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".
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.
|Q3 Revenue||Q4 Revenue|
|1 through 20||20||4,234,944||3,000,300|
|21 and Above||10|
Cash Earnings before Taxes
|TCE Rates Spot|
|TCE Rates Fixed|
OpEx, G&A, DryDock SpecialSurvey Assumptions
|G&A per Vessel||Daily|
|1 through 20||20||1,644|
|21 and Above||10||1,500|
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.
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