REFILE-UPDATE 4-DryShips to float rig ops by June, sees strong valuation

Thu Mar 31, 2011 4:22pm EDT

(Refiles to fix grammatical error in paragraph 3)

* Expects to grow rig fleet through new orders, acquisitions

* Sees rig business IPO price above $17.50 a share

* Shares up as much as 4 pct (Adds COO comments from interview; Updates share)

By Arup Roychoudhury and Krishna Das

BANGALORE, March 31 (Reuters) - DryShips Inc hopes to benefit from rising demand for crude by spinning off its deepwater drilling arm by June, at a valuation higher than what it managed in a recent stake sale.

DryShips -- which started out as a dry cargo carrier before entering into the drilling business in 2008 -- in December sold a 22 percent stake in the unit, named Ocean Rig, for $17.50 per share. That valued Ocean Rig at $2.27 billion. [ID:nSGE6BE0B1]

A day later DryShips, which has a market capitalization of less than $2 billion, had said it would buy back up to $25 million in stock of the unit through March 31. [ID:nSGE6BL0BL]

Chief Operating Officer Pankaj Khanna said Ocean Rig traded at more than $20 in the Norwegian over-the-counter market last week, valuing DryShips' stake at $2.4-$2.5 billion.

"Anything we do now in terms of new equity has to be substantially above $17.50 (a share). It will not be anything close to that," Khanna told Reuters in an interview on Thursday.

Demand in emerging markets and declining production in mature oilfields in the North Sea and Mexico is expected to spur offshore drilling for Ocean Rig, and rivals like Ensco PLC and Noble Corp .

"We are now focused on increasing backlog and further fleet growth organically and (through) opportunistic acquisitions," Khanna, COO since March 2009, said on a call with analysts, adding that Ocean Rig's total backlog was about $1.1 billion.

DryShips' shares, which listed on Nasdaq six years ago, inched up 4 percent to $5.12 on Thursday, before paring some gains to close at $4.95. The Greece-based company's stock has fallen 10 percent so far this year.

Ocean Rig's assets include four new ultradeepwater rigs, two of which will be handed over later this year, and a couple of ultradeepwater semisubmersible rigs. Only one rig remains to find a contract.

"The primary upside catalyst for (DryShips') stock over the near-term will be securing additional employment for the remaining drilling rig and eventually spinning off that unit," said Cantor Fitzgerald analyst Natasha Boyden, who has a "buy" rating on the stock.

DryShips said late on Wednesday it has secured financing for all the new drillships. [ID:nL3E7EL1BJ]

"With contracts in place for three of its four newbuild drillships and the financing for these rigs finally put to bed, we expect Ocean Rig to be listed in the United States sooner (rather than)later," Credit Suisse analyst Gregory Lewis, who has an "outperform" rating on the stock, said.

DryShips, which also transports crude oil, said the IPO of that business will happen "sometime in 2011."

But Lewis said, "While DryShips has been successful in securing financing for its tanker fleet thus far, we believe its hope of spinning the tanker company off will happen later not sooner (2012 at the earliest)."

COO Khanna believes that DryShips' business is healthy with the drillships getting contracts soon after being delivered and the financing in place to support expansion.

"If investor buys DryShips' shares, he is getting Ocean Rig at a discount and he is getting tanker and drybulk for free." (Reporting by Krishna N Das; Editing by Unnikrishnan Nair and Joyjeet Das)