Borr Drilling Ltd. 2023 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. This Form 20-F reports audited U.S. GAAP results for the fiscal year ended December 31, 2023; it does not provide a standalone fourth-quarter income statement. The Company owned 22 premium jack-up rigs at year-end and had two additional rigs under construction, expected to be delivered in 2024.
Operations were concentrated in South East Asia, Mexico, West Africa, the Middle East and Europe. The Company had one reportable segment: dayrate drilling services. Five largest customers represented 56% of 2023 revenue, including related-party revenue.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Dayrate revenue | $642.0 million | $358.7 million | +79.8% |
| Related-party revenue | $129.6 million | $85.1 million | +52.4% |
| Total operating revenue | $771.6 million | $443.8 million | +73.9% |
| Operating income/(loss) | $250.4 million | $(101.9) million | Improved by $352.3 million |
| Net income/(loss) | $22.1 million | $(292.8) million | Improved by $314.9 million |
| Adjusted EBITDA | $350.5 million | $157.3 million | +122.8% |
| Operating margin | 32.5% | (23.0%) | Improved |
| Net margin | 2.9% | (66.0%) | Improved |
| Net cash from operating activities | $(50.7) million | $62.5 million | Declined by $113.2 million |
| Capital expenditures and rig additions | $114.0 million | $81.5 million | Higher |
Revenue growth primarily reflected more operating rigs, more operating days, higher average dayrates and improved profitability of the Mexican joint ventures. Rig utilization increased to 92.4% from 72.3%, while the weighted-average number of operating rigs increased to 20.1 from 15.9. Technical utilization was 98.3%, compared with 98.9% in 2022, and economic utilization was 97.9%, compared with 98.1%.
Operating expenses decreased to $521.8 million from $549.9 million despite a $94.4 million increase in rig operating and maintenance expenses, because 2022 included $131.7 million of impairment charges. Interest expense increased to $177.2 million from $139.2 million, and total financial expenses increased to $199.2 million from $175.7 million. Income tax expense rose to $34.0 million from $18.4 million; the effective tax rate was approximately 60.6%, affected by the geographic mix of earnings and tax adjustments.
Liquidity, debt and cash flow
- Cash and cash equivalents were $102.5 million at December 31, 2023, with $0.1 million of restricted cash.
- Net cash used in operating activities was $50.7 million. Interest payments were $217.4 million and income tax payments were $38.2 million.
- Net cash used in investing activities was $104.2 million, including $111.2 million of additions to jack-up rigs, principally for activations and reactivations.
- Net cash provided by financing activities was $139.0 million, reflecting the refinancing of substantially all secured debt, equity proceeds and new convertible debt proceeds, partly offset by $1.8 billion of debt repayments.
- Principal debt outstanding was $1.790 billion at year-end, consisting of $1.025 billion of 10% senior secured notes due 2028, $515.0 million of 10.375% senior secured notes due 2030 and $250.0 million of unsecured 5% convertible bonds due 2028.
- The Company also had a $150 million undrawn revolving credit facility and a $30 million guarantee facility, of which $29 million was drawn at year-end.
- The Notes require approximately $100 million of annual amortization at 105% of principal, plus applicable interest, and include excess-cash-flow repayment offers beginning after the 2024 annual report.
- Debt principal maturities shown at year-end were $100 million annually from 2024 through 2027, with $1.390 billion thereafter. Management states that refinancing or extending a substantial portion of the 2028 maturities will be necessary.
Management concluded that cash flows from operations, cash on hand and available RCF capacity should meet anticipated requirements for the next 12 months following issuance of the financial statements. The financial statements were prepared on a going-concern basis. The Company was in compliance with its debt covenants at December 31, 2023.
Material changes versus the prior comparable period
- Contract backlog excluding Mexican joint-venture backlog increased to $1.2065 billion from $929.8 million, covering 26 contracts, letters of intent and awards with firm terms expiring between 2024 and 2028.
- Rig utilization and the operating fleet expanded materially, supporting the increase in revenue and profitability.
- The Company recorded no impairment in 2023, compared with $131.7 million in 2022 related primarily to rigs and newbuildings subsequently sold.
- The Company completed a comprehensive refinancing in November 2023, replacing prior secured facilities with the 2028 and 2030 Notes and the Super Senior Credit Facility.
- The Company raised approximately $50 million in an October 2023 private placement and $9.7 million gross through its ATM program, while issuing a $250 million convertible bond in February 2023.
- A $100 million share repurchase program was authorized in December 2023; 125,000 shares were repurchased for $0.8 million during December.
- Shareholders approved transferring $2.0 billion from additional paid-in capital to contributed surplus. Year-end outstanding shares totaled 252,582,036.
Guidance, outlook, commentary and risks
Management reported continued improvement in the jack-up market, with strong demand, rising dayrates and a preference for modern rigs. As of March 22, 2024, all 22 owned rigs were under contract or committed for future contracts. Management expects market conditions to remain favorable in the foreseeable future, subject to continued hydrocarbon demand.
The two newbuild rigs, “Vale” and “Var,” have best-efforts expedited delivery dates in August and November 2024, respectively. Remaining delivery commitments were approximately $319.8 million, against potential delivery financing of $130 million per rig. The Company estimated approximately $91.6 million of capital expenditures during the next 12 months for known contracts and anticipated activations.
Key risks include the cyclical nature of offshore drilling, oil-price volatility, contract cancellations or renegotiations, customer concentration, payment delays involving PEMEX-related Mexican joint ventures, rising operating and activation costs, newbuild delivery and financing risk, debt refinancing and covenant compliance, geopolitical disruptions, environmental and climate regulation, cybersecurity, foreign-exchange exposure and potential restrictions on cash repatriation. Receivables due from the Mexican joint ventures were $95.0 million at year-end, and collection depends partly on timely payments from PEMEX-related customers.
Subsequent to year-end, the Company issued an additional $200 million of 10% senior secured notes due 2028 and repurchased $10.6 million of the 2028 convertible bonds, leaving $239.4 million outstanding. The Company also declared and paid $0.05-per-share distributions for the third and fourth quarters of 2023. Future distributions remain discretionary and constrained by debt covenants and liquidity.
Most important facts for investors to verify
- Whether operating cash flow turns positive after interest, taxes, working-capital needs and rig activation spending.
- The timing and economics of the $319.8 million Vale and Var delivery commitments, including whether the $130 million-per-rig financing is drawn and whether deliveries occur on schedule.
- The Company’s ability to meet annual Note amortization, excess-cash-flow repayment requirements and 2028 refinancing needs.
- The collectability and timing of the $95.0 million due from Mexican joint ventures and the effect of PEMEX payment delays on liquidity.
- Whether backlog converts into revenue without material downtime, contract termination, renegotiation or customer default.
- Sensitivity of rig valuations and impairment risk to lower utilization or dayrates; management reported no impairment even under a modeled 10% reduction in both assumptions.
- The potential dilution from the $250 million convertible bonds, share options and other equity-linked awards.
- The effect of Bermuda’s 15% corporate income tax regime, expected to apply when applicable multinational revenue thresholds are met, and other jurisdictional tax changes.