Shares of Borr Drilling (NYSE:BORR) have been consolidating near $1.00 for several months despite the recent rally in the oil market. The recent Q1 earnings report provided an opportunity to take a look at how the company performed in the first three months of this year and why its shares failed to gain any momentum despite the strength of the oil market.
In the first quarter, Borr Drilling reported revenue of $48.4 million and a loss of $58.1 million. The loss was driven by D&A and G&A expenses, as well as interest expenses. The cash on the balance sheet increased from 19.2 million at the end of 2020 to $49 million at the end of the first quarter as the company’s cash position was boosted by equity offering at the beginning of this year.
The company’s fleet status report contained the following developments:
- Jack-up rig Prospector 1 will work for Neptune in the Netherlands from May 2021 to August 2021 and from December 2021 to March 2022. The rig will switch to the work for Tulip in the Netherlands from August 2021 to November 2021.
- Jack-up Norve will work from August 2021 to September 2021 in Gabon in continuation of the current contract as BWE exercised an option. The rig has also received a letter of intent from December 2021 to April 2022 with an undisclosed operator in Gabon.
- Jack-up Idun will work for Petronas in Malaysia from June 2021 to January 2022 after work for Vestigo from March 2021 to May 2021. This work was mentioned in the previous fleet status report.
- Jack-up Gunnlod will work in Malaysia from May 2021 to September 2021 as PTTEP exercised options.
- Jack-up Skald got a contract from the previous letter of award from PTTEP. The rig will work from June 2021 to June 2024 in Thailand.
- Jack-up Natt got a contract from Oriental in Nigeria which will keep the rig busy from May 2021 to September 2021.
- Jack-up Saga got a letter of award from an undisclosed operator in Malaysia. The rig may work from September 2021 to August 2022.
- Borr Drilling has announced that five rigs that are currently working for Pemex in Mexico “will continue providing services for the project until the end of 2022”.
Source: fleet status report
At this point, Borr Drilling has 13 rigs which have contracts and 10 rigs that are available for work, while 5 rigs remain under construction. This is a move back compared to the fleet status report which was published with the previous earnings report. At that time, Borr Drilling had 14 rigs with contracts and 9 available rigs.
Borr Drilling managed to solve its near-term liquidity problems, but the company needs a robust rebound of the shallow water drilling market. In the first quarter, Borr Drilling recorded dayrate revenue of $47.4 million and rig operating and maintenance expenses of $48.7 million, which means that current dayrates are still not sufficient to cover rig-related expenses, while Borr Drilling needs to deal with G&A expenses and interest expenses.
In this light, it looks that the market remains worried that Borr may use any share price upside for additional dilution in order to provide support to its balance sheet. With $49 million of cash on the balance sheet and $1.9 billion of long-term debt, Borr Drilling remains in a challenging situation. As I noted in the previous article on Borr Drilling, the company stated that opportunities to “further improve […] capital structure and liquidity” remained in 2021, and this is a key risk for Borr Drilling’s shares in the near term.
Time goes by, and there is just one and a half year left before 2023 when Borr Drilling will have to face its obligations and try to refinance its debt. Borr Drilling will need to put more rigs to work before the market will be ready to push its shares to higher levels. Without new contracts for more rigs, the stock will remain in hibernation mode.
