Business Context and Reporting Period
Company: Borr Drilling Ltd.
Filing Type: Form 6-K (Unaudited Interim Financial Report)
Reporting Period: Six months ended June 30, 2024
Business Overview: Borr Drilling is an offshore shallow-water drilling contractor specializing in premium jack-up rigs. As of June 30, 2024, the company operated 22 premium jack-up rigs and had agreements to purchase two additional rigs under construction.
Key Financial Metrics
| Metric ($ millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 |
|---|---|---|
| Total Operating Revenues | 505.9 | 359.5 |
| Operating Income | 189.5 | 105.9 |
| Net Income / (Loss) | 46.1 | (6.6) |
| Adjusted EBITDA | 253.2 | 162.1 |
| Cash and Cash Equivalents | 193.5 | 102.5 |
| Total Debt Outstanding (Principal) | 1,922.0 | 1,690.0 |
| Net Cash Provided by Operating Activities | 33.0 | (5.8) |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 41% ($146.4 million) driven by a 41% increase in dayrate revenue. This was fueled by an increase in the number of operating rigs ($59.6 million) and higher average dayrates ($52.3 million).
- Profitability Turnaround: The company reported a net income of $46.1 million, a significant improvement from a net loss of $6.6 million in the prior year. Operating income rose 79% to $189.5 million.
- Expense Increases: Rig operating and maintenance expenses increased 30% to $228.1 million due to more rigs in operation and new management contracts. Total financial expenses rose 26% to $113.2 million, primarily due to higher interest expense from increased debt principal.
- Contracting Shift: Related party revenue decreased by $27.7 million as five rigs previously earning revenue from related parties (Perfomex) were transitioned to fixed bareboat charter agreements with an external party (Irish Energy Drilling Assets, DAC).
Guidance, Outlook, and Risks
- Recent Developments: In March and August 2024, the company issued an additional $350.0 million in 10% Senior Secured Notes due 2028. The Super Senior Credit Facility was amended in August 2024, increasing the total facility to $195.0 million.
- Contracting Update: The contract for rig "Arabia I" in Saudi Arabia was suspended in April 2024 and subsequently terminated in June 2024 to secure a new contract in Brazil.
- Dividends: The Board approved cash distributions of $0.05 per share (Q4 2023), $0.10 per share (Q1 2024), and a subsequent $0.10 per share declared in August 2024 for Q2 2024.
- Risks and Contingencies:
- Liquidity: Risks related to meeting liquidity requirements and debt covenants, including the ability to service $1,922.0 million in debt.
- Market Conditions: Exposure to oil and gas industry demand, dayrate trends, and potential suspension of operations.
- Geopolitical: Risks related to military actions in Ukraine and the Middle East impacting operations.
- Climate Change: Potential impact of new regulations on demand for oil and gas.
Investor Verification Checklist
- Debt Service Capacity: Verify the company's ability to service $1,922.0 million in debt, including $114.6 million maturing within 12 months, given the high interest expense ($101.0 million for the period).
- Contract Backlog: Confirm the status of the new contract for "Arabia I" in Brazil and the stability of the new bareboat charter agreements with Irish Energy Drilling Assets.
- Equity Method Investments: Review the receivables of $95.7 million held by joint ventures (Perfomex/Perfomex II) from Opex and Akal, noting the reduction from $164.9 million year-end 2023.
- Newbuild Commitments: Assess the $319.8 million in remaining delivery installments for two newbuild rigs scheduled for delivery in late 2024.
- Share Lending Agreement: Note that 12,081,900 shares are currently lent to DNB Markets for convertible bond hedging, which may impact share availability.