Business Context and Reporting Period
Company: Borr Drilling Ltd (Bermuda-based offshore shallow-water drilling contractor).
Reporting Period: Six months ended June 30, 2022 (Unaudited).
Business Overview: The Company owns, contracts, and operates jack-up rigs for oil and gas exploration and production in water depths up to 400 feet. As of June 30, 2022, the fleet consisted of 23 jack-up rigs (5 warm stacked) and 5 newbuilds under construction. The Company operates under a single reportable segment (Dayrate model) following the disposal of its Integrated Well Services (IWS) joint ventures in August 2021.
Key Financial Metrics
| Metric ($ millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|
| Total Operating Revenues | 187.3 | 103.2 |
| Operating Loss | (135.3) | (66.6) |
| Net Loss | (216.6) | (114.3) |
| Adjusted EBITDA (Non-GAAP) | 58.4 | (7.0) |
| Cash and Cash Equivalents | 29.7 | 19.2 (Beginning of period) |
| Restricted Cash | 8.1 | 11.1 (Beginning of period) |
| Total Principal Debt Outstanding | 1,862.5 | N/A |
| Debt Maturing in 2023 | 1,603.3 | N/A |
Liquidity: Net cash used in operating activities was $23.2 million. Net cash provided by financing activities was $37.7 million, driven by equity offerings.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 81% to $187.3 million, driven by a $54.2 million increase in dayrate revenue (due to more rigs in operation) and a $29.9 million increase in related party revenue from joint ventures.
- Net Loss Expansion: Net loss increased 90% to $216.6 million. This was primarily due to a one-time $124.4 million impairment charge on advance payments and capitalized interest for three newbuild rigs ("Tivar", "Huldra", "Heidrun") following a letter of intent to sell them.
- Operating Expenses: Total operating expenses rose 90% to $323.3 million, largely due to the impairment charge and increased rig operating costs ($24.9 million increase) from higher fleet utilization.
- Equity Income: Income from equity method investments dropped to nil from $10.3 million in the prior year, as the Company sold its interest in the Opex and Akal joint ventures in August 2021.
- Financial Expenses: Net financial expenses increased 27% to $72.2 million, driven by higher interest expense and yard cost cover for undelivered newbuilds.
Guidance, Outlook, Risks, and Unusual Items
Going Concern and Liquidity Risks
The Company has concluded that substantial doubt exists regarding its ability to continue as a going concern. This is due to significant losses, substantial debt maturities in 2023 ($1.6 billion), and dependence on additional financing.
Refinancing and Equity Raise
- Debt Refinancing: In July 2022, the Company reached agreements in principle with secured creditors to extend debt maturities from 2023 to 2025. This is subject to binding documentation and board approvals.
- Equity Offering: On August 10, 2022, the Company priced a public equity offering of $250.0 million (plus $25.0 million option). Proceeds are intended to fund the debt refinancing and general corporate purposes. Closing is subject to conditions, including shareholder approval for increased authorized share capital.
Asset Sales
- Newbuild Sale: Entered into a letter of intent to sell three newbuilding jack-up rigs for $320.0 million. Proceeds are expected to pay delivery installments and eliminate activation costs.
- Rig Sale: Contemplating the sale of the warm-stacked rig "Gyme" by November 15, 2022, to repay PPL financing.
Unusual Items
The $124.4 million impairment charge is a non-cash item resulting from the decision to sell three newbuilds rather than complete them, reflecting the difference between the estimated sale price and the capitalized costs.
Investor Verification Checklist
- Equity Offering Closing: Verify the successful closing of the $250 million equity offering and the receipt of proceeds.
- Debt Refinancing Finalization: Confirm execution of binding long-form documentation with secured lenders to extend maturities to 2025.
- Newbuild Sale Completion: Monitor the finalization of the sale agreement for the three newbuild rigs and the actual proceeds received versus the $320 million LOI value.
- Covenant Compliance: Ensure the Company maintains compliance with debt covenants during the transition period.
- Market Conditions: Assess the impact of global oil and gas demand on the Company's ability to secure accretive contracts for its fleet.