MENA energy drilling: Bernstein sees MENA drilling recovering from war-driven disruption as offshore utilization, gas investment and constrained jack-up supply underpin its three Outperform calls.

Overview

Bernstein reviews MENA drilling after conflict-related Saudi offshore suspensions. It contends that the disruption masked unusually strong offshore and gas-led fundamentals, while the three covered companies offer distinct combinations of contracted stability, operational recovery and geographic diversification.

Core views

Bernstein argues that the Q2 trough was driven by geopolitical interruption rather than a deterioration in drilling demand. Arabian Drilling's utilization fell to 72% from 79%, producing a SAR35m net loss after offshore suspensions cost SAR122m of revenue. ADES reported a 32% decline in net income to SAR129m on similar stoppages. However, backlog and dayrates held, and the return of suspended Saudi offshore rigs is expected to lift offshore utilization to 100% by end-2026. The underlying offshore market remains tight. High-spec jack-up dayrates have risen from $85,000-$110,000 before 2022 to $180,000-$220,000, with selected fixtures above $200,000. Saudi Arabia's jack-up fleet has rebuilt to more than 90 rigs, while global jack-up utilization remained around 90% even during the conflict. Bernstein expects continued tendering through 2027, supported by Aramco's gas expansion: Jafurah had reached roughly 400mcf/d in 2025 and is targeted to reach 1.1bcf/d by 2027 and 2bcf/d by 2030. The program has already produced 23 gas-rig contracts worth $2.4bn and two directional-drilling awards worth $612m. The report also highlights UAE de-risking and growth. ADNOC's potential move toward 6mbd capacity would add drilling backlog, and ADNOC Drilling had already deployed 142 rigs versus its prior 2030 target of 127. Bernstein contrasts this with Saudi vulnerability: Saudi oil output had fallen 33% since February while UAE production had risen 15%. It argues that the UAE's Fujairah route to Asia, at roughly 10 days, is materially more resilient than Saudi's 29-day-plus Red Sea route when the East-West pipeline is compromised. Company results demonstrate different investment cases. ADNOC Drilling delivered 3% revenue growth to $1.23bn, 2% year-on-year EBITDA growth to $557m, a sector-leading 45.2% EBITDA margin and 99% rig availability across 171 rigs. Its contracted model, more than 90% exposure to parent ADNOC and FY26 EBITDA-margin guidance of 44%-45% underpin Bernstein's preference for its predictable cash flow. Q2 free cash flow was $297m, or $306m before M&A, and FY26 pre-M&A free-cash-flow guidance remains $1.2bn-$1.3bn. Arabian Drilling offers the sharpest recovery leverage. Revenue fell 11% year on year and offshore utilization declined 10 percentage points sequentially to 71.7%, but EBITDA of SAR251m beat consensus by 6% as land profitability and early cost savings cushioned the offshore outage. Bernstein expects high-margin offshore restarts to drive a recovery toward high-30% margins by 4Q26E. Its SAR11.8bn backlog and 3.6x book-to-bill support the view that a 6.3x FY26E EV/EBITDA valuation still reflects the Q2 shock rather than its Saudi gas opportunity. ADES delivered the strongest reported growth, with revenue up 36% and EBITDA up 30% to SAR1.01bn as Shelf Drilling expanded the earnings base. Its 97.6% 1H26 fleet utilization and only 46.8% of revenue from the GCC demonstrate diversification across Brazil, Egypt, Kuwait, India and Europe. Yet Bernstein stresses that growth is acquisition-led: EBITDA margin fell 7.3 percentage points to 47.1% as the acquired fleet diluted profitability, and higher net debt of SAR18.7bn versus SAR17.4bn prompted the target-price reduction. The planned $285m acquisition of five Saipem jack-ups further delays conversion of EBITDA growth into free cash flow. Globally, Bernstein sees a structurally improved drilling cycle rather than a repeat of the prior capacity boom. Sector EBITDA is projected to peak near $12bn before normalizing to $8.3bn by 2030E, while margins are expected to hold near 39%-40%, versus a 16% trough. Global drillers trade at 5.8x EV/EBITDA, below their long-term average, despite tightened availability, improved dayrates and disciplined fleet additions. The report notes that 75%-80% of global jack-up demand forecast for 2027-2030 remains assumed or tender demand, preserving both tender upside and visibility risk.

Analysis framework

Bernstein combines quarterly operating and financial results for the three drillers with rig utilization, dayrate, tendering, backlog, gas-output and production data. It then compares business-model resilience, margins, cash generation, leverage and valuation to distinguish the companies' recovery paths. Target prices use discounted-cash-flow analysis, supplemented by an EV/EBITDA cross-check for Arabian Drilling.

Methodology notes

• Industry AnalysisSupply-demand framework

  Rig availability, utilization, tender pipelines and jack-up dayrates

  The report links constrained rig supply and high utilization to higher dayrates and sustained drilling earnings.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Gas-development and oil-capacity programs translating into drilling contracts and rig demand

  Saudi gas investment and UAE production-capacity expansion are treated as upstream spending drivers that create drilling backlog.

• Valuation methodsDCF (Discounted Cash Flow)

  DCF valuation for ADNOC Drilling, ADES and Arabian Drilling

  Projected free cash flow is discounted using stated WACC and terminal-growth assumptions to derive target prices.

• Valuation methodsEV/EBITDA valuation

  EV/EBITDA valuation cross-check for Arabian Drilling and sector comparisons

  The report compares enterprise value with forward EBITDA to assess relative valuation and derive part of Arabian Drilling's target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ADNOC Drilling (ADNOCDRI.UH)

  Bernstein's top MENA drilling pick, positioned as the defensive contracted-growth name.

  Strengths

  Contracted ADNOC revenue, 99% rig availability, 45.2% EBITDA margin, low 1.0x net debt/EBITDA and FY26 EBITDA-margin guidance of 44%-45%.

  Weaknesses

  Q2 free cash flow declined 27% year on year amid inventory and acquisition consolidation.

  Comparison

  Commands about 11x 2027E EV/EBITDA, above ADES at about 8x and Arabian Drilling at about 7x, reflecting higher visibility.

  Risks

  Earlier-than-expected peak oil demand, intra-group working-capital uncertainty and limited minority-investor governance control.

• Arabian Drilling (ARABIAND.AB)

  Utilization-led recovery exposure to Saudi offshore and gas drilling.

  Strengths

  SAR11.8bn backlog, 3.6x book-to-bill, resilient SAR251m EBITDA and expected offshore restart-driven margin recovery.

  Weaknesses

  Concentrated Saudi portfolio; offshore utilization fell to 71.7% after suspensions.

  Comparison

  Trades at about 7x 2027E EV/EBITDA on roughly $0.4bn EBITDA, below ADNOC Drilling's premium multiple.

  Risks

  Saudi contract suspensions, war-related utilization and cost disruption, and customer-concentration renegotiation risk.

• ADES (ADES.AB)

  Diversified, acquisition-led growth platform with exposure to a recovering jack-up market.

  Strengths

  36% revenue growth, 30% EBITDA growth to SAR1.01bn, 97.6% utilization and diversified international operations.

  Weaknesses

  Margin dilution from the Shelf fleet, elevated acquisition-led leverage and delayed free-cash-flow conversion.

  Comparison

  Trades near 8x forward EBITDA, between Arabian Drilling and ADNOC Drilling.

  Risks

  Further rig suspensions, reliance on Saudi upstream capex and dayrate pricing pressure.

Key data

• Saudi offshore utilization outlook100% by end-2026Expected as suspended offshore rigs resume.
• High-spec jack-up dayrates$180,000-$220,000Versus $85,000-$110,000 before 2022.
• MENA/Gulf rig count~305 rigs in 2026Nearly matches the 2024 peak after falling to 285 in 2025.
• Middle East gas-output growth6% CAGR through 2030The report describes this as the fastest regional growth rate.
• Global drilling EBITDA margin40%, expected at 39% by 2030ERecovered from a 16% trough.
• Global drilling valuation5.8x EV/EBITDABelow the long-term average despite continuing earnings momentum.
• ADNOC Drilling availability99% across 171 rigsSupports the contracted-model resilience thesis.
• ADES EBITDASAR1.01bnUp 30% year on year, supported by Shelf Drilling.

Impact & implications

Bernstein's central implication is that conflict-related offshore downtime has created differentiated rather than uniform outcomes. It favors ADNOC Drilling for contracted, visible cash flow; Arabian Drilling for offshore normalization and Saudi gas exposure; and ADES for international diversification and scale, while recognizing its leverage and integration burden.

Risks

• Saudi contract suspensions or continued war volatility could interrupt rig utilization and raise costs.
• A substantial portion of 2027-2030 global jack-up demand remains assumed or in tender stages, limiting out-year visibility.
• ADES faces elevated leverage, integration execution risk and delayed free-cash-flow conversion after acquisitions.
• Pricing pressure could compress dayrates, while an earlier-than-expected peak in oil demand could weaken drilling demand.

What to watch

• The timing and extent of Saudi suspended-offshore-rig restarts and the path toward 100% utilization by end-2026.
• Aramco gas contracts, Jafurah development progress and UAE drilling demand associated with capacity expansion.
• ADNOC Drilling's free-cash-flow delivery against its $1.2bn-$1.3bn FY26 pre-M&A guidance.
• ADES's Shelf Drilling integration, Saipem jack-up acquisition, margin normalization and net-debt trajectory.
• Global jack-up utilization, tender conversion and dayrate behavior above the historical 92%-93% utilization inflection point.