Dolphin shrugs off Q2 loss amid ‘strengthened’ rig demand

Dolphin Drilling reported surging revenues in the second quarter while it bids for more work for stacked rigs and awaits the handover of two units acquired from Transocean.

The Oslo-listed rig operator (OSE:DDRIL) reported revenue of $21.8 million in the second quarter of 2023, up from $1.8m in Q1, as its Blackford Dolphin unit got to work off Nigeria.

Though the firm held onto a net loss, pre-tax earnings reached $300,000 in Q2 compared with losses of $19.6m for the previous period, while EBITDA also turned positive, at $1.6m.

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Total rig operating expenses for the quarter were $16.5m – $1.1 million higher than in Q1.

Dolphin currently hosts a fleet of three 4th and 5th generation enhanced Aker H3 rigs – the Borgland Dolphin, Blackford Dolphin, and Bideford Dolphin – but in June announced a $65m deal with Transocean to add the Paul B Loyd Jr and Transocean Leader units to its roster.

Paul B. Loyd Jr is on-contract with Harbour Energy in the UK – a scope now extended to 2027 with options for a further five years beyond – while the Leader has been stacked in the Cromarty Firth since 2020.

At the time, the company said the move would secure a “long-term future” for 100 jobs on the Paul B. Loyd Jr, and that it would look to increase headcount in its Aberdeen HQ.

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The company currently has approximately 260 offshore and onshore employees, and onshore locations in Norway, Scotland, Brazil, Nigeria, and Mexico.

Meanwhile, executives noted during a call following the results that the company is exploring options for reactivating the Leader – currently stacked in the UK.

The Borgland Dolphin and Bideford Dolphin remain stacked and are currently being bid to multiple rig tenders, with Dolphin noting it remains “in active dialogue for future contract awards in the North Sea and internationally.”

A further two semisubmersible CS60 Eco Aker MH rigs are under construction by Keppel, and are also being marketed by the company and in active commercial discussions, it noted.

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“As expected, revenues generated by Blackford Dolphin are sufficient for the company to cover all of Dolphin Drilling’s operating cost, demonstrated by the quarterly EBITDA of $1.6 million. The rig is well positioned to generate strong cash flow in the coming years with back-to-back contracts and associated step-up in dayrate,” added CEO Bjørnar Iversen.

“Furthermore, our two stacked harsh environment moored semi-submersible rigs have been extensively marketed in the period. We recognise an increased demand in the rigs, underlying the strengthened global rig demand and disciplined bidding strategy among drilling contractors,” says.

In an accompanying presentation, the company said it remained focused on mid-market moored semi-submersible rigs.

Mr Iversen said the agreement with Transocean also represented “an important stride” for the firm.

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“The addition of these efficient rigs allows us to further consolidate the midwater rig segment in a tightening market, characterised by historically low supply and surging dayrates across offshore basins,” he continued.

As of 30 June 2023, Dolphin’s estimated contractual backlog value stood at $377m excluding options, comprised of two contracts for the Blackford Dolphin and estimated backlog on the Paul B. Loyd Jr.

In a research note following the Q2 presentation, rig analytics firm Esgian said: “During its Q2 2023 webcast on Tuesday, Dolphin said it was positively surprised with the condition of the cold stacked Transocean Leader, which was much better than expected.

“The rig is stacked in the UK and Dolphin is exploring what it would cost to bring it back to the market. In general, a longer contract would be needed but nothing will be done reactivation-wise before getting a firm commitment on the rig. The rig’s layup costs are rather low at about $1-2k per day.

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“Furthermore, semisubs Borgland Dolphin and Bideford Dolphin remain smart stacked in Norway and are actively bid to multiple tenders as the company remains in active dialogue for future contract awards in the North Sea and internationally.

“Bideford Dolphin is targeting shorter contracts in the UK North Sea while the Borgland Dolphin is targeting longer contracts in the international market. Stacking cost of these two rigs was a combined total of $28k per day, slightly improved compared to the previous quarter and costs of $31k/day.

“Dolphin also has the marketing rights for the two Keppel rigs of a CS60 ECO MW design. Dolphin believes these belong to the Nowegian market and that’s where they’re being marketed.

“When it comes to potential new contract awards, Dolphin said there’s a significant amount of tenders that will be awarded over the next two quarters with Borgland Dolphin being the first in the queue for a new award followed by Bideford Dolphin and then by the two Keppel rigs.”