Q2 2024 Earnings Summary
- BORR expects to generate over $200 million in additional cash flow in 2025, due to reduced capital expenditures and higher day rates, which can be used for increased shareholder returns through dividends, share buybacks, or debt reduction.
- BORR has secured contracts increasing average day rates from $135,000 in 2024 to $148,000 in 2025, indicating strong pricing power and demand for their rigs. Currently, 70% of their capacity is contracted for 2025, providing strong revenue visibility.
- BORR's modern fleet with unique capabilities allows them to secure contracts at higher day rates, including recent fixtures breaking the $200,000 per day mark, and gives them a competitive advantage in the market.
- Business volatility due to unexpected rig suspensions: The company acknowledges that sudden changes, such as rig suspensions in Saudi Arabia, can quickly alter the income profile, making it difficult to narrow guidance ranges. Management stated, "These things can happen fast and do change your income profile... It is a very volatile business from time to time." ,
- Increased competition in certain markets affecting day rates: In regions like Asia, there's a tighter competitive landscape with competitors exhibiting stronger competitive behavior due to lower barriers to entry. This could pressure day rates and make it challenging to secure favorable contracts. Management mentioned, "We've seen realistically a stronger competitor behavior of some of our competitors... I think Asia, particularly is one of those markets." , ,
- Operational challenges and risks in new markets like Brazil: Entering markets such as Brazil presents significant complexities, including import acceptance issues and the necessity of local partnerships, which could lead to increased costs and operational risks. Management admitted, "Acceptance in Brazil can be complicated... it became clear that without a local partner for us, it wouldn't be the right market."
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Use of Free Cash Flow
Q: How will you use increased free cash flow in 2025?
A: Management expects over $200 million in increased cash flow year-over-year in 2025 due to reduced capex from newbuilds, fewer special periodic services, and higher average day rates rising from $135,000 in 2024 to $148,000 in 2025. This cash can be used for dividends, share buybacks, or debt repayment. They have a quarterly dividend established at $0.10, annual bond amortization of around $125 million, and an authorized $100 million share buyback program. -
Day Rates and Market Outlook
Q: Can you maintain high day rates despite market pressures?
A: Management is confident in maintaining high day rates, noting limited availability and unique value provided. In Q2, they had a fixture breaking the $200,000 per day mark. They see strong demand in markets outside Asia, requiring expertise in areas like the Americas, Mexico, and Africa, allowing them to sustain pricing. -
Saudi Arabia Suspensions Risk
Q: Is there risk of further Saudi Arabia rig suspensions?
A: Management doesn't know if further suspensions will occur but was surprised by the magnitude of previous ones. They believe offshore fields are still crucial for Saudi Arabia's future plans, and suspended work is delayed rather than canceled. More adjustments are possible, but they aren't aware of any at this time. -
Guidance Range Confidence
Q: What factors affect meeting your $500-550 million guidance?
A: Despite being 92% covered, management cites volatility in the business, such as unexpected suspensions, as reasons for maintaining the guidance range. They are confident in delivering within that bracket if everything unfolds as expected but won't narrow the range due to potential unforeseen events. -
Prospects for Thor and Ran Rigs
Q: What are the prospects for Thor and Ran after contracts end?
A: For Ran, they see opportunities in Mexico with new operational models involving Pemex and other companies, which could open interesting opportunities. They also consider work with IOCs and in regions like Surinam and Trinidad. For Thor in Asia, numerous tenders are open, and their rigs are sought after due to unique capabilities. They are confident both rigs will secure continued programs. -
Newbuild Orders and Shipyard Capacity
Q: Any changes suggesting newbuild orders could be made?
A: Shipyards may accept small orders, but they're extremely busy, so deliveries wouldn't be quick. Newbuild costs are in the high $200 million to over $300 million range. Management believes the industry will build rigs again as the fleet ages and demand increases, but it will be driven by economics and day rates. -
Brazilian Contract Challenges
Q: How will you handle operational challenges in Brazil?
A: Acknowledging Brazil's complexities, they've partnered with a local company for expertise. They forecast the rig will be on contract in the first quarter of 2025 and are preparing thoroughly. The Petrobras contract includes substantial mobilization fees, and the work focuses on relatively simple P&A and intervention operations. -
Newbuild Var's Potential Contracts
Q: Any updates on contracts for the Var rig?
A: Management is confident they have sufficient opportunities to have work lined up for the Var when it becomes available. While keeping details under wraps, they indicate strong potential in various markets, leveraging their global footprint and expertise.