Borr Drilling Limited — 2022 Form 20-F Summary
Business context and reporting period
Borr Drilling is a Bermuda-based offshore drilling contractor focused on modern shallow-water jack-up rigs. The filing is an annual Form 20-F for the fiscal year ended December 31, 2022, prepared under U.S. GAAP in U.S. dollars. The source does not provide standalone fourth-quarter 2022 financial statements; the figures below are for the full year.
- Fleet at December 31, 2022: 22 premium jack-up rigs, including one warm-stacked rig, plus two newbuild rigs scheduled for delivery in 2025.
- Operating regions: Southeast Asia, West Africa, Mexico, Europe and the Middle East.
- Reported operating segment: dayrate drilling. The former Integrated Well Services segment was disposed of in 2021.
- Total contract backlog, excluding Mexican joint-venture backlog, increased to $929.8 million from $324.8 million in 2021.
Financial and operating metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Dayrate revenue | $358.7 million | $205.8 million | +74.3% |
| Related-party revenue | $85.1 million | $39.5 million | +115.4% |
| Total operating revenue | $443.8 million | $245.3 million | +80.9% |
| Operating loss | $(101.9) million | $(88.3) million | Worse by $13.6 million |
| Net loss | $(292.8) million | $(193.0) million | Worse by $99.8 million |
| Adjusted EBITDA | $157.3 million | $38.0 million | +313.9% |
| Operating cash flow | $62.5 million | $(58.9) million | Improved by $121.4 million |
| Capital additions to jack-up rigs | $81.5 million | $18.8 million | + $62.7 million |
| Cash and cash equivalents | $108.0 million | $34.9 million | +$73.1 million |
| Total debt principal | $1,582.8 million | Not clearly stated on the same basis |
Revenue growth reflected more operating days as previously warm-stacked rigs returned to service and improved Mexican joint-venture performance. Approximate reported margins were a 23.0% operating loss margin, a 66.0% net loss margin and a 35.4% Adjusted EBITDA margin. Adjusted EBITDA is non-GAAP and excludes, among other items, depreciation, impairment, financing costs, taxes and certain contract-cost amortization.
- Technical utilization, excluding Mexico, was 98.9%, compared with 98.4% in 2021.
- Economic utilization, excluding Mexico, was 98.1%, compared with 94.8% in 2021.
- Rig utilization increased to 72.3% from 53.3%; weighted-average operating rigs increased to 15.9 from 11.9.
- Interest expense, net of capitalized amounts, increased to $131.3 million from $92.9 million. Total financial expenses increased to $175.7 million from $114.7 million.
- Operating expenses increased to $549.9 million from $334.8 million, including $264.9 million of rig operating and maintenance costs and $131.7 million of impairment charges.
- Assets were $3.002 billion and shareholders’ equity was $897.8 million at year-end. Current liabilities were $745.6 million against current assets of $349.9 million.
Material changes versus 2021
- Revenue and operating activity expanded substantially as rigs including Ran, Gerd, Groa, Arabia I, Arabia II and Thor moved from warm stacking or activation into operations.
- The Company recognized $131.7 million of impairment charges, including $124.4 million related to three Keppel newbuildings and $7.3 million related to the Gyme rig. These assets were subsequently sold or agreed for sale.
- 2022 financing actions included a $274.9 million gross public equity offering, $8.9 million of gross ATM proceeds and a new $150.0 million DNB facility. Proceeds helped repay the prior syndicated facility and bridge facility and reduce secured debt.
- Secured debt maturities were extended from 2023 to 2025, while delivery dates for two remaining Keppel newbuilds were deferred to 2025.
- Gyme was sold for $120.0 million, and three newbuild rigs were sold to an undisclosed third party for $320.0 million. The transactions reduced future commitments but also generated the reported impairment and disposal items.
- Outstanding shares increased materially, with 228,948,087 common shares outstanding at December 31, 2022, compared with 136,811,842 at December 31, 2021, primarily due to equity offerings.
Guidance, outlook, risks and unusual items
Management reported continued improvement in jack-up demand, utilization and dayrates, supported by higher customer capital spending, energy-security concerns and limited new rig ordering. As of March 23, 2023, 21 of 22 rigs were under contract or committed for future contracts. Management expects demand to remain favorable but cautions that dayrates and utilization remain cyclical and exposed to oil prices, inflation, recession risk and rig oversupply.
- Going concern: Management and the auditors stated that substantial doubt exists over the Company’s ability to continue as a going concern. The Company expects to require additional financing, refinancing, asset sales or improved operating cash flow to meet obligations.
- Debt maturity risk: At December 31, 2022, principal maturities were $450.0 million in 2023, $114.0 million in 2024, $846.0 million in 2025 and $172.8 million in 2026. The Company stated that it would not have sufficient cash to repay all obligations at scheduled maturities without refinancing or other measures.
- Subsequent refinancing: In February 2023, the Company issued $250.0 million of 5.0% senior unsecured convertible bonds due 2028 and $150.0 million of 9.5% senior secured bonds due 2026. These proceeds were intended in part to refinance the $350.0 million convertible bonds due May 2023. In March 2023, $177.8 million of those bonds was repaid, leaving $151.2 million outstanding at that time according to the filing.
- Mexican joint ventures: The Company had $65.6 million of receivables due from its Mexican joint ventures at year-end. Collection depends substantially on payments from customers ultimately connected to PEMEX, which have historically been delayed.
- Financial covenants: The Company reported compliance with its debt covenants at December 31, 2022, but facilities include minimum liquidity, equity-ratio, working-capital, loan-to-value, collateral and change-of-control requirements. Defaults could trigger cross-defaults and acceleration.
- Market risks: A hypothetical 100-basis-point increase in LIBOR and SOFR would have increased annual interest expense by approximately $12.3 million based on year-end variable-rate debt. A hypothetical 10% adverse currency movement would have increased operating and general administrative expenses by approximately $15.0 million.
- Other risks include customer concentration, short-term contracts and termination rights, operating accidents, weather, labor shortages, cybersecurity, sanctions, environmental and climate regulation, tax disputes, litigation and the long-term energy transition.
Most important facts for investors to verify
- Whether the 2023 and 2024 debt repayments, covenant thresholds and minimum liquidity requirements can be met from operating cash flow and available cash.
- Completion and final terms of the February and March 2023 refinancing, including repayment or refinancing of the remaining 2023 convertible bonds.
- Actual cash receipts from the Mexican joint ventures and the collectability of the $65.6 million related-party receivable.
- Contract commencement, dayrates, utilization and backlog conversion for the rigs committed or under contract, particularly contracts expiring in 2023.
- Funding, delivery, financing conditions and potential cancellation rights related to the Vale and Var newbuild rigs scheduled for 2025.
- The effect of higher interest rates, inflation, labor costs and currency movements on margins and liquidity.
- Potential dilution from the new convertible bonds, share-lending and hedging arrangements, employee awards and future equity financing.
- The assumptions supporting rig recoverability, including utilization, dayrates, residual values and operating costs, given the $131.7 million 2022 impairment charge.