20-F: Borr Drilling Reports Full Year 2023 Results, Highlights Debt Refinancing and Future Outlook

Sentiment:

Annual Report 27 March 2024 7:26 AM

Borr Drilling's 20-F filing reveals a year of strategic financial maneuvers, including debt refinancing and a focus on operational efficiency in the offshore drilling market.

Delay expectedThe contractual delivery dates for the newbuild rigs Vale and Var have been expedited to August 2024 and November 2024, respectively, on a best efforts basis.

Capital raiseThe company issued $1,540.0 million in aggregate principal amount of senior secured notes, consisting of $1,025.0 million principal amount of senior secured notes due 2028 and $515.0 million principal amount of senior secured notes due 2030.The company conducted a private placement of new shares in Norway of NOK equivalent to gross proceeds of $50.0 million, by issuing 7,522,838 shares of par value $0.10 each.The company has a $180 million Super Senior Credit Facility, comprised of a $150 million RCF and a $30.0 million Guarantee Facility.The company has the ability to draw on committed delivery financing of $130.0 million for each of the newbuild rigs Vale and Var.

Better than expectedThe company reported a net income of $22.1 million, a significant turnaround from the $292.8 million net loss in 2022.Total operating revenues increased to $771.6 million, up from $443.8 million in the previous year, driven by higher dayrates and increased rig utilization.The company's total contract backlog reached $1,206.5 million as of December 31, 2023.

Summary

Borr Drilling Limited's 20-F filing for the year ended December 31, 2023, highlights the company's activities in the offshore drilling sector.
The company reported a net income of $22.1 million, a significant turnaround from the $292.8 million net loss in 2022.
Total operating revenues increased to $771.6 million, up from $443.8 million in the previous year, driven by higher dayrates and increased rig utilization.
The company successfully refinanced its debt, issuing $1.54 billion in senior secured notes and entering into a $180 million super senior credit facility.
As of December 31, 2023, the total contract backlog stood at $1,206.5 million.
The company is set to receive two newbuild jack-up rigs in the second half of 2024, expanding its fleet to 24 premium rigs.
Despite positive results, the company acknowledges risks related to industry cyclicality, competition, and volatile oil prices.

Sentiment

Score: 8

Explanation: The document presents a positive outlook due to improved financial performance, successful debt refinancing, and expansion of the fleet. However, it also acknowledges inherent risks in the industry, resulting in a balanced but optimistic sentiment.

Positives

The company achieved net profitability after several years of losses.
Operating revenues have significantly increased, indicating strong demand for the company's services.
The successful debt refinancing provides greater financial stability.
The expansion of the fleet with newbuild rigs enhances the company's competitive position.
High Technical and Economic Utilization rates demonstrate operational efficiency.
The company has a modern and largely uniform fleet, which allows for operational and administrative efficiencies.

Negatives

The offshore drilling industry is highly cyclical and competitive.
The company's success is heavily dependent on volatile oil and gas prices.
The company faces risks related to contract renewals and potential cancellations.
The company has significant debt maturities in the coming years.
The company is subject to restrictive debt covenants that may limit its ability to finance future operations.
The company is exposed to risks associated with international operations, including political instability and regulatory changes.

Risks

Cyclicality in the offshore drilling industry could lead to periods of low demand and oversupply.
Competition from other drilling companies may reduce dayrates and impact profitability.
Volatile oil and natural gas prices can significantly affect the level of drilling activity.
Global geopolitical tensions and instability may create heightened volatility in oil and natural gas prices.
The company may not be able to renew contracts or obtain favorable terms for its jack-up rigs.
The company's total contract backlog may not be fully realized due to various factors.
The company is exposed to the risk of default or material non-performance by customers.
The company's drilling contracts contain fixed terms and dayrates, which may not fully recoup costs in the event of rising expenses.
Inflation may adversely affect the company's operating results.
The limited availability of qualified personnel may result in higher operating costs.
Climate change and the regulation of greenhouse gases could have a negative impact on the company's business.
Cybersecurity risks and threats could disrupt operations and lead to data breaches.
The company may be subject to litigation, arbitration, and other proceedings.
The company has significant debt maturities in the coming years.
Future cash flows may be insufficient to meet obligations under existing bonds and loans.
Liquidity risk could impair the company's ability to fund operations and jeopardize its financial condition.
The company may be required to raise funds through the issuance of additional debt or equity, which may not be successful.
The company faces risks in connection with the delivery of its newbuild jack-up rigs and related financing arrangements.
Compliance with complex laws and regulations governing international drilling activity could be costly.
Local content requirements may increase the cost of obtaining supplies or hiring personnel.
A change in tax laws in any country in which the company operates could result in higher tax expense.
The price of the company's common shares may fluctuate widely in the future.
Future sales of the company's equity securities could reduce its share price.
The company depends on directors who are associated with affiliated companies, which may create conflicts of interest.
The company cannot guarantee it will pay dividends in any specified amounts or particular frequency or at all.
As a foreign corporation, shareholders may not have the same rights as shareholders in a U.S. corporation.
If the company is a passive foreign investment company for U.S. federal income tax purposes, U.S. Holders of its common shares may be subject to adverse tax consequences.

Future Outlook

The company anticipates continued improvement in the offshore drilling market, predicated on sustained demand for hydrocarbons, and expects to deploy high-quality rigs to service the industry while maintaining cost-efficient operations.

Management Comments

The company intends to continue to strive to meet its primary business objective of continuing to be a preferred operator to our customers in the jack-up drilling market while also maximizing the return to our shareholders.

Industry Context

The announcement reflects a broader trend of recovery in the offshore drilling market, with increased capital spending by E&P companies and rising demand for jack-up rigs. Geopolitical events, such as the war in Ukraine, are also influencing the market dynamics.

Comparison to Industry Standards

The company's average fleet age of 7.0 years is among the lowest in the industry, giving it a competitive advantage over companies with older fleets.
The company's Technical Utilization rate of 98.3% is a strong indicator of operational efficiency, comparing favorably to industry averages.
The company's focus on shallow-water drilling allows it to optimize its size and scale and achieve operational efficiency, differentiating it from competitors with mixed fleets.
The company's commitment to safety and the environment aligns with increasing industry and regulatory focus on QHSE issues.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Shareholder Approval	On December 22, 2023, at a Special General Meeting, pursuant to the Bermuda Companies Act, the Company's shareholders approved a reduction of the Share Premium (Additional Paid in Capital APIC) account of the Company from $2,290,578,712 to $290,578,712 by the transfer of $2,000,000,000 of the Share Premium (APIC) to the Companys Contributed Surplus account, with effect from December 22, 2023.	December 22, 2023	This change provides the company with greater flexibility in managing its capital structure.

Legal Proceedings

The company is from time to time involved in various litigation matters, and anticipates that it will be involved in litigation matters from time to time in the future.

Related Party Transactions

The company has related party transactions with its joint ventures in Mexico, including bareboat revenue and management services revenue.
The company has related party transactions with Magni Partners Limited, a company owned by the Chairman of the Board, for strategic advice and assistance in sourcing investment opportunities.
The company has related party transactions with Drew Holdings Limited, a company owned by the Chairman of the Board, for shares made available to DNB Markets under a Share Loan Agreement.

Stakeholder Impact

Shareholders will benefit from the company's improved financial performance and potential dividend payments.
Employees will benefit from the company's continued operations and potential for career growth.
Customers will benefit from the company's modern fleet and commitment to safety and efficiency.
Suppliers will benefit from the company's continued operations and demand for their products and services.
Creditors will benefit from the company's improved financial stability and ability to meet its debt obligations.

Next Steps

The company expects to take delivery of two newbuild jack-up rigs in the second half of 2024.
The company will continue to monitor market conditions and adjust its strategies accordingly.
The company will continue to evaluate opportunities for further debt optimization.
The company will continue to monitor the evolving developments of the OECD regulations and evaluate their potential impact on future periods.

Key Dates

Date	Description
August 8, 2016	Borr Drilling Limited was incorporated in Bermuda.
December 2, 2016	Agreement to purchase two premium jack-up rigs (the Hercules Rigs) from Hercules British Offshore Limited (Hercules).
January 23, 2017	Completion of the Hercules Acquisition.
March 15, 2017	Signed a letter of intent with Transocean Inc. (Transocean) for the purchase of certain Transocean subsidiaries owning 10 jack-up rigs and the rights under five newbuilding contracts (the Transocean Transaction).
May 31, 2017	Completed the Transocean Transaction.
October 6, 2017	Entered into a master agreement with PPL for six premium jack-up drilling rigs and three premium jack-up drilling rigs under construction at its yard in Singapore (together, the PPL Rigs).
March 29, 2018	Concluded the Paragon Transaction, subsequently acquiring the majority of the remaining shares in July 2018.
May 16, 2018	Entered into an agreement with Seatrium to acquire five premium jack-up rigs under construction from Seatrium (the Seatrium Acquisition).
March 2019	Entered into an assignment agreement with BOTL Lease Co. Ltd. for the assignment of the rights and obligations under a construction contract to take delivery of one KFELS Super B Bigfoot premium jack-up rig identified as Seatriums Hull No. B378 from Seatrium.
May 9, 2019	Took delivery of the jack-up rig on May 9, 2019 and the rig was subsequently renamed Thor.
August 4, 2021	Executed a Stock Purchase Agreement with Operadora Productora y Exploradora Mexicana, S.A. de C.V. (Operadora) for the sale of the Company's 49% interest in each of Opex and Akal joint ventures, representing the Company's disposal of the IWS operating segment, as well as the acquisition of a 2% incremental interest in each of Perfomex and Perfomex II joint ventures.
October 20, 2022	All five jack-up rigs are contracted to Perfomex on bareboat charters, thereby consolidating activities for Perfomex's provision of traditional dayrate drilling and technical services to Opex.
September 2022	Entered into an agreement with a third party to sell the three rigs under construction Tivar, Heidrun and Huldra for total consideration of $320.0 million.
November 2022	Sold the Gyme for a price of $120.0 million, pursuant to an undertaking by the Company under its most recent refinancing with PPL completed in October 2022.
February 2023	Raised gross proceeds of $250.0 million through the issuance of new unsecured convertible bonds, which mature in February 2028, the proceeds of which were used to repay our Convertible Bonds due in May 2023.
February 2023	Raised gross proceeds of $150.0 million through the issuance of senior secured bonds, due in 2026, the proceeds of which were used to repay the remaining parts of our Convertible Bonds due in May 2023 that were not repaid by the proceeds of the Convertible Bonds due 2028, and for general corporate purposes.
April 2023	Amended our $150.0 million bilateral facility provided by DNB Bank ASA increasing the facility to $175.0 million.
August 2023	Amended our $25.0 million guarantee facility provided by DNB Bank ASA temporarily increasing the facility to $40.0 million until December 31, 2023.
October 2023	Conducted a private placement of new shares in Norway of NOK equivalent to gross proceeds of $50.0 million, by issuing 7,522,838 shares of par value $0.10 each.
November 2023	Issued $1,540.0 million in aggregate principal amount of senior secured notes, consisting of $1,025.0 million principal amount of senior secured notes due 2028 and $515.0 million principal amount of senior secured notes due 2030.
November 2023	Entered into a $180 million Super Senior Credit Facility, comprised of a $150 million RCF and a $30.0 million Guarantee Facility.
December 2023	Announced that its Board of Directors approved a share repurchase program for the Company's shares, to be purchased in the open market and limited to a total amount of $100.0 million.
December 2023	Announced that its Board of Directors approved a cash distribution of $0.05 per share for the third quarter of 2023.
December 22, 2023	At a Special General Meeting, pursuant to the Bermuda Companies Act, the Company's shareholders approved a reduction of the Share Premium (Additional Paid in Capital APIC) account of the Company from $2,290,578,712 to $290,578,712 by the transfer of $2,000,000,000 of the Share Premium (APIC) to the Companys Contributed Surplus account, with effect from December 22, 2023.
February 2024	Announced that its Board of Directors approved a cash distribution of $0.05 per share for the fourth quarter of 2023.
March 2024	Completed the issuance of $200 million principal amount of additional 10% senior secured notes due in 2028, raising gross proceeds of $211.9 million.

Keywords

offshore drilling, jack-up rigs, financial results, debt refinancing, contract backlog, rig utilization, oil and gas, Borr Drilling, newbuilds, dayrates

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