DryShips Inc. Updated Cash Earnings Model

| About: DryShips Inc. (DRYS)

Summary

Updated Cash Earnings Model for Q3 and Q4 2017.

Recent bounce in spot and FFA Panamax TCE rates a real positive since 17 of DRYS 30 vessels are Panamax/Kamsarmax.

Two year delay of implementation of the IMO Ballast Water Treatment Convention extends useful life of Panamax fleet and reduces CapEx associated with remediation.

DryShips Inc. (DRYS) has completed the acquisition of 14 of the 17 vessels it has signed agreements to purchase. The acquisition of the three remaining VLGCs is scheduled to occur September, October, and December of 2017. Included below is an updated cash earnings model for Q3 and Q4 2017. The model was used to project cash flow contributions used in Funding Gap calculations in a recent article titled "DryShips Stock Issuance Update".

Recent Events

Per Compass Maritime, the International Maritime Organization delayed the implementation of its Ballast Water Management Convention by two years to 2019.

The International Maritime Organization (IMO) announced this week that they would delay the deadline for the implementation of ballast water treatments systems on existing ships until the first statutory dry docking survey after 2019. Under the original version of the convention, owners of existing ships would be obligated to fit the equipment at the first special survey after September of 2017. New ships with keel laying after September this year, however, will have to be built with ballast water treatments systems. Owners of Vintage ships 15+years old have second thoughts about selling or scrapping their ships since the cost of dry docking will be considerably less without the requirement to install the ballast water treatment systems.

DRYS' fleet includes 8 Panamax vessels that range between 15 and 17 years of age. The postponement of the implementation of the Ballast Water Treatment Convention will extend the useful life of these vessels and reduce DRYS near-term remediation CapEx requirements under the Convention by perhaps as much as $20 million over the next 2 years. The accruals for DryDock and SpecialSurveys included in the model may therefore be high.

A recent rally in Panamax rates is a positive for DRYS since 17 of its 30 vessels are Panamax/Kamsarmax class. Spot TCE rates were $9,348 as of July 14th and Q4 FFAs traded in the $10,200 area.

Cash Earnings Model

The following is a Cash Earnings Model for Q3 and Q4 2017. It reflects the acquisitions that have already closed or that will close between now and yearend. Assumptions regarding TCE rates, OpEx, G&A, etc are included below the model.

DryShips
Q3 Revenue Q4 Revenue
Vessels
Revenue
Panamax 13 11,246,872 11,720,800
Newcastlemax 4 4,471,950 4,830,000
VLCC 1 2,590,500 2,852,000
Aframax 2 3,004,000 3,190,000
VLGC 1 2,760,000 2,760,000
1 - 2,760,000
1 - 1,758,813
1 - -
Kamsarmax Newbuild 1 971,080 1,012,000
1x 2014 1 971,080 1,012,000
1x 2014 1 971,080 1,012,000
1x 2014 1 971,080 1,012,000
1x 2014 1 971,080 1,012,000
Suezmax Newbuild 1 1,854,500 2,116,000
Subtotal 30 30,783,222 37,047,613
OpEx
Panamax 13 6,697,600 6,697,600
Newcastlemax 4 2,060,800 2,060,800
VLCC 1 782,000 782,000
Aframax 2 1,214,400 1,214,400
VLGC 1 828,000 828,000
1 - 828,000
1 - 549,000
1 - -
Kamsarmax Newbuild 1 515,200 515,200
1x 2014 1 515,200 515,200
1x 2014 1 515,200 515,200
1x 2014 515,200 515,200
1x 2014 1 515,200 515,200
Suezmax 1 699,200 699,200
Subtotal 14,858,000 16,235,000
G&A
1 through 20 20 4,234,944 3,000,300
21 and Above 10
Subtotal 4,234,944 4,335,228
SpecialSurvey/DryDock Accruals 30 2,281,250 2,463,750
Interest Expense
SIFNOS Loan 3,375,000 3,375,000
VLGC Facility 796,875 2,125,000
Subtotal 4,171,875 5,500,000

Cash Earnings before Taxes

5,237,153 8,513,635

TCE Assumptions

Days/Month July August September October November December
31 31 30 31 30 31
TCE Rates Spot
Newcastlemax 8,800 9,350 11,000 11,000 11,000 11,000
Capesize 8,000 8,500 10,000 10,000 10,000 10,000
Kamsarmax 10,120 10,560 11,000 11,000 11,000 11,000
Panamax 9,200 9,600 10,000 10,000 10,000 10,000
VLCC 27,500 28,000 29,000 30,000 31,000 32,000
Suezmax 19,500 20,000 21,000 22,000 23,000 24,000
Aframax 16,000 16,000 17,000 17,000 17,000 18,000
TCE Rates Fixed
VLGCs
1 30,000 30,000 30,000 30,000 30,000 30,000
2 30,000 30,000 30,000
3 28,833 28,833
4
Newcastlemax 19,500 19,500 19,500 19,500 19,500 19,500

OpEx, G&A, DryDock SpecialSurvey Assumptions

Daily
OpEx OpEx
Panamax 13 5,600
Newcastlemax 4 5,600
VLCC 1 8,500
Aframax 2 6,600
VLGC 1 9,000
1 9,000
1 9,000
1 9,000
Kamsarmax Newbuild 1 5,600
1x 2014 1 5,600
1x 2014 1 5,600
1x 2014
1x 2014 1 5,600
Suezmax 1 7,600
Subtotal
G&A per Vessel Daily
1 through 20 20 1,644
21 and Above 10 1,500
SpecialSurvey/DryDock Accruals 30 1,000
Interest Expense Rate
SIFNOS Loan 6.75%
VLGC Facility 8.50%

Please note that the SIFNOS loan is interest only for six years and the model assumes that principal payments are not due on the VGLC Facility until month six (i.e. principal payments are due at quarter end and there is a one quarter principal forbearance at the beginning of the loan).

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DRYS over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Please note that I have traded DRYS on a regular basis, sometimes intraday round trips. I do not short stocks. I expect DRYS to be extremely volatile over the next several weeks and I view trading DRYS as extremely risky.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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