Dolphin Drilling makes partial payment as settlement talks continue in multi-million tax case

August 12, 2025, by Melisa Cavcic

Dolphin Drilling, an Oslo-listed, Aberdeen-headquartered owner and operator of a fleet of harsh environment mid-water and deepwater semi-submersible drilling rigs, has paid in part the amount required to comply with the UK Supreme Court’s decision in a historic corporation tax liability case, which stipulates that the firm needs to dish out approximately £14.2 million (over $19.08 million).

Following the decision of the UK Supreme Court to dismiss on June 24, 2025, an appeal in a legacy corporation tax liability submitted by Dolphin Drilling to His Majesty’s Revenue and Customs (HMRC), the rig owner has engaged in discussions with HMRC and made an initial payment of £2 million ($2.69 million).

This represents a partial settlement of the tax liability, which prior to the payment was in the approximate total sum of £14.2 million. The firm claims to be engaged in further discussions regarding the settlement of the remaining balance.

The story behind this tax case unfolded after Total E&P UK, part of TotalEnergies, decided to carry on drilling activities at the Dunbar oil platform in the North Sea, which required the support of a tender support vessel (TSV) designed to provide tender-assisted drilling (TAD) services because of a lack of facilities for active drilling operations.

When the energy firm wanted to recommence drilling at the Dunbar in 2012, it invited Dolphin Drilling to tender for the provision of a TSV. In response, Dolphin proposed the use of the Borgsten Dolphin semi-submersible drilling rig, which could be converted into a TSV. The rig was leased from an associated company, Borgsten Dolphin Pte Ltd (BDPL).

TotalEnergies awarded Dolphin the contract to supply TAD services to the Dunbar in November 2011, with the contract stating that the unit would provide accommodation for its crew and 40 members of the operator’s personnel. Once May 2012 came, the two players agreed to a change order to increase the accommodation capacity on the rig to 120 people, which the energy player paid for.

The appeal case revolved around Dolphin’s tax returns for the accounting periods ending December 31, 2014, and 2015, in regards to the corporation tax treatment of oil contractor activities, as the firm assumed that it was entitled to take into account in the calculation of its profits the entirety of the fees it paid to BDPL.

Rationale behind court’s decision

Since there is a hire cap on contractors operating within the UK territorial waters or the Continental Shelf, this restricts the deduction of payments under leases between connected parties in calculating the profits of the paying contractor from its oil contractor activities. The TotalEnergies personnel, who worked on the Dunbar but were accommodated on the Borgsten, were considered offshore workers as they worked from another structure.

After contemplating the case, HMRC, which determined that the hire cap was applicable and restricted the tax deductions available to Dolphin, issued a closure notice concerning the drilling player’s tax return for the year ended December 31, 2014, calculating the extra corporation tax payable at £4.04 million ($5.43 million).

A similar closure notice was issued regarding Dolphin’s tax return for the year ended December 31, 2015, with the additional corporation tax in this case being £2.69 million ($3.62 million). Once the rig owner appealed, the Supreme Court unanimously dismissed the appeal, viewing the use of the Borgsten Dolphin rig for accommodation services as independent from its use for TAD services, signifying that the hire cap applies.

The court’s judgment was based on the notion that the rig had a primary use of providing TAD services to the Dunbar and a secondary use of providing accommodation services to offshore workers on the North Sea asset, with TotalEnergies and Dolphin agreeing to boost the accommodation available on the unit.

From the court’s perspective, the provision of accommodation services was not incidental to the use of the Borgsten Dolphin semi-sub to provide TAD services, as it was a separate service or use independent of the provision of such services.

Recently, Dolphin Drilling secured an arbitration win in a case revolving around the termination of a drilling contract offshore Nigeria with Lagos-based General Hydrocarbons Limited (GHL).