Business Context and Reporting Period
Company: Borr Drilling Ltd (Bermuda-based offshore shallow-water drilling contractor)
Reporting Period: Three months ended March 31, 2024 (Q1 2024)
Filing Type: Form 6-K (Unaudited Interim Financial Report)
Operations: As of March 31, 2024, the Company operated 22 premium jack-up rigs and had agreements to purchase two additional rigs under construction. The Company provides drilling services globally, with significant revenue concentration in Mexico, Southeast Asia, and the Middle East.
Key Financial Metrics
| Metric ($ millions) | Q1 2024 | Q1 2023 |
|---|---|---|
| Total Operating Revenues | 234.0 | 172.0 |
| Operating Income | 85.0 | 46.0 |
| Net Income / (Loss) | 14.4 | (7.4) |
| Adjusted EBITDA | 116.8 | 74.2 |
| Cash and Cash Equivalents | 282.7 | 102.5 |
| Total Debt Outstanding (Principal) | 1,979.4 | N/A |
| Net Cash from Operating Activities | 23.9 | (8.2) |
Liquidity: Cash and cash equivalents increased to $282.7 million from $102.5 million at year-end 2023, driven by strong operating cash flow and new debt issuance.
Debt Profile: Total principal debt is $1,979.4 million. $114.6 million matures in 2024. The weighted average nominal interest rate was 9.7% for the quarter.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 36% ($62.0 million) to $234.0 million. This was driven by a $56.6 million increase in dayrate revenue (due to more rigs in operation and higher average dayrates) and $11.3 million in new bareboat charter revenue.
- Profitability Turnaround: The Company reported a net income of $14.4 million, a swing of $21.8 million from a net loss of $7.4 million in Q1 2023. Operating income rose 85% to $85.0 million.
- Expense Increases: Rig operating and maintenance expenses rose 22% to $104.0 million due to increased rig activity. Total financial expenses increased 43% to $57.8 million, primarily due to higher interest costs from new senior secured notes issued in late 2023 and early 2024.
- Adjusted EBITDA: Increased 57% to $116.8 million, reflecting improved operational leverage.
Guidance, Outlook, and Risks
Recent Developments & Outlook:
- Contracting Update: In April 2024, the Company received notice of a temporary suspension of operations for the rig "Arabia I" in Saudi Arabia for up to 12 months, expected to commence in Q2 2024. The Company intends to seek alternative engagement for the rig.
- Debt Issuance: In March 2024, the Company issued an additional $200.0 million of 10% Senior Secured Notes due 2028.
- Shareholder Returns: The Company paid cash distributions of $0.05 per share in January and March 2024. On May 22, 2024, a cash distribution of $0.10 per share was declared for payment in June 2024.
- Convertible Bonds: The Company repurchased $10.6 million of unsecured convertible bonds in March 2024.
Risks and Contingencies:
- Operational Suspension: The suspension of "Arabia I" creates uncertainty regarding revenue replacement and potential idle costs.
- Liquidity and Debt Covenants: Risks related to meeting liquidity requirements and complying with covenants under the super senior revolving credit facility and other debt instruments.
- Market Conditions: Exposure to industry conditions, tendering activity, and potential suspension of operations by customers.
- Related Party Receivables: Significant receivables ($97.9 million outstanding) from joint ventures (Perfomex/Perfomex II) related to operations in Mexico.
Investor Verification Checklist
- Suspension Impact: Verify the financial impact and timeline for re-engagement of the "Arabia I" rig suspended in Saudi Arabia.
- Debt Maturity Wall: Confirm the Company's ability to service the $114.6 million of debt maturing in 2024 and compliance with debt covenants.
- Related Party Exposure: Assess the collectability of the $97.9 million outstanding receivables from Mexican joint ventures (Perfomex/Perfomex II).
- Capital Allocation: Review the impact of recent cash distributions ($0.10 per share declared) and debt issuance on future liquidity and capital expenditure plans.
- Contract Backlog: Evaluate the visibility of future revenue given the restructuring of contracts in Mexico (shift from related party to third-party bareboat charters).