Borr Drilling Gets 2 Long-Term Contracts In Mexico

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About: BORR DRILLING LTD (BDRLF)
by: Vladimir Zernov
Summary

Borr Drilling announces contracts for two jackups.

Demand for modern rigs continues to increase.

I remain bullish on Borr.

In my previous article on Borr Drilling (OTCPK:BDRLF), I stated that the company was a buy due to attractive valuation, solid access to financing, improving market for modern jackups, and potential for new contracts. It did not take long for the new contracts to emerge.

Borr Drilling has just announced that it has received an official contract award from Pemex in Mexico. Company's newbuild jackups Grid and Gersemi will work for Pemex for 18 months from July 2019 to December 2020. Borr noted that in this project it will be able to provide comprehensive oilfield services thanks to the strategic collaboration with its partner and main shareholder, Schlumberger (SLB).

Both Grid and Gersemi were mentioned in the company's latest fleet status report as rigs that had advanced negotiations with an undisclosed operator. Bassoe Offshore estimates that each rig received a dayrate of $100,000. The fleet status report also mentioned advanced negotiations for Saga and Skald, with a potential start of work at the beginning of 2020. Perhaps, we'll hear about these rigs relatively soon.

Following the award from Pemex, Borr Drilling has 4 available jackups of KFELS Super B Bigfoot Class (Idun, Mist, Saga, Skald) and 4 available jackups of PPL Pacific Class 400 (Galar, Gunnlod, Gyme, Njord). Eight jackups are currently under construction: 4 KFELS Super B Bigfoot Class (Hild, Tivar, Vale, Var) and 4 KFELS Mod V rigs (Heimdal, Hermod, Huldra, Heidrun). Except for Hild, which has a delivery date in October 2019, all other rigs are scheduled to be delivered in 2020. For this year, Borr Drilling's task is to find work for the maximum number of its newbuild jackups, preferably for all of them.

In my opinion, Borr Drilling is in a good position to score more jobs for jackups. Availability of modern fleet from leading players is limited. Rowan (RDC), which has recently received a one-well contract for EXL II (the job will begin in Q3 2019), is fully booked at this point. Noble Corp. (NE) is also fully booked, although it will have some rigs available in the second half of this year. Ensco (ESV) cold stacked its Pacific Class 400 rigs that were obtained in the acquisition of Atwood Oceanics - now they aren't going anywhere for at least several years since Borr will eagerly supply such rigs to the market ahead of Ensco. Shelf Drilling has recently bought two CJ46 rigs (same as Noble Corp.'s - read here and here) and has an option to buy two more rigs - this is the only incremental supply of modern jackups coming to the market right now.

In these circumstances, Borr Drilling is a natural go-to source of jackups in case the market continues its recovery and the number of contract awards increases. As I have described in "Offshore Drilling: Jackups Fundamentals March 2019 Edition", the market is still far from recovery but modern jackups start showing positive dynamics, which bodes well for Borr Drilling.

To conclude, I maintain my bullish view on Borr Drilling. I think that the company's contracting successes will continue, and Borr will be able to continue finding jobs for its newbuild rigs.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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