Dolphin Drilling AS (DDRIL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Dolphin Drilling Q2 Report 2026 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, Michael Boyd, CEO. Please go ahead.

Good morning, everyone, and welcome to our second quarter earnings call. My name is Michael Boyd, and I'm the CEO of Dolphin Drilling. I am joined today by Ingolf Gillesdal, our Chief Financial Officer. For today's agenda, I will open with the quarter's highlights. Ingolf will take us through the financial results in detail before I return to cover the fleet, a market overview, and our outlook. Thereafter, at the end of the presentation, we'll open up for Q&A. The headline for Q2 is that we have made significant progress in repositioning Dolphin Drilling as a platform for growth. Two multi-year contract awards signed in the quarter have taken this business from a series of short campaigns to visible contracted earnings extending into 2030 and 2031, and that the equity raise that we completed in May has given us a balance sheet and the financial flexibility that can support it. Before we begin, though, a brief word on the disclaimer. This presentation contains forward-looking statements regarding contract awards, backlog conversion, reactivation timing, and market conditions. These reflect our current expectations and are subject to risk and uncertainty, and actual outcomes may differ materially. We would ask you to review the disclaimer in full and to read this presentation together with the quarterly report published this morning. Our agenda this morning has 4 parts. Firstly, we'll begin with the key company highlights and the financial update for the second quarter. Secondly, we'll walk through our rig fleet, including the contract status and an update on the Borgland special periodic survey, which represents a significant organizational project for the company over the next few months. Next, we will discuss the drilling market and how, in our view, Dolphin Drilling's over 60 years of operational experience, specializing in moored semisubmersible rigs worldwide, continues to position us well to capitalize on the considerable upside potential that can be generated using our platform for growth. And finally, we'll provide a short summary of our value proposition and deliverables to date. Let me first start with the highlights before handing over to Ingolf for the numbers behind them. So this slide essentially represents the quarter in 1 page, and it is organized around the commitments we made to the market. Starting with safety, we continue to perform exceptionally well and recently passed 1,000 days lost time injury-free for Blackford. This is testament to the safety culture at Dolphin Drilling, which is the foundation everything else is built on. Operationally, performance remains strong with high uptime and earnings efficiency. Paul B. Loyd, Jr. delivered 99.8% uptime in the quarter and Blackford Dolphin just over 90%. This high uptime is essential to us in converting day rates into cash and is also a key metric for our clients in comparing performance and awarding or renewing contracts. On backlog, we end the quarter with $557 million of firm revenue with substantial options in addition to this. This clearly improves our earnings visibility with 2 of our rigs now contracted through 2030 and 2031, respectively. This is a structural change in the story. We have moved from campaign-to-campaign visibility to multi-year contracted revenue. On the balance sheet, cash stands at $55.1 million following the equity raise completed in May, and our remaining debt levels are manageable. Additionally, through good cost discipline and operational efficiency, our earnings in the first half of 2026 delivered EBITDA of $15.3 million against $10.4 million in the first half of last year, a comparable improvement of roughly 47% versus the same 2 rigs' earnings this time last year. These deliverables come directly from the goals we set for the year. And with 3 rigs contracted and a repaired balance sheet, they position us for growth rather than survival. I'll now hand over to Ingolf to walk us through the financials.

Thank you, Michael. Let me take you through the key financials, starting with the income statement. Total revenue for the quarter was $44.9 million, on par with last quarter's revenues and marginally reduced from $47.4 million in the second quarter of last year. All of the charter revenues relate to the 2 rig contracts for Blackford Dolphin and Paul B. Loyd, Jr. with the additional $10.5 million in other revenues related to services managed towards the Oil India contract. The modest year-on-year decline reflects recording of less mobilization revenues and the fact that we commenced a new multi-year contract for Paul B. Loyd, Jr. in May, which provides important earning visibility for the company, but at the same time at a lower day rate. Borgland Dolphin was in layup and preparing for the reactivation through the period with no revenue contribution. Underpinning that revenue, Paul B. Loyd, Jr. achieved 99.8% uptime and 96% earning efficiency, and Blackford Dolphin, 90.2% uptime and 89.8% earning efficiency. The gap between the uptime and earning efficiency on Paul B. Loyd, Jr. is due to adjusting for periods of waiting on weather, although this was at a much lower number of days versus last quarter. On operating expenses, we have made a significant improvement as total operating expense was $32.7 million against $36.2 million a year ago, a 9% improvement. On a daily basis, Paul B. Loyd, Jr. ran at a cost of $90,000 and Blackford Dolphin at $143,000, both marginally improved on the previous quarter and within guidance. Borgland Dolphin stacking cost was $26,000 per day, marginally up as we have started on the actual preparation work for the reactivation and class renewal. The daily costs should increase to an average of $80,000 for the period ahead of contract start-up, and thereafter, the operating cost when in Spain should run at $110,000 per day. G&A totaled $5.2 million, marginally reduced from last year's cost base. Adjusting for the refinancing expenses and fees, underlying G&A cost was at $4.3 million, and that is the number to carry forward in your models as the approximate run rate. This delivers an EBITDA of $7 million for the quarter against $5.5 million last year. For the first half, this is an improvement of close to 50%. Below EBITDA, depreciation and amortization was $3.5 million, which includes a reversal worth $3.5 million in the quarter. So the underlying charge should be higher than the reported line. Net financial items totaled $4.5 million, materially better than the $10.8 million a year ago. The total comprises interest expense of $3.5 million plus nonrecurring fees, representing $3.5 million, offset by a positive foreign exchange movement of $2.5 million. That leaves a net loss of $2.3 million compared with a net loss of $26.2 million in the same quarter last year. So in brief, high revenue generation from the 2 rigs under contract, real cost improvement, EBITDA up year-on-year, and the remaining loss driven largely by one-off financing costs rather than operations. Then on to the balance sheet. We had cash worth $55.1 million at the end of June against $30.5 million at year-end and significantly higher cash position versus the same time last year as we completed an equity raise in May and continue to deliver on operational efficiencies. The book values of our rigs are as follows: $36.8 million for Paul B. Loyd, Jr., $31.5 million for Borgland, and $80 million for Blackford. Goodwill relating to the historic Paul B. Loyd, Jr. acquisition has been reduced to $9.2 million. Capital expenditure was $0.9 million in the quarter and $2.1 million for the first half of 2026. I would draw your attention to that. These are low CapEx numbers, and they reflect the fact that Paul B. Loyd, Jr.'s special periodic survey was completed in September '25, and this rig is not anticipated to require any major investments for the next 4 years. On the liability side, current portion have returned to normalized levels. We had previously been carrying over costs related to the Paul B. Loyd, Jr. rig survey, and those have now worked through. Accounts payable are $14 million against $31.6 million at year-end, which is the clearest evidence of that normalization. On interest-bearing debt, no debt repayments are due this year as we have agreed and stretched out debt repayments, starting up again from January 2027. The long-term portion of debt totaled $67.3 million, which represents the loan facility and the bond with both having final expiry dates in March 2028. The rigs are pledged as security to the group's long-term facilities. As we now have a much improved financial position and a multi-year contract backlog, we do receive proposals indicating much improved terms and conditions versus what we have today. Total shareholders' equity is $76.9 million against $22 million at year-end. As we have shown by our achievements year-to-date, we have moved from a balance sheet that constrained the business to 1 that can support contract execution, the Borgland Dolphin reactivation, and over time, fleet growth. I would refer you to the quarterly report for the detailed movements between periods. With that, I will hand back to Michael.

Thank you, Ingolf. So I'm on Slide 8 now. This chart is the reason we believe this quarter is a step change rather than an incremental improvement. The existing fleet is now contracted through to 2030 and 2031, respectively, and that translates into a firm revenue and EBITDA backlog profile that is stable across the next 5 years rather than front-loaded. On the left chart, you see revenue backlog by year, split between firm backlog and options. Firm revenue sits in a band of roughly $100 million to $120 million per year across 2027 through to 2029 before the mix shifts towards option years in 2030 and 2031, where you can see an uplift as exercising options will come with a rate increase to justify another set of class renewals. The right chart shows the same structure for rig EBITDA backlog, running around $50 million in the firm years. Two key points. First, Paul B. Loyd, Jr. and Borgland Dolphin both signed multi-year awards in the second quarter, and those are what create the flat firm profile as targeted. And second, the value related to the options shown is based on higher rates as the client pays for the class renewal at the time through either higher day rate or direct contribution. Reviewing our fleet now rig by rig begins to resemble a diversified portfolio as each unit offers a unique combination of cash flow visibility, revenue potential, and risk versus reward. Paul B. Loyd, Jr. is our contracted cash generator. Borgland Dolphin currently being reactivated is the largest single source of incremental earnings, and Blackford Dolphin is the near-term recontracting opportunity. So taking Paul B. Loyd, Jr. first, the rig is contracted to September 2030 with a firm revenue backlog of $247 million. Beyond that, there are options for either 2 years or 5 years, subject to a special periodic survey contribution, which would be added to the day rate. That structure matters. The option years are not dilutive to margin because of the client contribution to survey costs through the rate. The last special periodic survey was completed in September 2025, and we have limited investment planned over the next 4 years. In cash flow terms, this is close to 4 years of contracted revenue against a low-level capital requirement. The rig operates offshore U.K. with Harbour Energy and is currently on assignment to Ithaca Energy. Operational performance has been strong with above 98% uptime since we purchased the rig in January 2024 and 99.8% in this quarter. Paul B. Loyd, Jr. is also considered 1 of the larger semisubmersible rigs in the U.K., a competitive advantage given how few units of this capability remain in the basin. Borgland Dolphin is where the growth comes from. The rig is contracted through to November 2031 with a firm revenue backlog of $291 million and options thereafter for 5 years estimated at a further $287 million. On that option figure, please note that this is an estimate using the starting day rate, so it is a conservative reference rather than an escalated projection. The rig is expected to complete its class renewal by November '26, and the remaining capital expenditure on that survey is estimated at $12 million. This is the principal cash outflow in front of us this year, and it is a defined budgeted number against $291 million of firm revenue. One further point in risk allocation, should the client exercise the option period, the company is compensated for the expected class renewal cost. On deployment, the rig is scheduled to operate offshore Spain and thereafter offshore U.K. Given the importance of Borgland to the earnings profile, we want to provide visibility on project execution. The left-hand side here shows a high-level project plan, whilst the right side shows actual project progress against planned. And as you can see, we are running slightly ahead of plan at roughly 70% complete, and we remain on track against both time and budget for a contract commencement in November '26. And now Blackford Dolphin. The rig remains on contract in India, and Blackford is on the final well of a 3-well exploration campaign for Oil India in the Andaman Sea, and it is the only moored semisubmersible operating in India. Regarding follow-on work, we continue to market Blackford and identify opportunities that would justify a further class renewal survey. And as we continue to see a tight supply of moored semisubmersibles worldwide, several active discussions have been held regarding potential contract opportunities for Blackford. However, as the next required class renewal survey is due in April '27, any contract needs to be evaluated against next year's survey cost and funding scenarios available to us. The following slide summarizes fleet contract status. Firm revenue contract backlog stands at $557 million with a further $446 million in options counted from the end of the reporting period 30th of June 2026. Reading across the bars, Paul B. Loyd, Jr. is contracted with Harbour Energy in the U.K. Borgland Dolphin is currently undergoing the special periodic survey and reactivation ahead of work with Repsol in Spain before transiting to the U.K., and Blackford Dolphin is contracted with Oil India in India. As you can see, the fleet status slide is now much healthier compared to versions shown earlier in the year where our contract cover was measured in months, and it now extends across the back half of the decade with option coverage layered on top. Turning now to the market. We see 3 main market drivers that support our positive outlook. The first is energy security. Two leading industry sources, IEA and Wood Mackenzie, put total energy investment at around $3.4 trillion to $3.8 trillion in 2026, of which approximately 1/3 goes to oil, gas, and coal, with growth trends expected to continue now that production curves have been moved further out in time. The important point is not the absolute number, but the direction and the motivation. Energy security has become a primary driver of capital allocation across importing economies, and that supports long-cycle offshore commitment rather than short-cycle discretionary spend. The second is the U.K. plug and abandonment wave. The NSTA estimates several hundred wells still require decommissioning. Well P&A is the single largest cost component at 40% to 50% of field decommissioning cost over the next decade. What makes this different from ordinary drilling demand is that it is nondiscretionary and regulator-driven. The NSTA has recently named 13 operators with 153 wells already past the decommissioning consent deadlines. For a moored semi operator in the U.K., that is a demand floor that does not move with oil price. And thirdly, is the marketed supply of moored semisubmersibles, which has fallen from around 140 units to as low as 15 today. Moving to the next slide, we will consider this very important point in more detail. This slide shows the marketed supply of moored semisubmersibles by region, comparing 2010 with today. The global fleet has fallen from around 140 units to fewer than 15. That is a contraction of close to 90%. And looking at how broad-based that decline is, we can see that the U.K. has gone from 12 to 5, whilst many other regions have no active moored units operating. Brazil and Norway have both moved away from moored units to dynamically positioned rigs wherever possible or rigs equipped with both moored and DP systems. Among the small amount showing an increase is Spain from 0 to 1, where our own Borgland Dolphin will be on its way later this year. Two takeaways follow from this. Firstly, conventionally moored supply cannot return quickly. There are no new build programs for standard moored semis, and the units that have left the fleet have been scrapped, converted, or allowed to lapse out of class, whilst reactivating a cold-stacked rig is expensive, slow, and increasingly difficult to finance. And secondly, energy security and P&A liabilities are demand drivers in mature basins where the marketed fleet is fewer than 15 rigs worldwide. That is the pricing and duration environment in which we signed the Paul B. Loyd, Jr. and Borgland awards this quarter, and it is why we believe contract fleet cover into 2030 and 2031 is defensible rather than opportunistic. So to summarize the situation at Dolphin Drilling in 3 main points from an investment perspective. Firstly, we are a reputable offshore drilling platform. We have extensive international experience with demonstrated safety and uptime records having operated across all key offshore basins. Secondly, we have firm revenue streams from the existing rigs with all 3 units contracted with visibility extending into 2030 and 2031. And thirdly, with a limited supply of semisubmersible rigs globally, we operate in an extremely tight supply and demand market balance. Essentially, we are an established platform with long-term contracted earnings operating in a structurally short market. We believe this quarter represents a structural change in Dolphin Drilling's position. We are delivering on our commitments with a strong safety record demonstrated by recently surpassing over 1,000 days lost time injury-free for Blackford and solid overall operational performance across the fleet. We have stabilized the company with long-term earnings visibility now secured through the multi-year awards signed in the quarter, and we have improved financial flexibility with cash of $55.1 million and a strengthened equity base, which allows us to pursue fleet growth opportunities. On the shareholder register, Svelland Capital, as our cornerstone shareholder, holds 39% with the remaining 61% held across approximately 1,400 shareholders. We would note that the free float has broadened following the recent private placement, and we regard continued development of the register and of trading liquidity as an ongoing priority. That concludes the formal presentation. We are listed in Oslo under the ticker DDRIL. For a follow-up, please contact Ingolf Gillesdal for any questions you may have about Dolphin Drilling. Thank you for your time. We will now open the line for questions.

[Operator Instructions] And our first question comes from the line of James West from Melius Research.

So, a quick question for me, but there were some -- and you highlighted this in your prepared remarks, but I wanted to dig into more detail. In the North Sea, the regulatory authority there has gone out and fined at least 1 firm for not doing P&A work. And I think you mentioned a large number of wells that were highlighted to them that were past their due date. What does this do for, as Paul B. Loyd, Jr. reenters that market, what does that do for the market outlook? And does that extend the runway of really potential wells that have to be taken care of that are, as you highlighted, non-oil and gas price sensitive?

Yes. Good question. I mean, I think we would hopefully see this as a positive, not necessarily that an operator has been fined, but that it should encourage the operators to take care of these liabilities. And with our asset classes, we believe being particularly suited to that type of work, we would hope that, that would create further opportunity. And that would -- we talk about this P&A demand in the U.K. as the regulator tightens requirements and operators to do this work, that does translate into firm work for the supply chain.

Got you. And then with the Blackford Dolphin -- or sorry, yes, the Blackford Dolphin. It's been extended multiple times with Oil India and others in India. But it's the only rig you don't have on, I guess, that I'm aware of a longer-term contract. Is there a potential to lock that rig up for longer term? Or would you rather, because the market is structurally short, stay short the market and kind of go from well-to-well programs as you move pricing higher, day rates higher?

I think with Blackford, we continue to evaluate the opportunities that are in the market. The rig has a renewal survey coming up into next year. So any decision that we make there has to be relative to the capital expenditure that's required and therefore, will be a factor of the terms of any new contract, the duration and anticipated day rate, and the financing that we can get at the time. So we do continue to evaluate things. We do see demand for the unit, but they can be shorter in duration. So it would require potentially having to put a series of smaller opportunities together, which isn't impossible, but can be challenging, but there are some longer-term ones there. So we just continue to evaluate at the moment, as you've correctly mentioned, we continue on with Oil India. So we still have some time as that contract continues, but we are actively monitoring the available opportunities to assess what is the best fit for Blackford moving forward.

And with the Blackford, maybe just a last question for me, sorry, with Blackford with the survey coming up, is this something you could negotiate into a contract to get -- you've either paid for or paid back for that in order to release some of the financial burden of having that survey coming up?

Yes, potentially. We would certainly be more favorable towards that type of contract, and they do exist. But yes, it would be a significant benefit to us if we could get financing from the contribution from the client rather to finance the renewal survey.

We will now go to our next question. And the question comes from the line of Fredrik Stene from Clarksons Securities.

I think my questions around the Blackford was already answered. But the second theme I wanted to touch a bit on was -- or is growth initiatives. I think I recall from the first quarter report, you were writing and talking about exploring growth initiatives. And as I saw it in today's report, you seem to maybe have taken that a step further saying that you're engaged in preliminary nonbinding discussions concerning certain organic growth opportunities and potential business combinations. So just on a high-level basis, I totally understand that you can't comment on specifics here, but -- can you say something about the development of these discussions over the quarter, if new discussions have come to fruition, the scale of potential growth and business combination opportunities, and how those opportunities would fit with your current profile? Would it be drilling or management, other type of verticals? Any color that you could provide would be very helpful.

Yes. I mean, as you mentioned, it's -- I can't get into specifics of what we're looking at there, but we've been clear from the start of the year that this year has been about preparing the Dolphin Drilling platform for growth, and we believe we are well on the way to doing that with the contract backlog refinancing that's been done, and that is allowing us now to evaluate opportunities in the market, some of which we have been monitoring for a while and some are newer. So there are a handful of different things. We just have to be careful, selective with what we believe are the best fits to take the company forward. Of course, we have growth in mind, but what that growth comes from, which exact opportunity has to be relative to where we believe we'll generate the best shareholder value. So we're continuing to evaluate a few different opportunities in the market at the same time, continuing to ready the platform for growth that we would hope for.

And then just 1 quick one on the Borgland and the work that's being done there at the moment. You're just north of 70% completed, aiming for $12 million of remaining CapEx. Are there any specific hurdles for those remaining 30% or things that can go wrong timing-wise or long or short lead items that you're still waiting for? Or is the path to getting that rig employed in November relatively derisked at this point?

Yes. I mean with a renewal survey, there's always -- you're always managing risks associated with scope creep, suppliers, delivery dates, et cetera. But we have a very robust plan and a very experienced team. And at the moment, we are comfortable that we are on track to meet the commencement window in November.

[Operator Instructions] I will now hand over to Ingolf for webcast questions.