Borr Drilling Limited — FY2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual Form 20-F, not a standalone fourth-quarter filing; quarterly Q4 figures are not separately presented. Financial statements are prepared under U.S. GAAP in U.S. dollars.
Business context
Borr Drilling is a Bermuda-based offshore shallow-water drilling contractor focused on owning, contracting and operating premium jack-up rigs. At December 31, 2021, it owned 23 rigs, including five warm-stacked rigs, and had five additional newbuild rigs under construction. The five newbuild delivery dates were subject to deferral to 2025 under agreements with shipyard creditors.
- 2021 operating focus included Southeast Asia, Europe, Mexico and West Africa.
- Rig utilization improved, but the fleet remained substantially under-deployed: rig utilization was 53.3%, compared with 48.3% in 2020.
- Excluding Mexico, technical utilization was 98.4% and economic utilization was 94.8%.
- Total contract backlog, excluding Mexican joint-venture backlog and unexercised options, increased to $324.8 million from $132.1 million.
Financial performance and key metrics
| U.S. dollars in millions, except per-share data | 2021 | 2020 | Change |
|---|---|---|---|
| Dayrate revenue | $205.8 | $265.2 | (22.4%) |
| Related-party revenue | $39.5 | $42.3 | (6.6%) |
| Total operating revenue | $245.3 | $307.5 | (20.2%) |
| Operating loss | $(88.3) | $(188.0) | Improved |
| Net loss | $(193.0) | $(317.6) | Improved |
| Adjusted EBITDA | $38.0 | $20.0 | Improved |
| Basic and diluted loss per share | $(1.43) | $(4.22) | Improved |
| Net cash used in operating activities | $(58.9) | $(54.8) | Higher use |
| Cash flow from investing activities | $40.9 | $(119.7) | Improved |
| Cash flow from financing activities | $44.8 | $65.2 | Lower inflow |
Margins and expenses: Operating expenses declined to $334.8 million from $514.5 million, primarily because of lower operating days, rig disposals and the absence of 2020 impairment charges. Rig operating and maintenance expenses fell to $180.5 million from $270.4 million. Depreciation was $119.6 million, while no impairment charge was recorded in 2021 compared with $77.1 million in 2020. Adjusted EBITDA improved to $38.0 million, although it remains a non-GAAP measure that excludes, among other items, depreciation, financing costs, taxes and certain cash requirements.
Balance sheet and liquidity: Cash and cash equivalents were $34.9 million, with restricted cash of $11.1 million. Total assets were $3.08 billion and total equity was $889.9 million. The carrying value of jack-up rigs was $2.73 billion. The company reported $1.8625 billion of principal debt outstanding and $1.9159 billion of long-term debt carrying value, with substantially all principal debt scheduled to mature in 2023 unless refinancing or amendments became effective.
Debt composition: Principal debt included $272.7 million under the Syndicated Facility, $30.3 million under the New Bridge Facility, $197.0 million under the Hayfin Facility, $1.0125 billion of shipyard financing and $350.0 million of convertible bonds. Approximately $1.5674 billion of debt was subject to variable interest rates; management estimated that a 100-basis-point increase in LIBOR would increase annual interest expense by approximately $15.1 million.
Material changes versus the prior comparable period
- Revenue decreased by $62.2 million as several rigs operating in 2020 were warm-stacked in 2021, and other rigs were disposed of during 2020.
- Revenue benefited from increased operating days for Prospector 1, Prospector 5, Gunnlod, Saga and Skald.
- Operating losses narrowed substantially because of lower rig operating costs, lower general and administrative expenses and no 2021 impairment charge.
- Financial expense declined to $114.7 million from $122.9 million, mainly because 2020 included losses on Valaris forward contracts and convertible-bond call spreads. Interest expense, net of capitalized amounts, nevertheless increased to $92.9 million from $87.4 million.
- The company sold its 49% interests in the Opex and Akal Mexican integrated-well-services joint ventures in August 2021 for $10.6 million of cash consideration and acquired an additional 2% interest in Perfomex and Perfomex II, increasing its ownership in those entities to 51%. The company continued to account for Perfomex and Perfomex II under the equity method.
- Income from equity-method investments increased to $16.1 million from $9.5 million, including improved results from Opex and Akal before their disposal.
- Cash flow from investing activities turned positive, primarily because of $46.5 million of distributions or repayments from equity-method investments, $10.6 million of sale proceeds from the Mexican joint ventures and limited capital spending.
- The company issued 27.1 million shares in January 2021, raising approximately $46.0 million gross, and completed a two-for-one reverse share split in December 2021.
Guidance, outlook, risks and unusual items
Management reported improving offshore drilling market conditions, supported by higher oil prices, increased customer capital spending and stronger tender activity. It expected contracting activity and dayrates to continue improving, while noting that many new contracts remained short-term and that approximately 29 jack-up rigs were under construction globally, most without contracts. The company remained optimistic about near-term market recovery but cautioned that industry supply, energy-transition policies, inflation and supply-chain disruption could limit the recovery.
Going concern: The audited financial statements include an emphasis that substantial doubt existed regarding the company’s ability to continue as a going concern. The company had incurred significant losses, expected additional financing needs, limited cash resources and substantial debt maturities beginning in January 2023. Management’s plans depended on improved operating cash flow, accretive contracts, equity or debt financing, possible rig sales and successful refinancing or extension of debt maturities.
Debt restructuring contingency: Agreements in principle with shipyard creditors contemplated deferring approximately $1.4 billion of debt maturities and delivery installments from 2023 to 2025. These arrangements were conditional on extending or refinancing the Syndicated Facility, New Bridge Facility, Hayfin Facility and convertible bonds to maturities no earlier than 2025. The company had not reached all required agreements by the filing date. In April 2022, a group of lenders asserted that the company had failed to meet a refinancing-related obligation and reserved rights, although the correspondence was not a formal default notice and management disputed the assertion.
Liquidity and execution risks: The company had $34.9 million of cash, limited undrawn facilities available only with lender consent, $621.0 million of remaining newbuild delivery installments and approximately $17.3 million of estimated capital expenditures for known contracts over the following twelve months. Failure to refinance, extend maturities, raise capital or sell assets could result in defaults, cross-defaults, enforcement actions or insolvency.
Other significant risks include cyclicality and oversupply in the jack-up market, short contract durations, customer concentration, delayed payments from Mexican counterparties and PEMEX-related receivables, COVID-19 disruptions, floating-rate debt, LIBOR transition, climate and energy-transition regulation, geopolitical events, cybersecurity, environmental incidents and potential rig impairments.
Important facts for investors to verify
- Whether all required refinancing, lock-up and maturity-extension agreements were ultimately completed and whether any lender default notices or waivers followed.
- Current cash, restricted cash, available liquidity and compliance with minimum-liquidity, equity-ratio and loan-to-value covenants.
- The maturity profile and refinancing terms of the approximately $1.86 billion principal debt balance.
- Actual contract awards, dayrates, utilization and backlog conversion for the 23 owned rigs and the five deferred newbuild rigs.
- Collectability and timing of the $48.6 million receivable from Mexican equity-method joint ventures and the ability of those ventures to distribute cash.
- Potential dilution from subsequent equity offerings, the ATM program, share options and any debt-to-equity restructuring.
- Whether the company’s substantial doubt regarding going-concern status has been resolved.
- Changes in rig values, impairment indicators, customer concentration and exposure to oil-price, interest-rate and foreign-exchange movements.