UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
May 23, 2024
___________________________
Commission File Number: 001-39007
____________________________________________
Borr Drilling Limited
____________________________________________
S.E. Pearman Building
2
nd
Floor 9 Par-la-Ville Road
Hamilton HM11 Bermuda
+1 (441) 542-9234
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F Yes No
-------------------------------------------------------------------------------
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Included in this Report on Form 6-K is our Unaudited Interim Financial Report
for the three months ended March 31, 2024.
The information contained in this Report on Form 6-K is hereby incorporated by
reference into the Company's registration statement on Form F-3 Registration
Number 333-266328) which was filed with the U.S. Securities and Exchange
Commission (the "Commission") on July 26, 2022, and into each prospectus
outstanding under the foregoing registration statement, to the extent not
superseded by documents or reports subsequently filed or furnished by the
Company under the Securities Act of 1933, or the Securities Exchange Act of
1934.
Exhibits
99.1 Unaudited Interim Financial Report as of and for the three months ended
March 31, 2024
-------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Borr Drilling Limited
(Registrant)
By: /s/ Magnus Vaaler
Name: Magnus Vaaler
May 23, 2024 Title: Principal Financial Officer
-------------------------------------------------------------------------------
UNAUDITED INTERIM FINANCIAL REPORT
Forward-Looking Statements
This document and any other written or oral statements made by us in
connection with this document include forward-looking statements that involve
risks and uncertainties. All statements other than statements of historical
facts are forward-looking statements. These forward-looking statements are
made under the "safe harbor" provisions of the U.S. Private Securities
Litigation Reform Act of 1995.
You can identify these forward-looking statements by words or phrases such as
"may," "will," "expect," "estimate," "intend," "plan," "believe," "likely to"
"should," "continue" or other similar expressions. These forward-looking
statements include statements about plans, objectives, goals, strategies,
future events or performance, outlook, prospects and trends, including market
outlook, contract backlog, expected contracting and operation of our jack-up
rigs, drilling contracts, options, expected trends in dayrates, market
conditions statements about dividends and share buybacks, statements with
respect to newbuilds, including expected delivery dates, including activity
levels in the jack-up rig and oil industry, expected impact of statements by
Saudi Aramco, expected Adjusted EBITDA and expected increase in Adjusted
EBITDA, expected demand for and utilization of rigs and other non-historical
statements.
These forward-looking statements are not statements of historical facts and
are based upon current estimates, expectations, beliefs and various
assumptions, many of which are based, in turn, upon further assumptions. These
statements involve significant known and unknown risks, uncertainties,
contingencies and factors that are difficult or impossible to predict and are
beyond our control, and that may cause our actual results, performance,
financial results, position or achievements to be materially different from
those expressed or implied by the forward-looking statements. Numerous factors
could cause our actual results, level of activity, performance or achievements
to differ materially from the results, level of activity, performance or
achievements expressed or implied by these forward-looking statements
including: risks relating to our industry and business, including risks
relating to industry conditions and tendering activity, risks relating to
customer demand and contracting activity and suspension of operations, the
risk of delays in payments to our joint ventures and consequent payments to
us, the risk that our customers do not comply with their contractual
obligations, risks relating to our liquidity, including the risk that we may
not be able to meet our liquidity requirements from cash flows from operations
or through issuance of additional debt or equity or sale of assets, risks
relating to our loan agreements, including our super senior revolving credit
facility and other debt instruments, our senior secured bonds due in 2028 and
2030, our convertible notes due in 2028 and rig purchase and finance
contracts, including risks relating to our ability to comply with covenants
under our super senior revolving credit facility and other debt instruments
and obtain any necessary waivers and the risk of cross defaults, risks
relating to our ability to meet repayment obligations under senior secured
notes due in 2028 and 2030, our convertible bonds and obligations under rig
purchase and finance contracts and our other obligations as they fall due,
including amortization payments, excess cash repayment offers and payments due
at maturity, risks relating to future financings including the risk that
future financings may not be completed when required and future equity and
convertible debt financings will dilute shareholders and the risk that the
foregoing would result in insufficient liquidity to continue our operations,
risks relating to our newbuild purchase and financing agreements, risks
related to climate change, including climate-change or greenhouse gas related
legislation or regulations and the impact on our business from climate-change
related physical changes or changes in weather patterns, and the potential
impact of new regulations relating to climate change and the potential impact
on the demand for oil and gas, risks relating to military actions including in
Ukraine and the Middle East and their impact on our business and industry, and
other risks described in Part. I of "Item 3.D. Risk Factors" of our most
recent Annual Report on Form 20-F and other filings with the Commission.
The foregoing factors that could cause our actual results to differ materially
from those contemplated in any forward-looking statement included in this
report should not be construed as exhaustive. Any forward-looking statements
that we make in this report speak only as of the date of such statements and
we caution readers of this report not to place undue reliance on these
forward-looking statements. Except as required by law, we undertake no (and
expressly disclaim any) obligation to update or revise any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made.
-------------------------------------------------------------------------------
Exhibit 99.1
Management Discussion and Analysis of Financial Condition and Results of
Operation
The following is a discussion of our financial condition and results of
operations for the three months ended March 31, 2024 and 2023. Unless the
context indicates otherwise, the "Company," the "Registrant," "we," "us,"
"our," and words of similar nature, all refer to Borr Drilling Limited and its
consolidated subsidiaries. Unless otherwise indicated, all references to "USD"
and "$" in this report are to U.S. dollars. You should read the following
discussion and analysis together with the financial statements and related
notes included elsewhere in this report. For additional information, including
definitions of certain terms used herein, please see Item 5 of our annual
report on Form 20-F for the year ended December 31, 2023, which was filed with
the Commission on March 27, 2024.
Overview
We are an offshore shallow-water drilling contractor providing worldwide
offshore drilling services to the oil and gas industry. Our primary business
is the ownership, contracting and operation of jack-up rigs for operation in
shallow-water areas (i.e., in water depths up to approximately 400 feet),
including the provision of related equipment and work crews to conduct oil and
gas drilling and workover operations for exploration and production customers.
As of March 31, 2024, we had 22 premium jack-up rigs and had agreed to
purchase two additional premium jack-up rigs under construction.
Recent Developments
Issuance of Additional Senior Secured Notes Due 2028
In March 2024, we issued $200.0 million principal amount of additional 10%
Senior Secured Notes due in 2028 under the same terms and conditions as the
$1,025.0 million Senior Secured Notes due 2028 issued in November 2023.
Contracting Update
In April 2024, we received a notice of temporary suspension of operations for
the rig "Arabia I" operating in Saudi Arabia for a period of up to 12 months,
expected to commence in the second quarter of 2024. We intend to seek
alternative engagement for the rig while on suspension.
Operating and Financial Review
Set forth below is selected financial information for the three months ended
March 31, 2024 and 2023.
Three months ended March 31,
In $ millions 2024 2023 Change % Change
Total operating revenues 234.0 172.0 62.0 36 %
Gain on disposal 0.2 0.1 0.1 100 %
Rig operating and maintenance expenses (104.0) (85.5) (18.5) 22 %
Depreciation of non-current assets (31.8) (28.2) (3.6) 13 %
General and administrative expenses (13.4) (12.4) (1.0) 8 %
Total operating expenses (149.2) (126.1) (23.1) 18 %
Operating income 85.0 46.0 39.0 85 %
Income from equity method investments 5.4 2.4 3.0 125 %
Total financial expenses, net (57.8) (40.5) (17.3) 43 %
Income before income taxes 32.6 7.9 24.7 313 %
Income tax expense (18.2) (15.3) (2.9) 19 %
Net income / (loss) 14.4 (7.4) 21.8 (295) %
Three months ended March 31, 2024 compared with the three months ended March
31, 2023
Net income / (loss):
Net income increased by $21.8 million to net income of $14.4 million for the
three months ended March 31, 2024 compared to a net loss of $7.4 million in
the same period in 2023. The increase in net income is primarily a result of
an increase in total operating revenue and income from equity method
investments, offset in part by an increase in rig operating and maintenance
expenses, depreciation of non-current assets and income tax expense, as
discussed below.
Total operating revenues:
Total operating revenues increased by $62.0 million to $234.0 million for the
three months ended March 31, 2024 compared to $172.0 million for the same
period in 2023. The increase is a result of an increase in dayrate revenue of
$56.6 million, of which $30.2 million is attributable to an increase in the
number of rigs in operation, $23.1 million is attributable an increase in
average dayrates and $3.3 million is attributable to other revenue, which is
primarily comprised of amortization of deferred mobilization and demobilization
revenue and reimbursable revenue. The increase in total operating revenues
also includes an increase in bareboat charter revenue of $11.3 million
attributable to the execution of new fixed bareboat charter agreements for two
of our rigs with an external party during the quarter ended March
-------------------------------------------------------------------------------
31, 2024, offset by a decrease in related party revenue of $5.9 million which
is driven by the fact that the two rigs earning bareboat charter revenue
during the quarter were previously earning related party revenue.
Gain on disposal:
Gain on disposal was $0.2 million for the three months ended March 31, 2024
compared to $0.1 million for the same period in 2023. The gain on disposal for
the three months ended March 31, 2024 and 2023 relate to the sale of scrap
assets.
Rig operating and maintenance expenses:
Rig operating and maintenance expenses increased by $18.5 million to $104.0
million for the three months ended March 31, 2024 compared to $85.5 million
for the same period in 2023. The increase is primarily a result of an increase
in the number of rigs in operation and number of operating days.
Depreciation of non-current assets:
Depreciation of non-current assets increased by $3.6 million to $31.8 million
for the three months ended March 31, 2024, compared to $28.2 million for the
same period in 2023. The increase is primarily a result of an increase of $2.2
million associated with the increase in the asset base due to additions for
the jack-up rigs Arabia III and Hild and an increase of $1.4 million related
to long-term maintenance projects due to additions for the jack-up rigs
Prospector 1 and Ran.
General and administrative expenses:
General and administrative expenses increased by $1.0 million to $13.4 million
for the three months ended March 31, 2024 compared to $12.4 million for the
same period in 2023. The increase is primarily comprised of a $1.9 million
increase in personnel and associated personnel tax expense as well as various
insignificant movements associated with general corporate activities, offset
in part by a $1.6 million decrease in stock base compensation expense and
associated social security expense associated with our employee share option
plan.
Income from equity method investments
: Income from equity method investments increased by $3.0 million to $5.4
million for the three months ended March 31, 2024 compared to $2.4 million for
the same period in 2023. The increase is primarily a result of a decrease of
$7.5 million in income tax expense, partially offset by an increase of $4.0
million in net foreign exchange losses.
Total financial expenses, net
: Total financial expenses, net, increased by $17.3 million to $57.8 million
for the three months ended March 31, 2024 compared to $40.5 million for the
same period in 2023. The increase is principally due to an increase of $10.4
million in interest expense, primarily related to an increase in interest
expense recognized on our $1,025.0 million 2028 Notes and $515.0 million 2030
Notes issued in November 2023 and $200.0 million Additional 2028 Notes issued
in March 2024, offset by the decrease in interest expense related to our
Hayfin Facility, PPL and Keppel Delivery Financing and DNB Facility, which
were fully repaid in November 2023. In addition, the total increase includes a
$3.7 million increase in net foreign exchange losses, a $2.3 million increase
in relation to the premium paid on Convertible Bonds the Company repurchased
in March 2024 as well as a $1.0 million decrease in interest income.
Income tax expense:
Income tax expense increased by $2.9 million to $18.2 million for the three
months ended March 31, 2024, compared to $15.3 million for the same period in
2023. The overall increase is principally due to a $3.2 million utilization of
deferred tax assets offset by a decrease of $0.3 million in corporate income
tax expense.
Adjusted EBITDA:
Adjusted EBITDA increased by $42.6 million to $116.8 million for the three
months ended March 31, 2024 compared to $74.2 million for the same period in
2023. Adjusted EBITDA is a non-GAAP measure. We present Adjusted EBITDA
because we believe this measure increases comparability of underlying business
performance from period to period and may be used to more easily compare our
performance to other companies. Set forth below is how we calculate Adjusted
EBITDA and a reconciliation of Adjusted EBITDA to net income / (loss) for the
periods presented. See "Non-GAAP Financial Measures".
Three months ended March 31,
In $ millions 2024 2023 Change % Change
Net income / (loss) 14.4 (7.4) 21.8 (295) %
Depreciation of non-current assets 31.8 28.2 3.6 13 %
Income from equity method investments (5.4) (2.4) (3.0) 125 %
Total financial expenses, net 57.8 40.5 17.3 43 %
Income tax 18.2 15.3 2.9 19 %
Adjusted EBITDA 116.8 74.2 42.6 57 %
Liquidity and Capital Resources
Historically, we have met our liquidity needs principally from offerings of
equity, convertible bonds and secured bonds, available funds under our
financing arrangements and secured loan facilities, including the shipyard
delivery financing arrangements related to our newbuild rigs and revolving
credit facilities, cash generated from operations, and sale of non-core assets.
As of March 31, 2024, we had $282.7 million in cash and cash equivalents and
$0.3 million in restricted cash.
During the year ended December 31, 2023, in connection with our Convertible
Bonds, the Company entered into a share lending agreement with the intention
of making up to 25.0 million common shares available to lend to DNB for the
purposes of allowing the holders of the Convertible Bonds to perform hedging
activities on the Oslo Stock Exchange.
-------------------------------------------------------------------------------
As of March 31, 2024, 14,446,337 shares have been issued to DNB Markets by the
Company under the share lending agreement for the purpose of allowing the
Convertible Bond holders to perform hedging activities on the Oslo Stock
Exchange. For more information see Note 22 - Common Shares.
Cash Distribution
In December 2023, the Company announced that its Board of Directors approved a
cash distribution of $0.05 per share for the third quarter of 2023. The cash
distribution was paid on January 22, 2024, to shareholders of record at close
of business on January 3, 2024.
In addition, in February 2024, the Company announced that its Board of
Directors approved a cash distribution of $0.05 per share for the fourth
quarter of 2023. The cash distribution was paid on March 18, 2024, to
shareholders of record at close of business on March 4, 2024.
Borrowing Activities
As of March 31, 2024, we had total principal amount of debt outstanding of
$1,979.4 million, of which $114.6 million matures in 2024.
Repurchase of $10.6 million Unsecured Convertible Bonds due 2028
In February 2023 we issued $250.0 million unsecured convertible bonds due in
February 2028. The Convertible Bonds have a coupon of 5.0% per annum payable
semi-annually in arrears in equal installments. In March 2024, we repurchased
$10.6 million principal amount of Convertible Bonds.
Following the payment of a $0.05 per share cash distribution in January 2024
and a further $0.05 per share cash distribution in March 2024, the adjusted
conversion price is $7.2384 per share, with the current amount of the
convertible bonds convertible into
33,073,607
shares.
The Company and its subsidiaries may from time to time further repurchase or
otherwise trade in its own debt in open market or privately negotiated
transactions or otherwise.
Issuance of Additional 10% Senior Secured Notes Due 2028
In March 2024, we issued $200.0 million principal amount of additional 10%
Senior Secured Notes due in 2028 under the same terms and conditions as the
$1,025.0 million Senior Secured Note due 2028 issued in November 2023.
Cash Flows
The table below sets forth cash flow information for the periods presented.
Three months ended March 31,
In $ millions 2024 2023 Change % Change
Net cash provided by / (used in) operating activities 23.9 (8.2) 32.1 (391) %
Net cash used in investing activities (18.7) (29.0) 10.3 (36) %
Net cash provided by financing activities 175.2 177.4 (2.2) (1) %
Net increase in cash and cash equivalents and restricted cash 180.4 140.2 40.2 29 %
Cash and cash equivalents and restricted cash at beginning of period 102.6 118.5 (15.9) (13) %
Cash and cash equivalents and restricted cash at end of period 283.0 258.7 24.3 9 %
Net cash provided by / (used in) operating activities increased by $32.1
million to net cash provided by operations of $23.9 million for the three
months ended March 31, 2024, compared to net cash used in operations of $8.2
million for the same period in 2023, primarily due to the increase in number
of operating rigs, increase in average dayrates and associated cash receipts
from contract drilling services partially offset by cash expenditures for
contract drilling services and the timing of working capital movements.
Net cash used in investing activities of $18.7 million for the three months
ended March 31, 2024 is comprised of $15.2 million in additions to jack-up
rigs and $3.3 million in additions to newbuildings, primarily as a result of
activation, reactivation and special periodic survey ("SPS") costs and $0.2
million in purchases of property, plant and equipment.
Net cash used in investing activities of $29.0 million for the three months
ended March 31, 2023 is comprised of $28.8 million in additions to
jack-up rigs, primarily as a result of activation and reactivation costs and
$0.2 million in purchases of property, plant and equipment
Net cash provided by financing activities of $175.2 million for the three
months ended March 31, 2024 is comprised of:
.
$208.3 million net proceeds from our additional senior secured notes due in
2028 issued in March 2024;
.
$1.3 million proceeds from the exercise of share options; offset by
.
$23.8 million in cash distributions to shareholders; and
.
$10.6 million associated with the repurchase of our Convertible Bonds in March
2024.
Net cash provided by financing activities of $177.4 million for the three
months ended March 31, 2023 is comprised of:
-------------------------------------------------------------------------------
.
$391.3 million net proceeds from our New Convertible Bonds and Senior Secured
Bonds issued in February 2023; offset by
.
$213.9 million of repayments of debt including $177.8 million related to our
Convertible Bonds due in May 2023.
Cash interest paid was $6.3 million for the three months ended March 31, 2024
and $29.5 million for the same period in 2023 and is included in net cash used
in operating activities.
Non-GAAP Financial Measures
In addition to disclosing financial results in accordance with U.S. GAAP, this
report includes the non-GAAP financial measure, Adjusted EBITDA. We believe
that this non-GAAP financial measure provides useful supplemental information
about the financial performance of our business, enables comparison of
financial results between periods where certain items may vary independent of
business performance, and allows for greater transparency with respect to key
metrics used by management in operating our business and measuring our
performance.
The non-GAAP financial measure should not be considered a substitute for, or
superior to, financial measures calculated in accordance with GAAP, and the
financial results calculated in accordance with GAAP. Non-GAAP measures are
not uniformly defined by all companies and may not be comparable with
similarly titled measures and disclosures used by other companies.
During the three months ended March 31, 2024, the Company changed its
definition of Adjusted EBITDA to exclude the adjustment for amortization of
deferred mobilization and contract preparations costs as well as the
adjustment for amortization of deferred mobilization, demobilization and other
revenue. We believe that this change will enable us to be more closely aligned
with the calculation methodology used by many of our industry peers. Adjusted
EBITDA for all periods presented has been updated as per the definition below.
Non-GAAP Measure Closest Equivalent Definition Rationale for Presentation
to GAAP Measure of this non-GAAP Measure
Adjusted EBITDA Net income / (loss) Net income / (loss) adjusted for: Increases the comparability of
attributable to depreciation of non-current total business performance from
shareholders of Borr assets; income period to period and against the
Drilling Limited from equity method performance of other companies
investments; total by excluding the results of
financial expenses, our equity investments and
net; and income tax. removing the impact of depreciation,
financing and tax items.
We believe that Adjusted EBITDA improves the comparability of period-to-period
results and is representative of our underlying performance, although Adjusted
EBITDA has significant limitations, including not reflecting our cash
requirements for capital or deferred costs, rig reactivation costs, newbuild
rig activation costs, contractual commitments, taxes, working capital or debt
service. Non-GAAP financial measures may not be comparable to similarly titled
measures of other companies and have limitations as analytical tools and
should not be considered in isolation or as a substitute for analysis of our
operating results as reported under U.S. GAAP.
-------------------------------------------------------------------------------
Borr Drilling Limited
Index to the Unaudited Condensed Consolidated Financial Statements
Page
Unaudited Condensed Consolidated Statements of Operations 1
for the three months ended March 31, 2024 and 2023
Unaudited Condensed Consolidated Balance Sheets 2
as of March 31, 2024 and December 31, 2023
Unaudited Condensed Consolidated Statements of Cash Flows 3
for the three months ended March 31, 2024 and 2023
Unaudited Condensed Consolidated Statements of Changes in Shareholders' 4
Equity for the three months ended March 31, 2024 and 2023
Notes to the Unaudited Condensed Consolidated Financial Statements 5
-------------------------------------------------------------------------------
Borr Drilling Limited
Unaudited Condensed Consolidated Statements of Operations
(In $ millions except share and per share data)
Notes Three months ended Three months ended
March 31, 2024 March 31, 2023
Operating revenues
Dayrate revenue 4 198.3 141.7
Related party 4, 20 24.4 30.3
revenue
Bareboat charter 14 11.3 -
revenue
Total operating 234.0 172.0
revenues
Gain on 0.2 0.1
disposals
Operating expenses
Rig operating and (104.0) (85.5)
maintenance expenses
Depreciation of 13 (31.8) (28.2)
non-current assets
General and (13.4) (12.4)
administrative expenses
Total operating (149.2) (126.1)
expenses
Operating income 85.0 46.0
Income from equity 6 5.4 2.4
method investments
Financial income
(expenses), net
Interest income 1.4 2.4
Interest expense 7 (49.0) (38.6)
Other financial 8 (10.2) (4.3)
expenses, net
Total financial (57.8) (40.5)
expenses, net
Income before 32.6 7.9
income taxes
Income tax 9 (18.2) (15.3)
expense
Net income / (loss) attributable to 14.4 (7.4)
shareholders of Borr Drilling Limited
Total comprehensive income / (loss) attributable 14.4 (7.4)
to shareholders of Borr Drilling Limited
Basic income / 10 0.06 (0.03)
(loss) per share
Diluted income / 10 0.06 (0.03)
(loss) per share
Weighted-average shares 10 252,718,525 234,781,420
outstanding - basic
Weighted-average shares 10 256,565,237 234,781,420
outstanding - diluted
1
-------------------------------------------------------------------------------
Borr Drilling Limited
Unaudited Condensed Consolidated Balance Sheets
(In $ millions)
Notes March 31, 2024 December 31, 2023
ASSETS Unaudited Audited
Current assets
Cash and cash equivalents 282.7 102.5
Restricted cash 0.3 0.1
Trade receivables, net 61.3 56.2
Prepaid expenses 15.5 11.0
Deferred mobilization and contract preparation costs 5 38.9 39.4
Accrued revenue 5 108.6 73.7
Due from related parties 20 98.2 95.0
Other current assets 11 28.5 32.0
Total current assets 634.0 409.9
Non-current assets
Property, plant and equipment 3.4 3.5
Newbuildings 12 12.9 5.4
Jack-up drilling rigs, net 13 2,556.9 2,578.3
Equity method investments 6 21.1 15.7
Other non-current assets 15 60.8 67.3
Total non-current assets 2,655.1 2,670.2
Total assets 3,289.1 3,080.1
LIABILITIES AND EQUITY
Current liabilities
Trade payables 39.0 35.5
Accrued expenses 16 66.8 77.0
Short-term accrued interest and other items 84.3 42.3
Short-term debt 18 97.8 82.9
Short-term deferred mobilization, demobilization and other revenue 5 56.1 59.5
Other current liabilities 17 52.2 63.2
Total current liabilities 396.2 360.4
Non-current liabilities
Long-term debt 18 1,799.0 1,618.8
Long-term deferred mobilization, demobilization and other revenue 5 44.3 56.6
Other non-current liabilities 5.5 5.8
Onerous contracts 54.5 54.5
Total non-current liabilities 1,903.3 1,735.7
Total liabilities 2,299.5 2,096.1
Shareholders' Equity
Common shares of par value $0.10 per share: authorized 315,000,000 (2023:315,000,000) shares, issued 22 26.5 26.5
264,080,391 (2023: 264,080,391) shares and outstanding 252,996,439 (2023: 252,582,036) shares
Treasury shares (8.8) (8.9)
Additional paid 340.2 337.2
in capital
Contributed 1,976.2 1,988.1
surplus
Accumulated (1,344.5) (1,358.9)
deficit
Total equity 989.6 984.0
Total liabilities 3,289.1 3,080.1
and equity
2
-------------------------------------------------------------------------------
Borr Drilling Limited
Unaudited Condensed Consolidated Statements of Cash Flows
(In $ millions)
Notes Three months ended Three months ended
March 31, 2024 March 31, 2023
Cash flows from
operating activities
Net income 14.4 (7.4)
/ (loss)
Adjustments to reconcile net income / (loss) to net
cash provided by / (used in) operating activities:
Non-cash compensation expense related to stock 1.8 1.3
based employee and directors' compensation
Depreciation of 13 31.8 28.2
non-current assets
Amortization of deferred mobilization 14.7 13.6
and contract preparation costs
Amortization of deferred mobilization, (26.2) (15.4)
demobilization and other revenue
Gain on disposal (0.2) (0.1)
of assets
Amortization of 7 1.7 -
debt discount
Amortization of 7 (0.1) -
debt premium
Amortization of deferred 7 2.7 1.8
finance charges
Effective interest - (1.7)
rate adjustments
Income from equity 6 (5.4) (2.4)
method investments
Deferred 9 (3.1) (0.1)
income tax
Change in assets
and liabilities:
Amounts due to/from (3.2) (6.6)
related parties
Accrued expenses (9.3) (1.7)
Accrued interest 35.1 14.5
Other current and (45.8) (18.3)
non-current assets
Other current and 15.0 (13.9)
non-current liabilities
Net cash provided by / (used 23.9 (8.2)
in) operating activities
Cash flows from
investing activities
Purchase of property, (0.2) (0.2)
plant and equipment
Additions to (3.3) -
newbuildings
Additions to jack-up (15.2) (28.8)
drilling rigs
Net cash used in (18.7) (29.0)
investing activities
Cash flows from
financing activities
Repayment 18 (10.6) (213.9)
of debt
Cash dividends (23.8) -
paid
Debt proceeds, gross of premium / 18 208.3 391.3
(net of discount) and issuance costs
Proceeds from exercise 1.3 -
of share options
Net cash provided by 175.2 177.4
financing activities
Net increase in cash, 180.4 140.2
cash equivalents and
restricted cash
Cash, cash equivalents and restricted 102.6 118.5
cash at the beginning of the period
Cash, cash equivalents and restricted 283.0 258.7
cash at the end of the period
Supplementary disclosure
of cash flow information
Interest paid (6.3) (29.5)
Income (12.8) (10.0)
taxes paid
(In $ millions) March 31, 2024 December 31, 2023
Cash and cash equivalents 282.7 102.5
Restricted cash 0.3 0.1
Total cash and cash equivalents and restricted cash 283.0 102.6
3
-------------------------------------------------------------------------------
Borr Drilling Limited
Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity
(In $ millions except share data)
Number of Common Treasury Additional paid Contributed Accumulated Total equity
outstanding shares shares shares in capital Surplus deficit
Balance as at 228,948,087 23.0 (9.8) 2,265.6 - (1,381.0) 897.8
December 31, 2022
Issue of 15,000,000 2.5 (1.0) - - - 1.5
common shares
Convertible debt - - - 10.9 - 10.9
issuance cost
Share-based - - - 1.3 - - 1.3
compensation
Total comprehensive - - - - - (7.4) (7.4)
loss
Balance as at 243,948,087 25.5 (10.8) 2,277.8 - (1,388.4) 904.1
March 31, 2023
Number of Common Treasury Additional paid Contributed Accumulated Total equity
outstanding shares shares shares in capital Surplus deficit
Balance as at 252,582,036 26.5 (8.9) 337.2 1,988.1 (1,358.9) 984.0
December 31, 2023
Issue of 3,067 - - - - - -
common shares
Share based 411,336 - 0.1 3.0 - - 3.1
compensation
Distribution to - - - - (11.9) - (11.9)
shareholders
Total comprehensive - - - - - 14.4 14.4
loss
Balance as at 252,996,439 26.5 (8.8) 340.2 1,976.2 (1,344.5) 989.6
March 31, 2024
4
-------------------------------------------------------------------------------
Borr Drilling Limited
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1 - General Information
Borr Drilling Limited was incorporated in Bermuda on August 8, 2016. We are
listed on the Oslo Stock Exchange ("OSE") and on the New York Stock Exchange
("NYSE") under the ticker "BORR". Borr Drilling Limited is an international
offshore drilling contractor providing services to the oil and gas industry.
Our primary business is the ownership, contracting and operation of modern
jack-up drilling rigs for operations in shallow-water areas (i.e., in water
depths up to approximately 400 feet), including the provision of related
equipment and work crews to conduct drilling of oil and gas wells and workover
operations for exploration and production customers. As of March 31, 2024, we
had 22 premium jack-up rigs and had agreed to purchase two additional premium
jack-up rigs under construction which are scheduled for delivery in the second
half of 2024.
As used herein, and unless otherwise required by the context, the terms
"Company," "Borr", "we," "Group," "our" and words of similar nature refer to
Borr Drilling Limited and its consolidated companies. The use herein of such
terms as "group", "organization", "we", "us", "our" and "its", or references
to specific entities, is not intended to be a precise description of corporate
relationships.
Note 2 - Basis of Preparation and Accounting Policies
Basis of preparation
The unaudited consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States ("U.S.
GAAP"). The unaudited consolidated financial statements do not include all of
the disclosures required under U.S. GAAP in the annual consolidated financial
statements, and should be read in conjunction with our audited annual
financial statements for the year ended December 31, 2023, which are included
in our annual report on Form 20-F for the fiscal year ended December 31, 2023,
filed with the Securities and Exchange Commission on March 27, 2024. The
Consolidated Balance Sheet data as of December 31, 2023 was derived from our
audited annual financial statements. The amounts are presented in millions of
United States dollars ("U.S. dollar" or "$"), unless otherwise stated. The
financial statements have been prepared on a going concern basis and in
management's opinion, all adjustments necessary for a fair presentation of the
financial statements are reflected in the interim periods presented.
Significant accounting policies
The accounting policies adopted in the preparation of the unaudited
consolidated financial statements for the three months ended March 31, 2024
are consistent with those followed in preparation of our annual audited
consolidated financial statements for the year ended December 31, 2023, except
for the revenue accounting policy which was updated as a result of the
execution of bareboat charter agreements with third-parties during the quarter
ended March 31, 2024.
Revenue
The Company performs services that represent a single performance obligation
under its drilling contracts. This performance obligation is satisfied over
time. The Company earns revenues primarily by performing the following
activities: (i) providing the drilling rig, work crews, related equipment and
services necessary to operate the rig (ii) delivering the drilling rig by
mobilizing to and demobilizing from the drilling location, and (iii)
performing certain pre-operating activities, including rig preparation
activities or equipment modifications required for the contract.
The Company recognizes revenues earned under drilling contracts based on
variable dayrates, which range from full operating dayrates to lower rates or
zero rates for periods when drilling operations are interrupted or restricted,
based on the specific activities performed during the contract. The total
transaction price is determined for each individual contract by estimating
both fixed and variable consideration expected to be earned over the firm term
of the contract and may include the blending of rates when a contract has
operating dayrates that change over the firm term of the contract. Such
dayrate consideration is attributed to the distinct time period to which it
relates within the contract term, and therefore is recognized as the Company
performs the services.
The Company recognizes revenues earned in relation to certain bareboat charter
agreements where we lease our owned rigs to third parties based on fixed daily
rates, which range from operating rates to stand-by rates or zero rates for
periods when drilling operations are interrupted or restricted, based on the
specific activities performed during the contract. The total transaction price
is determined for each individual contract by estimating both fixed and
variable consideration expected to be earned over the firm term of the
contract and may include the blending of rates when a contract has fixed daily
rates that change over the firm term of the contract. Such fixed daily rate
consideration is attributed to the distinct time period to which it relates
within the contract term, and therefore is recognized as the Company performs
the services.
The Company recognizes reimbursement revenues and the corresponding costs,
gross, at a point in time, as the Company provides the customer-requested
goods and services, when such reimbursable costs are incurred while performing
drilling operations. Reimbursable revenues are recognized in 'Dayrate revenue'
in the Consolidated Statement of Operations.
Prior to performing drilling operations, the Company may receive pre-operating
revenues, on either a fixed lump-sum or variable dayrate basis, for
mobilization, contract preparation, customer-requested goods and services or
capital upgrades or other upfront payments, which the Company recognizes over
time in line with the satisfaction of the performance obligation. These
activities are not considered to be distinct within the context of the
contract and therefore, the associated revenue is allocated to the overall
performance obligation and recognized ratably over the expected term of the
related drilling contract. We record a contract liability for mobilization
fees received, which is amortized ratably to dayrate revenue as services are
rendered over the initial term of the related drilling contract.
5
-------------------------------------------------------------------------------
We may receive fees (on either a fixed lump-sum or variable dayrate basis) for
the demobilization of our rigs. Demobilization revenue expected to be received
upon contract completion is estimated as part of the overall transaction price
at contract inception and recognized over the term of the contract. In most of
our contracts, there is uncertainty as to the likelihood and amount of
expected demobilization revenue to be received as the amount may vary
dependent upon whether or not the rig has additional contracted work following
the contract. Therefore, the estimate for such revenue may be constrained,
depending on the facts and circumstances pertaining to the specific contract.
We assess the likelihood of receiving such revenue based on past experience
and knowledge of the market conditions.
Use of estimates
The preparation of financial statements in accordance with U.S. GAAP requires
that management make estimates and assumptions affecting the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Note 3 - Recently Issued Accounting Standards
Adoption of new accounting standards
In June 2022, the Financial Accounting Standards Board ("FASB") issued ASU
2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions. The amendments clarify
that a contractual restriction on the sale of an equity security is not
considered part of the unit of account of the equity security and, therefore,
is not considered in measuring fair value. The amendments also clarify that an
entity cannot, as a separate unit of account, recognize and measure a
contractual sale restriction and require the following disclosures for equity
securities subject to contractual sale restrictions: 1) The fair value of
equity securities subject to contractual sale restrictions reflected in the
balance sheet; 2) The nature and remaining duration of the restriction(s) and
3) The circumstances that could cause a lapse in the restriction(s). These
amendments are effective for the Company from January 1, 2024. There was no
impact resulting from these amendments on our unaudited consolidated financial
statements or related disclosures as presented in this interim set of accounts
for the three months ended March 31, 2024.
In March 2023, the FASB issued ASU 2023-01 Leases (Topic 842): Common Control
Arrangements. The amendments provide a practical expedient for private
companies and not-for-profit entities that are not conduit bond obligors to
use the written terms and conditions of a common control arrangement to
determine whether a lease exists and, if so, the classification of and
accounting for that lease. If no written terms and conditions exist (including
in situations in which an entity does not document existing unwritten terms
and conditions in writing upon transition to the practical expedient), an
entity is prohibited from applying the practical expedient and must evaluate
the enforceable terms and conditions to apply Topic 842. Also, the amendments
require that leasehold improvements associated with common control leases be:
1) Amortized by the lessee over the useful life of the leasehold improvements
to the common control group (regardless of the lease term) as long as the
lessee controls the use of the underlying asset (the leased asset) through a
lease. However, if the lessor obtained the right to control the use of the
underlying asset through a lease with another entity not within the same
common control group, the amortization period may not exceed the amortization
period of the common control group; 2) Accounted for as a transfer between
entities under common control through an adjustment to equity (or net assets
for not-for-profit entities) if, and when, the lessee no longer controls the
use of the underlying asset. Additionally, those leasehold improvements are
subject to the impairment guidance in Topic 360, Property, Plant, and
Equipment. These amendments are effective for the Company from January 1,
2024. There was no impact resulting from these amendments on our unaudited
consolidated financial statements or related disclosures as presented in this
interim set of accounts for the three months ended March 31, 2024.
In March 2023, the FASB issued ASU 2023-02 Investments-Equity Method and Joint
Ventures (Topic 323): Accounting for Investments in Tax Credit Structures
Using the Proportional Amortization Method (a consensus of the Emerging Issues
Task Force). The amendments permit reporting entities to elect to account for
their tax equity investments, regardless of the tax credit program from which
the income tax credits are received, using the proportional amortization
method if certain conditions are met. Under the proportional amortization
method, an entity amortizes the initial cost of the investment in proportion
to the income tax credits and other income tax benefits received and
recognizes the net amortization and income tax credits and other income tax
benefits in the income statement as a component of income tax expense
(benefit). These amendments are effective for the Company from January 1,
2024. There was no impact resulting from these amendments on our unaudited
consolidated financial statements or related disclosures as presented in this
interim set of accounts for the three months ended March 31, 2024.
In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280):
Improvements to Reportable Segment Disclosures. The amendments in this Update
improve reportable segment disclosure requirements, primarily through enhanced
disclosures about significant segment expenses. The amendments in this Update:
1) Require that a public entity disclose, on an annual and interim basis,
significant segment expenses that are regularly provided to the Chief
Operating Decision Maker ("CODM") and included within each reported measure of
segment profit or loss; 2) Require that a public entity disclose, on an annual
and interim basis, an amount for other segment items by reportable segment and
a description of its composition; 3) Require that a public entity provide all
annual disclosures about a reportable segment's profit or loss and assets
currently required by Topic 280 in interim periods; 4) Clarify that if the
CODM uses more than one measure of a segment's profit or loss in assessing
segment performance and deciding how to allocate resources, a public entity
may report one or more of those additional measures of segment profit.
However, at least one of the reported segment profit or loss measures (or the
single reported measure, if only one is disclosed) should be the measure that
is most consistent with the measurement principles used in measuring the
corresponding amounts in the public entity's consolidated financial
statements; 5) Require that a public entity disclose the title and position of
the CODM and an explanation of how the CODM uses the reported measure(s) of
segment profit or loss in assessing segment performance and deciding how to
allocate resources; 6) Require that a public entity that has a single
reportable segment provide all the disclosures required by the amendments in
this Update and all existing segment disclosures in Topic 280. These
amendments are effective for the Company from January 1, 2024. There was no
impact resulting from these amendments on our unaudited consolidated financial
statements and no material impact on our related disclosures as presented in
this interim set of accounts for the three months ended March 31, 2024.
6
-------------------------------------------------------------------------------
Accounting pronouncements that have been issued but not yet adopted
Standard Description Date of Adoption Effect on our
Consolidated Financial
Statements or Other
Significant Matters
ASU 2023-05 Business The amendments in this Update January 1, 2025 Under evaluation
Combinations-Joint address the accounting
Venture Formations for contributions made
(Subtopic 805-60): Recognition to a joint venture, upon
and Initial Measurement formation, in a joint
venture's separate financial
statements. The objectives
of the amendments are to:
(1) provide decision-useful
information
to investors and
other allocators of
capital (collectively,
investors) in a
joint venture's financial
statements; and
(2) reduce diversity in practice.
To reduce diversity in practice
and provide decision-useful
information to a joint
venture's investors, the Board
decided to require that a joint
venture apply a new basis
of accounting upon formation,
resulting in a joint
venture, upon formation, being
required to recognize and
initially measure its assets
and liabilities at fair
value (with exceptions to fair
value measurement that are
consistent with the business
combinations guidance).
ASU 2023-09 Income The amendments in this Update require that January 1, 2025 Under evaluation
Taxes (Topic 740): public business entities on an annual basis
Improvements to Income (1) disclose specific categories in the rate
Tax Disclosures reconciliation and (2) provide additional
information for reconciling items that meet
a quantitative threshold (if the effect of
those reconciling items is equal to or greater
than 5 percent of the amount computed by
multiplying pretax income (or loss) by the
applicable statutory income tax rate). A public
business entity is required to provide an
explanation, if not otherwise evident, of the
individual reconciling items disclosed, such
as the nature, effect, and underlying causes
of the reconciling items and the judgment
used in categorizing the reconciling items.
The other amendments in this
Update improve the effectiveness
and comparability of
disclosures by (1) adding
disclosures of pretax income (or
loss) and income tax expense
(or benefit) to be consistent
with U.S. Securities and
Exchange Commission (SEC)
Regulation S-X 210.4-08(h),
Rules of General Application-General
Notes to Financial
Statements: Income Tax Expense,
and (2) removing disclosures
that no longer are considered
cost beneficial or relevant.
ASU 2024-01: Compensation-Stock The amendments in this Update improve January 1, 2025 Under evaluation
Compensation (Topic 718) GAAP by adding an illustrative example
to demonstrate how an entity should
apply the scope guidance in paragraph
718-10-15-3 to determine whether a profits
interest award should be accounted
for in accordance with Topic 718,
Compensation-Stock Compensation.
The fact patterns in the illustrative
example focus on the scope conditions
in paragraph 718-10-15-3. The illustrative
example is intended to reduce
(1) complexity in determining whether
a profits interest award is subject
to the guidance in Topic 718 and (2)
existing diversity in practice.
As of May 23, 2024, the FASB have issued further updates not included above.
We do not currently expect any of these updates to have a material impact on
our consolidated financial statements and related disclosures either on
transition or in future periods.
Note 4 - Segment Information
During the three months ended March 31, 2024 and March 31, 2023, we had a
single reportable segment: our operations performed under our dayrate model
(which includes rig charters and ancillary services). Our CODM, our Board of
Directors, reviews financial information provided as an aggregate sum of
assets, liabilities and activities that exist to generate cash flows, by our
single operating segment. Given that we only have a single reportable segment,
allocation of resources by our CODM is not determined by segment profit or
loss.
7
-------------------------------------------------------------------------------
The following presents financial information by segment for the three months
ended March 31, 2024:
Dayrate Reconciling Items Consolidated total
(2)
Dayrate revenue 253.4 (55.1) 198.3
Related party revenue - 24.4 24.4
Bareboat charter revenue 11.3 - 11.3
Gain on disposal - 0.2 0.2
Rig operating and maintenance expenses (158.3) 54.3 (104.0)
Depreciation of non-current assets (31.5) (0.3) (31.8)
(1)
General and administrative expenses - (13.4) (13.4)
(1)
Income from equity method investments - 5.4 5.4
Operating income including equity method investments 74.9 15.5 90.4
Total assets 3,590.9 (301.8) 3,289.1
The following presents financial information by segment for the three months ended March 31, 2023:
(in $ millions) Dayrate Reconciling Items Consolidated total
(2)
Dayrate revenue 217.8 (76.1) 141.7
Related party revenue - 30.3 30.3
Gain on disposal - 0.1 0.1
Rig operating and maintenance expenses (160.0) 74.5 (85.5)
Depreciation of non-current assets (27.8) (0.4) (28.2)
(1)
General and administrative expenses - (12.4) (12.4)
(1)
Income from equity method investments - 2.4 2.4
Operating income including equity method investments 30.0 18.4 48.4
Total assets 3,469.9 (307.7) 3,162.2
(1)
General and administrative expenses and depreciation expense incurred by our
corporate office are not allocated to our operating segment for purposes of
measuring segment operating income / (loss) and are included in "Reconciling
items."
(2)
The full operating results included above for our equity method investments
are not included within our consolidated results and thus are deducted under
"Rec
onciling items" and replaced with our income / (loss) from equity method
investments (see Note 6 - Equity Method Investments).
Geographic data
Revenues are attributed to geographical location based on the country of
operations for drilling activities, and thus the country where the revenues
are generated.
The following presents our revenues by geographic area:
Three months ended March 31, 2024 Three months ended March 31, 2023
Mexico 66.2 39.5
South East Asia 64.1 51.9
Middle East 61.5 30.6
West Africa 35.4 43.4
Europe 6.8 6.6
Total 234.0 172.0
8
-------------------------------------------------------------------------------
Major customers
The following customers accounted for more than 10% of our dayrate and related
party revenues:
Three months ended March 31, 2024 Three months ended March 31, 2023
(In % of operating revenues)
Saudi Arabian Oil Company 16 % 13 %
Perfomex 11 % 18 %
ENI Congo S.A. 11 % 15 %
Total 38 % 46 %
Fixed Assets - Jack-up rigs
(1)
The following presents the net book value of our jack-up rigs by geographic
area:
March 31, 2024 December 31, 2023
(In $ millions)
Mexico 806.5 815.4
South East Asia 668.3 673.4
Middle East 548.1 553.0
West Africa 443.1 444.8
Europe 90.9 91.7
Total 2,556.9 2,578.3
(1)
The fixed assets referred to in the table above excludes assets under
construction. Asset locations at the end of a period are not necessarily
indicative of the geographical distribution of the revenues or operating
profits generated by such assets during the associated periods.
Note 5 - Contracts with Customers
Contract Assets and Liabilities
When the right to consideration becomes unconditional based on the contractual
billing schedule, accrued revenue is recognized. At the point that accrued
revenue is billed, trade accounts receivable are recognized. Payment terms on
invoice amounts are typically 30 days.
Deferred mobilization, demobilization and contract preparation revenue
includes revenues received for rig mobilization as well as preparation and
upgrade activities, in addition to demobilization revenues expected to be
received upon contract commencement and other lump-sum revenues relating to
the firm periods of our contracts. These revenues are allocated to the overall
performance obligation and recognized on a straight-line basis over the
initial firm term of the contracts.
The following presents our contract assets and liabilities from our contracts
with customers:
March 31, 2024 December 31, 2023
(In $ millions)
Accrued revenue 108.6 73.7
(1)
Current contract assets 108.6 73.7
Non-current accrued revenue 3.1 2.3
(2)
Non-current contract asset 3.1 2.3
Total contract asset 111.7 76.0
Current deferred mobilization, demobilization and other revenue (56.1) (59.5)
Current contract liability (56.1) (59.5)
Non-current deferred mobilization, demobilization and other revenue (44.3) (56.6)
Non-current contract liability (44.3) (56.6)
Total contract liability (100.4) (116.1)
(1)
Accrued revenue includes $9.1 million ($7.3 million as of
December 31, 2023
) related to the current portion of deferred variable rate revenue, $3.1
million ($1.1 million as of
December 31, 2023
) pertaining to the current portion of deferred demobilization revenue, and
$1.2 million ($1.2 million as of
December 31, 2023
) related to the current portion of liquidated damages associated with a known
delay in the operational start date of two of our contracts.
9
-------------------------------------------------------------------------------
(2)
Non-current accrued revenue includes $2.5 million ($1.5 million as of
December 31, 2023
) pertaining to the non-current portion of deferred demobilization revenue,
and $0.6 million ($0.8 million as of
December 31, 2023
) related to the non-current portion of liquidated damages associated with a
known delay in the operational start date of two of our contracts. Non-current
accrued revenue is included in "Other non-current assets" in our Unaudited
Consolidated Balance Sheets (see Note 15 - Other Non-Current Assets)
Total movement in our contract assets and contract liabilities balances during
the three months ended March 31, 2024 are as follows:
(In $ millions) Contract assets Contract liabilities
Balance as of December 31, 2023 76.0 116.1
Performance obligations satisfied during the reporting period 99.9 -
Amortization of revenue - (26.2)
Unbilled demobilization revenue 3.0 -
Unbilled variable rate revenue 1.9 -
Performance obligations to be satisfied over time - 3.0
Unbilled mobilization revenue 4.6 -
Cash received, excluding amounts recognized as revenue - 7.5
Cash received against the contract asset balance (73.7) -
Balance as of March 31, 2024 111.7 100.4
Timing of Revenue
The Company derives its revenue from contracts with customers for the transfer
of goods and services, from various activities performed both at a point in
time and over time, under the output method.
Three months ended March 31, 2024 Three months ended March 31, 2023
(In $ millions)
Over time 228.3 166.9
Point in time 5.7 5.1
Total 234.0 172.0
Revenue on existing contracts, where performance obligations are unsatisfied
or partially unsatisfied at the balance sheet date, is expected to be
recognized as follows as at March 31, 2024:
For the periods ending March 31,
(In $ millions) 2025 2026 2027 2028 onwards
Dayrate revenue 656.5 374.6 85.7 71.1
Other revenue 47.9 25.5 7.2 8.5
(1)
Total 704.4 400.1 92.9 79.6
(1)
Other revenue represents lump sum revenue associated with contract preparation
and mobilization and is recognized ratably over the initial firm term of the
associated contract in "Dayrate revenue" in the Unaudited Consolidated
Statements of Operations.
Contract Costs
Deferred mobilization and contract preparation costs relate to costs incurred
to prepare a rig for contract and delivery or to mobilize a rig to the
drilling location. We defer preoperating costs, such as contract preparation
and mobilization costs, and recognize such costs on a straightline basis, over
the estimated firm period of the drilling contract. Costs incurred for the
demobilization of rigs at contract completion are recognized as incurred
during the demobilization period.
March 31, 2024 December 31, 2023
(In $ millions)
Current deferred mobilization and contract preparation costs 38.9 39.4
Non-current deferred mobilization and contract preparation costs 38.8 42.6
(1)
Total deferred mobilization and contract preparation asset 77.7 82.0
10
-------------------------------------------------------------------------------
(1)
Non-current deferred mobilization and contract preparation costs are included
in "Other non-current assets" in our Unaudited Consolidated Balance Sheets
(see Note 15 - Other Non-Current Assets).
Deferred mobilization and contract preparation costs decreased by $4.3 million
during the three months ended March 31, 2024 to $77.7 million, from $82.0
million as of December 31, 2023 as a result of additional deferred costs of
$10.4 million primarily relating to the contract preparations of the rigs
"Idun", "Hild", "Thor" and "Ran", offset by amortization of $14.7 million
during the three months ended March 31, 2024.
Note 6 - Equity Method Investments
We own a 51% interest in two Mexico-based joint ventures, Perfomex and
Perfomex II. We previously provided five jack-up rigs on bareboat charters to
these joint ventures. These joint ventures previously provided dayrate
drilling services to Opex Perforadora S.A. de C.V. ("Opex") and Perforadora
Profesional AKAL I, SA de CV ("Akal"), which both provide integrated well
services to Petroleos Mexicanos ("Pemex"). Opex and Akal are wholly owned by
Operadora Productora y Exploradora Mexicana, S.A. de C.V. ("Operadora"), a
fully owned subsidiary of Proyectos Globales de Energia y Servicos CME, S.A.
DE C.V. ("CME"). CME owns the remaining 49% interest in our joint ventures
Perfomex and Perfomex II.
Effective January 1, 2024, Perfomex and Opex agreed to terminate the Drilling
and Technical Services Agreements ("DTSAs") for the jack-up rigs "Grid" and
"Gersemi". This triggered a termination fee payable by Opex to Perfomex of $14
million, or $7 million per Borr jack-up rig operated by Perfomex. The
associated bareboat charter agreements between Perfomex and the Company were
also terminated. Effective on the same date, the Company entered into new
fixed rate bareboat charter agreements for the jack-up rigs "Grid" and
"Gersemi" with Irish Energy Drilling Assets, DAC ("Irco"). The new bareboat
charter agreements remain in effect until December 31, 2025.
In addition, effective January 1, 2024, Perfomex entered into new Drilling,
Operation and Management Agreements ("DO&M Agreements") with Perforadora
Ircomex, S.A. DE C.V. ("Ircomex") to provide drilling, operations and
management services for the Borr jack-up rigs "Grid" and "Gersemi", plus
third-party owned jack-up rigs "CME I" and "CME II". These DO&M Agreements are
based on a cost-plus pricing model and remain in effect until December 31,
2025. Irco and Ircomex will continue to provide the jack-up rigs "Grid" and
"Gersemi" and accompanying operational services to Opex, to service its
integrated well services contract with Pemex.
During the quarter ended March 31, 2024, we continued to provide the three
jack-up rigs "Galar", "Njord" and "Odin" on a bareboat basis to Perfomex,
which provided dayrate drilling services to Opex. Subsequent to the quarter
ended March 31, 2024, Perfomex, Opex and Akal agreed to terminate the DTSAs
for these three jack-up rigs, and new agreements effective the same date were
executed. See Note 23 - Subsequent Events.
The below tables sets forth the results from these entities, on a 100% basis,
for the three months ended March 31, 2024 and 2023:
Three months ended March 31, 2024 Three months ended March 31, 2023
In $ millions Perfomex Perfomex II Perfomex Perfomex II
Revenue 53.1 2.0 70.5 5.6
Operating expenses (52.4) (1.9) (68.4) (6.1)
Net income 10.1 0.4 4.1 0.6
As of March 31, 2024, Perfomex and Perfomex II had $148.4 million of
receivables from Opex and Akal, of which $97.9 million was outstanding and
$50.5 million was unbilled. As of December 31, 2023, Perfomex and Perfomex II
had $164.9 million of receivables from Opex and Akal, of which $131.7 million
was outstanding and $33.2 million was unbilled.
Summarized balance sheets,
on a 100% basis of the Company's equity method investees are as follows:
As at March 31, 2024 As at December 31, 2023
In $ millions Perfomex Perfomex II Perfomex Perfomex II
Cash 0.4 - 11.4 0.5
Total current assets 235.3 32.3 271.4 35.1
Total non-current assets 32.1 2.1 12.3 2.1
Total assets 267.4 34.4 283.7 37.2
Total current liabilities 239.1 20.2 257.2 23.8
Total non-current liabilities - 0.6 8.3 0.2
Equity 28.3 13.6 18.2 13.2
Total Liabilities and Equity 267.4 34.4 283.7 37.2
The following presents our investments in equity method investments as at
March 31, 2024:
11
-------------------------------------------------------------------------------
In $ millions Perfomex Perfomex II Borr Total
Balance as of January 1, 2024 9.1 6.6 15.7
Income on a percentage basis 5.2 0.2 5.4
Balance as of March 31, 2024 14.3 6.8 21.1
(1)
Note 7 - Interest Expense
Interest expense is comprised of the following:
Three months ended March 31, 2024 Three months ended March 31, 2023
(In $ millions)
Debt interest expense (44.7) (36.8)
Amortization of deferred finance charges (2.7) (1.8)
Amortization of debt discount (1.7) -
Amortization of debt premium 0.1 -
Total (49.0) (38.6)
Note 8 - Other Financial Expenses, net
Other financial expenses, net is comprised of the following:
Three months ended March 31, 2024 Three months ended March 31, 2023
(In $ millions)
Yard cost cover expense (5.6) (5.5)
Foreign exchange (loss) / gain (2.1) 1.6
Bank commitment, guarantee and other fees (1.0) (0.4)
Other financial expense (1.5) -
(1)
Total (10.2) (4.3)
(1)
Other financial expense for the three months ended March 31, 2024 includes
$2.3 million of premium paid related to the Convertible Bonds repurchased in
March 2024.
Amortization of deferred finance charges for the
three months ended March 31, 2023 of $1.8 million
has been presented in Interest expense in the Unaudited Consolidated
Statements of Operations, to conform to the current period's presentation. See
Note 7 - Interest Expense.
Note 9 - Taxation
Borr Drilling Limited is a Bermuda company and is currently not required to
pay taxes in Bermuda on ordinary income or capital gains under a tax exemption
granted by the Minister of Finance in Bermuda until March 31, 20
35. In December 2023, the Bermuda Corporate Income Tax Act was enacted and
will apply from January 1, 2025, with a statutory rate of 15%.
We operate through various subsidiaries, affiliates and branches in numerous
countries throughout the world and are subject to tax laws, policies, treaties
and regulations, as well as the interpretation or enforcement thereof, in
jurisdictions in which we or any of our subsidiaries, affiliates and branches
operate, were incorporated, or are otherwise considered to have a tax
presence. Our income tax expense is based upon our interpretation of the tax
laws in effect in various countries at the time that the expense was incurred.
Total pre-tax income / (loss) is comprised of the following by jurisdiction:
Three months ended March 31, 2024 Three months ended March 31, 2023
(In $ millions)
Bermuda (42.1) (14.6)
Foreign 74.7 22.5
Total 32.6 7.9
The change in the effective tax rate from period to period is primarily
attributable to changes in the profitability or loss mix of our operations in
various jurisdictions. As our operations continually change among numerous
jurisdictions and methods of taxation in these jurisdictions vary
12
-------------------------------------------------------------------------------
greatly, there is little direct correlation between the income tax provision
or benefit and income or loss before taxes. We used a discrete effective tax
rate method to calculate income taxes.
Income tax (expense) / benefit is comprised of the following:
Three months ended March 31, 2024 Three months ended March 31, 2023
(In $ millions)
Current tax (15.1) (15.4)
Change in deferred tax (3.1) 0.1
Total (18.2) (15.3)
The deferred tax assets related to our net operating losses were primarily
generated in the United Kingdom and will not expire. We recognize a valuation
allowance for deferred tax assets when it is more likely than not that the
benefit from the deferred tax asset will not be realized. The amount of
deferred tax assets considered realizable could increase or decrease in the
near term if estimates of future taxable income change.
In response to the Organization for Economic Co-Operation and Development
(OECD) Base Erosion and Profit Shifting initiative, a 15% worldwide minimum
tax implemented on a country-by-country basis has been introduced with many
jurisdictions committed to a January 1, 2024, effective date. There remains a
number of uncertainties around the final Pillar 2 model rules, and we are
closely monitoring developments on this initiative.
Additionally, on December 27, 2023, Bermuda enacted the Corporate Income Tax
Act which imposes a 15% tax on Bermuda businesses that are part of
multinational enterprise (MNE) groups. The effective date of the income tax is
for tax years beginning on or after January 1, 2025. We are actively
monitoring the evolving developments of these regulations and evaluating their
potential impact on future periods. At present, we expect that they will not
have a substantial impact on our financial results in the short term.
Note 10 - Income/loss Per Share
The computation of basic income/(loss) per share ("EPS") is based on the
weighted average number of shares outstanding during the period.
Three months ended Three months ended
March 31, 2024 March 31, 2023
Basic income 0.06 (0.03)
(loss) per share
Diluted income 0.06 (0.03)
(loss) per share
Issued ordinary shares 264,080,391 254,263,598
at the end of the period
Weighted average numbers of shares 252,718,525 234,781,420
outstanding for the period, basic
Dilutive effect of 3,846,712 -
share options and RSU
(1)
Weighted average numbers of shares 256,565,237 234,781,420
outstanding for the period, diluted
(1)
Includes the impact of 8,118,362 share options and 112,780 restricted stock
units using the treasury stock method.
The weighted average number of shares outstanding includes 14,446,337 and
14,443,270 shares as of March 31, 2024 and December 31, 2023 shares,
respectfully, which have been issued as part of a share lending arrangement
relating to the Company's issuance of $250.0 million Convertible Bonds in 2023
(
see
Note 22 - Common Shares
).
The following potential share issuances effects of Convertible Bonds, share
options, RSUs and performance units have been excluded from the calculation of
diluted EPS for each of the three months ended March 31, 2024 and March 31,
2023 because the effects were anti-dilutive.
Three months ended March 31, 2024 Three months ended March 31, 2023
Convertible bonds 33,073,607 36,404,793
Share options 2,100,000 9,362,487
Performance stock units 500,000 500,000
Restricted share units - 88,584
For the three months ended March 31, 2024, 33,073,607 shares issuable upon
exercise of our convertible bonds due in May 2028 with a conversion price of
$7.2384 per share, have been excluded as they are anti-dilutive. In addition,
the impact of 2,100,000 stock options and 500,000 performance share units
using the treasury stock method were anti-dilutive, as the exercise price was
higher than the average share price, and therefore have been excluded from the
calculation.
Diluted EPS for the three months ended March 31, 2023
does not include the effect of the assumed conversion of potentially dilutive
instruments listed above, due to losses sustained in these years as this was
deemed to have an anti-dilutive effect on our EPS.
13
-------------------------------------------------------------------------------
Note 11 - Other Current Assets
Other current assets are comprised of the following:
March 31, 2024 December 31, 2023
(In $ millions)
VAT receivable 11.5 16.5
Client rechargeables 6.9 5.3
Other tax receivables 5.2 4.7
Right-of-use lease asset 0.5 0.5
(1)
Deferred financing fee 0.5 0.5
Other receivables 3.9 4.5
Total 28.5 32.0
(1)
The right-of-use lease asset pertains to our office and yard leases.
Note 12 - Newbuildings
The table below sets forth the carrying value of our newbuildings:
March 31, 2024 December 31, 2023
(In $ millions)
Opening balance 5.4 3.5
Additions 7.5 1.9
Total 12.9 5.4
No rigs were delivered in the three months ended March 31, 2024.
Impairment
During the three months ended March 31, 2024, we considered whether indicators
existed that the carrying amounts of our newbuildings may not be recoverable
as of March 31, 2024, and concluded that no indicators, events, or changes in
circumstances, have occurred to warrant a change in the assumptions utilized
in the December 31, 2023 impairment tests of our newbuilding jack-up rig
fleet. We will continue to monitor developments in the markets in which we
operate for indications that the carrying values of our long-lived assets are
not recoverable.
Commitments
The remaining contracted installments as of March 31, 2024 and December 31,
2023, payable on delivery, for the two Keppel newbuilds ordered in 2017, are
in total $319.8 million, respectively (see Note 19 - Commitments and
Contingencies).
Note 13 - Jack-Up Rigs
Set forth below is the carrying value of our jack-up rigs:
March 31, 2024 December 31, 2023
(In $ millions)
Opening balance 2,578.3 2,589.1
Additions 10.1 104.7
Depreciation and amortization (31.5) (115.5)
Total 2,556.9 2,578.3
Accumulated depreciation related to jack-up rigs as at March 31, 2024 is
$629.6 million (as at December 31, 2023 was $598.1 million).
Depreciation of property, plant and equipment
In addition to the depreciation in the above table, the Company recognized
depreciation of $0.3 million for the three months ended March 31, 2024 related
to property, plant and equipment ($0.4 million for the three months ended
March 31, 2023).
Impairment
14
-------------------------------------------------------------------------------
During the three months ended March 31, 2024, we considered whether indicators
of impairment existed that could indicate that the carrying amounts of our
jack-up rigs may not be recoverable as of March 31, 2024, and concluded that
no such events or changes in circumstances have occurred to warrant a change
in the assumptions utilized in the December 31, 2023 impairment tests of our
jack-up rig fleet. We will continue to monitor developments in the markets in
which we operate for indications that the carrying values of our long-lived
assets are not recoverable.
Note 14 - Leases
We have various operating leases, principally for office space, storage
facilities and operating equipment, which expire at various dates.
Supplemental balance sheet information related to leases is as follows:
(In $ millions) March 31, 2024 December 31, 2023
Operating leases right-of-use assets 1.5 1.6
Current operating lease liabilities 0.5 0.5
Non-current operating lease liabilities 1.0 1.1
The current portion of the right-of-use assets of $0.5 million is recognized
within "Other current assets" (see
Note 11 - Other Current Assets
) and the non-current portion of the right-of-use assets of $1.0 million is
recognized within "Other non-current assets" (see
Note 15 - Other Non-Current Assets
) in the Unaudited Consolidated Balance Sheets. The current operating lease
liabilities are recognized within "Other current liabilities" (see
Note 17 - Other Current Liabilities
) and the non-current operating lease liabilities are recognized within "Other
liabilities" in the Unaudited Consolidated Balance Sheets.
Components of lease expenses are comprised of the following:
(In $ millions) Three months ended March 31, 2024 Three months ended March 31, 2023
Operating lease expense 3.5 2.9
For the three months ended March 31, 2024 and 2023, of the total operating
lease expense, $3.0 million and $2.3 million, respectively, were recognized as
"Rig operating and maintenance expenses" and $0.5 million and $0.6 million,
respectively, were recognized as "General and administrative expenses" in the
Unaudited Consolidated Statements of Operations.
Rental income
Effective January 1, 2024, as part of a restructuring of our operations under
our joint venture in Mexico, the Company entered into new fixed external
bareboat charter agreements for two jack-up rigs which continue to service
Opex's contract with Pemex (see Note 6 - Equity Method Investments). Future
revenues are based on a blended rate, in line with our revenue recognition
policy, as the contract includes daily rates that change over the firm term of
the contract.
Revenues from operating leases for the
three months to March 31, 2024 of $11.3 million have been recognized
on a straight-line basis
as
"Bareboat charter revenue" in the Unaudited Consolidated Statement of
Operations. There were nil revenues from operating leases for the three months
ended March 31, 2023.
The minimum future revenues to be received under the Company's operating
leases on its jack-up rigs as of March 31, 2024, are as follows:
(In $ millions)
2024 32.4
2025 43.1
Total minimum contractual future revenues 75.5
The cost and accumulated depreciation of jack-up rigs leased to third parties
as of March 31, 2024 were
$305.2 million
and
$53.5 million
, respectively. There were no jack-up rigs leased to third parties as of
December 31, 2023.
15
-------------------------------------------------------------------------------
Note 15 - Other Non-Current Assets
Other long-term assets are comprised of the following:
March 31, 2024 December 31, 2023
(In $ millions)
Deferred mobilization and contract preparation costs 38.8 42.6
(1)
Deferred tax asset 16.2 19.3
Deferred demobilization revenue 2.5 1.5
(2)
Deferred financing fee 1.6 1.7
Right-of-use lease asset, non-current 1.0 1.1
(3)
Liquidated damages 0.6 0.8
(4)
Prepayments 0.1 0.3
Total 60.8 67.3
(1)
Non-current deferred mobilization and contract preparation costs relate to the
non-current portion of contract mobilization and preparation costs for six of
our the jack-up rigs (see Note 5 - Contracts with Customers).
(2)
Non-current deferred demobilization revenue relates to demobilization revenue
for three of our jack-up rigs, which will be billed upon contract completion.
(3)
The right-of-use lease asset pertains to our offices and yard leases.
(4)
Relates to the non-current portion of liquidated damages associated with a
known delay in the operational start date of two of our contracts, which is
amortized over the firm contract terms and recognized as reduction of "Dayrate
revenue" in the Unaudited Consolidated Statements of Operations.
Note 16 - Accrued Expenses
Accrued expenses are comprised of the following:
March 31, 2024 December 31, 2023
(In $ millions)
Accrued goods and services received, not invoiced 18.4 19.7
Accrued payroll and bonus 10.0 12.3
Other accrued expenses 38.4 45.0
(1)
Total 66.8 77.0
(1)
Other accrued expenses include holding costs incurred with the shipyards,
professional fees, management fees and other accrued expenses related to rig
operations.
Note 17 - Other Current Liabilities
Other cu
rrent liabilities are comprised of the following:
March 31, 2024 December 31, 2023
(In $ millions)
Other current taxes payable 19.8 19.7
(1)
VAT payable 15.8 17.5
Corporate income taxes payable 10.4 6.7
Accrued payroll and severance 1.0 0.8
Operating lease liability, current 0.5 0.5
Dividends payable - 11.9
(2)
Other current liabilities 4.7 6.1
Total 52.2 63.2
(1)
Other current taxes payable include withholding tax, payroll tax and other
indirect tax related liabilities.
16
-------------------------------------------------------------------------------
(2)
On December 22, 2023, the Company declared a cash distribution of $0.05 per
share, corresponding to a total of $11.9 million, which was paid to our
shareholders on January 22, 2024. On February 22, 2024, the Company declared a
cash distribution of $0.05 per share, corresponding to a total of $11.9
million, which was paid to our shareholders on March 18, 2024.
Note 18 - Debt
Short-term debt is comprised of the following:
Principal Amount
(In $ millions) March 31, 2024 December 31, 2023
2028 Notes 75.0 75.0
2030 Notes 25.0 25.0
Additional 2028 Notes 14.6 -
Principal Outstanding 114.6 100.0
Deferred Finance Charges (11.1) (10.3)
(1)
Debt discount (6.8) (6.8)
Debt premium 1.1 -
Carrying Value Short-Term Debt 97.8 82.9
(2)
Long-term debt is comprised of the following:
Principal Amount
(In $ millions) March 31, 2024 December 31, 2023
2028 Notes 950.0 950.0
2030 Notes 490.0 490.0
Convertible Bonds 239.4 250.0
Additional 2028 Notes 185.4 -
Principal Outstanding 1,864.8 1,690.0
Deferred Finance Charges (40.6) (40.5)
(1)
Debt discount (29.0) (30.7)
Debt premium 3.8 -
Carrying Value Long-Term Debt 1,799.0 1,618.8
(2)
(1)
As at March 31, 2024, deferred finance charges include the unamortized legal
and bank fees associated with the 2028 Notes, Additional 2028 Notes, 2030
Notes, Convertible Bonds, our undrawn $150.0 million revolving credit facility
as well as the unamortized debt issuance cost associated with the fair value
of the Share Lending Agreement (see Note 22 - Common Shares).
(2)
Carrying amounts in the table above include, where applicable, deferred
financing fees, debt discounts and debt premiums.
At March 31, 2024 the scheduled maturities of our debt were as follows:
Maturities
(In $ millions)
2024 114.6
2025 114.6
2026 114.6
2027 114.6
Thereafter 1,521.0
Total principal debt 1,979.4
Issuance of Additional Senior Secured Notes Due 2028
On November 7, 2023, the Company's wholly owned subsidiary Borr IHC Limited,
and certain other subsidiaries, issued $1,540.0 million in aggregate principal
amount of senior secured notes, consisting of $1,025.0 million principal
amount of senior secured notes due 2028 at a price equal to 97.750%, bearing a
coupon of 10 % per annum (the "2028 Notes"), and $515.0 million principal
amount of senior secured notes due 2030 at a price equal to 97.000%, bearing a
coupon of 10.375% per annum (the "2030 Notes"). The 2028 Notes mature on
November 15, 2028
17
-------------------------------------------------------------------------------
and the 2030 Notes mature on November 15, 2030, and interest on the 2028 Notes
and 2030 Notes is payable on May 15 and November 15 of each year, beginning on
May 15, 2024.
In March 2024, the Company issued $200.0 million principal amount of
additional senior secured notes due in 2028
(the "Additional 2028 Notes" and, together with the 2028 Notes and the 2030
Notes, the "Notes")
under the same terms and conditions as the $1,025.0 million notes issued in
November 2023. The Additional 2028 notes were issued at a price equal to
102.5% and include accrued interest, raising gross proceeds of $211.9 million.
Repurchase of Unsecured Convertible Bonds due 2028 (Convertible Bonds)
In February 2023, we issued $250.0 million of unsecured convertible bonds,
which mature in February 2028. The initial conversion price was $7.3471 per
share, convertible into 34,027,031 common shares. Following the declaration
and payment of a $0.05 per share cash distribution in January 2024 and a
further $0.05 per share cash distribution paid in March 2024, the adjusted
conversion price is $7.2384 per share, with the full amount of the convertible
bonds convertible into 34,538,019 shares. The convertible bonds have a coupon
of 5% per annum payable semi-annually in arrears in equal installments. The
terms and conditions governing our convertible bonds contain customary events
of default, including failure to pay any amount due on the bonds when due, and
certain restrictions, including, among others, restrictions on disposal of
assets and our ability to carry out any merger or corporate reorganization,
subject to exceptions.
In March 2024 we repurchased $10.6 million of the Convertible Bonds at an
average price of 120.88% of par for a total consideration of $12.9 million,
inclusive of accrued interest, and recognized a loss in "Other financial
expenses, net" of $2.3 million. At the conversion price of $7.2384 per share,
the convertible bonds are convertible into 33,073,607 shares.
Interest
The weighted average nominal interest rate for all of our interest-bearing
debt was 9.7% for the three months ended March 31, 2024 (8.7% for the three
months to March 31, 2023). Excluding our Convertible Bonds, the weighted
average interest rate for our interest-bearing debt was 10.4% for the three
months ended March 31, 2024 (10.3% for the three months to March 31, 2023).
Covenants
As at March 31, 2024, we were in compliance with the covenants and our
obligations under our debt agreements.
Note 19 - Commitments and Contingencies
The Company has the following delivery installment commitments:
March 31, 2024 December 31, 2023
(in $ millions)
Delivery installments for jack-up drilling rigs 319.8 319.8
Total 319.8 319.8
In September 2023, we entered into an agreement with Seatrium New Energy
Limited to amend the Construction Contract for the Vale and the Var to
expedite their delivery dates, on a best efforts basis only, to August 2024
and November 2024, respectively, in consideration for an additional payment of
$12.5 million (acceleration costs) per rig on each respective delivery date.
The following table sets forth when our delivery installment commitments fall
due as of March 31, 2024, based upon best efforts expedited delivery dates:
(In $ millions) Less than 1 year 1-2 years 2-3 years Thereafter Total
Delivery installments for jack-up rigs 319.8 - - - 319.8
Other commercial commitments
We have other commercial commitments which contractually obligate us to settle
with cash under certain circumstances. Bank and parent company guarantees
entered into between certain customers and governmental bodies guarantee our
performance regarding certain drilling contracts, customs import duties and
other obligations in various jurisdictions.
The Company has the following guarantee commitments:
March 31, 2024 December 31, 2023
(in $ millions)
Bank guarantees, letters of credit and performance bonds 26.7 29.0
Total 26.7 29.0
As at March 31, 2024, the expected expiration dates of these obligations are
as follows:
18
-------------------------------------------------------------------------------
(In $ millions) Less than 1 year 1-3 years Thereafter Total
Bank guarantees and performance bonds 9.7 11.5 5.5 26.7
Assets pledged as collateral
March 31, 2024 December 31, 2023
(in $ millions)
Book value of jack-up rigs pledged as collateral for debt facilities 2,556.9 2,578.3
Note 20 - Related Party Transactions
a) Transactions with entities over which we have significant influence
We provided three rigs on a bareboat basis to Perfomex to service its
contracts with Opex and two rigs on a bareboat basis to Perfomex II to service
its contract with Akal. Perfomex and Perfomex II provided the jack-up rigs
under traditional dayrate and technical service agreements to Opex and Akal,
respectively. This structure enabled Opex and Akal to provide bundled
integrated well services to Pemex. Effective Octobe
r 20, 2022 until December 31, 2023, we provided all five rigs on a bareboat
basis to Perfomex, to service its contracts with Opex. Th
e bareboat revenue from these contracts is recognized as "Related party
revenue" in the Unaudited Consolidated Statements of Operations.
Effective January 1, 2024, upon termination of the drilling and technical
services agreement between Opex and Perfomex and thus the associated bareboat
charter agreements between Perfomex and the Company, we provide three rigs on
a bareboat basis to Perfomex and we entered into new fixed bareboat charter
agreements for two rigs with an unrelated party, which has agreed to continue
to provide these two rigs to service Opex's contract with Pemex (see Note 6 -
Equity Method Investments and Note 14 - Leases ).
For the
three months ended March 31, 2024 and 2023, the bareboat revenues from our
related parties consisted of the following:
Three months ended March 31, 2024 Three months ended March 31, 2023
(In $ millions)
Bareboat Revenue - Perfomex 24.4 30.3
Total 24.4 30.3
Receivables:
The balances with the joint ventures as of March 31, 2024 and December 31,
2023 consisted of the following:
March 31, 2024 December 31, 2023
(In $ millions)
Perfomex 97.8 92.4
Perfomex II 0.4 2.6
Total 98.2 95.0
b) Transactions with Other Related Parties
Expenses:
The transactions with other related parties for three months ended March 31,
2024 and 2023 consisted of the following:
Three months ended March 31, 2024 Three months ended March 31, 2023
(In $ millions)
Magni Partners Limited - (0.1)
(1)
Drew Holdings Limited - (0.7)
(2)
Front End Limited Company (1.4) (0.2)
(3)
(1)
Magni Partners Limited ("Magni") is a party to a Corporate Services Agreement
with the Company, pursuant to which it provides strategic advice and assists
in sourcing investment opportunities, financing and other such services as the
Company wishes to engage, at the Company's option. There is both a fixed and
variable element of the agreement, with the fixed cost element representing
Magni's fixed costs and any variable element being at the Company's
discretion. Mr. Tor Olav Troim, the Chairman of our Board, is the sole owner
of Magni. Effective January 1, 2024, the fixed element of the agreement was
terminated, while the remaining terms of the agreement continue to remain in
force.
(2)
Mr. Tor Olav Troim, the Chairman of our Board, is the sole owner of Drew
Holdings Limited ("Drew"). In January 2023 Drew entered into a Share Lending
Framework Agreement ("SLFA") with the Company and DNB Markets for the purposes
of facilitating investors' hedging activities in connection with the Senior
Unsecured Convertible bonds due 2028. In order to make the Company's shares
available for lending, and only until a certain number of new shares were
issued by the Company in connection with such lending arrangement, Drew made
up to 15 million shares available to DNB Markets under the SLFA to facilitate
such lending to the convertible bond investors requiring such hedging
19
-------------------------------------------------------------------------------
activities. Under the terms of the SLFA, the Company incurred fees payable to
Drew for the shares available for lending. As at December 31, 2023, Drew is no
longer a party to the SLA (see Note 22 - Common Shares).
(3)
Front End Limited Company ("Front End") owns 3% of Borr Arabia Well Drilling
LLC, an entity that is consolidated by Borr Drilling Limited and incorporated
in the Kingdom of Saudi Arabia (the "KSA"). Front End is a party to a
Management Agreement with Borr Arabia Well Drilling LLC to provide management
services in the KSA, for which it receives a management fee.
In addition, in January 2023, the Company recognized $1.3 million payable to
Magni under a Call-off Contract to cover direct costs related to assistance in
relation to the Unsecured Convertible Bonds and Secured Bonds completed in
February 2023 and in November 2023, the Company recognized $1.0 million
payable to Magni under a Call-off Contract to cover direct costs related to
assistance in relation to 2028 and 2030 Notes completed in November 2023. As
these costs are directly attributable to the issuance of these bonds, these
amounts were recognized as deferred finance charges, presented as a reduction
to the carrying value of the associated facilities and are amortized over the
term of the facilities as "Interest Expense" in the Unaudited Consolidated
Statements of Operations.
Note 21 - Fair Value of Financial Instruments
We recognize our fair value estimates using a fair value hierarchy based on
the inputs used to measure fair value. The fair value hierarchy has three
levels based on reliability of inputs used to determine fair value as follows:
Level 1: Quoted market prices in active markets for identical assets and
liabilities.
Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data
The carrying value and estimated fair value of our financial instruments at
March 31, 2024 and December 31, 2023 were as follows:
As at March 31, 2024 As at December 31, 2023
(In $ millions) Hierarchy Fair value Carrying value Fair value Carrying value
Assets
Cash and cash equivalents 1 282.7 282.7 102.5 102.5
(1)
Restricted cash 1 0.3 0.3 0.1 0.1
(1)
Trade receivables 1 61.3 61.3 56.2 56.2
(1)
Other current assets 1 28.0 28.0 31.5 31.5
(1)
Due from related parties 1 98.2 98.2 95.0 95.0
(1)
Liabilities
Trade payables 1 39.0 39.0 35.5 35.5
(1)
Accrued expenses 1 66.8 66.8 77.0 77.0
(1)
Short term accrued interest and other items 1 84.3 84.3 42.3 42.3
(1)
Other current liabilities 1 52.2 52.2 63.2 63.2
(1)
Short-term debt 2 118.1 114.6 104.4 100.0
(2)
(3)
Long-term debt 2 1,963.1 1,864.8 1,818.0 1,690.0
(2)
(4)
(1)
The carrying values approximate the fair values due to their near term
expected receipt of cash.
(2)
Short term and long term debt excludes debt discounts, deferred finance
charges and effective interest rate adjustments.
(3)
This relates to our 10% Notes due 2028 and 10.375% Notes due 2030. These are
fair valued using observable market-based inputs.
(4)
This relates to our 10% Notes due 2028 and 10.375% Notes due 2030 and our
Convertible Bonds due 2028 These are fair valued using observable market-based
inputs.
Share Lending Agreement
In addition, during the three months ended March 31, 2024, the Company
recognized a deferred finance charge in the amount of $12.4 million in
relation to our Share Lending Framework Agreement ("SFLA"), which was fair
valued using observable market-based inputs and is amortized over the term of
the Convertible Bonds. See Note 22 - Common Shares for further information.
Note 22 - Common Shares
Authorized share capital
20
-------------------------------------------------------------------------------
March 31, 2024 December 31, 2023
(Number of shares of $0.10 each)
Authorized shares 315,000,000 315,000,000
Issued and outstanding share capital
March 31, 2024 December 31, 2023
(Number of shares of $0.10 each)
Issued 264,080,391 264,080,391
Treasury shares 11,083,952 11,498,355
Outstanding 252,996,439 252,582,036
Share Lending Agreement
In connection with the Convertible Bonds (see Note 18 - Debt), during 2023,
the Company entered into a Share Lending Framework Agreement ("SLFA") with DNB
Markets ("DNB") and Drew Holdings Limited ("Drew") with the intention of
making up to 25.0 million common shares ("Issuer Lending Shares") available to
lend to DNB for the purposes of allowing the holders of the New Convertible
Bonds to perform hedging activities on the OSE. The SLFA contains a provision
that the Issuer Lending Shares be available only for trading on the OSE. At
the date of the execution of the SLFA, the Company did not have a sufficient
number of common shares available for trading on the OSE and therefore began
the process of issuing new shares and making them available for trading on the
OSE by way of a listing prospectus (the "Prospectus Event").
The Company and Drew, a shareholder of the Company, separately entered into a
Share Loan Agreement ("SLA") in which Drew would make up to 15.0 million of
its shares available to DNB ("Drew Shares") until the Prospectus Event. During
this period, the Company would lend to Drew 15.0 million of its shares that
were not yet available for trading on the OSE. The Prospectus Event occurred
on April 19, 2023, at which time Drew returned such shares back to Borr. In
addition, DNB borrowed an equivalent amount of Drew Shares from Borr to
redeliver these shares back to Drew (the "Settlement").
The "Loan Period" of the SLFA is defined as the earlier of (a) the date the
SLFA is terminated (b) any date the convertible bonds are either redeemed or
converted into the Company's shares in full and (c) the maturity date of the
convertible bond in 2028. At the expiration of the Loan Period, DNB must
return all of the Issuer Lending Shares back to Borr. During the Loan Period,
if an investor returns any lending share to DNB, DNB shall return such lending
shares back to the Company immediately. The Company receives no proceeds from
lending out the Issuer Lending Shares to DNB. DNB must charge each investor a
lending fee of a maximum of 0.5% per annum in which for the first six months
from the date of the SLFA, the Company agrees to compensate DNB so that the
lending fee DNB receives in total will be 1.0% per annum. There is no
compensation that the Company pays DNB for returning the Issuer Lending Shares
to the Company. There is no unilateral mechanism given to either party in
choosing to settle in cash except for a very limited scenario involving
default. DNB is not required to provide collateral for borrowing the shares.
There are no dividends paid to DNB as a result of lending out the Issuer
Lending Shares.
At issuance, the share lending agreement was accounted for under ASC 470-20 as
a "Deferred Finance Charge" of the Convertible Bonds, with an offset to
"Additional Paid in Capital" in the Unaudited Consolidated Balance Sheets. The
share lending agreement was measured at a fair value in accordance with ASC
820 at inception and the Company recognized $12.4 million accordingly.
As of March 31, 2024, the Company had loaned 14,446,337 shares in total to DNB
for the purposes of allowing the holders of the New Convertible Bonds to
perform hedging activities on the OSE.
As of March 31, 2024, the unamortized amount of the issuance costs associated
with the SLFA was $2.5 million ($2.5 million as at December 31, 2024) included
in "Short-term debt" and $7.0 million ($7.6 million as at December 31, 2023)
included in "Long-term debt" in our Unaudited Consolidated Balance Sheets.
During the three months ended March 31, 2024, $0.6 million of amortization of
issuance costs associated with the SLFA was recognized in "Interest expense"
in the Unaudited Consolidated Statement of Operations.
There was nil amortization of issuance costs
associated with the SLFA
recognized for the three months ended March 31, 2023.
Share option plan
During the three months ended March 31, 2024, the Company issued 411,336
treasury shares following the exercise of 411,336 share options.
Dividends
On February 22, 2024, the Company declared a cash distribution of $0.05 per
share, corresponding to a total of $11.9 million, which was paid to our
shareholders on March 18, 2024.
Note 23 - Subsequent Events
Effective April 1, 2024, our joint venture Perfomex agreed with Opex and Akal
to terminate DTSAs for the other three jack-up rigs "Galar", "Njord" and
"Odin". The associated bareboat charter agreements between Perfomex and the
Company were also terminated. Effective on the same date, the Company entered
into new fixed bareboat charter agreements for these three jack-up rigs with
Irco. The new bareboat charter agreements will remain in effect until December
31, 2025.
21
-------------------------------------------------------------------------------
In addition, effective April 1, 2024, a wholly owned subsidiary of the Company
entered into new DO&M Agreements" with Ircomex to provide drilling, operations
and management services for these three jack-up rigs. These DO&M Agreements
are based on a cost-plus pricing model and will remain in effect until
December 31, 2025. Irco and Ircomex will continue to provide the jack-up rigs
"Galar", "Njord" and "Odin" and accompanying operational services to Opex, to
service its integrated well services contract with Pemex.
On May 22, 2024, the Company declared a cash distribution of $0.10 per share,
which is expected to be paid to our shareholders on or around June 17, 2024.
22