Dolphin Drilling As

good day and thank you for standing by welcome to the dolphin drilling presentation of the third quarter 2024 financial results webcast and conference call at this time all participants are in a listen-only mode after the speaker's presentation there'll be a question and answer session to ask a question during the session you will need to press star one and one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star one and one again Alternatively, you may submit your question via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bjørnar Iversen, President and CEO.

Please go ahead.

Ladies and gentlemen, thank you for joining us for Dolphin Drilling's third quarter 2021 financial results presentation. We're excited to share our latest updates of the company and inside with you guys. Today, we will present our financial performance, operational highlights, and the key events that has led us to this point. I'm Bjørnar Iversen, the CEO of Dolphin Drilling, and with me today, I have CFO, Chief Financing Officer, Stephen Cox, and Ingolf Gillesdael from Investor Relations. Before delivering or diving into the details of our financial performance this quarter, I'd like to highlight some key developments that demonstrate our progress. We recently celebrated a significant milestone with the successful commencement of the Blackford Dolphins exploration drilling campaign in partnership with our client Oil India Limited. This marks a very important transition for our company as we move to a period with two active operations for the group. Furthermore, I'm pleased to report that the Paul B. Lloyd Jr. continues to deliver strong results with no recorded incidents for the quarter and maintaining a very high rig uptime. This consistent performance underscores our commitment to operational excellence and safety across our fleet. We kindly ask you to take a moment after this presentation to review the important elements of the disclaimer. In today's session, we will cover our third quarter financials, safety and operational performance and other key developments. We'll also discuss the company's solid revenue backlog position and our ongoing efforts to ensure all of our rigs continue to operate safely and remain under contract. Following our prepared presentation we open up the floor for questions and we look forward to a productive discussion. We appreciate your continued support and interest in dolphin drilling. Let's start by examine the key financials and material events for the third quarter as well as subsequent developments. I now hand over to our CFO, Stephen Cox, to begin the review.

Thank you, Bernard. We released our quarterly report for Q3 2024 earlier today, and here is a brief overview of the financial results. In Q3, we recorded revenues of $16.5 million, primarily generated from the Paul B. Lloyd Jr. contract, supplemented by modest income from equipment rentals to third parties. The rig continues to demonstrate exceptional performance, maintaining an operating efficiency rate of 96% for the quarter and robust safety metrics. These financial results are consistent with the previous quarter, during which we also had only one rig under contract. Our two other rigs had no revenues booked in the quarter. Blackford was in transit to India and Borglund was in Las Palmas undergoing her SPS works. As a result, we reported a negative EBITDA, significantly lower than the previous quarter. This decline was primarily due to costs and time spent mobilizing the Blackford to India, following a delayed and disrupted exit from Nigeria. The Poboloi Junior experienced slightly higher operating costs compared to the previous quarter, mainly attributed to extra expenses associated with end of well work on the unit before relocating to a new drilling site. Our land based organization costs remain consistent with the previous quarter. We continue to defend our position in the ongoing arbitration case in Nigeria and in the UK tax case, incurring legal costs of $1.4 million during the quarter. Despite these challenges, our overall G&A costs were in line with the previous quarter, reflecting our continued focus on cost control. Following the end of the quarter, the Blackford commenced our contract with Oil India on the 11th of November and has performed fantastically well since, recording 100% uptime to date. We are due to collect a mobilisation fee during December this year. The Borglund often remains at Las Palmas. As notified last week, Enquest elected to terminate the contract and we have now received the approximate $21 million payment. Firm backlog consists of more than three years remaining work for the Populoid Junior and three wells in India for the Blackford, which are planned through early 2026. All backlog related to the Borglund has now been removed. Moving on to key financials, as discussed previously, the extra transit costs and higher operating expenses for Blackford have resulted in an EBITDA loss of 22.1 million, some 16 million lower than quarter two. The majority of this is driven by the running OPEX and transit costs of the Blackford from Nigeria to India. Following a lengthy delay in departure, various legal process issues, weather issues, and longer than anticipated port stops, A significant portion of the additional costs were attributed to vessels, not only in towing the unit, but also in various support operations, including the startup in India. Further variations in quarter-over-quarter numbers were driven by adjustments to revenues related to amounts recognized in the previous quarter, an adjustment related to Blackford OpEx in Q2, not repeating in Q3, and additional costs in the Paul B. Lloyd Jr. in the current quarter. For a more comprehensive review, I refer you to the earnings report released earlier today. The company concluded the quarter with a total cash balance of 37.6 million, down from 54 million as of June 2024. Of this amount, 5.6 million is considered restricted due to its use in supporting various bonds and guarantees, or because it is held in bank accounts outside our main banking locations. During September, we recovered a $3 million cash bond related to the temporary import of Blackford to Nigeria, and there are no remaining cash balances in any Nigerian bank accounts. Dolphin's total debt comprises the MAP facility and the shareholder loan. There's a thrown gross of a $6.5 million reserve amount, which is recorded in other current assets. We have no new material update on the ongoing arbitration process in Nigeria. Now some high-level guidance on the forward liquidity situation for the company to the end of the year. Following the Blackford contract startup in India and the collection of the termination fee related to Borland, As well as the pausing of the SPS, we will stabilize company cash flows and cast many of the large variations we've been dealing with behind us. The graphic to the right shows an approximation of how we see the year end 2024 shaping up and the large ticket items that have been impacting us. I hasten to add these are estimates subject to change and obviously timing. Regarding the Oil India mobilization fee, we do anticipate some deduction by Oil India regarding the late startup and we remain in dialogue with the client on that subject. Moving forward, the two rigs in operation will produce positive cash flow for the company, with G&A estimated to decline quarter-on-quarter based on returning to a more normal running cost base and a reduction in legal costs. We continue to assess visible opportunities on the Borglund and will assess liquidity requirements in light of developments on that rig. Next up on today's agenda is an update on the rig fleet, current rig tenders, initiatives, and our main strategic priorities from Bjorner.

Thank you, Stephen. Dolphin at a glance. Dolphin Drilling is pursuing a strategy focused on securing long-term profitable contracts in some key growth markets. The company has recently commenced a significant long-term exploration drilling contract with Oil India, positioning ourselves for material improvement in revenue generation. The group now operates two semi-submersibles on long-term contracts, demonstrating its capabilities and ability to win and commence work around the world, utilizing our in-house marketing, technical, and operational teams. We have extensive worldwide experience working with exploration and production companies across most offshore basins for decades, and we have the in-house know-how that enable the efficient integration of people and equipment into our well-established systems. This is evidenced by the recent smooth startup for Paul B. Lloyd Jr. into the Dolphin organization and also the late startup of Blackford Dolphin with Oil India following a long transit and integration of new crews and services. Borglund is currently marketed into multiple offshore basins and we expect a decision on these contract opportunities in the coming months. Paul B. Lloyd Jr. Excellent operational performance. We are again pleased to see the continued strong operational performance achieved from our crews and teams operating the Paul B. Lloyd Jr. A strong safety record continues. Same with the rig operational uptime. We are proud of the good safety record with no lost time incident recorded since the rig entered into the Dolphin drilling fleet. Paul Billoyd is well underway in its long-term contract with Haber Energy, potentially extending its operation into the next decade. This rig is part of only a small selected group of semi-submersible rigs still active in the UK. which are capable of drilling wells and supporting the massive number of required decommissioning projects in the UK. This underpins the likelihood for Paul Beloyed to continue the work in the UK for many years to come. Blackford Dolphin commenced contract in India. Our second rig now generating revenues for the company is Blackford Dolphin. The journey of the Blackford Dolphin has been eventful during the last years, The rig's voyage began after concluding its operation in Nigerian waters. The rig then embarked on a long journey covering approximately 8,636 nautical miles to reach its new destination in India. During its transit, the Blackford Dolphin made three scheduled stops, with the final one in Port Louise, Mauritius. It departed from Mauritius on September 13th, 2024, en route to its final destination, offshore Port Blair in the Andaman Sea. The rig arrived in Indian waters in October 2024, where it underwent custom clearance and client acceptance procedures. Upon arrival, the Blackford Dolphin began the preparations for its new contract with Oil India Limited, and on November 11th, 2024 the Blackford Dolphin had officially commenced its long-term exploration drilling contract with Oil India Limited. This marked the beginning of a new chapter for the rig now returning to drilling wells in India and contributing to India's ambitious energy goals. Let's then move to the Borglund Dolphin marketed for work. Moving on to Borglund The unit was moved to Las Palmas from Norway in May 2024, where the special periodic survey began, also called SPS. Our rig crew has kept the Borglund in great condition in the period leading up to the class renewal. Equipment and services has been tested and periodically run, and the hull and structure has proven to be in excellent condition. Following the recent contract termination, we have paused the class renewal, We immediately start to preserve the rig and the key equipment, and post this exercise, we will reduce layup costs estimated to be below the $30,000 mark per day. For today, we have completed approximately two-thirds of the class renewal with spending in line with previous estimates. This means we will defer the remaining costs until we know the next contract for the bogland. Then moving over to the fleet status, now showing two contracted rigs in the UK and India. These drilling campaigns should provide a steady revenue stream for the company and both have the potential to extend contract lengths. In the UK, the Paul B. Lloyd Jr. is contracted until early 2028. Harbour is the UK's independent oil and gas producing company. and only paused by a short class renewal in the second half of 2025, which is expected to take around 30 days. In India, then, we have the Blackford Dolphin, commenced a few weeks back on its drilling contract, and we see attractive follow-on work opportunities for the rig in India, a country with high production targets for oil and gas in the years to come. As we mentioned earlier, Borglund Dolphin is marketed into multiple offshore basins, and we expect decisions on several of these contract opportunities in the months to come. Let's then look at the agenda and go over to look at the market for the semi-submersible drilling rigs. More semi-submersible drilling rigs, tight supply balance, it says in the heading. Dolphin drilling has centered its focus on the moored semi-submersible rig segment. You see that in the middle of the foil there. And we are specialists operating these rigs and currently operate and own three of them. Our rigs are capable of drilling in both harsh environment offshore basins as well as in benign waters. And our rigs can drill shallow water down to around 65 meter and as deep as approximately 1800 meters. This is truly a versatile rig fleet which can drill wells cost-efficiently and at a much lower fuel usage versus larger dynamically positioned drilling rigs. Next year Dolphin Drilling will celebrate its 60 years anniversary as a drilling contractor. In our opinion the medium term outlook for the offshore flow to rig segment is largely driven by rig supply characteristics and the actual available rig supply. We are showing the fleet of the competitive moored seismic submersible drilling rigs. The rig supply is small and has continued to reduce in recent years due to the low day rate level, which has prohibited the reinvestment in this rig class. More than 75% of the worldwide moored rig fleet has been scrapped during the last decade, The total rig count now is around 10 active rigs and interest in these rigs cover offshore basins from Asia, India, West Africa, South America, Central America, the Gulf of Mexico, the North Sea and parts of the Mediterranean. We claim based on counting the ongoing rig tenders and early discussions on future drilling campaigns all of these active rigs still in class should have a very good prospect for work ahead. Okay, let's then move over to the demand side. Diving into the demand side for these rigs, external research indicate a good number of prospects requiring more semi-submersible rigs. As we mentioned on the previous page, the small number of rigs remaining will need to service the total global requirements. meaning rigs may have to be sourced and mobilized between regions, as happened to us when we took the opportunity to relocate the Blackford from Africa to India. We have seen several rigs now being moved between regions, from Asia to the Gulf of Mexico, from Asia to South America, and based on the recent reduced activity in the UK, we will not be surprised to see more rigs leaving the UK for other destinations, which will, from a rig demand perspective, to fulfill planned rig tenders. The market will likely remain supply-driven, and programs may need to include longer drilling work programs in order to justify costly mobilizations. The international outlook remains very attractive from an overall rig supply point of view, but timing of actual commitments to move forward with drilling plants indicates some drilling project delays. Let's then have a quick look at the rate development and in the header there it says positive rate development. Moving on to the review of day rates for the mode rig segment here we see historical fixtures and day rate levels and historically the day rate path for these segments has followed the deep water segment with a discount of approximately plus minor hundred thousand dollars a day as you can see from the graph and we have seen rate fixing at higher levels average moving up to around 250 000 and increasing as we see to the right in that figure we are actively involved in several ring tenders today and we expect fixtures to be awarded at this level and above in the coming months. We are then at the summary section of this quarterly presentation. Dolphin Drilling has come through a year with many uncertainties having a strong impact on the company. A lot of uncertainty is taken out and the company can now move forward with strength. The company has two rigs on contract providing for predictable cash flow for the next one and a half to two year and beyond. Returning Borglund to work is clearly a catalyst for growing the group's revenues. However, we will only take on projects that makes economic sense and provide the company with attractive returns. Through the company's close to 60 years legacy, the 60 next years in 2025, brand and operating platform, we are positioned to find work in most offshore basins. and we have the in-house systems required to participate in most rig tenders for our rigs, as well as marketing and operating others' rigs. The firm backlog count 371 million US dollars as of data reporting, which should result in a strong cash flow generation for the company in the years ahead, in a strong market for the last available rig, Borglund Dolphin.

With this, We open up for questions.

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There are currently no phone questions, so I will hand over to Stephen for webcast questions.

Yeah, thank you. So we have some questions coming on the webcast here. We'll try and work through these in an order, but bear with me while we navigate. So a couple of things here, I think probably covered by the presentation. A question around stacking cost of Borglund. Bjorn mentioned that we expect that to be sub 30,000 US dollars per day. It's obviously relatively new news for us to take that rig back to a stacking status, but somewhere below 30,000 a day is what people should think about. Equally, there's another question around Blackford rate. That's undisclosed right now. We haven't put that into the market, but I'm sure people can work through that one. And I have another question about G&A expenses. The question is, will G&A expenses in 2025 be significantly less than G&A expenses in 2024? The answer to that is, fundamentally, it's driven by the legal expenses. We did incur a significant amount of legal expenses this year. We would anticipate, of course, that is going to come down, so one to two million off the models, at least on that one. Bjorn, I'm going to push one your way if that's okay. Of the 11 active rigs on slide 14, how many are you competing against in current tenders and how many active tenders are you currently participating in? That's a Borland question.

Thank you, Stephen. Let me try. As we said there, 11 rigs in the market and we What should I say? If you look at the last Oil India tender that we had, it turned out that we were the only bidder in the end there. So that's a signal that the market is tight. In the other tenders that we see, we normally see one or maximum two other competitors in the tenders we are currently, what should I say, working on and in negotiations on. I think that sums it up, one to two competitors per bid.

Yeah, perfect. And it's a slightly related question about active tenders for board semis. The answer to that is yes, as Bjarne mentioned. Particular active area, we won't disclose where they are, but let's say they're everywhere right now, I would say. International, UK, Norway, everywhere is out there. Any risk of DP floaters crowding into our market?

No, the answer is based on the one that we're currently working on. The answer is no, we don't see that as a risk on the current one we are currently working on, no.

And then, sorry to continue Fred, is there anything to stop us from competing for shallow water work that might usually be done by a jack-up? Yes, that's a depth question.

I think we will see, I would say we probably will look at some opportunities, particularly around i would say the blackford could do in that area work of course down to around 60 meter and we probably could look at some to pick up some of the more shallow work in that area if that makes sense since there's relatively high cost of mobilizing jacob into there if it's shorter campaigns so the answer is yes we probably could eat a little bit of the more deeper part of the jacket market. We could potentially do that with the Blackford. I think that's the answer to that.

Yeah. So another question here, a question about the claim we have in Nigeria and the quantum of that claim. And again, this is not a piece of information that's out there, but what I can say about that claim is that there's over $70 million worth of unpaid invoices. that is attached to that. So our quantum is obviously higher than that in terms of our claim. That is what is out there for us to chase in Nigeria. And then there's a question on the Q4 cash guidance. Do we assume the full mob fee from Oil India? And again, I think the way we have done the modelling on this one is we assume we will get almost all of that mob fee, but not the entire amount. And as was mentioned earlier, during the presentation, we are discussing with the client the late liquidate damages in terms of the late delivery of the rig and some of the issues that we experienced there, which were driven by factors well outside our control. So that's how that one will go. But we look forward to discussing that in the Q4 presentation early next year. That's all the questions.

So we'll maybe leave it a little bit for anything else coming in. or can revert to phone questions. But otherwise, I think, operator, we are potentially at the close here.

Thank you. There are no further phone questions. Would you like any closing remarks?

Yes, please. To sum it up, I think we thank you all for calling in. For us, the last quarter has been an eventful quarter where we were able to take out, what should I say, a lot of variables around the company. company is stabilizing as you see from the presentation now with two rigs in operation with solid customers and we are currently focusing on getting a contract on the Borglund and I think as a closing remark we would like to thank you all for showing interest in the company and backing us and for all of you to call in so on that remark I thank you all.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.