Offshore shift

Lazard Capital Markets has upgraded DryShips amid the promise of long-term charters for at least half of its drillship newbuildings.

George Economou.

Analyst Urs Dur raised his rating on the George Economou-led company from “hold” to “buy” suggesting the contracts will provide a lift over the next couple of quarters.

He says the deals will mark DryShips’ shift from a dry-bulk company with offshore interests to a deepwater rig company with exposure to the dry-bulk term market.

Dur, who also upped his target price for the Nasdaq-listed firm to $11.00 per share, believes at least two of DryShips’ four drillships will have contracts in place by the end of this year. The vessels are set for delivery in 2011.

In a note to clients he says the charters should be worth around $500,000 daily, reducing the risk hanging over the company and speeding up a long-awaited offshore spin-off.

Dur said: “DryShips still has a $1bn gap in its debt financing for two drillships. However, as contracts are attained over the next few quarters, we believe the company will be able to finance this gap.

“Moreover, as contracts are announced, we expect the long-awaited spin-off of some portion of its drilling business by the end of 2Q10.”

Dur adds DryShips has become a deepwater rig company with exposure to the dry bulk term charter market rather than a spot focused dry-cargo owner with drillship investments.

He said: “Now, its dry-bulk ships are chartered out for much of 2010 and beyond and its investment in ultra deep water (UDW) drilling will represent the lion’s share of its fixed assets by 2011.

“Although the dry-bulk market still faces oversupply issues, we believe investors will react to a rising oil price in the next year, as is expected by consensus, by investing in DryShips more as a UDW driller in an attractive UDW drilling market, and less as a dry-bulk shipper.”

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