UPDATE 2-DryShips shares down after co gets drillships options

Tue Nov 23, 2010 12:48pm EST

* Cost estimated at about $600 mln/drillship

* Deal with undisclosed South Korean shipyard

* Shares slide 6 percent on funding worries (Rewrites lead, adds analyst comment, detail, updates shares)

By Adveith Nair

BANGALORE, Nov 23 (Reuters) - Days after signaling a turnaround in its drilling segment, DryShips Inc (DRYS.O) secured options to build four new rigs, but shares of the Greek company slipped on concerns that financing for the expensive drillships could be hard to come by.

DryShips started out as a drybulk shipper before foraying into the drilling business in 2008, a move that pressured its finances as the company struggled to win contracts and garner funds to build two rigs.

"DryShips is still looking to secure charters for three of its four under-construction drillships, all of which technically remain unfinanced," Wells Fargo analyst Michael Webber said.

"However, given the length of time before any significant capital expenditures will be required, the near-term fundamental impact is likely to be limited," he added.

Under Tuesday's agreement, each rig would cost about $600 million and the options can be declared within a year of the agreement. Deliveries may range from 2013 until 2014.

The deal also includes a non-refundable slot reservation fee of $24.8 million per drillship that will be applied to the contract price if the options are exercised.

DryShips recently shrugged off some of its financing overhang by winning two drilling contracts worth over $230 million. Two years of funneling money into the drilling segment seem to be paying off after that segment helped the company post robust quarterly results. [ID:nSGE6A408J]

"The ultra deepwater market has turned a corner and we believe this is the bottom of the newbuilding price cycle," Chief Executive George Economou said. "We are confident of customer demand for these drillships."

Wells Fargo's Webber said the company will ultimately be successful in chartering and financing its current drillship newbuilds.

"(That) should free up additional equity to potentially use towards these options, however timing remains uncertain," he said.

Shares of the company, which have so far risen more than 60 percent from a year low in July, were down about 6 percent at $5.11 on Tuesday on Nasdaq. (Reporting by Adveith Nair and Krishna N Das in Bangalore; Editing by Maju Samuel, Jarshad Kakkrakandy)

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