43,796       49,643  
Drilling rigs operating expenses     145,052       116,981       230,392       237,740  
Depreciation and amortization     84,079       85,758       166,034       168,418  
Vessel impairments and other, net     (525 )     1,443       963       76,783  
General and administrative expenses     37,172       37,187       71,146       73,434  
Legal settlements and other, net     (7,425 )     5,405       (1,606 )     5,390  
                                 
Operating income / (loss)     49,960       39,056       62,426       (5,829 )
                                 
OTHER INCOME / (EXPENSES):                                
Interest and finance costs, net of interest income     (49,768 )     (56,008 )     (100,545 )     (112,870 )
Gain/ (Loss) on interest rate swaps     (12,963 )     23,082       (21,714 )     23,478  
Other, net     4,824       2,011       2,576       2,689  
Income taxes     (11,596 )     (10,411 )     (21,628 )     (24,575 )
Total other expenses, net     (69,503 )     (41,326 )     (141,311 )     (111,278 )
                                 
Net loss     (19,543 )     (2,270 )     (78,885 )     (117,107 )
                                 
Net income/ (loss) attributable to Non controlling interests     1,341       (15,940 )     13,227       (17,738 )
                                 
Net loss attributable to Dryships Inc.   $ (18,202 )   $ (18,210 )   $ (65,658 )   $ (134,845 )
                                 
Loss per common share, basic and diluted   $ (0.05 )   $ (0.05 )   $ (0.17 )   $ (0.35 )
Weighted average number of shares, basic and diluted     380,152,244       382,657,244       380,152,244       382,657,244  
                                 
                                 
                                 
Dryships Inc.
 
Unaudited Condensed Consolidated Balance Sheets
 
(Expressed in Thousands of U.S. Dollars)   December 31, 2012   June 30, 2013
             
ASSETS            
             
  Cash and restricted cash (current and non-current)   $ 720,458   $ 511,437
  Other current assets     338,446     414,860
  Advances for vessels and rigs under construction and acquisitions     1,201,807     1,098,106
  Vessels, net     2,059,570     2,310,833
  Drilling rigs, drillships, machinery and equipment, net     4,446,730     4,422,807
  Other non-current assets     111,480     146,023
  Total assets     8,878,491     8,904,066
             
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
             
  Total debt     4,386,715     4,436,193
  Total other liabilities     623,757     585,993
  Total stockholders' equity     3,868,019     3,881,880
  Total liabilities and stockholders' equity   $ 8,878,491   $ 8,904,066
             
 

Adjusted EBITDA Reconciliation
Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, vessel impairments, and gains or losses on interest rate swaps. Adjusted EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined by United States generally accepted accounting principles, or U.S. GAAP, and our calculation of adjusted EBITDA may not be comparable to that reported by other companies. Adjusted EBITDA is included herein because it is a basis upon which the Company measures its operations and efficiency. Adjusted EBITDA is also used by our lenders as a measure of our compliance with certain covenants contained in our loan agreements and because the Company believes that it presents useful information to investors regarding a company's ability to service and/or incur indebtedness.

The following table reconciles net loss to Adjusted EBITDA:

                         
(Dollars in thousands)   Three Months Ended June 30, 2012     Three Months Ended June 30, 2013     Six Months Ended June 30, 2012     Six Months Ended June 30, 2013  
                                 
Net loss   $ (18,202 )   $ (18,210 )   $ (65,658 )   $ (134,845 )
                                 
Add: Net interest expense     49,768       56,008       100,545       112,870  
Add: Depreciation and amortization     84,079       85,758       166,034       168,418  
Add: Impairment losses and other     -       1,443       -       76,783  
Add: Income taxes     11,596       10,411       21,628       24,575  
Add: Gain/(loss) on interest rate swaps     12,963       (23,082 )     21,714       (23,478 )
Adjusted EBITDA   $ 140,204     $ 112,328     $ 244,263     $ 224,323  
                                 

Conference Call and Webcast: August 8, 2013

As announced, the Company's management team will host a conference call, on Thursday, August 8, 2013 at 9:00 a.m. Eastern Daylight Time to discuss the Company's financial results.

Conference Call Details

Participants should dial into the call 10 minutes before the scheduled time using the following numbers: 1(866) 819-7111 (from the US), 0(800) 953-0329 (from the UK) or +(44) (0) 1452 542 301 (from outside the US). Please quote "DryShips."

A replay of the conference call will be available until August 15, 2013. The United States replay number is 1(866) 247- 4222; from the UK 0(800) 953-1533; the standard international replay number is (+44) (0) 1452 55 00 00 and the access code required for the replay is: 2133051#.

A replay of the conference call will also be available on the Company's website at www.dryships.com under the Investor Relations section.

Slides and Audio Webcast

There will also be a simultaneous live webcast over the Internet, through the DryShips Inc. website (www.dryships.com). Participants to the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

About DryShips Inc.

DryShips Inc. is an owner of drybulk carriers and tankers that operate worldwide. Through its majority owned subsidiary, Ocean Rig UDW Inc., DryShips owns and operates 10 offshore ultra deepwater drilling units, comprising of 2 ultra deepwater semisubmersible drilling rigs and 8 ultra deepwater drillships, 3 of which are scheduled to be delivered to Ocean Rig during 2013 and 1 of which is scheduled to be delivered during 2015. DryShips owns a fleet of 42 drybulk carriers (including newbuildings), comprising 12 Capesize, 28 Panamax and 2 Supramax with a combined deadweight tonnage of approximately 4.4 million tons, and 10 tankers, comprising 4 Suezmax and 6 Aframax, with a combined deadweight tonnage of over 1.3 million tons.

DryShips' common stock is listed on the NASDAQ Global Select Market where it trades under the symbol "DRYS."

Visit the Company's website at www.dryships.com

Forward-Looking Statement

Matters discussed in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with such safe harbor legislation.

Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

The forward-looking statements in this release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that it will achieve or accomplish these expectations, beliefs or projections.

Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including changes in charterhire and drilling dayrates and drybulk vessel, drilling rig and drillship values, failure of a seller to deliver one or more drilling rigs, drillships or drybulk vessels, failure of a buyer to accept delivery of a drilling rig, drillship, or vessel, inability to procure acquisition financing, default by one or more charterers of our ships, changes in demand for drybulk commodities or oil, changes in demand that may affect attitudes of time charterers and customer drilling programs, scheduled and unscheduled drydockings and upgrades, changes in our operating expenses, including bunker prices, drydocking and insurance costs, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents and political events or acts by terrorists.

Risks and uncertainties are further described in reports filed by DryShips Inc. with the U.S. Securities and Exchange Commission.