Not All Rigs Drill Equally; Arabian Drilling to EW

Research evidence excerpt

Not All Rigs Drill Equally; Arabian Drilling to EW

ing market tightness will likely result in further upside

to our pricing estimates. The M&A playbook is still in play, following ADES'

acquisition of Saipem's operations in Saudi Arabia at a very attractive valuation

(Consolidation at Full Steam). Additionally, ADES still has 11 idle rigs (4 offshore, 7

onshore) that it can deploy for ongoing/upcoming tenders (our base case doesn’t

assume any income from such rigs). Lastly, benefits – and synergies – from the Shelf

acquisition are yet to fully materialize. Trading at 7.8x 27e EV/EBITDA on our

numbers, we see 40% upside to our base case and rank ADES as one of our

favourite plays across our entire coverage.

ADNOC Drilling: bull case = base case? Since the UAE announced its decision to

leave OPEC, most discussions on ADNOC Drilling have focused on the potential

increase in demand for its drilling services (Greetings from the US and Greetings

from the Far East II). We note Drilling is the closest proxy among the listed

companies for upstream activity in Abu Dhabi, given its exclusivity on drilling

contracts with the ADNOC Group. As management discussed during 1Q earnings call

(Off The 1Q26 Call), the direction of travel is supportive, with high probability that

the demand outlook will prove even more supportive. However, management also

mentioned the unknowns, including timing, whether marginal demand would come

from onshore or offshore drilling, and how relevant it could be in terms of

incremental rigs/wells. These points are, in our view, the main focus for investors

and explain the stock performance post the OPEC announcement. The initial market

reaction was positive but was quickly followed by a correction, as investors sought

Morgan Stanley Research 3