Word: I’ve coated Borr Drilling Restricted (NYSE:BORR) beforehand, so traders ought to view this as an replace to my earlier articles on the corporate.
On Monday, main shallow-water offshore driller Borr Drilling introduced the eagerly awaited maiden contract award for its premium jackup rig Hild. It has been sitting idle on the Keppel FELS shipyard in Singapore ever for the reason that firm was required to take supply of the rig in April 2020 (emphasis added by writer):
Borr Drilling Restricted (…) is happy to announce that its premium jack-up rig “Hild” has been awarded a contract from an undisclosed buyer for work in Latin America. The contract period covers a agency time period of 725 days and is anticipated to begin in Q3 2023, following the conclusion of the rig’s ongoing activation. The estimated contract worth is US$123 million, together with mobilization and demobilization charges.
Following this award, the entire Firm’s 22 delivered models at the moment are contracted or dedicated, with no open availability till late Q3 2023. Amidst an enhancing market, the Firm stays optimistic about recontracting alternatives for its premium fleet.
Adjusted for mobilization and demobilization charges, I’d estimate the “clear” dayrate to be between $150,000 and $160,000, basically according to the just lately introduced long-term contract for the premium jackup rig Arabia III (previously referred to as Frigg) within the Center East.
At these charges, the rigs are extremely worthwhile and generate respectable quantities of free money move.
Assuming Borr Drilling manages to safe follow-on work at comparable phrases for rigs scheduled to roll off contract over the following couple of quarters, I’d estimate annualized Adjusted EBITDA to extend to roughly $725 million, up considerably from administration’s projected vary of $360 million to $400 million for 2023.
Underneath this situation and even when contemplating the corporate’s substantial debt service obligations, annualized pre-tax free money move era ought to exceed $400 million.
Even higher, administration projected contract phrases to enhance even additional with expectations for premium jackup dayrates to extend to $175,000 within the second half of this 12 months.
At this degree and assuming the corporate succeeds in accelerating supply of its remaining two newbuild rigs, annualized EBITDA may strategy $1 billion by the tip of 2024, which ought to translate into annualized pre-tax free money move era north of $650 million.
That mentioned, it would nonetheless take a while for Borr Drilling to work by way of lower-priced legacy contracts and buyer extension choices signed in earlier years.
With the overwhelming majority of obtainable rig days for 2023 already contracted, there seems to be little or no execution threat for this 12 months, whereas the 2024 schedule supplies some respectable optionality for securing extra work at improved charges going ahead:
However the excellent news would not cease right here.
On the This autumn convention name, Borr Drilling Restricted administration acknowledged its intent to speed up the refinancing of the corporate’s 2025 debt maturities to allow the initiation of a dividend subsequent 12 months:
Please word that the corporate only in the near past accomplished a complete refinancing of near-term debt maturities.
Suffice to say, I’m very pleased with Borr Drilling Restricted inventory’s efficiency since I suggested traders to make use of any potential weak spot associated to the refinancing of a convertible bond in January to provoke or add to current positions.
As anticipated by me, shares have rallied to new multi-year highs following the profitable refinancing. They nonetheless commerce at simply 3.5x my 2025 EV/EBITDA estimate.
With the corporate prone to provoke a sizeable dividend in some unspecified time in the future subsequent 12 months, Borr Drilling’s shares stay a purchase.
At this level, I stay optimistic on your entire trade, together with main U.S. exchange-listed gamers Transocean Ltd. (RIG), Seadrill Restricted (SDRL), Valaris Restricted (VAL), Noble Company PLC (NE), Diamond Offshore Drilling, Inc. (DO), specialty drilling companies supplier Helix Power Options Group, Inc. (HLX) and offshore drilling assist suppliers like Tidewater Inc. (TDW) and SEACOR Marine Holdings Inc. (SMHI).