BORR

Good day. Thank you for standing by. Welcome to the Borr Drilling Ltd Q1 2026 results presentation webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Bruno Morand, CEO. Please go ahead.

Good morning, thank you for joining Borr Drilling's first-quarter earnings call. I'm Bruno Morand, and with me here today in Bermuda is Magnus Vaaler, our Chief Financial Officer. I would like to remind all participants that certain statements made on this call are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those projected in these statements. For further details, please refer to our latest public filings. On today's call, I'll start with a review of the first quarter and key developments since quarter end. Magnus will then cover financial results, after which I'll return to discuss contract activity and our market outlook. Before I begin, I would like to recognize our teams around the world for their continued commitment to safe and reliable operations. During the quarter, several rigs achieved important safety milestones.

The Gerd, Natt, and Mist each achieved seven years LTI 3, while the Saga and the Arabia III reached six and thre years respectively. The Norve also attained two years recordable incident three. These milestones reflect a strong safety culture across the organization, and I would like to thank all of my colleagues for their continued dedication to zero harm operations. Operationally, we delivered technical utilization of 99.4% and economic utilization of 97% in the first quarter. Revenue for the period was $247 million and adjusted EBITDA, [audio distortion] , primarily impacted by the delayed start-up of the [audio distortion] credit loss provision. During the quarter, the Odin completed its mobilization from Mexico, where operations had initially been expected to start in February.

The start-up was delayed due to disruptions during transit, additional contract preparation work, as well as approvals. While these delays are unfortunate, bringing the Odin into the U.S. was based on the long-term opportunity outlook in that market. I remain confident in the unique position with capabilities available to operators in the U.S. Gulf, and we believe the rig will remain well-placed to [audio distortion] region. Looking ahead, we expect second quarter results to continue to be affected by the delayed start-up of the Odin, now anticipated to commence in late June, as well as rig transition between contracts. During the quarter, rising tensions and hostility in the Middle East created disruptions, but we navigated with little financial impact. Most importantly, all of our personnel remain safe. I would like to thank our teams for their professionalism and flexibility that they've shown through this period.

As announced in April, following temporary suspensions, all affected rigs were called back to work. After resuming operations, the Groa and the Forseti have now completed their contract in Qatar. The Forseti remains with a variable charter with the former owner into December 2026. Our contracting strategy remains focused on increasing near-term coverage while balancing day rates and contract tenor. Since our last earnings report, we've secured eight contract commitments, representing more than 1,100 days of firm work. Full year 2026 coverage has increased to 71% at an average day rate of approximately $137,000, while second half 2026 coverage now stands at 65% as compared to 48% in the prior earnings report.

We also announced the acquisition of five premium jackup rigs from Paratus for $287 million through a new 50/50 joint venture with our long-standing Mexican well construction partners. This transaction will expand our fleet from 29-34 rigs and further strengthen our position in the Mexican market, while adding flexibility to two higher specification units with broader redeployment potential. In April, we successfully completed an upsized $300 million convertible senior notes offering due in 2033, using the proceeds to repurchase a significant portion of our 2028 convertible bonds. This transaction meaningfully extends our maturity profile and strengthens our capital structure ahead of what we expect to be a constructive market environment. Magnus will walk through this in more detail shortly. While the Middle East conflict has created near-term uncertainty, key tenders in the region continue to progress with some modest delays.

More broadly, in our view, recent events have strengthened the long-term outlook for the sector, providing for higher oil prices and a renewed focus on energy security. Shallow water basins continue to represent an attractive resource, offering low cost and short-cycle barrels. Due to our customers' planning and budgeting cycles, we expect that improved activities and day rates will lag oil price increase by 6-12 months. The dynamic was recently seen in 2022, when the military invasion of Ukraine caused oil price to spike and a corresponding increase in day rates occurred several quarters later. We are increasingly confident about the company's prospects for 2027 and 2028, as we expect disruptions from the conflict in the Middle East to be both substantial and long-lasting. With this backdrop, Borr Drilling's expanded fleet is well-placed to support our customers' demand and deliver long-term shareholder value as the cycle develops.

I will walk you through our business outlook in more color later in the call, but now I'll hand the call to Magnus to discuss the first quarter financial results.

Thank you, Bruno. I will now go into some details of the financials for the first quarter. Total operating revenues for Q1 were $247 million, a decrease of $12.4 million or 4.8% compared to Q4. This is mainly explained by a $15.5 million decrease in day rate revenue, offset by a $3 million increase in bareboat revenue. The decrease in day rate revenue is driven mainly by $10.4 million lower reimbursable expenses, in addition to fewer operating days combined with lower day rates for some rigs. The $3 million increase in bareboat charter revenue was due to more rigs earning bareboat revenues after the rig acquisition from Noble. The total operating expenses were $201 million, up $8.9 million or 4.6% versus Q4. The increase was primarily due to $4.7 million of increased depreciation following the five rig acquisition from Noble, and $4.6 million higher rig OpEx.

The increase in rig OpEx was primarily due to $8.4 million on credit loss provision that we incurred in the quarter, partly offset by lower reimbursable expenses of $7.4 million. In addition to this, financial expenses increased by $6.9 million in the quarter due to the recent seller credit financing incurred in connection with the Noble rig acquisition and the bond tap late last year. Overall, for the quarter, we had net loss of $29 million and adjusted EBITDA of $88.5 million, down $16.7 million quarter-on-quarter. The adjusted EBITDA was highly impacted by the non-operational matter of $8.4 million credit loss provision taken in the quarter. In addition, as mentioned, the Odin's delayed commencement was also impacting the adjusted EBITDA compared to expectations at the beginning of the year. In the first quarter, we recognized no revenues but started incurring standard operating expenses for the rig.

Going into Q2, the rig is continuing to undergo contract preparation and regulatory approvals, and we now expect the rig to commence operations in June. The rig is expected to incur additional contract preparation expenses of approximately $10 million in addition to standard OpEx before commencing its contract. Moving into cash. Cash at the end of the quarter was $246 million, but total liquidity was $480 million, including undrawn revolving credit facilities of $234 million. Cash and restricted cash decreased by $133.7 million in the quarter, primarily as a result of the following. We used $182.9 million in investing activities, consisting primarily of the $175.1 million cash spent to complete the Noble acquisition in January. In addition, we incurred $7.5 million of CapEx for long-term maintenance expenses and costs. The cash used in investing activities was offset by $48.1 million cash from operating activities.

This includes $6 million of interest payments and $6.7 million of taxes. Other financial events in the quarter that is worth highlighting, and as we have highlighted, is that we completed the five rig acquisition from Noble for a total purchase price of $360 million, partly financed by $150 million seller credits. We also issued $300 million of convertible notes post-quarter end. We mainly used the proceeds to repurchase and cancel $195.2 million of our 2028 convertible notes, which extends the maturity profile by five years until 2033. The new convertible has a coupon of 3.5% compared to 5% on the 2028, and has an improved conversion price increase to $8 per share. With this, I would like to pass the word back to Bruno.

Thank you, Magnus. Activity on the contracting front has continued to track largely in line with our expectations. Year-to-date 2026, we've secured 13 new commitments, adding approximately $274 million to our backlog. In Americas, Eni extended a Ran's contract in Mexico, keeping the rig firmly committed through September 2026. Additionally, the Sif, one of our recently acquired rigs from Noble, has secured a contract offshore Suriname for one well. Drilling is targeted to commence in July and has an estimated duration of 100 days. In West Africa, the Prospector five secured work with BW Energy in Gabon. The rig is scheduled to complete operations with Eni in Congo later this month before mobilizing to Gabon in early third quarter, following its scheduled SPS. The rig is now firmly committed into Q2 2027, with unpriced options that extend into 2028.

In Europe, the options on the Gerd were exercised, keeping the rig utilized through May. As a reminder, the rig was under the BBC to allow the previous owner to complete the ongoing accommodation work with Siemens. The Gerd will now demobilize later this month, and operations will be handed over from Noble to Borr. In Asia, the Scout received a 180-day contract with Vestigo in Malaysia and is scheduled to mobilize to the first well location later this month. The Thor also received two contract awards in Vietnam and is now committed to the first quarter of 2027. I remain proud of our continuous contracting success, which has a notable presence of repeat customers, demonstrating our strong relationships and ability to deliver safe and efficient operations. Recent awards have meaningfully increased our 2026 coverage, particularly in the second half.

We continue to work on several opportunities and remain optimistic in securing additional contracts in the coming months. Looking at our core markets around the globe, in the Middle East, visible open tender demand has further increased to 17 rigs. Although the current disruptions may delay activity in near-term, we believe its resolution will release pent-up demand that would likely be driven not only by deferred programs returning to the market, but also by the work required to restore shut-in wells and related infrastructure before production can return to pre-conflict levels. As a result, we see a credible pathway for incremental recovery-related demand once conditions normalize. Outside of the Middle East, we continue to receive positive customer signals across most of our operating regions, supporting our view that additional work is approaching the pipeline.

That is consistent with the broader trend we referenced earlier in our remarks and with the historical pattern that offshore activity typically responds with some lag as customers work through planning, budgeting, and procurement processes before converting demand into contracted work. In particular, I would like to highlight developments in Asia and Mexico. In Asia, we see signs of new requirements in Malaysia and Vietnam. While both countries are showing growth, they remain below past cycle jack-up counts and provide notable upside as the current environment progresses. Energy security is clearly a priority topic for many important countries, and we expect demand to accelerate as global disruptions impact their access to hydrocarbons. We have continued to execute at a high level in this competitive region and remain optimistic we will fill the majority of our 2026 available days in the near future. Additionally, we see rig demand increasing in China.

While not a location international contractors tend to operate, any notable demand pulling rigs into China has the potential to absorb a considerable amount of supply. As we have discussed in the past, Mexico continues to hold consequential shallow water production capacity, and we see jackup utilization as a fundamental variable in the formula for PEMEX to reach their stated production targets. Recent news of stacked rigs returning to work, along with a fresh market inquiry from PEMEX, leaves rigs in country well-suited to benefit from developing demand. Looking further ahead, we see our 2027 availability as strategically valuable. It gives us flexibility to participate in what we believe could be a stronger contract environment as demand and day rates continue to develop. Our approach remains balanced, continue building near-term coverage while preserving exposure to future upside. With that context, let's turn to the conclusions slide.

I'll leave you with a few key takeouts. First, renewed focus on energy security, coupled with improved project economics and elevated oil prices, will drive demand for jackups. Second, it's clear that we have near-term uncertainty in the Middle East. That being said, tenders are progressing, and we see an increasing likelihood of pent-up demand forming regionally and beyond. We continue to focus on increasing 2026 coverage and remain strategic in doing so while balancing rates and tenure. Finally, we have proven our ability to opportunistically grow our fleet as we see a favorable time in the cycle. At the same time, we continue to take actions to enhance capital structure to support long-term value shareholder creation. In conclusion, taking these points together, the broader message is clear. We are managing through near-term variability while positioning the company for stronger performance as the market improves.

With that, I'll now turn the call over to Q&A.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now take the first question from the line of Ben Sommers from BTIG. Please go ahead.

Hey, good morning, thank you for taking my questions. First, it was great to see you guys continue to grow the fleet during the quarter. I guess just kind of curious how we're thinking about expanding the fleet moving forward. You mentioned the ongoing focus on energy security and just higher oil prices creating a strong long-term macro environment. Just kind of curious how we think about potential fleet expansion down the road.

Very good, Ben. Thanks for joining. Thanks for the question. When we think about expansion, I think it's fair to say that we are pretty happy with what we achieved in late Q4 and into Q1 this year. Our fleet is now 34 rigs. I think it's a pretty interesting size as we complete the Paratus acquisition through the year. We are well-represented, in every market where we operate in different scale. I think in line what we comment before, I think any further expansion from here, I think is in a strategic flexibility that we have and is more a strategic mandate, let me put it this way. I think for now, out of the rigs that we acquired, we have a couple of them to put back to work, and that remains our priority in the near term.

We'll continue to monitor market to see if other opportunities are out there. I think at this time, our key priority is finding employment opportunities for these rigs before we look into further growth.

Super helpful. I appreciated the color on some notable regions. Kind of wanted to ask around West Africa, kind of curious anything you guys are seeing there then, potentially the longer term demand profile in that region once again, especially as you're seeing this ongoing, I guess, prioritization of energy security. Just kind of curious, in a region like West Africa, any color on the demand outlook?

Yeah, for sure, Ben. I know that we've seen already in the last few years, and I think more pronounced in the last several quarters now, that demand in West Africa has tracked positively and is being largely driven by Angola, Nigeria. I think that that continues. Oil price is supportive to development of some of those programs. In our conversations with customers, even wells that were maybe allocated to be drilled a bit far in the future, a bit further in the future, there is consideration about moving these programs forward. The demand in a region is likely in the near term to attract rigs from outside of the region that should help particularly regions like Asia, that have been more competitive. I think this is a very positive development. West Africa supply-demand balance is quite healthy.

What we have seen, including our recent fixtures, that continues to provide opportunity for us to print leading-edge rates. We see now as the cycle develops, that there are more longer-term opportunities popping in the market. That's all positively, it's a market that I think 400ft capable rigs tend to fare well because of their operational flexibility, and we are largely in control of the capacity of 400ft capable rigs in the region. That gives us, I think, a positive outlook in terms of maintaining the fleet contracted as well as pushing prices when we think we have a strategic positioning.

Great. Super helpful. Thank you for taking my questions.

Thanks for joining in.

Thank you. We will now take the next question from the line of Dan Kutz from Morgan Stanley. Please go ahead.

Hey, thanks. Morning. I wanted to ask, I guess something somewhat similar to the last line of questions, but just from a little bit different angle, and that's that, you guys have flagged some incremental demand in certain regions driven by energy security concerns. You flagged Southeast Asia, and you flagged Pemex in Mexico. I guess the question is Borr clearly has one of the highest spec fleets, if not the highest spec in the shallow water drilling space. I guess in a theoretical scenario where there's incremental demand pool outside of the Middle East, how do you think about how your fleet mix, is potentially positioned to benefit from that?

I know the Middle East tends to be a relatively high-spec market in terms of the mix of rigs that are working, but some of the other regions that you flagged have a higher mix of high-spec rig demand as well, like Asia-Pacific and Mexico. Yeah, just wondering if you could talk about how the new macro outlook plays into Borr's kind of fleet mix and mix overall.

Yeah. No, thanks for joining, Dan. Great question. The way I would frame it is, I think the higher specification of our rigs shouldn't be perceived as a limitation. I think much the opposite. I think our higher specification fleet is actually very well suited for higher specification work. We are in a position to compete very efficiently and effectively across all kinds of work, right? I think we're selective. The rigs are capable of delivering successful wells pretty much across all geographies. I think that gives us tremendous amount of flexibility. Maybe if I put into context and look at the larger picture, I think last quarter when we were reporting here in Q2, what did we have ahead of us?

We had a modern jackup fleet that was very resilient, still tracking around 90% utilization. We had developing demand largely geared towards the Middle East, where we saw about 13 rig requirements in the Middle East alone at that point in time. You fast-forward a quarter, what has changed effectively? I think the answer is, other than timing, nothing has changed, at least not negatively. Jackup utilization for modern rigs still tracking at 90%, meaning there's limited supply available out there. The demand in the Middle East that we counted at that point in time, potentially 13 rigs, has now increased to 17. I think the disruptions in large continue to drive incremental demand from what we saw in Q2 across the various geographies.

I think outside of the Middle East, it's clear that energy security is the driver in countries, I think particularly in Asia, that have been exposed to the availability of hydrocarbons, the limited availability of hydrocarbons. We see some of those discussions accelerating. If we look at the Middle East alone, obviously the timing may be variable, but ultimately, we are positive that incremental work is going to be needed to bring production capacity back to where it were. Wells, even in the Middle East, they don't work like light switches, and you turn them off and turn them back on, and they come online when you want, right? If you keep in mind that about 8%-10% of the global supply has been basically shutting, there's certainly a lot of work that is going to be needed in intervention, going into these wells, getting back into production.

That should drive a higher demand for rigs or a higher intensity for rigs. I think beyond that, if you look across the globe, SPRs across pretty much every country, every region, seem to be tracking at all-time low levels or definitely recent low levels. I think on top of that, once the situation normalizes, there will be an urgency to replenish those SPRs. That should drive as well a near-term demand that is perhaps higher than what we had coming into the conflict. I think the landscape is quite interesting here. The timing remains obviously a bit variable considering this conflict. In the context of that, having the highest specification rigs that can actually address demand, wherever it comes from, whether it's in West Africa, whether it's in Mexico, whether it's in Asia, I think it positions us very uniquely.

Certainly, if we find jobs that by default require only an exclusively high-specification rig, we're even better off. In any case, I think we're very well-positioned.

That's great color and context. Thank you. Maybe one on UAE. With UAE announcing its exit from OPEC, we're seeing some big incremental upstream investment and production growth plans coming out of UAE following that decision. Borr's one of the few contract drillers outside of ADNOC Drilling that works in the UAE, and so I was just wondering if you could talk about the implications of the UAE exit and the potential activity upside in that market and the implications for Borr, given your unique position as a company that does work in the UAE. Thanks.

For sure, Dan. I think it's obviously the developments in the UAE and then leaving OPEC are quite fresh, and we're yet to assess what that means a bit in the longer term. What seems clear to me is that they will continue with their ambition to increase their sustainable production capacity and ramp that up to the 5 million barrels that they've been targeting. Inevitably, I think that entails more jackups being needed, right? Whether it happens through ADNOC Drilling, whether they will be looking to foreign players to come and help, I think time will tell. The development is positive. We are currently located there, as you said, we do have established presence. We do have an operating reputation, we'll have to watch what happens.

I do think that inevitably a key component to Middle East growth or recovery at the moment lies in the shallow water barrels inevitably.

Great. All really helpful. Thanks, Bruno. I'll turn it back.

Thank you. We will now take the next question from the line of Doug Becker from Capital One. Please go ahead.

Thank you. Bruno, I want to ask a difficult hypothetical question about Middle East demand. If we just paint a scenario where the conflict continues to drag on, the strait remains closed, but kinetic activity is limited, how do you see Middle East jackup demand evolving in this kind of prolonged conflict situation?

Hey, Doug. Thanks for joining. Yeah. You're right. I think that if we look hypothetically about the strait remaining closed for a long time, inevitably you create eventually a situation where less activity is needed in the Gulf because otherwise you just don't have ability to export that production. How realistic I think it is at the moment that the world can actually afford the strait being closed for a long time, I think I would have questions about what can be effectively the full duration of that. The reality is that different than during the 2024 kind of Saudi suspensions terminations, the reality is that the Middle East for now is landlocked, right?

If the strait remains closed, the Middle East is landlocked, and any activity that results in other regions from that or any requirements that result from there will not be affected by rigs that will be available in the Middle East. I think that creates a bit of a unique dynamic compared to what we saw in the past. We have four rigs in the Middle East, which is not necessarily a small exposure, but I think it's very manageable at the moment. I think if you see that happening and you're now expecting commodity prices to be tracking way higher, because I think that's what you should think about if the Strait was to stay closed, activity in other places will pick up.

I do think that what that brings is an upside to economics and everything else that is likely to offset for us, in particular, our relatively small presence in the Middle East, if that makes sense.

No, that definitely makes sense. I wanted to shift to the U.S. Gulf. I know in the past you kind of mentioned it's a new frontier for Borr. There might be a bit of a learning curve. I was just hoping to get some more color on the contract prep and regulatory issues that Odin's been seeing, and what this might mean for additional rigs moving to the market going forward.

No, very good, Dan. See, I think it's fair to say that the performance of the Odin started in the U.S. as being lagging to what we would have expected. Starting rigs in new regions always come with a degree of challenge. I think over the last years, we've done that very successfully. If I look at a lot of the startups that we have, cross-regional startup, cross-country startup, I think we've maintained a pretty strong track record. Coming to the U.S., I think we found a bit more challenging than we would have anticipated. It's showing now in the delays, not only in terms of getting the rig ready, but as well as some challenges we had with the weather while we were moving the rig from Mexico to the U.S. that caused about a 40-day delay during that process alone.

As I said in the earlier remarks, we didn't bring a rig into the U.S. Gulf hoping to just patching short-term work. When we look at the U.S., what we saw is a market that was lacking high specification, shallow water capacity. If you think about the U.S. on the onshore side, tremendous amount of progress has been done in shale by using technology, new work practices to streamline the well progress, while offshore space, that market still heavily rely on 1970, 1980s rigs that had limitations in terms of how efficiently and effectively they can drill wells to the newer standards. The Odin coming to country stands alone in that space. It brings tremendous amount of capabilities that are related to factory drilling, how we accelerate wells, and we're getting a lot of traction from customers.

I was in the U.S. just a couple of weeks back and had a chance to engage with a lot of customers, and the commentary has been quite exciting about how they're looking at that, how they're interested to see the capability of the Odin, and how that will translate into well efficiencies. I think that the outlook is positive. We should be starting soon this work with Cantium. We have follow-on work with Exxon. I do believe there's a very good likelihood that, across these two customers, there could be more work coming. Lot of the chatter across the customers that we were able to see in the last couple of weeks in the U.S. I think that is how we're thinking about. In terms of incremental demand, I think it's possible.

At the moment for us, we need to get the housing order, get the Odin operating, make sure that we have very clear lessons learned from that so we're ready for a second rig, and at that time, we evaluate what the landscape looks like.

Thank you.

Thanks, Dan.

Thank you. As a reminder, to ask a question, please press star one and 1. We will now take the next question from the line of Josh Jayne from Daniel Energy Partners. Please go ahead.

Thanks. Good morning. Maybe you could just go into a little more discussion on line of sight for the rigs that are idle going back to work. Just given your comments around Mexico and Asia, are those two of the markets that you might expect them to go to work in? Maybe just elaborate further.

Thanks for joining, Josh. We have, indeed, line of sight for quite a few of our rigs, and I mentioned Asia and Mexico in particular, not so much because those are the only areas where we see potential in line of sight, just because those are the areas where we see very clear development in terms of incremental activity, for example, right? Our exposure is not only those regions. We have a few rigs that could become available in West Africa, for example. As I mentioned earlier here in the questions, it is a market where we see the demand steady and often positive enough to give us line of sight for continued work. Don't take my comment as Asia and Mexico being the only interesting markets. I think they are the ones that are clearly showing the earlier signs of demand recovery, right?

I think that's the way you should think about that, Josh.

Okay, thanks for that. Then I wanted to go back to M&A. You talked about it earlier. You've been pretty active with respect to acquiring assets over the last 12 months, and you talked earlier in Q&A about incremental transactions not being sort of a mandate, but most of the things announced were in motion pre-war. Could you just speak to how the M&A environment you think has potentially changed for the industry since the war started? Do you expect to see more consolidation, potentially, amongst your peers in the current environment?

Yeah. See, you're right. I think the consolidations that we completed or we announced were pre-war. I don't think that looking at the current context, that any of the developments in terms of the conflict, things that would have changed the outcome of our decisions. I think we're pretty pleased with the assets that we acquired, pretty pleased with the valuation, the structure of the deals that we're able to put together. As I said earlier, I do think that the conflict brings some uncertain terms of timing, but looking forward, it's hard to see a scenario where the outcome after the conflict is not actually a stronger demand for our service, for our jackups than it was coming into it, right? I think that's the way I think about it.

From our side at least, we're not having a different view to consolidation because of the conflict. As I said earlier, for us, the priority near term is to find employment for those rigs, and that's what we're focusing at the moment. The sector as a whole, I think, can do with more consolidation. I think consolidation is a good thing. It's not a bad thing, and it's in the jackup space, consolidation is good, not only for the contractors, but I do think that they are positive for the customers as well. I wouldn't think about the conflict having a significant bearing to decisions on M&A, at least not from our side. I agree that M&A is something that should be looked very seriously in the sector because it is still a fairly fragmented market in the jackups.

Understood. Thanks. I'll turn it back.

Thank you. There are no further questions at this time. I would now like to turn the conference back to Mr. Bruno Morand for closing remarks.

Thanks for joining, and thanks for your interest in Borr Drilling. I look forward to speaking to you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.