Q1 2023 Borr Drilling Limited Earnings Call

May 23, 2023

Operator: Good day, and thank you for standing by. Welcome to the Borr Drilling Limited Q1 2023 results presentation webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw the question, please press star one one again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link any time during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Patrick Schorn, CEO. Please go ahead, sir.

Speaker 2: Good day and thank you for standing by. Welcome to the board trailing limited Q1 2023 results presentation webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker 2: To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message. Advice in your hand is raised. To withdraw the question, please press star 1 again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at the end of the presentation.

Speaker 2: anytime during the conference.

Speaker 2: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Patrick Schorn, CEO . Please go ahead, sir.

Patrick Schorn: Thank you. Good morning, and thank you for participating in the Borr Drilling Q1 2023 earnings call. I'm Patrick Schorn talking to you from Hamilton, Bermuda. With me here today is Magnus Vaaler, our CFO, and Bruno Morand, our Vice President, Commercial. Next slide. First, I would like to cover the required disclaimers. I would like to remind all participants that some of the statements will be forward-looking. These matters involve risks and uncertainties that could cause actual results to differ materially from those projected in these statements. I therefore refer you to our latest public filings. Next slide. The first quarter of 2023 continued the positive trend experienced over the last several quarters, with an increase of revenue of 16% quarter on quarter, and a further increase in adjusted EBITDA of 31% to $72.4 million.

Speaker 3: Thank you. Good morning and thank you for participating in the board drilling first quarter 2023 earnings call.

Speaker 3: I'm Patrick Schorn talking to you from Hamilton, Bermuda and with me here today is Magnus Fowler, our CFO and Bruno Moran, our Vice President Commercial. Thanks, Mike.

Speaker 3: First, I would like to cover the required disclaimers. I would like to remind all participants that some of the statements will be forward looking.

Speaker 3: materially from those projected in these statements.

Speaker 3: I therefore refer you to our latest public filings.

Speaker 4: Next slide.

Speaker 3: The first quarter of 2023 continued the positive trend experienced over the last several quarters

Speaker 3: with an increase of revenue of 16% quarter on quarter and a further increase in adjusted EBITDA of 31% to $72.4 million. Q1 2023 is also the first quarter where we generated positive income before tax.

Patrick Schorn: Q1 2023 is also the Q1 where we generated positive income before tax. We reaffirm our previously communicated guidance of adjusted EBITDA of $360 to 400 million for 2023. While we expect a similar performance in the Q2 to the Q1 of 2023, we expect further increases in the Q3 and Q4 of 2023 as our 2 remaining stacked rigs are being activated and will commence their respective contracts in the Middle East and Mexico. The Q1 has evidenced our continued ability to add backlog at market-leading rates, confirming the tight supply of jack-up drilling rigs in the market.

Speaker 3: We reaffirm our previously communicated guidance of adjusted EVADA of $360 to $400 million for 2023.

Speaker 3: And while we expect a similar performance in the second quarter to the first quarter of 2023, we expect further increases in the third and fourth quarters of 2023, as our two remaining stacked rigs are being activated and will commence their respective contracts in the Middle East and Mexico.

Speaker 3: The first quarter has evidenced our continued ability to add backlog at market leading rates confirming the tight supply of jackup gridding rigs in the market.

Patrick Schorn: At the same time, we see positive prospects for continuing work for our rigs that are finishing their contracts at the end of this year, both with current customers as well as in new geographies with new clients. In February 2023, we completed the issuance of our $250 million unsecured convertible bonds maturing in 2028, and our $150 million senior secured bonds maturing in 2026, enabling us to fully repay our $350 million convertible bonds due in May 2023. This marks the final step of refinancing our debt that was due to mature in 2023, and we now have no significant debt maturities prior to 2025.

Speaker 3: At the same time, we see positive prospects for continuing work for our rigs that are finishing their contracts at the end of the year.

Speaker 3: both with current customers

Speaker 3: as well as in new geographies with new clients.

Speaker 3: In February 2023 we completed the issuance of our 250 million unsecured convertible bonds maturing in 2028 and our 150 million senior secured bonds maturing in 2026 enabling us to make a difference in the future.

Speaker 3: to fully repay our 350 million convertible bonds due in May 2023.

Speaker 3: This marks the final step of refinancing our debt that was due to mature in 2023 and we now have no significant debt maturities prior to 2025.

Patrick Schorn: We expect the improving market, coupled with the positive prospect of access to the debt market at attractive rates, will enable a global refinancing of the company and ultimately accommodate dividend distributions to shareholders. Magnus will now step you through the financial details of Q1.

Speaker 3: We expect the improving market coupled with the positive prospect of access to the debt market at attractive rates will enable a global refinancing of the company and ultimately accommodate dividend distributions to shareholders.

Speaker 3: Magnus will now step you through the financial details of the first quarter.

Magnus Vaaler: Thank you, Patrick. Q1 2023 revenues were $172 million in the quarter, an increase of $23.4 million or 16% compared to Q4. This was split between $141.7 million of day rate revenues and $30.3 million of related party revenues, which were bareboat earnings from our Mexico joint ventures. The increase in revenues was a result of more rig operating days in the quarter, now with 20 rigs working. Rig operating and maintenance expenses for Q1 were $85.5 million, an increase of $2.1 million from Q4. This increase was also due to the increase in activity and operating days.

Speaker 5: Thank you, Patrick.

Speaker 6: Q1 2023 revenues were 172 million in the quarter, an increase of 23.4 million or 16% compared to the fourth quarter. This was split between 141.7 million of day rate revenues and 30.3 million of related Costume Track

Speaker 6: which were bearable earnings from our Mexico joint ventures. The increase in revenues was the result of more RIG operating days in the quarter.

Speaker 6: now with 20 rigs working. Rig operating and maintenance expenses for Q1 were $485.5 million an increase of $2.1 million from Q4.

Magnus Vaaler: Total financial expenses net were $40.5 million for the quarter, a decrease of $8.9 million, mainly as a result of a $3.2 million decrease in financing fees in connection with the prior quarter refinancing activities, a $2 million decrease in interest expense, and a $1.7 million increase in interest income. Income before income taxes was $7.9 million, an increase of $26.4 million compared to Q4, and first time ever with a profit before taxes for the company. Net loss was $7.4 million, a decrease in loss of $13.9 million compared to Q4, and the adjusted EBITDA was $72.4 million, an increase of $17.3 million, or 31% compared to Q4. Our free cash position at the end of Q1 was $90.3 million.

Speaker 6: This increase was also due to the increase in activity and operating days.

Speaker 6: Total financial expenses net were 40.5 million for the quarter, a decrease of 8.9 million, mainly as a result of

Speaker 6: a 3.2 million decrease in financing fees in connection with the prior quarter refinancing activities, a 2 million decrease in interest expense and a 1.7 million increase in interest income.

Speaker 6: Income before income taxes was $7.9 million, an increase of $26.4 million compared to the fourth quarter. And first time ever with a profit before taxes for the company.

Speaker 6: Net loss of 7.4 million, a decrease in loss of 13.9 million compared to the fourth quarter.

Speaker 6: and adjusted EBITDA for $72.4 million, an increase of $17.3 million for 31% compared to the fourth quarter.

Magnus Vaaler: Our cash movements in the quarter were primarily driven by $8.2 million cash used in operations, which includes $29.5 million cash interest, and $10 million cash taxes paid. $29 million cash was used in investment activities, primarily rig activation costs, and $177.4 million net cash provided by financing activities, consisting of the February bond issuances offset by repayments of debt, including parts of our convertible bonds due in May 2023. After quarter end, we have upsized our bank loan facility by $25 million, in addition to establishing a guarantee facility, which allows us to issue guarantees and draw credits in the amount up to $25 million without posting cash collateral. We had $10 million restricted cash related to guarantees at the end of Q1, so in total, these two facilities provide $35 million of additional liquidity in Q2.

Speaker 6: Our free cash position at the end of Q1 was 90.3 million. Our cash movements in the quarter were primarily driven by 8.2 million cash used in operations, which includes 29.5 million cash interest and 10 million cash taxes paid.

Speaker 6: 29 million cash was used in investment activities, primarily rig activation costs.

Speaker 6: and 177.4 million net cash provided by financing activities consisting of the February bond issuances offset by repayment of debt including parts of our convertible bonds due in May 2023.

Speaker 6: After quarter end, we have upsized our bank loan facility by 25 million, in addition to establishing a guarantee facility which allows us to issue guarantees and enter our credits in the amount up to 25 million without posting cash collateral. We have 10 million restricted cash related to guarantees at the end of Q1.

Speaker 6: So in total, these two facilities provide 35 million of additional liquidity in Q2.

Magnus Vaaler: Moving to the next slide, please. These graphs show the significant quarterly progression in both revenue and adjusted EBITDA we have made since the beginning of 2022. Our EBITDA in Q1 increased to $72.4 million, and we expect that the Q2 EBITDA will have a similar performance to the Q1 due to the same number of rigs working.

Speaker 6: these two facilities provide 35 million of additional liquidity in Q2. Moving to the next slide, please.

Speaker 6: These graphs show the significant quarterly progression in both revenue and adjusted EBITDA made since the beginning of 2022.

Speaker 6: Our EBITDA in Q1 increased to 72.4 million and we expect that the second quarter EBITDA would have a similar performance to the first quarter due to the same number of RIGS working.

Patrick Schorn: We expect further increases in the Q3 and Q4 of 2023 as we have our 2 remaining stack rigs activated and commencing their respective contracts in the Middle East and Mexico. Now with this, I would like to pass the word over to Bruno.

Magnus Vaaler: We expect further increases in the Q3 and Q4 of 2023 as we have our 2 remaining stack rigs activated and commencing their respective contracts in the Middle East and Mexico. Now with this, I would like to pass the word over to Bruno.

Speaker 6: Then we expect further increases in the third and fourth quarter of 2023 as we have our two remaining stack rigs activated in commencing the respective contracts in the Middle East and Mexico.

Bruno Morand: Thanks, Magnus. I'll now briefly cover some aspects relating to the markets where we operate. Based on the IEA's latest supply and demand outlook, oil markets are expected to experience an increasing supply deficit in H2 2023, reaching nearly 2 million barrels per day shortage in Q4. This deficit should continue to drive increased activity levels, and will also result in higher commodity prices. This backdrop continues to support a very favorable outlook for shallow water drilling market. Onto the next slide. Jack-up utilization levels have continued to increase year-to-date. In particular, the market utilization for modern rigs currently stands at 93.3%, and at a level not sustainably seen since 2014. At the same time, modern rigs continue to gain market share versus standard rigs, reflecting the customer's preference for assets with superior capabilities.

Speaker 7: Two.

Speaker 6: Now, with this, I would like to pass the word over to Bruno.

Speaker 3: Thanks, Magnus. I'll now briefly cover some aspects relating to the markets where we operate.

Speaker 3: Based on the IEA's latest supply and demand outlook, oil markets are expected to experience an increasing supply deficit in the second half of 2023, reaching nearly 2 million barrels per day shortage in the fourth quarter.

Speaker 3: This death set should continue to drive increased activity levels and will also result in higher commodity prices.

Speaker 3: This backdrop continues to support a very favorable outlook for the shallow water drilling market.

Speaker 5: On to the next slide.

Speaker 3: Checkup utilization levels have continued to increase year to date.

Speaker 3: In particular, the market utilization for modern rigs currently stands at 93.3% and at a level not sustainably seen since 2014.

Speaker 3: At the same time, modern rigs continue to gain market share versus standard rigs, reflecting the customer's preference for assets with superior capabilities.

Bruno Morand: As time progresses, we expect the tightness in the modern jack-up market to be exacerbated by the fact that over 30% of the current jack-up fleet is beyond retirement age. In a normal scenario, we would expect this attrition to be replaced by new builds. However, looking at the next slide, it is evident that extremely low order book levels will be insufficient to offset any future fleet attrition. The combination of high fleet utilization and low order book will continue to drive higher day rates. On the right-hand side, we illustrate how improving market conditions and increasing number of rigs under contract have driven our adjusted EBITDA figures in the last 12 months. We expect this trend to continue. Moving to the next slide.

Speaker 6: As time progresses, we expect the tightness in the modern jackup market to be exacerbated by the fact that over 30% of the current jackup fleet is beyond retirement age.

Speaker 3: In a normal scenario, we would expect this attrition to be replaced by new views.

Speaker 3: However, looking at the next slide, it is evident that extremely low order book levels will be insufficient to offset any future fleet attrition.

Speaker 3: The combination of high-speed utilization and low order book will continue to drive higher day rates. On the right hand side, we illustrate how improving market conditions and the increasing number of rates under contract have driven our adjusted EBITDA figures in the last 12 months.

Bruno Morand: Following the previously announced contract for our premium jack-up rig, all of our 22 delivered rigs are now contracted, representing an important milestone in the history of the company. Year to date, we have secured eight new contracts, options, LOIs, and LOAs, including a contract for the Ran with an undisclosed customer in Americas at leading edge rates. These awards have increased our contract coverage to 95% in 2023 and 59% in 2024. The strong contract coverage in 2023 provides visibility of revenues that support our guidance for the year. At the same time, the available days in 2024 and beyond should provide us with an opportunity to reprice legacy contracts under continually improving market conditions. Next slide, please. Borr Drilling continues to build quality backlog.

Speaker 8: We expect this train to continue.

Speaker 8: the strength to continue. Moving to the next slide.

Speaker 8: Formed a previously announced contract for premium jack up hill.

Speaker 8: All of our 22 delivered rigs are now contracted, representing an important milestone in the history of the company.

Speaker 8: Year to date, we have secured 8 new contracts, options, LOIs and LOAs, including a contract for the run with an undisclosed customer in America at leading edge rate.

Speaker 8: These awards have increased our contract coverage to 95% in 2023 and 59% in 2024.

Speaker 8: The strong contract coverage in 2023 provides visibility of revenues that support our guidance for the year.

Speaker 8: At the same time, the available days in 2024 and beyond should provide us with an opportunity to request legacy contracts under continuously improving market conditions. If I please. Or really, continues to build quality backlog.

Bruno Morand: Our current contract revenue backlog stands at $1.69 billion, which represents a substantial increase year on year. The equivalent average day rate increased by nearly 30% during the same period. Year to date, we have continued to benefit from positive industry momentum to secure strong new contracts for our rigs. Looking at the four new commitments secured by the company year to date, they represent an addition of $177 million to our backlog at a healthy equivalent average rate of $164,000 per day. With all of our 22 rigs being contracted, we have no immediate availability, but continue to work closely with our customers to meet their needs in the future. I'll now hand the call over to Patrick.

Speaker 8: Our current contract revenue backlog stands at $1.69 billion, which represents a substantial increase year-on-year. The equivalent average day rate increased by nearly 30% during the same period.

Speaker 8: Year to date, we have continued to benefit from positive industry momentum to secure strong new contracts for our rigs.

Speaker 8: Looking at the four new commitments secured by the company year-to-date, they represent an addition of $177 million to our backlog at a healthy equivalent average rate of $164,000 per day. With all of our 22 rates being contracted, we have no immediate availability.

Speaker 8: but continue to work closely with our customers to meet their needs in the future.

Patrick Schorn: Thank you, Bruno. In conclusion, I would like to highlight some key aspects defining our performance and success going forward. Firstly, and what you have seen from the information discussed by Bruno, we continue to grow our backlog at day rates that are market leading and a true testament to the quality of our people and assets. Secondly, we have all delivered rigs in our fleet contracted at this moment. The demand for our rigs remains high, and since our rigs are predominantly deployed on development wells, and therefore production-related, where most of our customers have set ambitious goals that can only be reached by keeping rig and well activity high, we are in general less impacted by short-term oil price volatility. Thirdly, our Q1 results have come in right on plan, and I'm very pleased with the efforts of our people around the world making this possible.

Speaker 3: I'll now head to call over to Patrick. Thank you Bruno. In conclusion, I would like to highlight some key aspects defining our performance and success going forward. Firstly,

Speaker 3: what you have seen from the information discussed by Bruno, we continue to grow our backlog at day rates that are market leading.

Speaker 3: and a true testament to the quality of our people and assets.

Speaker 3: a true testament to the quality of our people and assets. Secondly,

Speaker 3: We have all delivered rigs in our fleet contracted at this moment. The demand for our rigs remains high.

Speaker 3: And since our rigs are predominantly deployed on development wells and therefore production related, where most of our customers have set ambitious goals that can only be reached by keeping rig and well activity high,

Patrick Schorn: With this performance, we fully intend to remain on the trajectory to deliver the earlier communicated targets for the year with our last two rigs starting operations in H2 of this year. Next, we have started the process of refinancing our current debt due in 2025. It is our intention to conclude as soon as is practical, but this process has started. Lastly, I would like to emphasize that our customers' success and the value they can derive from our services is paramount to our success. Therefore, the whole team continues to focus on safe and efficient operations every day for every customer. Thank you.

Speaker 3: in right on plan and I'm very pleased with the efforts of our people around the world making this possible.

Speaker 3: With this performance, we fully intend to remain on the trajectory to deliver the earlier communicated targets for the year with our last two rigs starting operations in the second half of this year. Next.

Speaker 3: We have started the process of refinancing our current debt due in 2025.

Speaker 3: It is our intention to conclude as soon as is practical.

Speaker 3: but this process has started. Lastly, I would like to emphasize that our customer success is not a success.

Speaker 3: and the value they can derive from our services is paramount to our success. And therefore the whole team continues to focus on safe and efficient operations.

Speaker 3: derived from our services is paramount to our success and therefore the whole team continues to focus on safe and efficient operations every day.

Speaker 3: for every customer.

Operator: Thank you. As a reminder to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please kindly ask one question and possibly a follow-up questions at a time to leave room for other participants. If you do have any further questions, you can please rejoin the queue. If you wish to ask a question via the webcast, please type it in on the question box and click submit. One moment, please. Our first question comes from the line of Gregory Lewis with BTIG. Please proceed.

Speaker 9: Thank you.

Speaker 2: Thank you. And as a reminder to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. Please kindly ask one question and possibly a follow-up question at a time to leave room for other questions.

Gregory Lewis: Yeah, thank you. Thank you, and good afternoon. You know, Patrick, thanks for all the color you provided. I was hoping to kinda get your thoughts around, you know, realizing that we don't really have much, you know. We're pretty much contracted out here for the next couple of months. I guess, let's say, as we look in the back half of this year, as we think about, you know, some of these rigs that are rolling off contract, and you mentioned the development work. I guess there's a two-part question here. One is, you know, given the fact that it's development, should we more expect, I guess, whether we wanna call them extensions or continuations of this work?

Speaker 2: Our first question comes from the line of Greg Lewis with BTIG. Please proceed.

Speaker 10: Thank you and good afternoon.

Speaker 10: You know Patrick that thanks for all the color you provided I was hoping to kind of get your thoughts around You know realizing that we don't really have much

Speaker 10: You know, we're pretty much contracted out here for the next couple months, but I guess let's say, as we look in the back half of this year, as we think about some of these rig that are rolling off contract. And you mentioned the development work. I guess there's a 2 part question here. 1 is, you know, given the fact that it's development. Should we more expect.

Gregory Lewis: To that point, you know, as we look across the fleet, is the market tight enough where we shouldn't be thinking about basin to basin rig mobilizations at this point?

Speaker 10: I guess, whether we want to call them extensions or continuations of this work and to that point, you know, as we look across the fleet.

Speaker 10: Is the market tight enough where we shouldn't be thinking about basin-to-basin rig mobilizations at this point?

Patrick Schorn: Thanks, Greg. I think firstly, on the development side, I think what it really means is that many of our customers, as you know, are predominantly national oil companies. With the targets that they have set themselves and communicated, there is a very large volume of work that needs to be carried out to actually reach these targets. Any short time, short-term oil price volatility, I think, is going to not immediately impact. Because the targets that are set, the contracts that we have that are related to this are all long-term, some in excess of five years. Therefore, I think that as it is really the lifeline to keep the production going, on the shallow water drilling and based on the customer profiles that we have, I fully expect that to continue.

Speaker 3: So, thanks, Greg. I think firstly on the development side, I think what it really means is that many of our customers, as you know, are predominantly national oil companies. And with the targets that they have set themselves and communicated, there is a very large volume of work that needs to be carried out to actually reach these targets.

Speaker 3: So any short-term oil price volatility I think is going to not immediately impact because the targets that are set, the contracts that we have that are related to this are all long-term, some in excess of five years.

So, therefore, I think that as it is really the lifeline to keep the production going, on the shallow water drilling and based on the customer profile that we have, I fully expect that to continue. Now, your second question on whether or not it is time to maybe move some rigs...

Patrick Schorn: Now, your second question on whether or not it is time to maybe move some rigs from certain regions to others, I think it is true to say that we early on in this process have already started to reallocate rigs from certain areas, and for us, that was predominantly the North Sea, to other areas where we saw better rates and better volumes of work. We did that quite early on. Today, we're not affected that much. I think you'll see still some changes geography-wise, but not that many. I would think that all of the basins are going to have additional demand. I think that also the overall price that we see is fairly uniform around the world.

from certain regions to others, I think it is true to say that we early on in this process have already started to reallocate rigs.

from certain areas and for us it was predominantly the North Sea to other areas where we saw better rates and better volumes of work and we did that quite early on so today we're not effective that much. I think you'll see still some.

changes geography-wise, but not that many. So I would think that all of the basins are going to have additional demand and I think that also the overall price that we see is fairly uniform around the world. So I wouldn't say that there's many weak pockets that you see shifting into

Patrick Schorn: I wouldn't say that there's many weak pockets that you see shifting into, pockets where more money can be made, except maybe that the North Sea continues to be an area of weaker performance. I probably wanna leave it at that.

pockets where more money can be made, except maybe that the North Sea continues to be an area of weaker performance. I probably want to leave it at that.

Gregory Lewis: Okay, perfect. Thank you very much for taking my questions.

Patrick Schorn: Thank you.

Operator: Thank you. One moment, please. My next question comes from Fredrik Stene with Clarksons Securities. Please proceed.

Perfect. Thank you very much for taking my questions.

Thank you. Thank you. One moment, please. Okay. Okay.

Thank you. One moment, please. The next question.

This comes from Frederic Steen with Clarkson Securities. Please proceed.

Fredrik Stene: Hey, team. Hope you're well and happy to see all these high rates here on your second to last slide, $164,000 average so far this year is definitely impressive. I wanted to dive a bit into that number or the dynamics that you are facing right now. I think kind of firstly, are you experiencing any reluctance or pushback right now? In a way, obviously, you're not since you're seeing these rates, but how have client behavior changed as you've started to move into the kind of upper end of the range here between $150,000 and $200,000 per day?

Hey, team, hope you're well and happy to see all these high rates here on your second to last slide 164 average so far this.

This year is definitely impressive. So I wanted to dive a bit into the number or dynamics that you are facing right now. I think on a first, are you

experiencing any Reductance or pushback right now in a way, obviously you're not since you're seeing these rates, but how have a client behavior changed as you started to move into the

kind of end of the range here between 150 and 200k per day.

Patrick Schorn: All right. Thanks, Fredrik. Maybe I'll give Bruno the opportunity to give his view on this as he's dealing with it on day-to-day. Bruno.

All right thanks there Frederick. Maybe I'll give Bruno the opportunity to give his view on this as he's dealing with it on day to day. Bruno. Yeah thanks for the question Frederick. Listen we see around the globe...

Bruno Morand: Yeah. Thanks for the question, Fredrik. Listen, we see around the globe, it's noticeable that we've been securing rates at the leading edge, and I think a lot of that has to do with the fact that we have premium assets, equally, that we pride ourselves with delivering premium services to our customers. In a variety of geographies, we've seen our rigs delivering these wells much faster than operators being used to in the past. That has converted to, I think, a level of preferential treatment and certainly higher rates. There's no doubt that there's a new rate environment. The rates have been increasing. The customers obviously are adjusting to the new environment, and from time to time, we see pushbacks.

It's noticeable that we've been securing rates at the leading edge And I think a lot of that has to do with the fact that we have premium assets Equally that we pride ourselves for the using premium services to our customers In a variety of geographies we've seen our rigs delivering these wells

Bruno Morand: I think the fact that we've been consistently driving the rates up is reflection of the premium rigs that we have, the premium services that we've been delivering, and that is effectively reflecting on the rates that we've been securing.

have been increasing, the customers are already adjusting to the new environment and from time to time we see push backs but I think the fact that we've been consistently driving the rates up is reflection of the premium rate that we have, the premium services that we've been delivering and

Fredrik Stene: Thanks. As a follow-up to that, Bruno, in your discussions with clients, are there any, call it differences between the NOC discussions on the majors and IOC that you're working for in terms of, you know, how fast they're turning around, willingness to pay, and just general T&Cs other than day rates?

that is effectively reflecting on the rate that we've been securing. Thanks and as a follow-up to that, Rinaly, in your discussions with clients, are there any college differences between the NLC discussions and the majors and ILCs that you're working for in terms of

how fast they're turning around, willingness to pay and just general T&Cs over them than they are? Well, I think the dynamics are very similar across the board Frederick. Obviously when it comes down to NOCs, the discussions in a lot of the regions come down through a tendering process.

Bruno Morand: Well, I think the dynamics are very similar across the board, Fredrik. Obviously, when it comes down to NOCs, the discussions in a lot of the regions come down to a tendering process that obviously takes its own course. The variables that we're discussing at the moment, the conditions that we're discussing at the moment are very similar across the board.

that obviously takes its own course but the variables that we're discussing at the moment, the conditions that we're discussing at the moment are very similar across the board.

Fredrik Stene: Yes. Perfect. Thanks. Patrick and Magnus, I'm sorry for doing a second question here, but I think it's important. The refi process that you have started to accelerate, as you say on the last slide here. Are you able, at this point, to give any thoughts or pointers around how you think an optimized capital structure will look like? If it's an RCF, if it's, you know, one large bond, two large bonds. Any color you can give at this point would be super helpful.

Okay, perfect. Thanks. And Patrick and Magnus, I'm sorry for doing a second question there, but I think it's important the refi that you – the refi process that you have started to accelerate, as you say, on the last slide here. Are you able at this point to give any directions as to what move this?

thoughts or pointers around how you think an optimized Capital structure will look like if it's an RCS if it's you know one large bond two large bonds Any call you can give at this point would be super helpful for Frederick no, I mean and you understand that

Patrick Schorn: Sure, Fredrik. No, I mean, you understand that we can't give you the full insight into everything that we are working, but we wanna make sure that we communicate appropriately what is clearly on the forefront for us for a long time to find a way to get ourselves into a situation where we can distribute cash in different ways. Maybe Magnus is better placed here than me to talk a little bit about what we can say currently about the refi process and some of the aspects around it.

We can't give you the full insight into everything that we are working in, but we want to make sure that we communicate appropriately what is clearly on the forefront for us for a long time to find a way to get ourselves into a situation where we can distribute cash in different ways, but maybe Magnus is better place here than me to talk a little bit about the future of the world.

Magnus Vaaler: Yeah. Thanks, Patrick. I think we're very encouraged by seeing the recent transactions in the market on financings, both with our own bonds in February and also other market participants coming to the market and doing refinancings recently at good levels. We will obviously be ensuring that we are prepared to hit the market when the opportunity opens up and rather sooner rather than later. How that financing will look structure-wise, we are obviously looking into several different versions of that, and that is something we need to come back to.

other market participants coming to the market and doing refinancing recently at good levels. And we will obviously be ensuring that we are prepared to hit the market when the opportunity opens up and sooner rather than...

Magnus Vaaler: It's like Patrick emphasizes, we are obviously looking for a structure which clearly creates a path to shareholder distributions, which we currently cannot do, but which we will enable us to do that in a refi.

like Patrick emphasizes, we are obviously looking for a structure which clearly creates a path to shareholder distributions which we currently cannot do but we will enable us to do that in a refi.

Fredrik Stene: All right. Thank you so much, all. That's my questions for now. Have a good day.

Patrick Schorn: Thank you.

Magnus Vaaler: Thank you, Fredrik.

All right, thank you so much, Rolf. That's my questions for now. Have a good day.

All right, thank you so much all that's my questions for now have a good day. Thank you

Operator: Thank you. One moment for our next question, please. Any comments from the line? Just give it a second. We're experiencing technical difficulties with the next line. If you do have a question, please press star one one to get in the queue.

Thank you. One moment for our next question, please. Any comments from the line? Just give me a second.

For experiencing technical difficulties with the next line, if you do have a question, please press star 11 to get in the queue.

Magnus Vaaler: Okay. We have some questions from the web, so we can-

Bruno Morand: All right.

Magnus Vaaler: Probably jump to that. There is a couple of questions around the recently announced contract for Ran at $162,000 per day implied. The question is, what is the day rate levels being negotiated as we speak?

Okay we have some questions from the web so we can probably jump to that. There is a couple of questions around the recently announced contract for the Iran at $162,000 per day implied. The question is what is

Bruno Morand: I'll take that question, Frederick. At the moment, I think we've been consistently securing fixtures in the range of $150 to $160 and now crossing that border. It's fair to say that these are negotiations that are aged to some extent, and we see future negotiations going in the upward direction. We've talked about some numbers earlier. With all the activity level increase that we are anticipating in the projections, I think it's fair to say that as we come to the Q2 of H2, the rate range that we expect should be above the $175 range. I think that this is where we've been guiding so far or anticipating so far.

the day with levels being negotiated as we speak.

I'll take that question, Patrick. At the moment I think we've been consistently securing fixtures in the range of 150 to 160 and now crossing that border. It's fair to say that these are negotiations that are aged to some extent and we see

future negotiations going in the upward direction. We talked about some numbers earlier.

With all the activity level increase that we are anticipating in the projections, I think it's fair to say that as we come to the second quarter of the second half of the year...

the rate range that we expect is

should it should be above the 175 range. I think this is where we've been guiding so far or anticipating so far.

Magnus Vaaler: Thank you.

Bruno Morand: All right. Thank you.

Magnus Vaaler: Can we go back to the phone questions, please?

Operator: Thank you, sir. Let me bring to the stage. One second, please. It's coming from the line of Truls Olsen with Fearnley Securities. Please proceed.

Thank you. If you go back to the phone questions, please. Thank you, sir. Let me bring to the stage one second, please. It's coming from the line of trolls often with Fermilin Securities. Please proceed. All right, Mr. President, you're on pitsforus.org.

Truls Olsen: Yes. Hi, guys. Thank you for taking my question. Hi, Patrick. Hi, Magnus. Hi, Bruno. Just asking quickly on the market and in terms of day rates going higher, which is great to see. What about the T&Cs in the contract? Are we able to improve those as we move along, or how that part of the contract is looking?

Hi guys, thank you for taking my question. Hi Patrick, hi Magnus, hi Bruno. Just asking quickly on the market and in terms of day rates going higher, which is great to see, what about the T&Cs in the contract? Are we able to improve those as we move along or how would that...

Patrick Schorn: I think, Truls, I think it's a very good question. I mean, one of the things that obviously we focus on is the overall day rate. What is important to us are all the factors that influence our earnings. As you well put out there, T&Cs are extremely important. Equally, as we are looking at the day rates and the absolute number of that, we equally have efforts around all aspects of the T&Cs. You can imagine rates for mobilization, rates for contract-specific equipment, any type of repair times, any type of rig moving times, and any of the commercial aspects related to that. In the downturn, we're probably more stacked against us, and of course, in today's environment, are much more a discussion that we also have again with customers.

as you well put out there, P's and C's are extremely important. So equally as we are looking at the

pay rates and the absolute number of debt. We equally have efforts around all aspects of the T's and C's. You can imagine...

rates for mobilization, rates for contract specific equipment, any type of repair times, any type of rig moving times and any of the commercial aspects related to that. In the downturn we're probably more stacked against us and of course in today's environment.

Patrick Schorn: I would say the equal interest that we have to move the day rate up. Equally, we are discussing with the customers changes to the T&Cs, and I would say it has equal importance and focus as the normal day rate discussions.

much more discussion that we also have again with customers. So I would say the equal interest that we have to move the day rate up equally we are discussing with the customers changes to the T's and C's and I would say it has equal importance and focus.

Truls Olsen: Yeah. Okay. Thank you. Hopefully, we're starting to see the great periods coming back in and stuff like that, which is obviously helpful for your economic utilization. On the cost side, clearly, I mean, a lot of rigs moving into the Middle East. What's the current status in terms of inflation? How does that impact the environment in that region, considering that the NOCs and IOCs and all those guys are trying to get rigs to yards and on contract? I mean, that's a pretty high pressure on any environment.

as the normal day rate discussions. Yeah, okay. Thank you. So hopefully we're starting to see the great periods going back in and stuff like that, which is obviously helpful for your economic utilization. On the cost side, and clearly I mean a lot of rigs moving into the Middle East.

Patrick Schorn: Yeah, no, I think it is fair to say that, I mean, the world of course experienced inflation in general. On top of that, we have an extremely hot market. It is something that we see reflected in pricing that we are getting from OEM, so particularly the drilling technical equipment. What you see in certain geographies, some pressure on wages as well, and particularly in markets where you are more linked to a certain local content percentage or certain local content value that you need to be delivering. These are having costs, but I think that they are staying in line with what we expected. It has not gone completely crazy yet, so we're actually quite pleased on how we've been able to manage that.

pretty high pressure on any environment.

Yeah, no I think it is fair to say that I mean the world of course experienced inflation in general. On top of that we have an extremely hot market. It is something that we see reflected in pricing that we are getting from OEMs, so particularly the drilling technical equipment. What you see in certain geographies.

some pressure on wages as well and particularly in markets where you are more linked to a certain local content percentage or so certain local content value that you need to be delivering. So these are having costs, but I think that they are staying in line with what we expected. It has not gone...

Patrick Schorn: Although I would have to say that if there are another 30 to 40 rigs that are coming in certain geographies to work, that obviously is going to put more pressure on the human aspect. This is where we have been focusing a lot to make sure that we have the appropriate technical personnel on our rigs, so that when we start, we also can start with the appropriate performance and having the technical uptime and economic uptime at very high levels as if these rigs were working for a long time instead of being recently activated. I think that we feel that we're in a very decent position, and we will have to see how we manage the hot market going forward.

completely crazy yet so we're actually quite pleased on how we've been able to manage that although I would have to say that if there are another 30 to 40 rigs that are coming in certain geographies to work that obviously is going to put more pressure on the human aspect and this is where we have been focusing a lot to make sure that we have.

the appropriate technical personnel on our rigs so that when we start we also can start with the proper performance and having the technical uptime and economic uptime at very high levels as if these rigs were working for a long time instead of being recently activated. So I think that we feel that we're in a very decent position.

Patrick Schorn: It has our attention, but it has not been something that has come to any levels where it creates unmanageable stress at this moment.

and we will have to see how we manage the hot market going forward. But it has our attention, but it has not been something that has come to any levels where it creates unmanageable stress at this moment.

Truls Olsen: Okay. Thank you. Just jumping to the refinancing, and perhaps Magnus is the right one for this one. Anyways, talking about accelerating the global refi, should we think about this as more a H2 2023 event rather than 2024 by the looks of it, even perhaps Q3? Is that pushing it a bit?

Okay, thank you. Just jumping to the refinancing and perhaps Magnus is the right one for this one, but anyways talking about accelerating the global refi, should we think about this as more a second half of 23 events rather than 24 by the looks of it even perhaps the third quarter, is that pushing it to?

Magnus Vaaler: I think, like we said, I think we are doing all we can now to prepare ourselves for the best and optimal timing, and use the windows as they arise. We've seen very positive movements in the financial markets, or in the financing of our industry peers recently and seen the interest for the industry. I think it's a good time for finding financing. Exactly what the timing of the financing will be is obviously difficult to say. We will put in place the processes now to be ready as soon as we can, yeah.

a bit.

I think we are doing all we can to prepare ourselves for the best and optimal timing and use the windows as they arise. We have seen very positive movements in the financial markets.

financing of our industry peers recently and in the interest for the industry. So I think it's a good time for finding financing. So exactly what the timing of the financing will be is obviously difficult to say, but we will put in place the processes now to be ready.

Truls Olsen: Yeah. Okay. Thank you. Final for me, if I may, though, just a quick one on consolidation. Obviously a lot's been going on. There's still a few things to be done in that regard, perhaps. I don't know. What's your thought here, Patrick?

as soon as we can. Yeah, okay. Thank you. And finally for me, if I may, though, just a quick one on consolidation. Obviously a lot's been going on. There's still a few things to be done in that regard, perhaps. I don't know, what's your thought here, Patrick?

Patrick Schorn: Yeah, no, I mean, I didn't expect that we would be passing this call with not a question about that. I think that there is still opportunities out there. For us, a few things have been absolutely key. We have a set of equipment that is working very well for us and allows us to perform at very high levels. Whatever we would do, when you think about consolidation or any type of M&A type of work, we would want that to be safeguarded. Whatever we need to do needs to be with assets that are of similar nature as ours, obviously to keep that performance on where it needs to be.

Yeah, no, I mean, I didn't expect that we would be passing this call with not a question about that.

And I think that there is still opportunities out there. For us, it has been a few things have been absolutely key. We have a set of equipment.

opportunities out there. For us it has been a few things have been absolutely key. We have a set of equipment that is

working very well for us and allows us to perform at very high levels. So whatever we would do when you think about consolidation or any type of M&A type of work, we would want that to be safeguarded. So whatever we do needs to be with assets that are of similar nature as ours. Obviously to keep that performance and where it needs to be.

Patrick Schorn: Secondly, we've also been very clear that it is extremely important to us that we are continuing our focus on the refi and therefore the ability to return cash to shareholders. If we would consider any of these type of activities, we would very well keep in mind that we safeguard as much as we can the dividends provision to the shareholders. Therefore, the structure that we would need to have on anything that would be looking like M&A, it would require to be in a position to really start generating cash on an extremely short basis, because otherwise for us, it doesn't matter. I think that what we are saying is that at 24 rigs, we have a great business of a great size. There's only very specific types of M&A that for us would ever be a possibility.

Secondly, we've also been very clear that it is extremely important to us that we are continuing our focus on the refi and therefore the ability to return cash to shareholders.

So if we would consider any of these type of activities we would very well keep in mind that we safeguard as much as we can the dividend provision to the shareholders so therefore the structure that we would need to have on anything that would be looking like M&A it would require to be in a position to

really start generating cash on an extremely short basis because otherwise for us it doesn't matter and I think that what we are saying is that at 24 rigs we have a great business of a great size. So there's only very specific types of emanated for us would ever be.

Patrick Schorn: I think the value that is in M&A, if you wanna look at it from that point of view, we are sold out, and we are able to really get a very good value for the rigs that we have. From that perspective, obviously we see that as a key capability that we would like to exploit as much as we can. From that point, we are looking at things that could be possible. Like I said, we have a very strong commitment to the dividend distribution at a short, with a very short timeframe, and that's what we will stay true to.

possibility. I think the value that is in M&A, if you want to look at it from that point of view, we are sold out and we are able to really get a very good value for the rigs that we have. So from that perspective obviously we see that as a key capability.

that we would like to exploit as much as we can. But from that point we are looking at things that could be possible but like I said we have a very strong commitment to the dividend distribution with a very short time frame and that's what we will stay true to.

Truls Olsen: Okay. Good. Thank you guys for taking my questions.

Patrick Schorn: Very good. Thank you, Truls.

Thank you guys for taking my questions. Very good. Thank you, Charles. Thank you. And I'm not showing any further questions and we'll pass it back to our CEO , Mr. Sean, for his final remarks.

Operator: Thank you. I'm not showing any further questions, and we'll pass it back to our CEO, Mr. Schorn, for his final remarks.

Patrick Schorn: Very good. I think that we had a very good round of questions. Thank you very much for your attention and interest in Borr Drilling, and we look forward to speaking to you again soon. Thank you very much.

Very good. I think that we have had a very good round of questions. Thank you very much for your attention and interest in board drilling. We look forward to speaking to you again soon. Thank you very much.

Operator: With that, ladies and gentlemen, thank you for participating, and you may now disconnect.

And with that ladies and gentlemen, thank you for participating and you may now disconnect.

You.

Will.

And.

You.

Q1 2023 Borr Drilling Limited Earnings Call

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