Business Context and Reporting Period
Company: Borr Drilling Ltd (Bermuda-based offshore shallow-water drilling contractor)
Reporting Period: Three months ended March 31, 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 March 31, 2021, the fleet consisted of 23 jack-up rigs (11 warm stacked) with five additional premium rigs under construction scheduled for delivery in 2023. Operations are divided into Dayrate and Integrated Well Services (IWS) segments.
Key Financial Metrics
| Metric ($ millions) | Q1 2021 | Q1 2020 |
|---|---|---|
| Total Operating Revenues | 48.4 | 104.1 |
| Operating Loss | (40.6) | (26.8) |
| Net Loss | (54.4) | (87.0) |
| Adjusted EBITDA | (10.7) | 25.4 |
| Cash and Cash Equivalents (End of Period) | 49.0 | 107.0 |
| Long-Term Debt (Carrying Value) | 1,908.3 | 1,906.2 |
| Net Cash Used in Operating Activities | (16.7) | (5.3) |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 54% to $48.4 million, driven by fewer rigs in operation and reduced related-party revenue due to amended standby rates in Mexico joint ventures.
- Net Loss Improvement: Net loss narrowed 37% to $54.4 million. This improvement was primarily due to a $23.7 million reduction in financial expenses (excluding a $26.8 million loss on forward contracts recognized in Q1 2020) and a $18.8 million swing in equity method investment income.
- Equity Method Investments: Income from joint ventures turned positive at $16.0 million (vs. a $2.8 million loss in Q1 2020), attributed to increased activity in integrated well services JVs.
- Impairment: No impairment charges were recorded in Q1 2021, compared to an $18.4 million charge in Q1 2020 related to the semi-submersible "MSS1".
- Capital Structure: The Company completed a $46 million private equity placement in January 2021, issuing 54.1 million new depository receipts.
Outlook, Risks, and Management Commentary
- Going Concern Warning: Management has concluded there is substantial doubt regarding the Company's ability to continue as a going concern. While recent debt amendments and the equity raise stabilize liquidity in a base case through 2022, the Company has limited ability to respond to multiple downside scenarios without additional financing.
- Liquidity Management: In January 2021, the Company amended secured credit facilities and newbuild delivery financing. Maturities were extended to January 2023, and interest payments were deferred. Covenants now require minimum cash balances of $5 million through Dec 31, 2021, rising to $15 million by July 2022.
- Market Conditions: The Company cites unprecedented market conditions due to the COVID-19 pandemic, resulting in reduced customer spending, weakened demand, and pricing pressure. Timeliness of payments from customers, particularly in Mexico, remains uncertain.
- Strategic Actions: The Company plans to explore additional financing opportunities and the strategic sale of a limited number of modern jack-ups to strengthen liquidity.
Investor Verification Checklist
- Going Concern Status: Verify the Company's ability to meet the stepped-up minimum cash covenants ($5M/$10M/$15M) and secure additional capital if market conditions worsen.
- Mexico JV Receivables: Assess the collectability of $335.9 million in receivables from Pemex held by Integrated Well Services joint ventures, noting the $3.7 million provision for factoring risks.
- Debt Covenants: Monitor compliance with the "Value to Loan" ratio (140%) and book-to-equity ratios (25%-35%) required by secured lenders.
- Asset Sales: Track progress on the strategic sale of older rigs to generate cash flow, as indicated in management's liquidity strategy.
- Equity Dilution: Note the significant increase in outstanding shares (from ~110M to ~273M) following the January 2021 private placement.