Dolphin Drilling As

Ladies and gentlemen, welcome to Dolphin Drilling's audio cast and presentation for the first quarter of 2024. First of all, thank you for joining us today as we review our financial performance, operational highlights and events for the first three months of the year. Our commitment to upholding the highest standard of safety and operational efficiency remains the top priority of Dolphin Drilling. In the quarter, we are particularly proud to report that Paul B. Lloyd Jr., safe and efficient integration of the 106 personnel working under Paul B. Lloyd into Dolphin Drilling's fleet and organization. Paul Beloyed has proven to be an efficient and versatile rig operating in the North Sea, and its crew has done an outstanding job for its clients in the UK, enabling energy supplied for decades. I'm Bjørnar Iversen, the CEO of Dolphin Drilling, and with me today I have our Chief Financial Officer, Mr Stephen Cox, and Ingolf Gillestahl, Head of Investor Relations. Then referring to our, yeah, for those who wants to read, you can go in detail here and let's then jump to the agenda of today. Welcome to the first quarter presentation. As I said, we have grouped this in three main sections. First, Stephen will take us through the key financial results and discuss the subsequent events. Following that, we will update you on the status of our rigs, our rig fleet and operational highlights. Thirdly, we will share our insight and outlook on the rig market, providing our perspective on the floated market segments near term. And at the end there, I will sum up the presentation. And then, without further delay, I would like to give the word to Stephen to take us through the key financials and the highlights. Please, Stephen.

Thanks, Bjorn. So key one overview and highlights. So our revenues consist of earnings on the Paul B. Lloyd Jr. during the period, plus recognition of deferred mobilisation fees related to the original mobilisation to Nigeria of the Blackford. And those are amounts that were paid by GHL previously. All our theoretical earnings from GHL in the period have been de-recognised. They are billed to the client. However, accounting convention requires we do not recognise until certainty of collection exists. which in this case means payment in the bank. Our EBITDA is adjusted by one-off and unusual items related primarily to acquisition costs of the populoid and leader, the impact of the book loss on sale of the Biddeford and various legal costs and expenses related to the HMRC case. These unusual items amount to $4 million in total. Our firm backlog of $465 million now excludes any remaining value on the GHL contract and that's the value as at the end of Q1. Within quarter, the completion of the transaction to acquire the two units from Transocean was a fantastic milestone for us to reach and the culmination of a significant amount of work across the entire business. This included the successful transfer of 102 offshore and four onshore team members. And now we have a happy customer in Harbour Energy, the largest independent oil and gas producer in the UK, and a long-term contract for the rig. In conjunction with the completion of the transaction, the MAP debt facility was fully utilised and the shareholder loan was extended by one year until May 2025. Within quarter, the Bidford was sold for recycling and a net $4.1 million in cash was received. We recorded a $1.4 million book loss on that transaction. Following the quarter end, a private placement of $40 million of new equity was completed. This process was well supported and we thank our shareholders for their continuing interest. The subsequent repair offering has unfortunately been cancelled following the reducing trading price due to the subsequent events in Nigeria. The events within Nigeria will be covered in a later page. We should also note that the Board decision to recycle the leader has now been made and we expect to reach a full agreement on that process in the near future. Proceeds are anticipated to be approximately equivalent to the $6 million purchase price originally made for the steel. And to roll off this page on a positive note, we were successful in our request to appeal the Supreme Court in the UK regarding the HMRC case. Again, this will be discussed later in the deck. So moving to a little bit more granularity on the financials. Revenues of $10 million represents approximately $7 million of Paul B. Lloyd Jr. related revenues and $3 million for deferred mob feeds on the GHL contract. Unadjusted EBITDA was a $17 million loss, removing items one-off in nature, which are the book loss and the Biddeford sale, legal costs and final purchase price adjustments linked to the acquisition, and expenses related to the HMRC case. Adjusted EBITDA was minus 13%. The $4 million of total adjustments are split between OPEX, G&A and other costs, with $1.5 million of that total being attributable to G&A. I refer you to the preliminary earnings report for more detail. However, I will note that the Blackford and Populoid OPEX were in line with expectations. G&A was higher versus the prior quarter, but included several one-off costs as mentioned, and once normalised was slightly below plan. Borglund and Leader expenses were also in line and Bideford expenses are now largely removed with some minor location-related costs rolling off. The asset base of the company increased to $206 million, which includes the acquisition of the units and respective inventory. Receivables related to GHL have been reduced by the expected credit loss and shown net in the balance sheet, and by that I mean zero. The amounts due from GHL at the end of the quarter amount to approximately $70 million, with that amount increasing post-quarter end with day rate and demob fees. Total debt is comprised of the MAP facility and the shareholder loan balance. The first amortisation of the MAP facility is in December this year. And finally, Backlog continued to firm during the quarter with the full booking of the Oil India contract. We continue in discussions with various customers on the options and LOIs connected to the three units, and Björn will cover more of this in later slides. Moving to the Backlog and the Roll-Off. We continue to increase firm revenue backlog. In March, the company announced a 14 month drilling contract with Oil India, bringing the total firm revenue backlog to $465 million as of quarter end. It's fair to note that the contract coverage guidance for 2024 is nearly complete, with ongoing rigged tenders and prospective drilling campaigns starting from mid 2025 onward. For 2025, our three rigs are contracted for most of the year with additional revenue potential from Borglund as its firm contract currently ends in Q3 2025. As previously stated, the three rigs have the potential to generate close to $100 million in rig EBITDA for the year, and that's based on existing firm contracts. And I'll move now to the two key issues. So I think as everybody is aware, the Nigeria situation is obviously very fluid. The brief history and current process are described on the left side of this page. We do have strong legal representation in place and we don't want to comment too much further on what is a live legal process or legal processes. We will, as normal, continue to update the market on events as they occur. Regarding the tax case with HMRC, we were very pleased to have won the right to appeal our case at the Supreme Court, and we anticipate that will happen in the first half of next year. In the interim period, HMRC had commenced efforts to collect the alleged amounts due following the Court of Appeal ruling. We had agreed a timeline with them to pay that over a number of months. However, now that the appeal hearing is a known event, we are hoping to have those amounts put back into suspension mode. as this has been the case since the original inception of that case. And again, we'll update the market as things progress there. So next up on the agenda is an update on the rig fleet and our main strategic priorities from Bjorn.

Thank you very much, Stephen. Let's first have a small glance at dolphin drilling and where we are and who we are. If you look here, we are a leading operator of mode semi-submersibles with a revenue backlog including options and LOIs around 1.1 billion. And we are continuing to deliver on the strategy. The three rigs contracted now have a firm backlog, as Stephen was mentioning, of 465 million in firm backlog and 639 million in options and LOIs. So we are continuing to pick up work. And as Stephen also was mentioning, we picked up and firmed up the Oil India contract last quarter. The estimated payback time is less than two years of the acquisition cost of Paul B. Lloyd Jr. And as mentioned, very proud of the process on bringing both the rig and the people into our organization. The focus is shifting towards now operational performance in the company and growth opportunities via management contracts and other opportunistic opportunities that might come since now 100% of the rig fleet is on contract. And also to remember the audience, we are the rig company that is focusing on the niche market for moored semi-submersibles. And you see that on the picture to the lower left, between Jackup and DP semi-submersible, we have the moored semi-submersible market. We also see a picture there of the Borglund, Blackford and the Paul Beloyed Jr. And as you know, just to remind, we have more than 1,000 shareholders consisting of Norwegian, UK and US investors. And they're listed on Euronext in Norway. Okay, let's jump to the next page just to go a little bit more in detail on our three rigs today. Three rigs, each of them backed by firm contracts. One rig currently operating in the UK. Another one en route to UK through Las Palmas doing her SBS. And the third rig has work lined up for Oil India in India. We have chosen to streamline our fleet from last quarter as we maintain discipline and avoid financing costly layups for both the bidderford and the leader. All three semi-subs that we now sit on have moored capabilities and are operating in shallow water to mid-water basins, which means for the Borglund and the Paul B. Lloyd, that means up to 650 metres, while Blackford is offering also deep water capabilities up to 1,850 metres water depth. These rigs are extremely well maintained. They are equipped close to the same top sides as the, what should I say, the newer, recent rigs operating in the same market. And we are offering our clients, our E&P customers, a high level of safety and efficiency through our experience and people. And we have been in business since 1965, so the clients get predictability and and safe operations from Dolphin. As we are entering a period with day rates for the highest capable rigs in this segment, which is exceeding $500,000 per day, we feel that clients are becoming more discerning about their needs and they're focusing on cost and our rigs are offering a very cost-efficient solution. particularly with significant lower fuel consumption compared to the DP or the so-called dynamic positioned rigs. A feature that we feel is becoming more and more important for our clients. The unit can also be targeted towards a significant and increasing decommissioning market, particularly in the UK, but we also now see signs of the Norwegian decommissioning market coming. Let's look at the order backlog in a little bit different way. Here we see the Blackford coverage. Here we see the Borglund and we see the Paul B. Lloyd. Paul B. Lloyd, we are very enthusiastic and proud to see that our recent addition to the fleet, Paul B. Lloyd, is performing very well for Harbour Energy in the UK. And the drilling plan indicates a very long drilling campaign and it's now firmed up from now and until early 2028. Blackford, currently in Nigeria, with the next contract with Oil India, with the start-up in Q3, Q4 2024. We are pleased to inform that the 14-month firm portion of the contract was firmed up during first quarter, in line with the earlier and communicated letter of award. The work program includes an exploration campaign at the east coast of India. Oil India have also secured a priced option for the rig for additional seven months. Let's jump to the Borglund. Borglund, she has started her journey from Norway to Las Palmas last week. And she will undergo her planned SBS period, her class renewal and reactivation in Las Palmas. And we have chosen to execute this SBS with the same yard as we selected for the Blackford Dolphin early last year successfully. And after that, she will be sailed to commence the drilling program, the firm drilling program with Enquest with an estimated or expected commencement March, April 2025, early next year. As a reaction to the delayed decision to sanction drilling campaigns in the UK, we made a decision in Q1 to decommission Biddeford. And we sold the rig for a net 4.1 million US dollars. And this quarter, we have made a similar decision, as mentioned, with regards to the leader. And we have started a process to decommission that rig as well. And as earlier said, when we bought Paul Billoy Jr. and Lide from Transocean, Lide served as an option. And for us, and we have now reviewed the technical condition of it, and we have also had a round with all relevant customers to recoup either value of the purchase price that we paid for it or to find a project to reactivate it. But as of today, we haven't found that. So we decided to cut that layup cost and to tighten the market further through the through scrapping the rig. A couple of more words related to the Borglund Dolphin SBS. It's underway. Finally, the third rig is back on her way back to her drilling operations. After a period being idle, we have kept the rig in smart layup mode outside Flekkefjord. And we have kept her in a very close to, I would call a near ready drilling mode. Equipment and services have been tested and periodically run. The steel and structure have received extra attention during this lay-up period. And we have done scheduled maintenance during the full lay-up cycle. With that secure drilling contract in hand from Enquest in the UK starting in early 25, the rig is, as I said, on the way to Las Palmas on the tow for the schedule and well-planned class renewal. And as most of you know, all rigs need a class renewal every five years. So after that five-year SBS or class renewal, the rig will be ready to produce cash and deliver wells safely and consistently for the next five years post that yard stop. As mentioned, we are returning to the shipyard in Las Palmas. We had extremely good experience with that on the Blackford. And we expect the rig to arrive at the yard within the next 14 days, around the 10th of June. And she will remain there until she transits to the UK for the contract commencement with Enquest sometime in March, April, around there. The shipyard team at the yard, very experienced, and our project team, very experienced for these types of rig service and SPSs. And we are confident that the execution will be swift and effective and as planned and as earlier communicated. Let's then have a look at the drilling market, the supply and demand side, to have a deeper understanding and reflect a little bit on the last quarter's development. On this page we see a holistic overview over the Moord harsh environment market and the UDV market as well. The overall rig floater market consists today of around 150 contracted drill ships and semi-submersibles and it's slowly increasing now quarter by quarter. So there's no doubt that the number of rigs is increasing and the number of contracts is increasing. Contract length has also, during the last quarter, been increasing. This also gives, I would say, improved earning visibility for the whole drilling sector as such for the coming years. And that's what you saw on our contract backlog slide, a couple of slides before this one. The drilling industry... Normally, the highest capable rigs are typically contracted first, and that pushes the day rates upward. And that increase normally has a ripple effect across other drilling segments, and that is exactly what we see now. Another effect on the recent downturn is that a large number of rigs has been scrapped and retired, leaving fewer rigs available in the international semi-submersible rig segment. As a result, high ultra-deepwater rates are being pushed up, and there are few harsh environments capable now remaining in the world, leading to fewer contract fixtures. And we also see that on the dots on the graphs on the page we look at right now. With most of the floater segment now being close to fully being contracted, most active rigs are expected to be offered contract startups at improved day rates. So we also see that those who are rolling off contract will very often continue on the fields or in the area they are with increased day rates. And for the stacked or cold stacked rigs, we we see higher reactivation costs and clients being willing to pay high mobilization fees. Structurally tight, it says on this slide, in the global moored semi-submersible market. We see that the utilization is back to the 2015 level. we see that the more semi-submersible markets are now, I would say, close to the tightest we have seen. And if you look at the total rig market, it says 33 rigs there. 14 is not international, and then we'll come back to that on the next page. We see 19 is the effective supply today, of which 12 is contracted. Five is cold stacked, and some of them, most of them probably unlikely not to return to the market. And that means that we have two warm stacked rigs available in the market. And one of them being, I would say, in some sort of a sub-market, this intervention market. So we are probably talking about one available rig, more or less, in the market as of today. Let's look in detail. At the rig segment that we are working in, the more semi-submersible rig market. What we see here, the dark green ones are the ones on contract. We see the next gray one, the well-safe ones there, intervention segment. rigs or well intervention P&A rigs, which are not in the drilling segment. Then we have the orange one in cold or cold stack, which requires a bunch of dollars to be able to go out. And then we see the rest at the back there. The gray one at the end of the list, they are either on long-term contracts to 29 in China and will not go into the international market. Or we see Caspian drilling there, which means that we have some rigs there as well, which is landlocked. So that means that we are talking about a more or less sold-out mode market. And we see still a high level of demand and new tenders and invitation to tenders coming out in the market. And I will comment on that on the next page. That was the supply side. So to sum up the supply side with one word is tight supply. Close to sold out, maybe one rig available, maybe two. If not, you need to take out rigs and you need to pay probably the range between 50 and 100 million dollars in mobilization or upgrade costs to bring them out, maybe even higher today. And it takes a year or a year and a half to bring them out under the current, I would say, supply chain constraints. Okay, the demand side. Okay, we're seeing a steady global increase, but with some exceptions. We see that the demand is driven by the Golden Triangle, as in the last cycle, represented by South America, and of course with Brazil as the big engine, but also with Guyana picking up rigs. And we think that this will continue to increase, and that is also what is signalized particularly from Petrobras. We see West Africa driven particularly by Namibia and Angola. And the DP segment, we expect to see a further, what should I say, steady growth in the demand. Historically, the North Sea market has absorbed more or less a similar number of rigs as in South America's. But we are seeing this region as slow, particularly due to, I would say, the UK sector with, what should I say, less attractive resources available. But also, particularly over the last, I would say, six months or so, and increase uncertainty driven by this constant change we have seen in the UK when it comes to the fiscal regime. This has, what should I say, postponed startups or projects in the UK. And we see that a lot of the customers we are visiting, they are waiting for this new election in the UK. That will happen before the summer holidays. So they want to see some predictability and stability before they press on the button. The work is still there, but it has slipped a little bit. Nonetheless, the list is increasing in the rest of the world. We see... Particularly on the international front, we see that Asia is coming out with some tenders again. We see Africa is still active in this segment. We see also still South America being active. And we also see some signs in Norway that Norway will pick up a rig or two or three in the near future. On top of that, we also see some looming future requirements for P&A and abandonment drilling, both in Norway, probably not for 2025, but for 2026, 2027 and onwards. We think the market will absorb rig capacity or some rigs, one, two or three rigs. Internationally, we have seen that particularly the UK are out in that market. And we think to be able to supply these requirements, there's a need for mobilizing rigs from other regions to be able to handle that growth in demand. Diving even more into detail into the UK semi-submersible mode market, the whole fleet now, if we look at the graph to the left, we see that back in the early 2000, there were 32 rigs operating or being in the UK. We are now down to less than 10. And we see to the right there the rigs on contract. We see the Paul B. Lloyd with the longest contract in the UK. We see the Borglund there. And we see some diamond rigs and a Stena Don rig. And we also know that, see that, and we hear that the space for sale are going to be scrapped. And as I said earlier, the Dolphin Leader, we have made a board decision to scrap her rig. Then we have the only cold stacked rig in that market now is the Ocean Valiant. And then we have those two intervention, let's say P&A rigs, which cannot be used in drilling, but can be used in P&A, the WellSafe Defender and the WellSafe Guardian. So it's a very limited supply here. And as you see, most of them on medium to long term contract. And as mentioned, we think that market might come back or there will be at least some movement after a new government is in place in the UK. Moving over to the summary slides. Okay, we see or we are confident that dolphin drilling, we are positioned for significant value creation. We see that our market fundamentals are in place and we see increased inquiry from customers. A little bit flattish, as we said, in the UK. We see a very short supply of rigs. We are very close to a tipping point, if not at the tipping point. There are just one, two rigs on the margin now that can pick up the tenders which are out there, and there are many. And we also see an increased day rate environment. So that's to the left there. It's more, let's call it, the macro drivers. If you look on the right side, which is more related to us as a company, we have completed the acquisition of Paul B. Lloyd at very highly attractive economics and with a very successful takeover of the rig. In parallel, over the last year, we have secured contracts for all of our rigs now with a firm revenue backlog of 465%. and with a significant amount of options at the back there, which we're working to materialize. That means that we are switching on the three cash flow generators we have in the company. And that will happen according to our plan to be in place, as you saw from the order backlog slide, from end of first quarter next year. We will have three rigs generating cash and strong cash flow for the company. So the dollar sign there, fleet with attractive cash flow generation wants to recommence the contracts with further near-term market-driven upside potential. So after the contract we have, we are bidding at a higher level than the contract signed. So it's an increased upside in the next awards. That is how we see it. And then at the last bullet, at the bottom there, lean and mean organization operating with very strong financial discipline. We have high focus on SG&A. And of course, OPEX, we are continuously driving down the OPEX in the areas where we are and working, what should I say, with a continuous improvement in philosophy, as well as strong CAPEX planning and delivery. Summing it up a little bit differently, leading operator of moored semi-submersibles, extensive track record with a fit-for-purpose fleet, very attractive market fundamentals now with historically low rig supply and increasing demand. Three, We have secured contracts for all our rigs. So now all the rigs have a firm backlog and we are bringing them out one by one. One is already there, one in India and one on the way to Las Palmas for mobilization in the UK, as mentioned, to start to convert rigs. of a firm order backlog, let's call it firm EBTA backlog, from a backlog to cash in account. And that strong cash flow has further potential in the recontracting after the firm contract backlog we are currently sitting on. So that, I think, is summing up the current status and the current quota we have behind us. And I think with that, we open up for a Q&A session.

Thanks, Bernard. So I think some of you now know there are questions that can be submitted through the website. What I will say is we cannot go into detail around the ongoing legal situation in Nigeria and apologies, but questions around that will not be able to be answered at this stage. We have had a couple of questions regarding the HMRC claim and our agreements with HMRC, but equally those are subject to confidentiality, so we won't be able to disclose information there in any detail. We'll focus on the questions we can and cover those just now. I think the first one really is around the Borglund, the reactivation budget and sort of timing and confidence levels in that one. So I'll take that. So as Bjorne noted, the rig is on its way to Las Palmas, arrives in the next 10 days or so. We have already placed a large number of our long lead purchase order items. And to date, everything is on plan in terms of costs, which we're quite pleased with. Obviously, supply chain does have inflation inside it, but those numbers were all within our planning. So, So far so good is the message on Borglund. Once she's down there and we get into some of the details in the hull, the team's developed quite a robust technical model looking at steel thickness, etc. And everything we are seeing so far is within our parameters. So we feel quite comfortable about the previous guidance that we've given on Borglund's reactivation process. We've got another question around the LOIs on Borglund and why that's not firmed up. And maybe we just want to go back to the UK.

I can rewind and comment on that. This is related to exactly this tax and political situation in the UK. The oil companies are dragging their feet. The work is still there. But this uncertainty of having, is it three or five tax changes over the last year or two? I think it's five tax changes in the UK over the last two years.

Five prime ministers and three tax changes. Yes.

And that has calmed them down a little bit. And I would, all of them are pointing at

the election the coming election and i think there was a little bit of a relief that that was decided now that it comes before the this summer holiday yeah i think it signals the beginning of the end of the uncertainty which um hopefully is where we get to by summer time as you said and i think it's also worth noting there are ngos such as the nsta authority that are putting a lot of pressure on operators to book rig capacity to get their decom done So that dynamic exists, but as Bjorn had mentioned, the two in particular we deal with in terms of options and LOIs, both are really waiting to see what happens. So it would be fair to say those discussions are ongoing.

They are ongoing.

And then there's another question in regards to Borglund and the probability for a delayed start-up. But I don't think that's really, it's not something we consider as a possibility. We have a contract with Enquest. We have a window, a commencement window there. And we will meet that commencement window for them.

I would say we are moving the Borglund from Norway to Las Palmas, to a very favorable climate to do over SBS. That means we can do it daytime instead of running like day and night. And we have plenty of time to execute this SBS project. and i would say i think we have never been much of a better position we probably could have speeded up that one if we if we wanted to and i would say we're highly confident that we are able to spud within that commencement window do we have anything else here

I think right now that is everything we have. And again, apologies, but we can't go into detail on some of the other topics at this time. And we will update the market as and when events occur there.

So basically what Stephen is saying, we will report as soon as we have something to report on our Nigeria situation. Then I would like to thank all of you for calling in and following on our Q1 2024 presentation on this 29th of May 2024. And hope that you are following the company and thank you for your support. Thank you.