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Borr Drilling(BORR) - 2024 Q4 - Annual Report
BORRBorr Drilling(BORR)2025-03-25 12:04
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Contractual and Operational Performance - The company experienced an increase in contracted rigs, with 21 rigs contracted as of December 31, 2022, 22 as of December 31, 2023, and maintaining 22 for December 31, 2024[45]. - The company delivered eight, nine, six, and eight newbuild jack-up rigs during 2021, 2022, 2023, and 2024, respectively, representing increases of approximately 2.0%, 2.4%, 1.86%, and 1.04% in the total worldwide fleet[47]. - The company's Total Contract Backlog as of December 31, 2024, was approximately 1,382.8million,relatingto23contractswithfirmtermsexpiringbetween2025and2029[81].−Thecompanymayfacechallengesinrenewingcontractsastheyexpire,whichcouldaffectitsTotalContractBacklog[43].−Thecompanyhasexperiencedearlyterminationsandsuspensionsofcontracts,whichmaynotfullycompensateforlostrevenues,impactingitsfinancialresults[76].−Thecompanyisatriskofnotsecuringfavorablecontractsforitsjack−uprigs,whichcouldleadtoidlingorstackingofrigsandassociatedcashexpenditures[78].FinancialConditionandDebtManagement−Thecompanyhassignificantdebtmaturitiesinthecomingyears,whichmayimpactitsabilitytooperateiffuturecashflowsareinsufficient[43].−AsofDecember31,2024,thecompanyhastotaldebtof1,382.8 million, relating to 23 contracts with firm terms expiring between 2025 and 2029[81]. - The company may face challenges in renewing contracts as they expire, which could affect its Total Contract Backlog[43]. - The company has experienced early terminations and suspensions of contracts, which may not fully compensate for lost revenues, impacting its financial results[76]. - The company is at risk of not securing favorable contracts for its jack-up rigs, which could lead to idling or stacking of rigs and associated cash expenditures[78]. Financial Condition and Debt Management - The company has significant debt maturities in the coming years, which may impact its ability to operate if future cash flows are insufficient[43]. - As of December 31, 2024, the company has total debt of 2,179.6 million, representing 63.7% of its assets[143]. - The company has scheduled final maturity dates for all its debt between 2028 and 2030, with annual amortization payments of approximately 134.7millionstartingin2024[142].−Thecompanyexpectstoneedtorefinanceorextenditsdebtpriortomaturityduetoinsufficientcashresources[142].−Thecompanyanticipatesthatasignificantportionofitscashflowwillbededicatedtoservicingitsdebt,limitingavailabilityforotherpurposes[151].−Thecompanymayfacedefaultsunderitsdebtinstrumentsifitisunabletorepayorrefinanceitsdebtasitbecomesdue[149].−Thecompanyisobligatedtofundanycapitalshortfallsassociatedwithcashcallstoshareholdersinitsjointventures,whichcouldsignificantlyimpactliquidity[86].MarketandEconomicConditions−Theoffshoredrillingindustryishighlycyclical,withperiodsoflowdemandandoversupplyadverselyaffectingbusinessoperations[44].−Oilpricesrangedfromapproximately134.7 million starting in 2024[142]. - The company expects to need to refinance or extend its debt prior to maturity due to insufficient cash resources[142]. - The company anticipates that a significant portion of its cash flow will be dedicated to servicing its debt, limiting availability for other purposes[151]. - The company may face defaults under its debt instruments if it is unable to repay or refinance its debt as it becomes due[149]. - The company is obligated to fund any capital shortfalls associated with cash calls to shareholders in its joint ventures, which could significantly impact liquidity[86]. Market and Economic Conditions - The offshore drilling industry is highly cyclical, with periods of low demand and oversupply adversely affecting business operations[44]. - Oil prices ranged from approximately 71.03 to 97.10in2023andfromapproximately97.10 in 2023 and from approximately 70.31 to 93.12in2024,indicatingsignificantvolatilitythatimpactsdrillingactivity[48].−Theimpactofgeopoliticaltensions,suchastheRussianinvasionofUkraine,hascontributedtovolatilityinoilprices,affectingdemandfordrillingservices[49].−Thecompanyisexposedtopotentialdeclinesindemandforitsservicesduetotheglobaltransitiontowardsrenewableenergyandloworzerocarbonalternatives,whichmayimpactitscustomers′capitalexpenditurebudgets[58].−Currentglobaleconomicconditions,includingmilitaryactionsandsanctions,haveimpactedcapitalmarketsandmaycontinuetoaffectthecompany′sabilitytoraisecapital[158].RegulatoryandComplianceRisks−Thecompanymayfaceincreasedcompliancecostsandoperationalrestrictionsduetocurrentandfutureregulationsrelatedtorenewableenergytransitions[59].−Compliancewithcomplexlawsandregulationsgoverninginternationaldrillingcouldincreaseoperatingcostsandlimitdrillingactivity[170].−Thecompanyissubjecttocomplexandevolvingtaxlawsacrossmultiplejurisdictions,whichmayleadtohighertaxliabilitiesandeffectivetaxrates[203].−Futuregovernmentregulationsrelatedtoclimatechangemayrequiresignificantfinancialexpendituresforcompliance,includingnewemissioncontrols[207].−Regulatoryenforcementinprivacyanddataprotectionisincreasing,potentiallyimpactingthecompany′sreputationandoperationalcosts[197].OperationalChallengesandRisks−Thecompanyfacesrisksfromgeopoliticaltensions,includingtheRussianinvasionofUkraineandconflictsintheMiddleEast,whichcouldleadtoincreasedvolatilityinoilandgasprices,adverselyaffectingrevenuesandprofits[57].−ThecompanyisexposedtorisksrelatedtotechnologicalobsolescenceandthegrowingimportanceofArtificialIntelligence(AI)intheoilandgasindustry[42].−Therelianceonartificialintelligence(AI)technologiesisincreasingintheoilandgasindustry,andfailuretoeffectivelyintegrateAIcouldadverselyaffectthecompany′scompetitivepositionandprofitability[69].−Thecompanyincurssignificantactivationandreactivationcostsfornewbuildjack−uprigs,historicallyrangingfrom93.12 in 2024, indicating significant volatility that impacts drilling activity[48]. - The impact of geopolitical tensions, such as the Russian invasion of Ukraine, has contributed to volatility in oil prices, affecting demand for drilling services[49]. - The company is exposed to potential declines in demand for its services due to the global transition towards renewable energy and low or zero carbon alternatives, which may impact its customers' capital expenditure budgets[58]. - Current global economic conditions, including military actions and sanctions, have impacted capital markets and may continue to affect the company's ability to raise capital[158]. Regulatory and Compliance Risks - The company may face increased compliance costs and operational restrictions due to current and future regulations related to renewable energy transitions[59]. - Compliance with complex laws and regulations governing international drilling could increase operating costs and limit drilling activity[170]. - The company is subject to complex and evolving tax laws across multiple jurisdictions, which may lead to higher tax liabilities and effective tax rates[203]. - Future government regulations related to climate change may require significant financial expenditures for compliance, including new emission controls[207]. - Regulatory enforcement in privacy and data protection is increasing, potentially impacting the company's reputation and operational costs[197]. Operational Challenges and Risks - The company faces risks from geopolitical tensions, including the Russian invasion of Ukraine and conflicts in the Middle East, which could lead to increased volatility in oil and gas prices, adversely affecting revenues and profits[57]. - The company is exposed to risks related to technological obsolescence and the growing importance of Artificial Intelligence (AI) in the oil and gas industry[42]. - The reliance on artificial intelligence (AI) technologies is increasing in the oil and gas industry, and failure to effectively integrate AI could adversely affect the company's competitive position and profitability[69]. - The company incurs significant activation and reactivation costs for newbuild jack-up rigs, historically ranging from 11 million to 20millionperrig[100].−Theconstructionofnewbuildjack−uprigsissubjecttorisksofdelaysandcostoverruns,whichcouldmateriallyimpactthecompany′sfinancialperformance[101].HumanResourcesandStaffing−Limitedavailabilityofqualifiedpersonnelisexpectedtoincreaseoperatingcostsandimpactstaffingfordrillingoperations[103].−Theabilitytoattractandretainskilledpersonneliscriticalforoperations,withtrainingandcertificationrequirementsposingadditionalchallenges[106].−Collectivebargainingagreementsmayleadtohigherpersonnelcostsandoperationalrestrictions[105].−Thecyclicalnatureoftheoffshoredrillingindustryiscausingupwardpressureonwages,complicatingstaffingandincreasingoperationalrisks[104].EnvironmentalandSustainabilityConcerns−Thecompanyfacesadverseeffectsfromclimatechange,includingincreasedregulationandreduceddemandforoilandgasservices,whichcouldsignificantlyimpactfinancialandoperationalperformance[208].−Severeweathereventslinkedtoclimatechangemaydamageequipmentanddisruptoperations,affectingmajorcustomersandleadingtofinanciallosses[209].−GrowingscrutinyonsustainabilityandESGpracticesmayhinderaccesstocapital,asinvestorsincreasinglyfocusonthesefactorswhenmakinginvestmentdecisions[210].−ThecompanymayneedtoimplementstricterESGstandardstoretainandattractinvestors,withpotentialcostsandresourcerequirementsforcompliance[212].ShareholderandMarketDynamics−Thefivelargestcustomersaccountedfor5520 million per rig[100]. - The construction of newbuild jack-up rigs is subject to risks of delays and cost overruns, which could materially impact the company's financial performance[101]. Human Resources and Staffing - Limited availability of qualified personnel is expected to increase operating costs and impact staffing for drilling operations[103]. - The ability to attract and retain skilled personnel is critical for operations, with training and certification requirements posing additional challenges[106]. - Collective bargaining agreements may lead to higher personnel costs and operational restrictions[105]. - The cyclical nature of the offshore drilling industry is causing upward pressure on wages, complicating staffing and increasing operational risks[104]. Environmental and Sustainability Concerns - The company faces adverse effects from climate change, including increased regulation and reduced demand for oil and gas services, which could significantly impact financial and operational performance[208]. - Severe weather events linked to climate change may damage equipment and disrupt operations, affecting major customers and leading to financial losses[209]. - Growing scrutiny on sustainability and ESG practices may hinder access to capital, as investors increasingly focus on these factors when making investment decisions[210]. - The company may need to implement stricter ESG standards to retain and attract investors, with potential costs and resource requirements for compliance[212]. Shareholder and Market Dynamics - The five largest customers accounted for 55% of the company's revenue for the year ended December 31, 2024, indicating a reliance on a limited customer base[89]. - The company has 244,926,821 common shares outstanding, with Related Parties owning approximately 7.9% of total shares, which may influence market dynamics[225]. - Future sales of equity securities could dilute existing shareholders and negatively impact share prices, especially if significant amounts are sold[226]. - The board declared cash distributions of 0.10 per share for Q1 and Q2 2024, and $0.02 per share for Q3 and Q4 2024, subject to future performance and financial conditions[232]. - The fluctuating market price of common shares may be influenced by various factors, including operating performance and investor sentiment[219].