Borr Drilling Q2 Earnings Call Highlights

Key Points

• Second-quarter results deteriorated: Adjusted EBITDA fell to $43.8 million from $88.5 million, while the net loss widened to $241.4 million. Lower revenue and higher expenses reflected rig transitions, Odin startup costs, increased fuel and insurance expenses, and a $10.8 million West African credit-loss provision.
• Management expects a substantial third-quarter rebound as transitioned rigs return to work and the Odin begins its U.S. Gulf campaign. Borr expects roughly 23 active rigs, with Odin generating additional preparation costs of $6 million to $9 million before becoming fully operational.
• Liquidity and backlog remain supportive: The company completed a major debt refinancing, ending June with $473.6 million in total liquidity, while reporting 73% 2026 contract coverage at an average day rate of approximately $134,000. Its Mexican joint venture also acquired five jackup rigs for $287 million, with three already contracted or operating.

Borr Drilling NYSE: BORR reported lower second-quarter adjusted EBITDA and a wider net loss as rig transitions, startup costs for the Odin rig, higher fuel and insurance expenses, and a credit-loss provision weighed on results. Management said it expects a significant sequential improvement in the third quarter as transitioned rigs return to work and the Odin begins its U.S. Gulf campaign.

Chief Executive Officer Bruno Morand said the company recorded technical utilization of 98.4% and economic utilization of 96.4% during the second quarter. However, adjusted EBITDA fell to $43.8 million from $88.5 million in the first quarter, while net loss widened to $241.4 million from a $29 million loss in the prior quarter.

Revenue Declines as Rigs Transition Between Contracts

Total operating revenue was $232.3 million, down $14.7 million, or 6%, from the first quarter. Chief Financial Officer Magnus Vaaler said the decline was primarily driven by a $21.8 million reduction in day-rate revenue, reflecting fewer operating days and lower average day rates for the Odin, Gunnlod and Skald rigs, as well as lower mobilization and demobilization revenue recognition for the Vali and fewer operating days for the Groa.

The revenue decline was partly offset by a $6.3 million increase in bareboat charter revenue, which Vaaler attributed to more operating days.

Operating expenses rose $31.1 million sequentially to $232.1 million. Rig operating and maintenance expenses increased by $30.4 million, with the Odin representing the largest contributor. The rig incurred $22.5 million of costs during the quarter, including $11.1 million more than in the first quarter, as the company completed repair, maintenance, preparation and regulatory work ahead of its U.S. Gulf contract.

Morand said regulatory approvals for the Odin were received in mid-July, later than anticipated. The company also revised the rig’s deployment sequence with customers to improve efficiency during hurricane season. The Odin was preparing to mobilize to its first location for a previously announced two-well firm contract with an undisclosed customer, after which it is expected to move directly to Cancun.

“We are disappointed with the delays for the Odin,” Morand said, adding that the startup requirements involved in entering a new market were greater than the company had typically expected. The rig’s existing contract provides firm work into mid-2027, with options that could extend the work into 2029.

Vaaler said regular Odin operating expenses are expected to be in the mid-$70,000-per-day range once the rig is fully operational. Borr expects an additional $6 million to $9 million of preparation-related Odin operating expenses during the third quarter.

Costs Include Middle East Impact and West Africa Provision

The company also cited higher fuel and insurance costs associated with the conflict in the Middle East. Fuel costs increased by $5.1 million from the first quarter, reflecting higher fuel prices and a greater number of rigs moving between contracts, when Borr is generally responsible for fuel costs. Insurance costs rose $2.2 million.

In addition, Borr recognized $10.8 million in credit losses related to a former West African customer. Following the provision, the company said it carried a net zero receivable balance from that customer as of June 30.

Financial expenses rose to $236.5 million, largely due to a $176.3 million loss on debt extinguishment connected to the company’s refinancing. The charge included $123.7 million in redemption premiums and $52.6 million from the derecognition of unamortized deferred finance charges.

Third-Quarter Activity Expected to Improve

Morand said the elevated transition activity that affected the second quarter has largely been completed. The Idun, Gunnlod, Skald, Sif, Knut and Prospector 5 have entered or transitioned between contracts and are now operational. Together with the planned Odin startup, Borr expects to average about 23 active rigs in the third quarter.

Morand declined to provide a specific EBITDA forecast but said the expected activity level would be in a similar range to the first quarter and should result in a “quite substantial” sequential improvement in third-quarter results.

The company had 24 of its 29 rigs contracted or committed as of the call. It has secured 21 contract commitments so far in 2026, representing approximately 350 days and $541 million of day-rate-equivalent backlog, according to Morand. Borr said its 2026 contract coverage stood at 73% at an average day rate of about $134,000, with second-half coverage at 70%.

• The Gunnlod secured follow-on work with PVEP-NCS in Vietnam through April 2027.
• The Idun began work in Vietnam in July and received a further one-well commitment from Hoang Long JOC.
• The Mist received a binding letter award from Sarawak Shell in Malaysia for a campaign expected to begin in October.
• The Gerd received a one-well extension in Ivory Coast through March 2027.
• The Prospector 1 received an OMV extension expected to keep it working into April 2027.
• The Galar and Gersemi rigs in Mexico each received two-year extensions, taking their contracts into 2030.

Debt Refinancing and Mexico Joint Venture

During the quarter, Borr refinanced substantially all of its debt. In April, it issued $300 million of 3.5% convertible notes due 2033 and repurchased $195.2 million of its 2028 convertible bonds. In June, it issued $2.035 billion of senior secured notes, including $1.1 billion of 8.75% notes due 2032 and $935 million of 9% notes due 2034.

The company also increased its revolving credit facility commitments to $250 million, reduced the base margin to 3% and extended the facility’s maturity to 2031. Cash and equivalents totaled $223.6 million at June 30, and Borr had $250 million available under its revolving credit facility, for total liquidity of $473.6 million.

In July, Borr’s 50/50 Mexican joint venture acquired five premium jackup rigs from Fontis for $287 million. The transaction was financed with a $237 million non-recourse seller credit and $25 million equity contributions from each partner. Borr expects to provide roughly $15 million of working capital to the venture in the third quarter.

Three of the acquired rigs are contracted, including two already operating and a third expected to begin work later in the quarter. Morand said the company sees a potential path for a fourth rig to resume operations later this year or early next year, while one currently stacked rig may remain idle longer.

Management said it remains constructive on the medium- and long-term jackup market, though Middle East conflict-related uncertainty has delayed tendering and contracting activity in the region. Morand said modern jackup utilization remained around 90% globally and that demand in Southeast Asia, the Americas and West Africa has been more resilient.

About Borr Drilling (NYSE:BORR)

Borr Drilling is an international offshore drilling contractor providing premium jack-up drilling services to the oil and gas industry. Established in 2016 and incorporated in Bermuda with headquarters in Hamilton, the company is listed on the New York Stock Exchange under the ticker symbol BORR. Borr Drilling focuses exclusively on the ownership and operation of mobile offshore jack-up rigs, catering to exploration and production drilling projects in both mature and emerging hydrocarbon regions.

The company's core business activities encompass the long-term contracting of high-specification jack-up rigs suitable for shallow-to-intermediate water depths.

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