Dolphin Drilling AS (DDRIL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Dolphin Drilling Q2 Report 2025 Listen-only 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, sir.

Thank you for that introduction. My name is Jon Oliver Bryce, and I'm the CEO of Dolphin Drilling. And I'm here today with Dolphin's CFO, Ingolf Gillesdal. During this call, we'll present Dolphin's H1 2025 results and also our Q2 information. So if you're following this call with our PowerPoint presentation, we're on Slide 1, and we'll take you to Slide 2 now, which is our very important disclaimers. So we ask that you kindly read this before moving forward. On to Slide 3 and I'll talk very quickly about the agenda for today's earnings call. So Section 1, we'll talk about key financials and the main milestone events. Section 2, we will talk about Dolphin's rig fleet. Section 3, we'll touch on the market that we operate in and Section 4, we'll do a summary of the earnings call. So moving on to highlights and material events if you're looking at first Slide 4. For the first half of 2025 there have been material improvements in the company performance compared to the same period in the previous year. And also, there's been some significant structural changes to the company. So a lot going on within the first half of '25. So what were these changes, material events? Well, there were some financial ones, contractual ones, some leadership ones, some performance ones. So let me just work through those very quickly. Financially, the company has moved from a loss-making position to being back in the black with an H1 EBITDA of $10.4 million compared to a negative $23.2 million in the same period in '24. Contractually, the company has had 2 of its 3 units continuously employed with major operators. And this was the same as the previous year, but the difference being is in 2025, our 2 customers are both blue-chip customers paying on time. That was not the case last year with our issues with General Hydrocarbons. So contractually, 2 on contract both paying certainly a good position there. In terms of leadership, some significant changes. New CEO appointed, that was myself, Jon Oliver Bryce. I stepped into the position in mid-Q1, having previously worked with Dolphin for a year as Chief Strategy Officer and previous to that 30-year career in the drilling including being previously CEO of Awilco Drilling and GM of Odfjell Drilling U.K. So that was my CV, and that was my entry into Dolphin as CEO earlier this year. New CFO, also Ingolf Gillesdal, who's been with the company for about 6 years before. He's been in the Investor Relations side of Dolphin Drilling, but stepped up around about the same time as I did. So it's a new CEO and a new CFO and also a new Chairman with Ronny Bjørnådal becoming Chair around about the same time. Structurally, there have also been significant changes during H1 '25 with new major investors back in Dolphin, the largest of which being Svelland Capital, holding circa 50% of the company. Further to that, the company undertook a financial restructure where changes to its existing debt was agreed. New debt was raised and new equity was also raised. This funding solution was required to give the company sufficient liquidity to address the challenges of a significant historic [ AP ] situation and also a significant planned 2025 CapEx requirement. Despite challenging capital market conditions, the refinance was successfully completed as planned, although it should be acknowledged that a new additional funding requirement, a circa $20 million liability from a legacy tax court case, materialized towards the very end of the refi process. Due to time constraints, this additional tax funding need could not be incorporated into the refi, and so it will have to be funded separately. Performance wise, the company focused on safe and efficient operations, generating both continued revenue and positive customer feedback. The company also focused on cost saving and operational uptime in order to maximize contractual financial efficiency. So in summary then, H1 has seen a lot of changes, and the company is now at the beginning of what I would call a turnaround situation. Okay. On to the numbers, and let me hand over to Ingolf for Slide 5.

Many thanks, Jon. We released our half year 2025 financial report earlier today. And here is a brief overview of the preliminary financial results, rig uptime and main events in the period as well as developments post quarter end. I refer you to the published detailed financial report for additional information. In the first half, we recorded total revenues of $93 million, a massive improvement from same period last year. And noteworthy, we had 2 drilling rigs generating earnings for the period, which is the first time since we got public listed. EBITDA, as was mentioned, was $10.4 million, below internal targets as both of the working rigs have periods of reduced earnings, especially for Blackford in January and May and for PBLJ with periods of waiting on weather in January and planned rig moves in April and May. The net loss for the period was largely affected by the outcome of HMRC tax appeal with the company in late June received the decision by the Supreme Court. A cost of $19.2 million included interest was booked in the period. We ended the quarter with a cash position of $21.8 million which includes $4 million in restricted cash supporting an ongoing drilling contract. Total interest-bearing debt include the first lien loan on PBLJ of $60 million, plus an upsized loan tranche of $6.5 million and the former shareholder loan of $50 million, resulting in net debt of $59.7 million. Post quarter end, we received a decision by the Federal High Courts in Lagos to enforce the results of the earlier informed $105 million arbitration award case in Nigeria. Since then, the former client, General Hydrocarbons Limited, they have appealed, but a hearing not yet scheduled, as such recovery prospects highly uncertain at this point. Then later in July, we closed a group refinancing including new bond loan, a repaying of a shareholder loan and raising equity, but we will talk more about this later in the presentation. Looking specifically at the Q2 results, the 2 rigs generated $35 million on an earning efficiency of 93% for PBLJ and 92% for Blackford. The Blackford contract include other services, which generated $8.2 million, $2.6 million in accounting entries for the already paid mobilization fee and finally, $0.7 million in sale of unused equipment. On operating expenses, we are in line with budget for PBLJ despite increased repair and maintenance costs. On Blackford, the overall costs continue to stay above satisfactory levels. Due to, among others, increased rental requirements associated with the contract, repair and maintenance and third-party personnel costs related to the well move for this multi-exploration well campaign. We continue to make a small loss on the boats hired as part of the overall contract with Oil India. On the G&A costs, we have seen increase in the second quarter as we worked out the group refinancing plan. Our ambition is to reduce overhead costs and become more efficient with our capital resources, meaning as we head into the fourth quarter, we should see results. The net financials include 2 extra items last quarter. Booking of interest costs related to tax claim of $5.7 million and an unrealized FX loss of $2.6 million. After we booked the tax claim in June, this had a major effect on the quarterly net income, which ended up at a loss of $26 million. For the next quarter, please note that PBLJ started its SPS in late July. And as a result, Blackford will be the sole source of revenue for the company for most of this period. Then over to the balance sheet. The company concluded the quarter with a total cash balance of $21.8 million. Unrestricted cash position, staying way above our minimum financial covenant levels as per our loan agreements. Other than change in cash, adjusting for higher accrued revenues due to Blackford and which is part of the other current assets, there are limited changes in current assets during the last 6 months. The booked asset values for the rigs is depreciated as normal with the exception that a $2.1 million CapEx spend on Borgland is impaired. On the group's debt liabilities, we have continued carrying a large amount of accounts payable on the balance sheet, and the larger part of it being overdue as we worked on the refinancing throughout the quarter and into the third quarter. At one point, above $20 million overdue. The profile of accounts payable has changed since year-end 2024, at that time, which included reactivation efforts for Borgland Dolphin and cost to commence contract in India. Since access to new funding in late July, the total dollar amount of overdue invoices have since come down, and we continue to make improvements on this front. As of this report, we can inform that since the refinancing date over $15 million has been paid into the vendor base. The major change in the second quarter represent booking of the tax claim to HMRC in the U.K. of $19.2 million in other current liabilities. As announced, the company paid in August GBP 2 million to HMRC as part down payment for the tax claim. We have agreed to pause the negotiations for a period following this payment. The current portion of debt have post quarter end been refinanced, leaving no debt installments until October 2025 and from thereon, 1 million per month until April 2026. This was part of the group refinancing. Now over to the cash walk. As mentioned earlier, earnings from PBLJ has been a key contributor to the group's operating profit. Within each specific rig cash flows, as shown on the graph, the numbers include $2.8 million in CapEx for PBLJ, $0.6 million for Blackford, $2.1 million for Borgland, which are remaining payments related to last year's contract preparation work that was thereafter cut short. For Blackford, we have room for improvements as both revenue generation and cost levels had not been satisfactory during the period. Borgland, we have kept the rig in good conditions and actively marketed, average cost for the period has been $28,000 per day. Our G&A cost includes several one-offs, specifically professional fees related to the refinancing and the before mentioned legal and tax claims. There are several factors contributing to the working capital outflow. First, the payment cycle for our contract in India that commenced late last year is 2 months versus 1 month for our long-term contract in the U.K. Second, the earlier heavy increase in accruals related to Blackford start-up in 2024 has since been reduced. Additional charges in India, a tax receivable buildup to $1.7 million related to paying reverse charges on goods and services. Fourth, costs related to refinancing was held on the balance sheet. And lastly, we have had an inventory build for PBLJ as we are prepared for the class renewal. Some of that inventory build in PBLJ will move into CapEx through the project as utilized. Guiding for the coming period as we are way into the third quarter already, new funding from the refinancing has hit our accounts in late July, but the heavy investment on PBLJ, together with limited revenues, during the scheduled class renewal will likely result in negative cash flow for that rig. Group refinancing. The company successfully closed a group refinancing in late July 2025. Several elements needed to be sorted out during this process. We raised new equity, repaid a loan that originally was due later this year and which had encumbrances attached it, and we raised new secured debt. Moreover, we managed to defer scheduled debt installments for a period of 12 months, starting from April 2025. As a final piece, we agreed with our existing lender to upsize the PBLJ loan facility for us to prioritize renewing the 5-year special period survey on the rig. As we show on the slide, we have refinanced debt falling due this year and replaced with new longer-dated debt maturities expiring in second half 2027. We raised new equity of $29 million and is pleased to see our main shareholders heavily supporting this transaction. As part of this equity raise, we launched, as promised, a subsequent offering earlier this week. With that, I'll return the word to Jon that will take us through the remaining part of this presentation.

Okay. Thank you, Ingolf. So that concludes the numbers and details. So we're on to Slide 10, and let's have a look at the rig fleet in a bit more detail. So moving on to Slide 11. We can see from this slide that the company owns and operates a fleet of 3 moored semi-submersible drilling rigs. These units are conventional drilling rigs, but they are also very suited for P&A activity. These units can operate globally and are also rated for harsh environment. And from the 3 you see there, the PBLJ which is an Aker H4 design semi-sub and that's suitable to mid-water. Borgland is an Aker H3 design semi-sub, with a significant upgraded top side, and that's suitable for mid-water. And finally, the Blackford is an Aker H3 designed semisubmersible, also with a very significantly upgraded top side, but this one is suitable for deepwater. So those are the 3 units that we have in our fleet. If we move on to Slide 12, we can have a snapshot then of the operational status of these units. And from this slide, we can see that 2 of the units are currently on contract, delivering safe and efficient operations with the PBLJ in the North Sea and the Blackford in the Indian Ocean. And FYI, the PBLJ is actually, as we speak, in the very final stages of its SPS, Special Periodic Survey in Norway. And when it comes out, it will return to full operations. But for the last 40-ish days has been undertaking its SPS. The third unit is warm stacked and it's located in the Astican shipyard in Las Palmas. Interestingly, with this unit, it commenced its SPS back in late 2024, but those rig activities were paused when the rigs client chose to terminate an agreed contract before it had even started paying off in a significant ETF as a consequence. As of today, the unit has a relatively minor scope remaining to complete its SPS and is being marked and worldwide. In terms of the operating cost for these units, they're varying quite substantially, but there are good reasons for that. The Blackford, the one that's operating in the Indian Ocean has an OpEx of circa $155,000 per day, but that does include a lot of rig services. The PBLJ OpEx running at around about $88,000 a day, and the Borgland is about $26,000 a day whilst it's in port. So that is the status of Dolphin's rig fleet. And if we move on to the next slide, which is Slide 13, we can have a look at the contract status. So looking at the big picture, Dolphin Drilling is $250 million of firm contract backlog and just over $400 million in options. The PBLJ rig has a 3-year term contract ahead of it with Harbour Energy here in the U.K. and a potential to extend by 2 more years with built-in options. So a very good place to be. The Blackford is currently working for Oil India, and it's scheduled to finish sometime in H1 depending on the operational activity. There is also a 1-well option built into that. And after that point, it is released into the market and a very interesting market in India, which we hope to remain in. In terms of the Borgland, the unit which is warm stacked in port in Las Palmas, this is being actively marketed for work globally, and there is very keen customer interest in this unit. So it's a contract status of 3 units. Let's go on to the next section of the earnings call, and we'll touch on the market. So moving on to Slide 15. So looking at the supply side, we see that globally, there is a very small pool of moored semi-submersible units. And in fact, there's only 5 now working in the U.K. And this is a result of the mass scrapping, which followed on from the downturn, which kicked off in 2014. And to give it some context, if you could just use that example at the top of the page there, top of Slide 15, when you see that there's only 5 in the U.K. If you go back to 2015, 10 years ago, just after the downturn started kicking off, there were 25 semi-submersible working in the same basin, all of them employed as well as 25 jack-ups. So it's all about the supply side, and it's a very, very constricted market. So good place to be if you have operating assets. So that's the supply side globally and in the U.K. Okay. Looking at the supply side now, and you can see on Slide 16, what we're looking at here is the moored semi-submersible rig addressable market globally. And here's some data from both Arctic and Rystad. And what this tells you is that there is global activity and there is global tendering. But most importantly, what it tells you is there's a steady increase in rig demand and this demand is for 2 things. It's for conventional drilling because operators are still drilling for hydrocarbons, but it's also for an increasing amount of P&A, plug and abandonment work, decommissioning of wells. So a gentle increase within the visible demand. But if you combine that with the very constricted supply side in the previous slide, Slide 15, then what is apparent is that the industry is heading for an imbalance in terms of supply and demand for moored semi-submersibles. So a very interesting market to be part of. So Slide 16. Let's have a look at -- let's move on Slide 17 then. So let's just summarize this earnings call. So the main point being, we have rigs on contract and we are very well placed for follow-on work in an increasingly tightening market. We have refinanced the company in terms of debt and equity. So we have liquidity, although we do have some challenges that we've touched on. We have an extremely high focus on cost improvement, whether that be SG&A or whether it be operating costs. Similarly, we have a very, very high focus on operational performance. And you add those 2 things together, it's about financial efficiency of our existing contracts. So in summary, Dolphin Drilling, moored semi-submersibles, very large improvement compared to the same period last year. A lot of structural changes in the company compared to the same period last year in terms of its funding, its management, its investors and its Board. And so Dolphin Drilling, very well positioned for the market going forward. So what we're going to do in terms of IR questions, we invite you to e-mail us questions that may have on this presentation or anything in general, and we will reply to them. And what we will also do is we'll publish them on our website next to this presentation. So thank you again for listening to the H1 Dolphin Drilling earnings call.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.