Business Context and Reporting Period
Company: Borr Drilling Ltd (Bermuda-based offshore shallow-water drilling contractor)
Reporting Period: Six months ended June 30, 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 June 30, 2021, the fleet consisted of 23 jack-up rigs (10 warm-stacked) with five additional premium rigs under construction scheduled for delivery in 2023. The Company operates through two segments: Dayrate operations and Integrated Well Services (IWS) via joint ventures in Mexico.
Key Financial Metrics
| Metric ($ millions) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|
| Total Operating Revenues | 103.2 | 188.1 |
| Operating Loss | (66.6) | (118.0) |
| Net Loss | (114.3) | (196.6) |
| Adjusted EBITDA | (7.0) | 23.5 |
| Cash and Cash Equivalents (End of Period) | 32.4 | 34.6 |
| Long-Term Debt (Carrying Value) | 1,910.9 | 1,906.2 |
| Net Cash Used in Operating Activities | (27.6) | (10.5) |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 45% to $103.2 million, driven by a $68.2 million drop in dayrate revenue due to fewer rigs in operation and a $16.7 million decrease in related party revenue from Mexico joint ventures (due to amended standby rates and increased idle time).
- Improved Net Loss: Net loss narrowed by 42% to $114.3 million. This improvement was primarily due to the absence of a $76.3 million impairment charge recorded in the prior year and a $26.6 million loss on forward contracts in 2020 that did not recur.
- Expense Reduction: Rig operating and maintenance expenses fell 37% to $96.2 million, and General and Administrative expenses dropped 35% to $19.5 million, reflecting reduced operational activity and lower debt amendment costs compared to 2020.
- Equity Investment Income: Income from equity method investments increased 21% to $10.3 million, attributed to increased drilling activity in Mexican joint ventures (from two to five wells simultaneously).
Outlook, Risks, and Contingencies
Going Concern Warning
Management has concluded that there is substantial doubt regarding the Company's ability to continue as a going concern. While liquidity has been stabilized in a base-case scenario through 2022 via debt amendments and a January 2021 equity raise, the Company has limited ability to respond to negative incidents or multiple downside scenarios without additional financing or asset sales.
Liquidity and Debt
- Debt Maturities: Major secured facilities (Hayfin, Syndicated, New Bridge) were extended to January 2023. Delivery financing for newbuilds has maturities ranging from 2023 to 2026.
- Covenants: The Company is currently in compliance with debt covenants, which include minimum liquidity requirements of $5 million through December 31, 2021, increasing to $15 million by July 2022.
- Capital Raising: Established an At-The-Market (ATM) program in July 2021 to sell up to $40.0 million of common shares.
Subsequent Events (Post-June 30, 2021)
- Asset Sale: Sold 49% interest in Opex and Akal joint ventures for $8.1 million cash plus $18.6 million in receivable settlements. Acquired incremental 2% stakes in Perfomex I and II.
- Compensation: Granted 10.3 million share options to employees with a $1.00 strike price.
Investor Verification Checklist
- Going Concern Status: Verify the Company's ability to meet the $5 million minimum liquidity covenant through year-end 2021 and subsequent increases.
- Debt Refinancing: Assess the risk of refinancing $1.6 billion in debt maturing in 2023 given current market conditions.
- Mexico JV Receivables: Monitor the collection of outstanding receivables from Pemex and the impact of the recent sale of Opex/Akal interests on future cash flows.
- Asset Sales: Track progress on potential strategic sales of modern jack-up rigs to bolster liquidity.
- ATM Program Utilization: Monitor if and when the Company utilizes the $40 million ATM facility and the dilution impact on shareholders.