Shrinking Moored Rig Supply Will Limit Future Upside Despite Long Dated Contracts

Catalysts

About Dolphin Drilling

Dolphin Drilling operates a focused fleet of harsh environment semisubmersible rigs for drilling and plug and abandonment work in international offshore markets.

What are the underlying business or industry changes driving this perspective?

• Intensifying concentration of demand in a small number of regions such as the UK, Africa and Asia heightens exposure to policy and permitting risk. This could delay tenders and pressure revenue visibility and backlog conversion into earnings.
• Long dated contracts like PBLJ’s commitment to 2028 limit Dolphin’s ability to reprice into any future upswing in day rates. This may cap upside to revenue growth and constrain margin expansion even if the broader rig market tightens further.
• Structural tightness in the global moored semisubmersible fleet may encourage operators to accelerate life extension and survey work. For Dolphin, this means sizable SPS and reactivation outlays that could dilute net margins and free cash flow in the medium term.
• Growing use of higher specification and dynamically positioned units in premium basins risks narrowing the addressable market for older moored rigs. This may cap utilization for assets like Borgland after the current contracts and weigh on long term earnings power.
• Reliance on P&A activity as a key driver of backlog in a mature basin like the UK creates a finite runway for work scopes. As decommissioning peaks and then declines, Dolphin may face structurally lower demand and softer revenue growth unless it secures new geographies at attractive economics.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Dolphin Drilling's revenue will decrease by 11.5% annually over the next 3 years.
• Analysts are not forecasting that Dolphin Drilling will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Dolphin Drilling's profit margin will increase from -50.7% to the average GB Energy Services industry of 20.3% in 3 years.
• If Dolphin Drilling's profit margin were to converge on the industry average, you could expect earnings to reach $25.5 million (and earnings per share of $0.08) by about December 2028, up from $-91.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 0.0x on those 2028 earnings, up from -0.5x today. This future PE is lower than the current PE for the GB Energy Services industry at 5.8x.
• Analysts expect the number of shares outstanding to grow by 3.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.48%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The global supply of moored semisubmersible rigs has tightened dramatically from roughly 100 units to only 14, and UKCS data suggests demand could exceed supply for potentially 20 years, which may drive structurally higher day rates and increase Dolphin Drilling's revenue and earnings over time.
• Long term contracts, including PBLJ's firm commitment with Harbour Energy to 2028 plus five one year options and Blackford's extended contract with Oil India to mid 2026, provide multi year visibility that could support a sustained turnaround in profitability and net margins.
• The planned reactivation of Borgland Dolphin for contracted work with Repsol from late 2026 adds a third earning rig to the fleet. Combined with improving uptime and cost reductions, this could materially lift group cash flow, EBITDA and net income beyond current expectations.
• Resolution of the large HMRC tax claim through a payment plan, refinancing activities and a recent equity raise that strengthened liquidity reduce financial uncertainty and may lower perceived risk, which can support a higher valuation multiple and share price.
• Management's stated focus on strategic growth, including disciplined M&A in a market with high barriers to entry for new moored rigs, means any accretive acquisitions tied to contracts could expand the fleet, increase backlog and enhance long term revenue and earnings power.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NOK0.01 for Dolphin Drilling based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $125.7 million, earnings will come to $25.5 million, and it would be trading on a PE ratio of 0.0x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of NOK0.01, the analyst price target of NOK0.01 is 4.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.