DryShips Inc. (NASDAQ: DRYS) is seeing a second day benefit so far after a large rally on Monday. The gain was after news that its drilling unit, Ocean Rig UDW, has won a contract for one of its rigs to drill 15 wells on the Norwegian Continental Shelf. DryShips owns 74% of Ocean Rig. Supposedly this boosts revenue backlog by about $653 million. The news is very good, but the run has been substantial even for a low-priced stock that is historically very volatile around news releases.
The drilling contract for the semi-submersible rig “Leiv Eiriksson” is also for three years. An analyst from Wells Fargo Securities called this news positive for DryShips and that the three-year term is really a positive. The firm expects that Leiv Eiriksson will remain employed in the area for a substantial period of time.
The contract is expected to start in the fourth quarter of 2012 or in the first quarter of 2013 and Ocean Rig is looking at securing contracts for two other high specification ultra deepwater rigs in 2012. Ocean Rig owns and operates nine ultra-deepwater drilling units and it recently won a $52-million contract for drilling three wells offshore West Africa.
Shares rose by double-digits on Monday ti $2.81 from $2.41 and that was after the prior close’s gains of $2.16. The move today with another 3.4% to $2.90 feels a bit compressing and trading volume is currently about 13.5 million shares. If volume does not pick up and if buying interest does not come back in, DryShips investors may expect some ‘back and fill’ profit taking. After all, the gain from last week has been a cumulative 34% so far.
You have to decide on your own if charts matter as much on $2 and $3 stocks, but DryShips currently has a 200-day moving average of $3.08 according to stockcharts.com. Unless new news comes or unless an analyst upgrade invigorates bullish sentiment again, 34% is a lot of move.
JON C. OGG
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