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Borr Drilling May Sell Some Modern Rigs To Boost Liquidity

Mar. 02, 2020 10:00 AM ETBorr Drilling Limited (BORR)VAL115 Comments
Vladimir Zernov profile picture
Vladimir Zernov


  • Borr Drilling reported Q4 2019 results, providing investors with a chance to evaluate whether the recent major drop in the share price was justifed.
  • Operating cash flow stays negative.
  • Borr Drilling is in discussions to sell some modern rigs to boost its cash position.

Borr Drilling (NYSE:BORR) has just reported its fourth-quarter results, which are especially interesting giving the company's recent stock price dynamics - the shares have been hit very hard due to coronavirus-related panic.

Borr Drilling reported revenues of $92.9 million and net loss of $69.3 million. The operating cash flow was negative at -$9.5 million, but the pace of losing money has materially decreased. For the full year, the company had a negative operating cash flow of -$89 million, an improvement from -$135.2 million in 2018. Borr Drilling finished the year with $59.1 million of cash and $69.4 million of restricted cash on the balance sheet. Long-term debt stood at $1.7 billion. Here’s a list of scheduled maturities:

Source: Borr Drilling Q4 2019 report

This year, the company has made several moves on the financing front. At the beginning of 2020, Borr Drilling amended bank covenants to provide itself with more financial flexibility. Recently, the company announced that it entered into a new financing agreement for newbuild jack-up Tivar, which was scheduled to be delivered in July 2020. Given the company’s maturity schedule and continued access to financing, I see no liquidity problems in 2020 – 2021.

Borr Drilling’s net loss in the fourth quarter includes an $16.4 million loss in equity method investments related to a joint venture in Mexico. As per the report, an unplanned geological event led to a change of a drilling program. Borr Drilling stated that it expected to be compensated for the additional costs associated with this change.

Another loss came from the sale of marketable securities in Oro Negro ($15.4 million). The company continues to exit its ill-fortuned speculations. At this point, it has forward contracts in Valaris (VAL), which were valued at $27.9 million at the end of 2019. Given Valaris share price performance, these

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Vladimir Zernov profile picture
I'm a trader who trades both short-term and long-term. I started my career as a day-trader for a trading firm, but then turned to longer time frames and went on my own to manage my portfolio. I use technical analysis as well as fundamental analysis in my research.

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Comments (115)

seems like a brutal short squeeze is ongoing over the last two days any thoughts? or why it started?
Henrik Alex profile picture
Risk appetite is up, that's really all. Many squeezes in all kind of weak stocks.
David_MV profile picture
"seems like a brutal short squeeze"

What? Today 5 million shares traded on the BORS and 15 million on the NYSE - dwarfing the number of shares sold short. Besides - short interest has only declined a couple of million shares in the last couple weeks. There are still over 7 million shares sold short. They barely covered at all.

The average volume on the NYSE is 332k per day and 15 million just today. BORRs daily volume is dwarfing other stocks so something else is happening.

Henrik Alex profile picture
No. It's just trading. What do you expect to happen? :-)
J Mintzmyer profile picture
Thoughts now, given the new oil environment?
It looks like those firms that were shorting more and more shares everyday have stopped. Interested to see if any cover or if they just wait to see if BORR goes BK.
Curious to some of your thoughts. Do you think we have reached a bottom for BORR for trading?
Vladimir Zernov profile picture
It all depends on oil and coronavirus now. All OSD stocks are at the mercy of these external factors in the near term.
Well if everyone else wants to make a bet on BORR now might be the time, only because I am not going to make that bet so it must be about to go up. (Only kidding for those who dont have sarcastic detector)
Been a bull off and on for years but officially hung my hat Friday and Saturday and walked from the offshore space. Costly lesson but I suggest others really reevaluate their positions. The Saudi news this weekend officially moved the goal posts for offshore exploration even for shallow water. Various tenders for jack ups thought to be there just last week will probably be moved to the right if not til 2021. I imagine Borr will be diluted in some way or even recapitalized leaving shareholders with few scraps if any. You can pretty much forget deep water. Perhaps I'll come back when the fire is put out and pick through the wreckage.
There has been a spike in short interest too. If I remember correctly it has increased about 1.5 million shares in a few days. Pictet has increased position by 440k over the last week and GSA just went short again for 574K shares.
Jesus .. how many consequtive days in the red .. a string of them. As if a BK is self-evident. As an owner hope it is not🤯
@Kalkaros I agree. It just keeps going. And the Shorts keep adding to their position.
David_MV profile picture
Clarkson Platou cut their target price from $11.70 to $6. That's 5 times more than what the stock is trading at today. haha. The shorts want you to feel as much pain as they can deliver.

Clarkson Platou Securities expects the second half of 2020 to improve. Here are their reviews of oil service shares (stock, recommendation, price target):

Awilco Drilling , Neutral (Previous Purchase), $ 1.10 Target Price (Formerly $ 4.50)
Drill Drilling , Purchase, $ 6 ($ 11.70)
Odfjell Drilling , purchase, price target of $ 5.50 (formerly $ 6)
Shelf Drilling , purchase, $ 6 ($ 6.70) price target
TGS , purchase, price target of $ 35.50 (formerly $ 36.65)
PGS , purchase, price target of $ 2.50 (formerly $ 2.49)
Polarcus , neutral, price target of $ 0.13 (formerly $ 0.16)

In Oslo 918000 shares sold at 23,20 or 2,49 us after close
Where have you seen that?
WhyNotBuy profile picture
I ALWAYS stated BORR was just a JU holding company, it would sell JUs, and that it could never survive without drill ships and drill ship day rates. Read my past posts. IMHO
Sir V-i-val profile picture
I bought a couple of thousands share minus 14 percent again...I couldn't resist...Danes are very pessimistic people so this should be an easy double
David_MV profile picture
"Danes are very pessimistic people"

:-) - Good one!
Henrik Alex profile picture
The company is based in Norway, in fact.
@Sir V-i-val it seems like the stock is just going to keep going down. You keep thinking how can it get cheaper but it does. At this pace they will get a de-listing warning in no time.
The ex-Schlumberger CEO Chairman just bought a whooping 1,300 shares for $2,500. If that doesn't show support, commitment and a strong belief in the company, I don't know.
Henrik Alex profile picture
Perhaps he is also tight on liquidity...
Vladimir Zernov profile picture
Ah, I also saw that. Must be living on a budget right now...
LOL and that is nothing but the whole truth. K
Another financially-engineered fraud brought to you by the guys that helped create the monstrosity that was/is SDRL. Results terrible & liquidity non-existent. Vlad: The fact that you remain bullish in this stock is very hard to comprehend. My advice: buy the company that dumped assets to this beast years ago ie RIG which really is the only investible large cap stock in the space.
David_MV profile picture

Cmon - that’s nonsense. The company was able to recently renegotiate their bank covenants and push back the delivery of two newbuilds. There’s no reason they can’t sell 2-3 rigs to cover the remainder of their new build program. In 2019 they commenced 8 profitable contracts and if they do the same in 2020 they’ll be one of the few profitable rig companies. Premium jack ups are in high demand.
@ David_MV
It’s absolutely not nonsense. The company has at at least 300mm of cash needs through the end of 2021 including debt amortization, capex and rig activation costs. The asset sale might get the company through the very near-term requirements but ultimately it looks like another equity raise will be required which will be highly dilutive given the current market cap. Really no reason to own these shares.
David_MV profile picture

Nope. Their entire new build program requires an additional $87 million to compete. Selling 2-3 rigs would erase that altogether.

From the Q4 report.

“Remaining capex commitments for newbuilds is $707 million at the time of this report, of which $620 million is fully funded”.

There are no other Capex requirements beyond this. OPEX is fully covered by operations. Long term debt will be rolled over.

As long as they have saleble assets they have levers to pull in order to free up liquidity.
looking at ssr.finanstilsynet.no/... 2 firms have have added over 550k short shares. That is around 16 days worth of avg trading volume. If they have to unwind it could be interesting. Of course they could just keep doing what they are and who knows if there will be enough buyers to not see $1 in the near future.
David_MV profile picture
There must have been a lot of margin out there. Naked shorting is "not permitted" on the Norwegian stock exchange (wink wink).

All these shorts have to do is keep borrowing and selling into the down trend which in turn forces more selling to satisfy the margin calls.
Yeah, wink wink. Some illegal trading has been going on if you ask me.
@David_MV Looking at the last few days, a few of these firms keep adding shorts everyday. Its amazing seeing how they they just keep adding to their position everyday.
Let me paste my comment on Henrik’s post earlier. The company will be lucky if they get past Q2. The current 94 million in liquidity will be burned off quite quickly...

Q4 was a flat out disaster - just as the company which best can be described in three words: an utter joke. Management has cheered and lured investors with the "above-market" contracts with Pemex for a long time, and the rigs barely started drilling until it turned out to be a catastrophe. So much for their innovative integrated offering...

Even with Oro Negro proceeds, mark-to-market gains on Valaris and (very) favorable working capital movements in the quarter, they burned 18 million. Adjusting for these one-offs, the underlying free cash flow was negative by 75(!!) million.

With these one-offs disappearing and even reversing in the first half of this year, they should run out of liquidity in a few months. I bet they will fail to sell any of their rigs to ADNOC as well. My bet is that John Fredriksen once again will do his outmost to destroy Troim and attract ADNOC with idle Seadril jack-ups.

This company might very well go bankrupt this year. I will be surprised if they can attract new equity even at an offering price close to zero. Too much debt and miserable management.
David_MV profile picture
They did get two downgrades today from Pareto and DNB from buy to hold. 18 and 16 NOK respectively. They both cited liquidity issues. Pareto made mention of potential of the equity if/when the liquidity issues are resolved.
If nothing else there's at least a "trade" here with near term catalysts.

-Market is pricing this company like it's going to go BK in less than a year.
-Borr says we are going to address the near term liquidity issues with asset sales of modern rigs.
-Market still calls BS.

Demand for their assets remains high. I think chances are extremely favorable for a re-rate in share price once this is addressed. Especially considering where shares trade today.
Vladimir Zernov profile picture
The market turns its attention to the potential bk story, at least it seems like this. I don't see them collapsing and I think that their thesis is playing out correctly (the pace of the modern JU market recovery could have been better, but it's still reasonable, especially if we compare it to floaters). A few rig sales will provide an important data point regarding the value of the fleet. It is very important for the share price to set this data point.
David_MV profile picture
I agree Vlad.
kris_no profile picture
who can afford to buy borr drilling rigs except mærsk drill? everyone is broken with debt?
Henrik Alex profile picture
ADNOC is looking to increase its rig fleet.
David_MV profile picture
Yes. Judging from their comments about "creating a long term business relationship" I would also say it's ADNOC. Such a sale would I suppose involve hiring a certain number of BORRs rigs or possibly establish a JV.

This would be a game changer since ADOC has an open tender for 16 rigs to drill their large gas fields.
Vladimir Zernov profile picture
ADNOC would be a great development for BORR, imo. But we'll see. Henrik is certainly right when he says that the management team did not deliver the best performance, although I still believe that the original thesis, a bet on modern JU, was a correct one.
Sir V-i-val profile picture
BTW Bassoe says that Borr has 6 newbuild rigs waiting for them at the shipyard...
Sir V-i-val profile picture
Rig sales? almost all of their loans already have a rig as collateral...that is the biggest strength of Borr....it is worthless because they have already pawned everything even the toilet roll on the toilet...and that is why creditors are forced to make Borr survive the downturn..hence Borr is a strong buy because it is an empty shell
Thanks Vlad, but who would like to buy and for which price ?
Vladimir Zernov profile picture
They are planning to sell them "as part of creating a long-term business relationship in a key operating region" so it's not an OSD. Price - surely a big question at this point.
JLTSR profile picture
02 Mar. 2020
Pemex comes to mind...not good
Henrik Alex profile picture
No - Seadrill stated that PEMEX doesn't even pay its bills anymore.
Thanks Vlad for excellent update. K
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