Business Context and Reporting Period
Company: Borr Drilling Ltd (Bermuda-based offshore shallow-water drilling contractor)
Reporting Period: Nine months ended September 30, 2021
Filing Type: Form 6-K (Unaudited Interim Financial Report)
The Company operates a fleet of jack-up rigs for oil and gas exploration and production. As of September 30, 2021, the fleet consisted of 23 jack-up rigs (10 warm-stacked) with five additional premium rigs under construction scheduled for delivery in 2023. The Company operates primarily under a dayrate model and previously operated an Integrated Well Services (IWS) segment through joint ventures in Mexico, which was partially divested during the period.
Key Financial Metrics
| Metric ($ millions) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 |
|---|---|---|
| Total Operating Revenues | 176.2 | 247.3 |
| Operating Loss | (75.3) | (162.6) |
| Net Loss | (146.9) | (258.5) |
| Adjusted EBITDA | 13.0 | 13.4 |
| Net Cash Used in Operating Activities | (34.6) | (16.3) |
| Cash and Cash Equivalents (End of Period) | 68.9 | 12.5 |
| Total Debt (Carrying Value) | 1,912.8 | 1,906.2 |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased by 29% ($71.1 million) primarily due to a reduction in the number of rigs in operation and a decrease in related party revenue from Mexico joint ventures following contract amendments.
- Improved Net Loss: Net loss improved by 43% ($111.6 million) compared to the prior year. This was driven by the absence of a $77.1 million impairment charge recorded in 2020 and a $12.4 million decrease in gains on disposals.
- Cost Reductions: Rig operating and maintenance expenses decreased by 35% ($74.7 million) due to fewer active rigs. General and administrative expenses fell 33% ($13.4 million), largely due to the absence of debt amendment costs incurred in 2020.
- Financial Expenses: Net financial expenses decreased by 16% ($16.2 million), primarily because the 2020 period included a $26.6 million loss on a forward contract for Valaris plc shares, which did not recur in 2021.
- Asset Disposal: The Company sold its 49% interest in the Opex and Akal joint ventures in August 2021, recognizing a $3.6 million gain and receiving $10.6 million in proceeds.
Outlook, Risks, and Management Commentary
Going Concern and Liquidity
Management has concluded that substantial doubt exists regarding the Company's ability to continue as a going concern. While liquidity has been stabilized through a January 2021 equity raise ($46 million), debt amendments extending maturities to 2023, and an At-The-Market (ATM) program, the Company has limited ability to respond to multiple downside scenarios without additional financing.
Debt and Covenants
Key secured facilities (Hayfin, Syndicated Senior Secured, New Bridge) were amended in January 2021 to extend maturities to January 2023. Covenants include minimum liquidity requirements ranging from $5 million to $15 million through 2022 and book-to-equity ratios of 25-35%. The Company was in compliance with all covenants as of September 30, 2021.
Capital Resources
Cash and cash equivalents increased to $68.9 million, up from $19.2 million at year-end 2020. However, $9.9 million was subsequently reclassified to restricted cash for performance bonds. The Company has significant delivery installment commitments of $621.0 million for newbuild rigs, with the majority due in 2023.
Risks
- Market Conditions: Ongoing impact of the COVID-19 pandemic and uncertainty regarding oil and gas demand recovery.
- Liquidity: Risk of inability to raise necessary funds or sell assets to meet debt obligations maturing in 2023.
- Customer Concentration: Significant reliance on major customers (e.g., PTT, CNOOC, Pemex) and joint venture partners in Mexico.
- Internal Controls: A material weakness in internal control over financial reporting was previously identified; management is implementing remediation plans.
Key Facts for Investor Verification
- Going Concern Status: Verify the Company's ability to secure additional financing or asset sales to meet 2023 debt maturities given the explicit "substantial doubt" disclosure.
- Liquidity Covenants: Monitor compliance with minimum cash requirements ($5M-$15M) and book-to-equity ratios under amended credit facilities.
- Joint Venture Receivables: Assess the collectability of receivables from Mexican joint ventures (Opex/Akal) and the impact of the divestiture on future revenue streams.
- Capital Expenditures: Review the schedule and funding requirements for $621 million in delivery installments for five newbuild rigs due in 2023.
- Internal Controls: Confirm the status of remediation efforts regarding the previously reported material weakness in financial reporting.