Dolphin Drilling AS (DDRIL.OL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Dolphin Drilling Q3 Report 2025 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jon Oliver Bryce, CEO. Please go ahead.

Thank you, and good afternoon. My name is Jon Oliver Bryce, and I am the CEO of Dolphin Drilling. Today, we're going to run through our Q3 earnings call, and helping me do that on this call is Dolphin's CFO, Ingolf Gillesdal. So let's move on to Slide 2, and you can see our company disclaimer. I ask you to pay attention and read that. On to Slide 3, and here's the agenda for today's earnings call. Firstly, we'll kick off with some key financials and some company updates. Then we'll talk about our rig fleet. Then we'll talk about the rig market that we operate in. And then we'll have a summary and roundup. And as part of that roundup, we'll also have a Q&A session. So Slide 4 then into the key financials. Slide 5. Right. Overall, it was a good quarter with good operational performance and also some positive company developments, all of these contributing to Dolphin's continued turnaround. Okay. Financially, despite good operational performance and good respective financial efficiency, the group results were detrimentally affected by the fact that the PBLJ rig was out of action on a planned shipyard rig survey for a large part of the quarter. As such, the company made an EBITDA loss of $4.7 million, whereas the company made an EBITDA profit of circa $10 million the previous quarter when the PBLJ and the Blackford worked continuously for that quarter. Expenditure-wise, the company focused on cost control, and I'm very pleased to say that we achieved material reductions in both overhead and rig operating expenses. In terms of contract backlog, we had success through the quarter there too, booking $100 million of new firm work. That now gives the company an overall backlog of $264 million in firm and $353 million of optional work. Linked to the new contract backlog is work for the Borgland Dolphin, which has been warm stacked since it last worked in Norway. This new work will see the Borgland reactivated and return to operations, adding a new revenue stream to the company. And finally, the PBLJ successfully completed its rig survey project in Norway and returned to the UKCS. And this is very positive as the rig's long-term commitment with Harbour, combined with low and stable OpEx and minimal CapEx, will help to generate a strong cash flow for the company going forward. Okay. On to Slide 6 and looking at the financial highlights in more detail. I'm going to hand over to our CFO, Ingolf. Ingolf, can you comment on this slide?

Many thanks, Jon. Today, we published our financial report for the third quarter of 2025. The following is a brief overview of our preliminary financial performance, rig uptime, principal developments throughout the period as well as significant events subsequent to the quarter end. For a comprehensive review, please refer to the full report issued earlier this morning. Our financial highlights for the quarter revealed total revenues of $37.7 million, as earlier guided, with the PBLJ rig being out for a scheduled survey for part of the quarter. However, we are pleased to report higher earning efficiencies of 95% and 93% for the two rigs. Another key event for us was the announced contract award for Borgland, and this contract adds $60 million to our backlog. Finally, we achieved cost reductions mainly to our overhead and continue to push for efficiencies throughout the organization. Post quarter end, we have had several important updates. Firstly, we negotiated and agreed a payment plan related to a larger HMRC tax claim in the U.K. And thereafter, we announced an equity offering, providing for a gross $15 million in new funding to the company. And finally, last week, we informed of a contract extension for the Blackford with Oil India. These developments support us delivering on our promises, turning around the company with focus on reducing uncertainties and to provide stability to our drilling operations. Next page. Looking at the P&L for Q3, the company achieved total revenues of $37.7 million with the substantial amount linked to Blackford. We have said a couple of times, PBLJ underwent a scheduled rig survey for much of the period, so the rig only had 32 days under charter. While our third rig, Borgland, remained idle throughout the quarter. On the positive side, earnings efficiencies improved quarter-over-quarter. Rig operating expenses reflect higher costs during the rig survey as expected and Blackford costs, on par with previous quarter and Borgland in layup at a lower cost. General and administrative expenses were sharply reduced through tight cost control. This period then result in an EBITDA shortfall of $4.7 million. Nevertheless, we report of making progress in operational efficiency and cost discipline. Blackford delivered improved operational performance, evidencing 99% uptime for September and 93% over the quarter as we had some disruptions in July due to repair. PBLJ with its shortened period of contracted days this quarter had strong uptime. Net financial costs include interest expenses and refinancing costs. The income statement comparisons shows a decline in net income loss from Q2 to Q3 reflecting some financial improvement, but a loss was expected as we had only Blackford generating earnings for most of the quarter. On to the next page on the balance sheet. The overview highlights a cash position of $28.9 million supported by refinancing activities including new debt and equity. Accounts receivable increased due to the timing of revenues from Blackford and the $10 million contribution from Harbour related to the PBLJ rig survey. Other current assets include debt service coverage, prepayments and mobilization costs. On the noncurrent asset side, they rose due to the rig survey investments, increasing PBLJ book value with $25 in the quarter. Accounts payable and liabilities remain elevated reflecting pending payments for the survey completion. Debt amortization schedule are detailed with less strain on the company in the coming months. Turning then to the next page, and over to Jon.

Thank you, Ingolf, for that overview of the Q3 financials. So onto Section 2, the rig fleet overview. Looking at Slide 10, we can see the company's fleet here. And there's 3 units that we own and operate, 3 semisubmersible drilling rigs. These units can operate globally and can efficiently undertake both drilling and P&A activity, and the units are rated for harsh environment basins such as the North Sea. So if you're looking at the slide from left to right, we start with the Blackford. This is an Aker H3 semisub which has been significantly upgraded, and this unit is suitable for deepwater. In the middle, we can see Borgland, which is also an Aker H3. This has had a significant upgrade to its topside also, including a ram rig drilling system being fitted. This unit is suitable for mid-water. And then the last unit on the right-hand side is the PBLJ, or the Paul B. Loyd Jr. It's also known -- and this is Aker H4, a later design, and this unit is suitable for mid-water. And these units then are considered reliable workhorses within the industry and give customers a safe, efficient and competitively priced rig solution. So that's the fleet. Going to Slide 11, we can look at the contract status of these units. We can see that 2 of the units are on contract with a third about to be reactivated. So going through them one by one. The PBLJ is currently on contract to Harbour Energy in the U.K., and that unit is undertaking both drilling and P&A activity. It has a firm contract which runs to 2028. And at the end of that firm period, we then have 5 1-year options to extend with Harbour. So a long runway with Harbour on the PBLJ. Next is the Blackford, and this is currently on a contract with Oil India in Indian waters, close to -- far to the east near the Andaman Islands, and this is undertaking drilling activity. And we have a firm contract which has recently been extended, taking us to mid-'26. And then lastly we have the Borgland, which is currently berthed in Las Palmas, and reactivation work will now ramp up in preparation for its new contract in late '26. And that contract is with Repsol for P&A activity in Spanish waters. So that was an overview of the rig fleet and the contract status. If we go on to Slide 12 then, we're going to touch on the market that we operate in. Looking at Slide 13 then. So if we look at this, we can see some supply and demand rig data on the UKCS. And the reason we're looking at this UKCS is this is traditionally one of the biggest markets for moored semisubs and this is a sector that Dolphin operates in. So looking at the supply side on the left of that slide, we can see some data here from IHS and Arctic. And within this data, we can see a steady and pretty dramatic reduction in rig supply since the crash of 2014. The majority of the fleet in the U.K. has been scrapped from a high of 24 units back in 2014 to 5 units now, and that's with a further 4 being scrapped just last year. We can also see that there has consistently been an underutilized fleet, and that's the difference between the contracted rigs shown in the black and the available rigs shown in the gray, even with this reduction in demand over the last 10 years. And in 2025, however, we can see a slight uptick in this fleet utilization, and you can see that clearly in the green line, indicating a potential cycle change. So that is the supply side. So let's look at the right-hand side of the slide, and this has more to do with the demand. What we can see here is a very large number of work requirements for both development drilling and P&A. And if you put this all together, this represents almost 20 years of contracted work up to the period of 2023. So the conclusion from this data is that in the U.K., demand will exceed rig supply unless there are new rig entrants, and we see that as unlikely, or projects are canceled or deferred. In the event of a hot market unfolding as a result of this likely imbalance, there is an obvious opportunity for rig owners to leverage their position with regards to day rates. So that was the UKCS. Let's go on to the next slide, which is 14, and looking at the global supply of moored semisubmersibles. And we can see from the slide that there are only 14 left. And just a bit of context, there was circa 100 moored semi units back 10 years ago, but the crash of 2014 has seen the majority of the global fleet scrapped. We can see at the top of that slide 5 units in the U.K., as we've previously discussed in the Slide 13. The remainder of the rigs are a similar vintage to Dolphin's fleet and the rigs in the U.K., and most of those are located in Asia. It's worth noting though that there are other moored semisubmersibles not shown on this global supply. But they are in the Caspian and that's landlocked, or they're in China. And these rigs generally don't travel or can't travel. And therefore, we see the global available fleet as the 14 shown there. Alternatives to moored semis could be the more expensive DP units, which operate in a more lucrative higher day rate sector. So it's unlikely we'll see these compete with Dolphin. And in theory, drillers could bring in more supply with building new moored rigs, but we see that as very unlikely because the market doesn't support that kind of capital investment. So the takeaway here is that just like in the U.K., the global fleet of moored semisubmersibles is very tight with real barriers to entry and very unlikely to see new entrants either from the higher segment of DP rigs or any newbuilds. So let's have a quick look and summarize today's call. If we look at Slide 15, 16. Q3 was a good quarter for the company. We significantly increased our backlog with wins on 2 rigs. We significantly reduced our uncertainty, and that was done through completing the PBLJ on budget and back on revenue. We also made an agreement with the HMRC so we know what the road map to repayment looks like there. And also we know what we're doing with Borgland rig and its future. So we significantly reduced uncertainties. We also shored up our liquidity with continued support from our largest shareholder in a subsequent event equity raise. And then finally, what we can say is that we continue the company's turnaround and positioning it now as an attractive platform for strategic growth. So that's the summary, and that concludes our Dolphin Drilling Q3 earnings call. And now what we'll do is we'll go to the operator to field some questions.

[Operator Instructions] And your first question today comes from the line of Fredrik Stene from Clarksons Securities.

First one, I just wanted to touch upon the Blackford. You recently extended that into May next year, but it seems like, call it, the rest of the option period has now lapsed. So just wanted to hear your thinking around potential downtime on that rig, what are fair assumptions. And also with the SPS coming up in 2027, how you time that. Will you kind of fast forward it on the back of the Oil India contract? Or will you wait until you have further secured commitments that can justify that type of investment before you'll do it? Any color would be appreciated.

Okay. Fredrik, thanks very much. Can you hear me okay on my comms here?

Yes. Yes, you're fine.

Good. Okay. So a few questions in there. So this extension basically represents Oil India's option. So this is then exercising the option. We have an approximate date when the rig will complete operations, but that could change depending on operational activity. So we know it's towards the end of Q2. It probably won't be minus that but it could well be plus that, just the way that operations pan out. So that's when the end date of Oil India is going to happen, somewhere towards the end of Q2, but it might creep. What comes next? We're marketing it very hard, specifically in Southeast Asia, so India and Southeast Asia. There are requirements for rigs at the moment and we see more on the horizon. So we're very positive about opportunities for the rig in that region. Ideally, we would like continuous contracting for the unit and we'll strive for that. And even if there's an opportunity which has a gap, we'll see if we can negotiate no gap or a smaller gap. But we're aware that there could be a gap. Now you also mentioned about the SPS. The SPS isn't due until 2027, but we could take a view on doing the SPS early if we secure a long-term contract after Oil India and let's just say the customer's preference is not to have an SPS in the middle of it. So basically, we have a rough idea when the rig is going to come off. We are actively marketing the unit. There are opportunities. The SPS date, we know when we have to do it, but we could bring it forward if that suits a contract that we manage to secure for the unit. So hopefully, that addresses your question.

Yes. Onto another theme. There's been some, call it, news items with the labor government in the U.K. lately around oil and gas leases and what's going to be allowed and not allowed, et cetera. And I think some oil companies have at least appreciated that there is some clarity. But on the other hand, there seems to be only a kind of a limited number or types of leases that will be allowed under this plan, not that I'm an expert on it. But I was wondering if you had any recent client discussions about how that might impact rig demand in the U.K. going forward.

I think the -- well, okay, so it's not ideal that the U.K. government and the budget decided not to reduce this very high level of taxation, what we call EPL or some people call the windfall tax, which is ending up with an effective corporation tax of 78% at the moment. That's a negative, right? But one positive that came out of the budget when the government said, we're keeping the 78% is that at least they know what the future looks like so they can plan accordingly. Now we have two types of rig activity in the U.K. We have drilling and we have P&A. The budget will not affect P&A because that's just an activity operators have to do. So that, at the moment, represents the majority of rig demand is P&A here in the U.K. When it comes to drilling, we have to wait and see. I guess all the operators are just sort of taking a view on it. But interestingly, one of the largest operators here in the U.K., Serica, came out the same day and the CEO made a statement saying, right, 78%, we're still drilling. So it's interesting that some operators have come out already and said, at least we know what the future looks like. So I'd say it's wait and watch. But I'd say the signals are not overly negative at the moment, although we would welcome a reduction in the tax. So yes, I'd say it's kind of neutral, but we're watching it very closely.

All right. And if I can get one last one in, please. You mentioned just on the end of your prepared remarks something about positioning yourself for strategic growth. Are you able to elaborate a bit on what you mean by that?