DryShips Inc. 3rd Quarter Ended September 30, 2013...
Transcript of DryShips Inc. 3rd Quarter Ended September 30, 2013...
DryShips Inc.
Capital Link Forum
Company Presentation
NASDAQ: “DRYS”
Metropolitan Club, NYC
March 20, 2014
DryShips Inc. Page 2
Forward Looking Statements
Matters discussed in this presentation may constitute forward-looking statements. Forward-looking statements reflect the Company’s 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 not statements of historical facts.
The forward-looking statements in this presentation 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, which have not been independently verified by the Company. Although DryShips Inc. believes 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, DryShips Inc. cannot assure you that it will achieve or accomplish these expectations, beliefs or projections. Important factors that, in the Company’s 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 charter hire rates and vessel values, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled drydocking, changes in DryShips Inc.'s operating expenses, including bunker prices, dry-docking and insurance costs, 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 that may affect our actual results are further described in reports filed by DryShips Inc. with the US Securities and Exchange Commission.
Information contained in this presentation (not limited to forward looking statements) speaks only as of the date of such information and the Company expressly disclaims any obligation to update or revise the information herein, except as required by law.
DryShips Inc.
Agenda
DryShips Today
Industry Outlook
Investment in ORIG
Closing Remarks
DryShips Inc. Page 4
DryShips Today
Drybulk Tankers
11 units
2 UDW drilling rigs
6 UDW drillships
3 UDW drillships under construction
42 vessels
12 capesize
24 panamax
2 handymax
4 newbuildings
10 vessels:
4 suezmax
6 aframax
59.4% owned
DryShips is a pure shipping company with a 59% shareholding in Ocean Rig.
• Independent operational
management
• Separate liquidity pools
• No credit links or cross
default
DryShips Inc.
Shipping Fleet and Charter Cover
Page 5
Asset Type Number of
Vessels
Total Dwt
(in mill) Avg. Age
2014
Charter
Coverage2
Capesize 12 2.17 7.3 92%
Panamax1 24 1.80 10.9 12%
Supramax 2 0.10 11.5 0%
Suezmax 4 0.63 2.0 0%
Aframax 6 0.69 2.2 0%
1 Excluding NBs 2 As of December 31st 2013
Total contracted backlog through 2016 is approximately $305 million
25,149 30,737 33,813
Average daily fixed rate
36%
21%
15%
0%
5%
10%
15%
20%
25%
30%
35%
40%
FY 2014 FY 2015 FY 2016
% Charter coverage
DryShips Inc.
723 723
7,980 9,585
353
1,570
2,168
2,168
1,445
1,445
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2014 2015
Spot Days Suezmax
Spot Days Aframax
Spot Days Capesize
Spot Days Panamax
Spot Days Supramax
Page 6
Earnings Power of Our Shipping Fleet
Shipping Segment Projected Spot Days1
Potential additional EBITDA / free cashflow generation:
1 Projected spot days for 2014 post scheduled dry-dock days and net of utilization
Sp
ot
Days
12,669
15,491
(in million) FY2014 FY2015
+$5,000 to market spot rates $63.3 $77.5
+$10,000 to market spot rates $126.7 $154.9
+$15,000 to market spot rates $190.0 $232.4
+$20,000 to market spot rates $253.4 $309.8
DryShips Inc. Page 7
Minimal Capital Commitments
1) CIP and Capex as of 12/31/2013
Not made any further payments to Rongsheng Heavy Industries
Vessel delivery schedule non-existent
Scheduled CAPEX1
(in $ thousands)Contracted
DeliveryCIP 1 FY2014
Cancellation
Date
Ice Class Panamax #1 June-14 2,890 31,100 March-15
Ice Class Panamax #2 August-14 2,890 31,100 May-15
Ice Class Panamax #3 August-14 2,890 31,100 May-15
Ice Class Panamax #4 October-14 2,890 31,100 July-15
Total 11,560 124,400
DryShips Inc. Page 8
Shipping Segment1 Financial Summary
1) Showcases financial performance of shipping segment (drybulk and tanker segments) only
2) Represents net income before interest, taxes, depreciation and amortization, drydocking costs, vessel impairment, contract cancellation fees and gains or losses on interest rate swaps
(in $ million) Q3 2013 Q4 2013 Q1 2014
Total Revenues 76.4 85.9
Adjusted EBITDA (2) 13.4 16.1
Net Income (loss) (51.0) (48.0)
Drybulk Segment Utilization 99.10% 97.60%
Tanker Segment Utilization 100.00% 100.00%
Drybulk Segment Time Charter Equivalent 10,796 13,303
Tanker Segment Time Charter Equivalent 15,802 12,963
?
DryShips Inc. Page 9
Secured Bank Debt Profile (Shipping Segment)
Scheduled Debt Amortization (excluding balloons) in USD million
94
138
68
0
50
100
150
2014 2015 2016
Drybulk Debt Outstanding as of 12/31/13
Facility Amortizing Balloon Total Maturity
$628.8m facility 62.4 112.0 174.4 Q2 2016
$35m facility 6.0 11.0 17.0 Q4 2016
$125m facility 14.7 6.9 21.6 Q2 2016
$90m facility 8.5 48.5 57.0 Q4 2015
$130m facility 2.7 27.6 30.3 Q1 2015
$126.4m facility 50.4 2.9 53.3 Q3 2018
$47m facility 4.0 12.0 16.0 Q4 2015
$90m facility 12.0 24.0 36.0 Q4 2015
$103.2m facility 8.3 16.0 24.3 Q3 2016
$325m facility 53.0 23.5 76.5 Q4 2015
$87.7m facility 7.4 9.5 16.9 Q1 2020
$122.6m facility 115.6 0.0 115.6 Q2 2025
Total Drybulk bank debt 345.0 293.9 638.9
Tankers Debt Outstanding as of 12/31/13
Facility Amortizing Balloon Total Maturity
$70m facility 10.5 46.7 57.2 Q1 2016
$32.3m facility 7.5 19.4 26.9 Q2 2017
$141.35m facility 57.8 65.5 123.3 Q2 2019
$107.67m facility 46.2 50.4 96.6 Q1 2019
Total Tankers bank debt 122.0 182.0 304.0
Total Debt 467.0 475.9 942.9
DryShips Inc.
106%
118%
152%
100%
105%
110%
115%
120%
125%
130%
135%
140%
145%
150%
155%
160%
800
900
1,000
1,100
1,200
1,300
1,400
1,500
Dec-12 Jun-13 Dec-13
in U
SD
th
ou
sa
nd
Shipping Fleet Secured Debt Shipping Fleet Market Value Shipping Fleet Avg.Value-to-Loan Ratio (RH)
Bank Compliance – Much Rosier Picture
Page 10
VTL
VTL
VTL
DryShips Inc. Page 11
Recent Banking Developments
On October 30, 2013, we signed an agreement with HSH Nordbank,
acting as agent for the $628.8 million Senior and Junior secured loan
facility, under which terms the lending syndicate agreed to apply the
currently-pledged restricted cash of $55 million against the next five
quarterly installments, among other things.
We are in discussions with the Nordea-led bank syndicate of our
$325m senior secured credit facility to defer certain principal payments
to maturity.
5.45m shares of Ocean Rig previously pledged to Piraeus
Bank under our $90m and $130m credit facilities have
been automatically returned back to the company
on December 31st 2013.
As of today, no shares of Ocean Rig have been pledged
to any lender under our secured credit facilities.
DryShips Inc.
Agenda
Investment in ORIG
Dryships Today
Industry Outlook
Closing Remarks
DryShips Inc.
ORIG: Pure-Play Ultra-Deepwater Driller With Premium Assets
Sister drillships with common equipment , spare parts and training standards
5th generation semisubmersibles Four 6th generation drillships Five 7th generation NB drillships
Leiv Eiriksson Eirik Raude OCR
Corcovado
Sister drillships provide benefits from standardization Harsh environment UDW semis
Up to 40,000 ft. drilling depth capability with 6 and 7 ram BOPs
Up to 10,000-12,000 ft. water depth capability
Built at Samsung Heavy Industries
Accommodations for up to 215 people on board
Dual derricks for increased drilling activity/efficiency
Built at Dalian/Friedman Goldman Irving
Up to 7,500-10,000 ft. water depth capacity
Up to 30,000 ft. drilling depth capacity
Two of only 15 drilling units worldwide equipped to operate in both ultra-deepwater and harsh
environment
Winterized for operations in extreme climates, ideal for
development drilling
OCR Olympia
OCR Poseidon
OCR Athena Mar. 2014
OCR Apollo Jan. 2015
OCR Santorini Dec. 2015
OCR Mylos
OCR Mykonos
OCR Skyros
Page 13
DryShips Inc.
Best in class contract coverage with 99%, 72% and 38% for 2014, 2015 and 2016 respectively(1)
Average contract remaining fixed period of 2.5 years, 3.7 years with options(1)
$4.0 billion contracted backlog excluding LOA for Ocean Rig Skyros of $1.3 billion
OCR Olympia and OCR Poseidon have renewal deadlines 12 months prior to contract expiration
ORIG: Solid Contract Backlog
Page 14
(1) Average contract length includes LOA for Ocean Rig Skyros which is a 6 year contract
Q1 Q2 Q3 Q2 Q3 Q1 Q2 Q3 Q4
Contract Coverage
Leiv Eiriksson
Eirik Raude
Ocean Rig Corcovado
Ocean Rig Olympia
Ocean Rig Poseidon
Ocean Rig Mykonos
Ocean Rig Mylos Mob
Ocean Rig Skyros Mob
Ocean Rig Athena
Ocean Rig Apollo Mob
Ocean Rig Santorini
ConocoPhillipsMob
Rig Management Norway (led by Total)
Petrobras
Total
Expected Delivery December 2015 Mob
2 x 1 year options (through Q3 2017)
72%
Mob
Expected Delivery March 2014
Expected Delivery January 2015
Lukoil
LOA with major oil company (through 2020)
options for up to 2 years (through 2018)
Eni
Petrobras
options for up to 2 years
(through 2018)
2016
38%
Repsol
Delivered December
2013
Q2
2015 2017Year
2013
Q4 Q4Q3
2014
Q4 Q1
2 x 1 year options (mid 2018)
Total
3 X 1 year options (through 2019)
Q1 Q4
99%100%
Total (through Q1 2018)
DryShips Inc. Page 15
ORIG Value to DRYS
DRYS 59.4% investment is worth $1.33 billion1
Value creation initiatives
$25 million quarterly dividend starting with cashflow from Q1 2014
operations and payable in mid May 2014
Commenced Master Limited Partnership (MLP) IPO process
(1) Basis ORIG stock price at $17.10 (closing price on 25/02/14)
DryShips Inc.
Agenda
Industry Outlook
Dryships Today
Investment in ORIG
Closing Remarks
DryShips Inc. Page 17
Drybulk: Improved Fundamentals - Recovery under way!
Factors to watch going forward:
(+) Global economic outlook – Improving fundamentals
(+) High steel consumption due to construction demand and steel margins relatively steady
(+) High bunker prices which dictate vessel speeds and effectively the fleet supply
(+) Iron ore production coming on-line within the next 3 years will increase transportation demand and put pressure
on iron ore prices, thus increasing the potential for imported ore to replace expensive/lower quality Chinese ore
(+/-) Seasonal factors which affect near term freight rates (e.g. adverse weather in BRA & AUS, port congestion, grain
season etc.)
(-) Combination of high Private Equity availability and shipyards looking to fill their empty slots
(-) Rising Chinese iron ore stockpiles Source: Clarksons, Bloomberg
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
C4TC Quarterly Avg. C4TC Quarterly FFA
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
P4TC Quarterly Avg. P4TC Quarterly FFA
Note: FFA curves as of March 10th 2014
DryShips Inc. Page 18
Drybulk Fleet Growth Under Control
Key Items: Capesize fleet is expected to grow by approx. 5% and 4% y-o-y in 2014 and 2015 respectively
Panamax fleet is expected to grow by approx. 9% and 4% y-o-y in 2014 and 2015 respectively
Orderbook has been rising recently on the back of the improved freight outlook, but remains at manageable levels
Demolition activity slowed somewhat during the 2H 13 with approx. 3m dwt and 1.25m dwt of Capes and Panamaxes
removed from the market (compared to 5m dwt and 3m dwt in 1H 13 respectively)
However, there is still considerable scrapping potential as more than 8% of both Cape and Panamax fleets are over 20
years old and an additional 10% and 12% respectively are between 15-19 years old
Source: Clarksons
-2.5%
2.5%
7.5%
12.5%
17.5%
22.5%
0
50
100
150
200
250
300
350
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E
Cape Fleet Development % Change (RH)
(mdwt)
-2.5%
2.5%
7.5%
12.5%
0
50
100
150
200
250
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E
Panamax Fleet Development % Change (RH)
(mdwt)
0%
20%
40%
60%
80%
100%
120%
140%
Cape Orderbook as % of fleet
0%
10%
20%
30%
40%
50%
60%
70%
Panamax Orderbook as % of fleet
0
10
20
30
40
50
60
70
80
2014 Feb-Dec 2015 2016+
Drybulk Orderbook
Capesize Panamax Supramax Handysize
(mdwt)
DryShips Inc. Page 19
Tankers: Tighter Supply & Demand Balance
Source: Clarksons, Bloomberg, IEA, IMF
During Q4-13 and for a good part of
January-14 we witnessed a significant
increase in freight rates, especially in the
larger asset classes. This move is primarily
driven by increased Chinese and US
demand, cold winter and weather
disruptions which have caused port delays.
The magnitude of the recent increase shows us
that supply/demand balance is tighter than
anticipated. As such, with global economy
improving, crude demand gaining momentum
coupled with a slowdown in newbuilding
deliveries , we expect 2014 to be a transitional
year with increased volatility and an overall
better freight environment
(MMbpd)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14
Suezmax Weekly Avg. Earnings Aframax Weekly Avg. Earnings
85.50 88.40 88.96 90.00 91.30 92.60
-0.38%
5.19%
3.91%
3.12% 2.98%
3.66%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
80.00
82.00
84.00
86.00
88.00
90.00
92.00
94.00
2009 2010 2011 2012 2013 E 2014 F
Global Oil Demand Global GDP growth (%)
DryShips Inc. Page 20
Tanker Fleet – What Overcapacity?
Key Items:
We anticipate the Suezmax fleet to grow by approx. 5.8% and 2.5% y-o-y in 2014 and 2015 respectively. However,
these figures could end up significantly lower, should financially distressed yards fail to solve liquidity
problems and deliver their orders
Aframax fleet is expected to grow by approx. 1% and 2% y-o-y in 2014 and 2015 respectively
We expect Europe and Asia to continue covering for a large percentage of the lost U.S. imports from W. Africa
and the development of new trade routes (i.e Americas to Asia) which often involve longer than traditional
voyages and should be supportive of ton-miles and improve utilization across the tanker fleet
Source: Clarksons
(mdwt)
(mdwt)
-7.5%
-2.5%
2.5%
7.5%
12.5%
17.5%
22.5%
0
20
40
60
80
100
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E
Suezmax Fleet Development % Change (RH)
-7.5%
-2.5%
2.5%
7.5%
12.5%
17.5%
22.5%
0
20
40
60
80
100
120
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E
Aframax Fleet Development % Change (RH)
0%
10%
20%
30%
40%
50%
60% Suezmax Orderbook as % of fleet
0%
10%
20%
30%
40%
50% Aframax Orderbook as % of fleet
0
5
10
15
20
25
30
2014 Feb-Dec 2015 2016+
Tanker Orderbook
VLCC Suezmax
Suezmax (Rongsheng) Aframax
Panamax MR/Handy
(mdwt)
DryShips Inc.
Industry Outlook
Agenda
Closing Remarks
Dryships Today
Investment in ORIG
DryShips Inc.
Next Steps
Page 22
Refinancing convertible bond
Remove “overhang” on DRYS shares
Opportunistic growth
We are at a low point in the cycle
Fresh equity may be required but only for accretive acquisitions
Spin-off / IPO tanker segment if conditions are right
Crude tanker segment outperforming other asset classes
Currently back in favor with U.S. capital markets