Borr Drilling Limited Price & Performance (BORR)

As a result, adjusted EBITDA for the quarter was $136,700,000 Our core operation performed strongly of 98.9%, and an economic utilization rate of 97.1%. Despite the various headwinds experienced during the year, we were still able to deliver the full year adjusted EBITDA the original guidance range, of $500,000,000 to $550,000,000 which was set back in Q3 twenty twenty three, In the second half of twenty twenty four Borr, softening demand and declining day rates signaled potential headwinds for the jackup market heading into 2025. And a weaker market was observed with rig suspensions in Saudi and Mexico. However, this was partially offset by incremental demand in West Africa and Southeast Asia, We anticipate that the market will continue to face uncertainties in 2025. However, recent increases in contracting and tendering levels provide some early signs of improving conditions towards the second half of the year as per S and P Petrodata. Despite near term uncertainties, we remain confident in the strong fundamentals of the global jackup rig market, In November 24, we successfully completed a new build program with the delivery of our final rig VAR. Marking the end of our growth capital expenditures as we move into 2025.

Additionally, with fewer special periodic survey scheduled compared to last year, we anticipate a positive impact on cash flow. As a result, our budgeted capital expenditures for '25 are set to be below €50,000,000 for the year. Currently, we have approximately 6,700 contracted rig days in 2025, representing 77% of our total available rig days in the year. At an average day rate of 149,000 compared to 136,000 in 2024 Borr. The first quarter of twenty twenty five will be negatively impacted by suspensions of three rigs in Mexico. In addition to idle time on Arabia 1 and the Vale, ahead of the commencement of their respective contracts. We expect to receive approximately $44,000,000 in mobilization payments upon their contract commencements. In addition, liquidity in the first quarter by the previously announced Mexican payment arrangement of $125,000,000 The Borr has decided to declare a cash distribution of $0.02 per share for the fourth quarter of twenty twenty four. In addition, the company has an existing share repurchase authorization which can be used opportunistically this decision reflects the Borr focus on maintaining a strong balance sheet and taking a prudent approach to cash conservation. Ensuring the company remains well positioned to navigate market uncertainties while maintaining a solid financial foundation for future opportunities.

I'll pass the call now to Magnus for the fourth quarter financial commentary. Thank you, Patrick. Total operating revenues increased by $21,500,000 primarily due to a $22,700,000 increase in day rate revenue compared to the third quarter. The increase in day rate revenue includes a $5,100,000 net increase related to the Arabia two comprised of $8,500,000 increase in deferred mobilization revenue offset by a $3,500,000 decrease in day rate revenue. Both as a result of the termination of its contract with Aramco. Rig operating and maintenance expenses in line with the previous quarter.

However, it's worth mentioning that the total cost Borr quarter includes $2,300,000 acceleration on amortization and mob and compact prep costs Depreciation increased by €3,900,000 and led to total operating expenses increasing by 3,800,000.0 compared to the third quarter. Other movements below the operating income line that's worth mentioning are total financial expenses increased by $5,700,000 primarily due to interest on the additional 175,000,000 bond issue in November 2024 Borr well as the £150,000,000 bond tap in August 2024 Borr. Where both are issued to finance the delivery of our two last newbuilds.

The income tax expense decreased by €5,900,000 from Q3 and is mainly due to a one off release of evaluation allowance during Q4 Borr. Net income for the fourth quarter was $26,300,000 an increase of 16,600,000.0 resulting in earnings per share of $0.11 Adjusted EBITDA for the fourth quarter was $136,700,000 an increase of $21,200,000 or 18% compared to the third quarter. Our free cash position at the end of Q4 was $61,600,000 In addition, we had $150,000,000 undrawn under our RCX facility. Resulting in total available liquidity of 211,600,000.0 Borr $1,000,000 in comparison to the prior quarter due to the following: Net cash used in operating activities was $14,880,000 which includes $93,400,000 of cash interest paid and $15,500,000 of income taxes paid. Net cash used in investing activities $189,900,000 which includes the delivery installment for the last newbuild, the Borr, $159,900,000 In addition, we spent $11,200,000 on activation costs [indiscernible] dollars 18,700,000.0 on other maintenance CapEx, [indiscernible] special periodic surveys and long term maintenance costs. Net cash from financing activities was $80,600,000 and is comprised of $175,000,000 from the issuance of additional senior secured notes to finance the Borr. We also paid down 70,800,000.0 of our debt under the regular semiannual amortization of the bonds.

Additionally, we used $19,900,000 to repurchase the company's shares and $4,700,000 for the payment of cash distributions Following quarter end, we announced an agreement with our major Mexican Borr to our outstanding receivables in February. [indiscernible] So far, we have collected $105,000,000 of these the remaining $20,000,000 has been released by Pemex and is expected to be received We are also due to receive €44,000,000 in mobilization payments upon commencement of the contracts for Arabia One and Vale in the first half of twenty twenty five. From a liquidity perspective going forward, as Patrick pointed out, we have concluded our growth CapEx program with our final newbuild delivered last year. For 2025, we expect regular maintenance CapEx to be below $50,000,000 With this, I will pass the word over to Bruno. Thank you, Magnus.

I'll begin with our recent contracts and rig movements before covering global and regional market trends. In 2024 Borr, Ora Drilling secured $795,000,000 in backlog at an average rate of $177,000 per day which we believe is market leading. This achievement is particularly notable given the year's challenges and underscore the quality of our assets and operations that enable us to achieve strong contracting performance. Since our last quarter, we secured new commitments for four of our rigs.

The NORVA has secured a contract with Valko for three twenty days commencing in July 25 and extending through April 26.

We're pleased to see the rig re contracted by VAALCO following a successful campaign delivered to the customer earlier in 2022. The Borr has secured a contract with an undisclosed customer in Southeast Asia and is expected to return to the active fleet by May 25. While this is a short term commitment, we are currently in discussions with other customers in the region for further work that could see the re contracted for a significant portion of the year. The GERD has secured a binding letter of award from undisclosed customer in West Africa for a one hundred day program starting June 2025 following C and I contract.

Even the strong jackup demand in West Africa we remain optimistic about securing follow on work for these rigs into 2026. And lastly, Negroa has had its less available option exercised by Qatar Energy and is now firmly contracted until April 26. Regarding fleet movements, the Vale And Arabia one have completed mobilizations and are undergoing acceptance for long term contracts with Melita and Petrobras. Both rigs are expected to begin operations in March strengthen our revenue stream and enabling us to collect meaningful mobilization payments as highlighted by Magnus. On a global basis, [indiscernible] have remained steady since last quarter. Modern rig market utilization stands at 93% and just under 90% if adjusted for the net around those suspensions. While utilization levels remain relatively flat in the last couple of months, it is positive to note that 12 of the rigs previously under contract suspensions with Aramco have now been re contracted elsewhere which includes our Arabia one.

Looking at regional dynamics, in Southeast Asia, demand is expected to rise slightly. With increased activity in Vietnam and Indonesia, offsetting reductions in Malaysia, due to the Petronas and Petros dispute. As a resolution to dispute nears, demand could increase more substantially in 2026. While we anticipate that this market will remain competitive, our fleet capabilities performance and well established local alliances position well for upcoming contracts.

Although intermediate idle periods are likely. In The Middle East, we're encouraged to see some of the anticipated multi rig, multi year tenders finally coming to the market. KJO, the joint operated zone between Saudi and Kuwait has launched a four rig three year tender for work commencing throughout 2026. This tender combined with other requirements from the same customers as we understand could represent an incremental demand of up to six rigs for long term contracts.

Similarly, we anticipate another multi Borr multiyear tender be launched by KOC in the coming months. These programs combined have a potential to absorb significant portion of the regional supply overhang resulting from the Iranco suspensions.

In West Africa, strong demand persists with multiple Borr- and long term prospects across the region from Angola to Ivory Coast. We believe ARSIC is well positioned to capture the incremental demand bolstering our backlog for 2025 and 2026 Borr. In Mexico, overall activity levels have been impacted by PMEC temporary suspensions that started in Q4 twenty twenty four. Including our fee suspended rate in January, we estimated approximately 12 rigs or 45% of PMEC's contracted fleet is currently suspended. This reduction in activity has quickly affected the country's production which has dropped below 1,700,000 barrels per day in December down over 120,000 barrels per day from September. Positively, the government and PMANX continue to reaffirm commitments to stabilize vendor payments and restore production to 1,850,000 barrels per day, We remain optimistic that such commitments result in a strong rebound during the second half of twenty twenty five and pave the way for long term extensions for our Rigdon country.

At this time, we anticipate that our P rigs suspended in Mexico will gradually return to work during the second quarter. In 2024 Borr, headwinds resulting from Morocco changing production target and broader market uncertainties resulted in a significant contraction in rig fixtures particularly in the first half of the year.

However, H2 saw a gradual recovery.

Especially for modern rigs. With increasing number of open tenders, We see early signs of strengthening contract activity in 2025 primarily for programs commence in the latter part of the year and 2026.

While near term volatility is expected to persist, the long term fundamentals of the jackup market remain strong. Entering 2025, we had strong contract coverage at leading rates, providing us with a solid foundation. As opportunities expand, now turn our focus to reducing idle periods in the year strengthening our backlog visibility into 2026. With that, I'd like to turn the call back over to Patrick. Thank you, Bruno Borr. So in conclusion, the business we have built is quite resilient. We have dealt with numerous headwinds in 2024 Borr, and still delivered the year within the original guidance given to the market. Successful execution in a quite volatile environment. In 2025, we have had a good contract coverage to get us through the year. But also considering the quality of the revenue in the backlog. We have some open capacity to deal with an opportunity to get the contract coverage further up. Which will be our focus going forward. The collections in Mexico have given renewed confidence in Pemex and the Mexican government to put the country's oil and gas industry on a dependable long term trajectory. From a collections perspective. Given the decline in the production volumes, it is clear that drilling activity will have to be restarted.

Despite these short term headwinds, the global jackup market fundamentals remain strong. With 30% of the global fleet over thirty five years old, and no new rig orders in the past decade retirements are expected to tighten supply. Creating a favorable market for our premium rigs With that, can now move to the Q and A. We are now going to proceed with our first question. The questions come from the line of Eddie Kim from Barclays. Please ask your question. Your line is open.

Hi, good morning. Just wanted to ask about leading edge dayrates could you remind us where leading as day rates for benign market jackups have been kind of over the past six twelve months or so. And in your prepared remarks, you highlighted some markets uncertainty this year. So in light of that, do you expect to see some day rate pressure kind of industry wide in the jackup market this year Borr rebounding perhaps in 2026, just your overall thoughts on kind of the the day rate trajectory from here.

I'll probably not walk you through region by region because I think our views on lead end market is part of our commercial strategy. But in line with what we've we've seen a few markets that suffered a bit more with the competitive pressure and I think it's fair to say that Asia has been one of those markets We've seen some of the competitor features fixtures coming close or just under $100,000 a day.

But leading edge rates staying kind of in 130, 120, 130 range. Conversely, if you go into markets that suffered less with competitive pressure as in West Africa, we have seen numbers that still hover and often above the kind of 150 range. So we do have a fair spread here.

We see now going forward a Increasing number of tenders and I think that alone would help the industry and help the Borr group in reducing a little bit of the competitive pressure. In addition to that, some of the players that have been more aggressively chasing work seem to have achieved now full utilization or pre close to full utilization, which a little bit of the edge as well from this competitive pressure. Now I think that the dynamic will remain. Some markets that are a bit more benign will be subject to higher competition and then we'll keep the rates a bit compressed. Other markets where it takes a lot of history, a lot of competency to kind of penetrate will be a bit more insulated. So I don't see for now a scenario where the rates fall off bottom. I think we have we are in a range that activity level troughing should start to stabilize or potentially go up as the months Understood. Understood. That's helpful.

And then just my follow-up is on next a lot of good color there.

So you have three rigs of Pemex that are currently temporarily suspended and two, that are contracted through year end.

I believe I heard that the three that are temporarily suspended You expect those rigs to return to work in the second quarter Borr?

Did I hear that correctly? And I guess what's your confidence level around that? And if that's the case, I mean, it seems like you're fairly confident that your other two jackups that are currently still contracted will continue to work until the end of their contracts later this year. So just I guess if you could confirm that for me that I think that Borr the numbers that you have are correct. We do indeed these rigs to go back to work in the second quarter Borr. But quite frankly, we don't know exactly when in the quarter that is going to be. That is at the moment our working assumption. And the main reason for that is that we have seen that there is A lot of actions that have taken place in Pemex. If you think about the last few months, since the new administration is in place, the amount of work that has been done in getting people paid and now a aggressive plan on how activity needs to be restarted We're still having a very strong commitment on getting production up. Think that based on the production data as we see it, and the strong decline that otherwise you would see in Mexico I would assume that there is going to be a significant focus in getting rigs back work particularly the ones that already are contracted.

So that is our working assumption Obviously, the future here will have to tell those are kind of the guidelines that we have and the reasoning for us to be fairly positive about the business environment there.

Got it. Great. You very much. I'll turn it back. Thank you. We are now going to proceed with our next question Your questions come from the line of Doug Becker from Capital One. Please ask your question.

Thank you. I was maybe hoping you could expand on the latest in Saudi Arabia Just looking at some industry data, it did seem like one of the suspended rigs actually did return to work with the Ramco, a competitor rig. But just the latest Borr seeing in Saudi Arabia? All right. Thanks, Doug.

And yes, indeed, there were some reports earlier about rig returning to work. I'm not sure if that was a true story. I think that was actually a rig swap done by one of our competitors.

The situation in Saudi remains steady state at the moment. Where we see quite a bit of focus on their end is in relation to the offshore gas work. Aramco has been quite vocal on the companies, on the countries focus on on expanding on the gas side. And that's where some of the conversations are taking place at the moment. In addition to that, Doug, I think interesting to note is in the last couple of months now, there's been an increased talk about Aramco awarding large PPC contracts for projects like Zulu, for Safania Borr, that were originally planned to be put on hold, right? As that progresses, increases our level of confidence that the pipeline starts to pour in Saudi Aramco.

Now the other interesting discussion that we see in country is a event interest from Aramco Talking to service companies about lump sum turnkey or integrated projects offshore, This has been something that they looked in the past. And I think they see that as a good way to improve efficiency and the overall ability of the country to deliver wells. Those conversations seem to be resuming at the moment. Think it's going to take some time. Combined with the EPC awards in the pipeline gives us some hope that as the year progresses, the pipeline from Aramco should start to fuel up. At the moment, I think situation is steady state.

No, that's encouraging. And then it looks like the Borr did get some incremental work for the second quarter. Just any color you could provide around that Are there potential extensions related to that Borr is this more of a one off?

Yes.

No, and we the rig came off contract back end of last year. Obviously, we've been working hard to see it going back to work. Reality is that in Asia, a lot of the programs that we see at the moment, not exclusively, but a lot of the programs we see are short term in Asia. So the challenge that we have is obviously to put the rig back to work and string a sequence of programs that will maintain the rig working. So that's obviously something that we're working the team is working quite hard to deliver. It is a short term program. See the rig working. We have accepted that commitment on the back of visibility of other programs. So we'll have to work through it.

I do believe, as I mentioned in my earlier remarks, that there is a good chance that we could be contracted for the remainder of the year or a large portion Borr [indiscernible] Got it. Thank you.

My pleasure. We are now going to proceed with our next question. The questions come from the line of Frederic Stein from Clarksons Securities. Please ask your question.

Hey, Patrick and team. Hope you are well So I wanted to circle a bit back to Mexico. With the discussions that I'm having with my clients. The situation there, even though you've been able to collect a good chunk of the €125,000,000 already. I think getting proper confidence for future payment is still Bitar and one of the kind of risks that is currently weighing onto the stock. So as a side note, being a bit lower on the dividend, while kind of itself is Not necessarily what investors want. I think it was what investors wanted in this case just to make sure that you're prudent with the balance sheet. But on the Mexico situation Have they given any signals on how future payment schedules can look at or should we from time to time, you have to renegotiate similar kind of receivables deals that have been done now. I guess Borr sort of regularity or frequency to these payments would be Great in terms of visibility. So anything you can share on that front would be super helpful. Thanks.

Fred, thank you. And I mean, I think it is clear that if it were to be clockwork, yes, it would be easier to run our business. You're absolutely right. I think though that given where we have come from, with the business in Mexico, the way it has grown and also the way that we have always been paid. I think we have to give a bit of credit to the management team that is now in place and the government of what they have been able to pull off in what is essentially four months Borr. So I think that tremendous efforts are being made to get suppliers paid. It was immediately seen as one of the key priorities, which in the past maybe wasn't as prevalent, but looking at the overall picture, I would say it's a market that has a decent rig rate. It is a market where we have ultimately always been paid. We have a strong setup and a very good local partner to work through ultimately for Pemex. Borr So would I like it to be all more clockwork like? Absolutely. Is that realistic? I don't think so. Now there are a few things that are changing the market in Mexico.

I would definitely point towards The increased private investments that we are likely to see going offshore which therefore means that we are, in essence, are going to have a different counterparty, a counterparty that is having a different cash then let's call this Pemex had in the past. So I'm quite encouraged by that. And I think that the mechanism that is set up for that where the private investor is going to be the direct beneficiary of the commercialization of the oil that they produce and therefore in a position to deal let's call it differently with their suppliers, I think is a very positive sign.

Is that all going to be in place here next month? No. That will take a bit of time. But I can't say that I see far more positive movements in the Mexican business than I would see negative movements.

That's a good comprehensive answer, Patrick. Thank you. And just as a follow-up on that, and I'm sorry if I missed it, but I had a bit of a choppy line here. Brimo, did you say anything about your thinking around extending the rigs, the fiber rigs that are currently with CapEx and how it'd be like that could eventually look like? And again, ultimately, I guess, it depends on you guys having enough [indiscernible] [indiscernible] securing those rigs for longer would be meaningful chunk of your 2026 and beyond coverage fixed already?

Most definitely, Fred. I mean, Mexico is a key component to our business. It's something that we're looking quite closely. But picking up from where Patrick left, we do see tremendous amount of effort being put by the government to stabilize the situation in And that includes Reinforce commitment to maintain production level and as you can clearly see from the current amount or from the current levels or the current data, it is dropping. So we do anticipate that [indiscernible] reduced activity levels are going to have to be reversed and very soon. And not only that, they will have to do some catch up work to get back to where they were a few months back.

So that is kind of where my comment came from in the earlier notes. That we think that that's going to strengthen activity levels as we kind of move to the second half of the year. Think very likely create a value for us extend these rigs further in the future.

Super. Thank you very much. That's All Borr me.

Thank you.

We are now going to proceed with our next question The questions come from the line of Truels All from Fearnley Securities. Please ask your question.

Couple of questions from me. Firstly, and Bruno, I think this probably is for you. What's the dialogue like with your clients at the moment? I mean, what's sort of a, call it, depressing points, if you will, in terms of getting things done? Or is it just that It takes time. [indiscernible] Fair truth. And we normally work with kind of a leading period of four to six months ahead of contracts, right? So obviously, what we see now is obviously a lot of customers Borr quite a few customers organize themselves for further working 2025 and 2026.

We have a variety of constructive discussions with customers at the moment. I think it's fair to say that the larger names like NOCs have a bit more flexibility in their schedules and maybe sometimes a bit more leeway in delaying programs and things of that nature. While we see a variety of IOCs in general quite committed to certain schedules, quite committed to using the opportunity where there is capacity in the market to drill Some of these companies when coming to the market a year ago or so had limitations on finding access to rigs. And they seem to be keen on coming to the market. Now what I think is quite interesting is that the customers, particularly the customers with programs that are not multiyear in nature, They obviously understand very clearly the importance of having a high performing contractor, right? When you have a smaller campaign, you cannot really afford delays or issues with the program and quite a few of these customers seem to be very keen to engage with us and discuss and understand how they can benefit from the proven performance of our rigs and it's very, very beneficial in that sense.

But so that's kind of where we are in terms of the discussion flows. [indiscernible] We do see pipeline increasing It's fair to say that it's obviously focused on the second half of the year because as you said, it takes time for some of these programs to get going, but we do see increasing number of opportunities now building up in the pipeline. I hope I addressed your questions.

Yes, thanks. I guess and as a follow-up to that, I mean, I guess there's nothing really much moving in terms of the TNCs on the contract It's more about I mean, if not about really the economics of things, it's more about timing of things. General activity level.

Yes. Obviously, 2024 was a year that we obviously been very focused on increasing our backlog, elevate the quality of backlog, and I think we've achieved a lot As we go now into 2025, necessarily shift the focus. I think we have an extremely competent commercial group that does a great job maximizing the commercial value of these negotiations and discussions. Certainly, customers will use leverage that they have at the moment to try to claw back some of the T and Cs in the contract. That's part of the natural flow as the cycle progresses. But at the moment, our focus is really making sure that we don't leave idle time on rigs unnecessarily and we increase our backlog visibility into twenty twenty six, Thanks. And lastly, I'm sorry if I missed this.

But $25,000,000 guidance [indiscernible] good point, Charles. And obviously, I would have been quite keen to give you more visibility on that. But I think that the point is that today, visibility is somewhat limited during in parts the rig suspensions in Mexico. Lingering impact of the Saudi suspensions There is just too wide a range of outcomes currently with many moving pieces. The only thing I can tell you is that as soon as there is more clarity in the market as some of these suspension impacts are resolved. And a visibility then improved We will update you at that time. But for right now, the best thing we can do is give you an idea of contract coverage and then give you a idea on the EBITDA when it's really when we're in a position to give you some credible data Otherwise, we'd be just making everybody more confused.

Fair enough. Thank you, guys.

Thank you.

We are now going to proceed with our next question The questions come from the line of Nikhil Bat from JPMorgan. Please ask a question.

Hi. Thank you for taking my question. I have two, if you don't mind.

For 2025 right now, Borr fleet status report is see that there are three available rigs including your the new new build Can you please update us on the sort of current discussions you're having with clients about these rigs and and especially the new build in terms of which sort of region are you looking to contract this out to? And the second question is more about how should we think about your policy going forward given that Borr is expected to generate significant free cash flow this year In the near term, Very good, Nick. I'll the first part of the question and I'll hand it over to Magnus Borr your second part.

Thinking about the fleet, you're right. We have three rigs currently available, one in Mexico, that recently finished the contract, one in The Middle East that has been suspended by Rumco and subsequently terminated in December.

And the newbuild At the moment, we do have these rigs offered in in a variety of tenders around the globe. As I said earlier, generally speaking, we're looking at a lead time for this somewhere between four or six months at the short end. So it's fair to indicate that the likelihood of these rigs returning to work is definitely towards the second half of the year right? And Regional deployment where they go to work, I think we're considering opportunities available moment. We do see do have one rig in Americas. We do see a set of opportunities for the rig in the region. I don't think we're constrained to that. West Africa continues to be a market showing some potential upside. And at some point in time could support the inflow of rigs and the similar thing goes to to The Arabia too that just finished contract with Aramco. It's warm and ready. So rig could be deployed including for some opportunities that we now see in The Middle East coming up in 2025 In relation to the new build, it's fair to say that I think we were quite optimistic 2024 to have it working in the early part of 2025.

Obviously, with us now having the Arabia two as an additional rig available in our toolbox here to deploy near term that has less of a focus that rig is in Singapore. We'll continue to market that rig But I think at the moment, the immediate priority is to see if we can find [indiscernible] Now maybe I'll turn it over to Magnus for second part of your question.

Thanks. So I think Borr this quarter, the Board has continued the dividend of Borr cents But the focus is very much now given the short term uncertainties to [indiscernible] a strengthening balance sheet concern cash and then we will see during the year and closer to later in the year. What will be most beneficial for the company to buy back debt depending on debt levels. Or whether it is to apply our share buyback program or pay out this dividend I think it's important also to emphasize again that our bonds they do already amortize by 135,000,000 per year. So we are already very much focused on on the deleveraging of the company as a function of the of how the bonds are are structured. So I think right about now, the Board has has thought it was prudent to continue to build the balance sheet and focus on preserving the cash to see what's most beneficial going forward.

Thank you. Thank you.

So I think that we have come to Borr last question, if I understood it correctly.

Yes, that's right. This concludes the question and answer session. So I hand back to you for closing remarks.

No further closing remarks.

So this concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.