Business Context and Reporting Period
Company: Borr Drilling Ltd (Bermuda-based offshore shallow-water drilling contractor)
Reporting Period: Six months ended June 30, 2023
Filing Type: Form 6-K (Unaudited Interim Financial Report)
Operations: The Company owns, contracts, and operates premium jack-up rigs for oil and gas exploration and production. As of June 30, 2023, the fleet consisted of 22 premium jack-up rigs, with two additional rigs under construction scheduled for delivery in 2025.
Key Financial Metrics
| Metric ($ millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|
| Total Operating Revenues | 359.5 | 187.3 |
| Operating Income | 105.9 | (135.3) |
| Net Loss | (6.6) | (216.6) |
| Adjusted EBITDA | 156.4 | 58.4 |
| Cash and Cash Equivalents | 83.8 | 37.8 |
| Total Debt Outstanding (Principal) | 1,607.7 | N/A |
| Net Cash Used in Operating Activities | (5.8) | (23.2) |
Liquidity: As of June 30, 2023, the Company held $83.8 million in cash and cash equivalents with no restricted cash. The Company has a $175.0 million bilateral facility with DNB Bank ASA, of which $175.0 million was drawn or available.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by $172.2 million (92%) to $359.5 million. This was driven by a $145.8 million increase in dayrate revenue due to more rigs in operation, increased operating days, and higher average dayrates. Related party revenue also increased by $26.4 million.
- Profitability Improvement: The Company reported a net loss of $6.6 million, a significant improvement from the $216.6 million net loss in the prior year. This turnaround was primarily due to higher revenues and the absence of the $124.4 million impairment charge recorded in 2022 related to newbuilding rigs.
- Expense Increases: Rig operating and maintenance expenses rose by $53.9 million (45%) to $175.0 million, reflecting increased fleet activity. Total financial expenses increased by $17.9 million to $90.1 million due to higher interest rates and new debt issuances, partially offset by the repayment of the $350 million convertible bonds.
- Debt Restructuring: The Company repaid the remaining $151.2 million of its $350 million convertible bonds in May 2023. In February 2023, it issued $250 million in unsecured convertible bonds (due 2028) and $150 million in senior secured bonds (due 2026).
Guidance, Outlook, Risks, and Unusual Items
- Going Concern Warning: Management has concluded that a substantial doubt exists over the Company's ability to continue as a going concern. This is due to significant historical losses, dependence on additional financing to meet capital expenditure commitments, and the need to secure profitable contracts to service debt obligations maturing in 2023 and 2024.
- Debt Maturities: Total principal debt of $1,607.7 million includes $50.0 million maturing in 2023, $114.0 million in 2024, and a significant $870.9 million maturing in 2025. The Company has refinanced secured debt maturing in 2023 to 2025.
- Capital Commitments: The Company has delivery installment commitments of approximately $294.8 million for two newbuild rigs, payable in 2-3 years.
- Recent Financing: In July 2023 (subsequent to the period end), the Company sold shares under its ATM program raising $9.7 million. In April 2023, the DNB facility was increased to $175.0 million, and $25.0 million was drawn.
- Risks: Key risks include industry conditions, tendering activity, customer payment delays, liquidity constraints, and the ability to refinance significant debt obligations. Climate change regulations and geopolitical events (e.g., Ukraine) are also cited as risks.
Investor Verification Checklist
- Going Concern Status: Verify the Company's ability to secure profitable contracts and additional financing to meet the $870.9 million debt maturity in 2025 and ongoing capital expenditures.
- Liquidity Position: Monitor cash burn rates and the utilization of the $175.0 million DNB facility and ATM program to ensure sufficient working capital.
- Debt Covenants: Confirm compliance with financial covenants on the new Senior Secured Bonds (minimum equity ratio of 20-25% and minimum liquidity of $15-$50 million).
- Contract Backlog: Assess the visibility of future revenue streams given the reliance on securing rigs on profitable contracts to maintain solvency.
- Newbuild Commitments: Evaluate the financial impact of the $294.8 million remaining delivery installments for new rigs against projected cash flows.