Borr Drilling Limited (BORR) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The company's earnings call highlights strong market fundamentals, with high utilization rates and strategic positioning in Mexico and West Africa. Positive developments include improved payment terms with Pemex, potential growth in Angola, and rising demand for natural gas. While management was vague on some specifics, the overall sentiment is optimistic. With a market cap of $1.63 billion, the stock is likely to see a positive movement of 2% to 8% over the next two weeks due to these favorable conditions and strategic initiatives.
Key Financial Performance
Revenue Revenue increased by $9.4 million quarter-over-quarter due to a $2.5 million increase in day rate revenue and a $6.4 million increase in bareboat charter revenue. The increase in day rate revenue was driven by higher operating days and day rates for specific rigs, while the increase in bareboat charter revenue was due to certain rigs becoming fully operational.
Adjusted EBITDA Adjusted EBITDA rose 2% to $135.6 million with a margin of 48.9%, reflecting the quality of earnings. This was an increase of $2.4 million from the prior quarter.
Operating Income Operating income increased by $1.5 million to $98 million, driven by higher revenues despite an increase in operating and maintenance expenses.
Net Income Net income for the quarter was $27.8 million, reflecting the overall improvement in financial performance.
Cash Position Free cash position at the end of Q3 was $227.8 million, an increase of $135.4 million from the prior quarter. This was driven by $72.1 million net cash provided by operating activities, offset by $33.9 million used in investing activities and $97.2 million provided by financing activities.
Income Tax Expenses Income tax expenses increased by $6.5 million due to a one-off deferred tax benefit recognized in the prior quarter, which was not present in the current quarter.
Operating and Maintenance Expenses Total rig operating and maintenance expenses increased by $6.3 million, primarily due to higher reimbursable expenses for the Grid rig.
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Operating Highlights
Fleet Utilization: 23 out of 24 rigs active, with technical utilization at 97.9% and economic utilization at 97.4%.
Revenue Growth: Revenue increased by $9.4 million quarter-over-quarter, with adjusted EBITDA rising 2% to $135.6 million.
New Commitments: Secured 22 new commitments year-to-date, adding $625 million to backlog.
Mexico Market: Secured 3 contract extensions in Mexico, with improved payment terms and reduced working capital needs. However, sanctions led to termination of some contracts.
Gulf of America and Angola Expansion: Announced new commitments in the Gulf of America and Angola, diversifying customer base and minimizing idle time.
Saudi Arabia and Middle East: Increased jack-up demand with Aramco recalling suspended rigs and new tenders in Kuwait and the neutral zone.
West Africa: Incremental demand materializing, with new contracts in Angola and Nigeria.
Operational Efficiency: Industry-leading operational execution with high utilization rates and streamlined fleet management.
Cash Position: Free cash position at $227.8 million, with total liquidity of $461.8 million.
Mexico Strategy: Diversified contract portfolio beyond Pemex to include IOCs and independents, reducing risk exposure.
Global Market Positioning: Positioned to benefit from tightening jack-up market and demand inflection in key regions like Saudi Arabia and Mexico.
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Risk or Challenges
Sanction-induced contract terminations in Mexico: The company had to issue termination notices for contracts in Mexico due to newly imposed international sanctions, leading to fewer operating days and impacting Q4 2025 results.
Payment delays in Mexico: Industry-wide payment timing challenges and temporary contract suspensions at Pemex have affected activity cadence, although some payments have resumed.
Increased operating and maintenance expenses: Total rig operating and maintenance expenses increased by $6.3 million, primarily due to reimbursable expenses for specific rigs.
Foreign exchange losses: Total financial expenses increased by $2.2 million, primarily due to foreign exchange losses.
Income tax increase: Income tax expenses increased by $6.5 million due to the absence of a one-off deferred tax benefit recognized in the prior quarter.
Volatile market conditions: The market remains volatile, with fluctuations in Brent crude prices and uncertainties in global utilization rates.
Dependence on Pemex in Mexico: Despite diversification efforts, the company still has one rig with direct Pemex payment exposure, posing a financial risk.
Transitioning rigs between contracts: Several rigs are transitioning between contracts, leading to fewer operating days and potential idle time.
Economic uncertainties in key markets: Economic uncertainties in regions like Saudi Arabia and Mexico could impact demand and operational stability.
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Guidance & Outlook
Full Year 2025 Adjusted EBITDA: Anticipated to be in the range of $455 million to $470 million, despite fewer operating days in Q4 due to rig transitions and sanction-induced contract terminations in Mexico.
Market Demand and Utilization: A tightening jack-up market is expected in the near to medium term, with higher utilization and day rate levels supported by demand inflection in Saudi Arabia and Mexico.
Fleet Coverage for 2025 and 2026: 2025 fleet coverage has reached 85% at an average day rate of $145,000. Full year 2026 coverage, including price options, stands at 62%, with 79% coverage in the first half of 2026. Utilization levels for the first half of 2026 are expected to increase.
Regional Market Trends: Incremental demand is visible in Saudi Arabia, Mexico, the Middle East, Southeast Asia, and West Africa. Saudi Aramco has called back several rigs, tightening supply in the region. Southeast Asia's market dynamics are expected to improve in 2026, and West Africa shows accelerating contract activity.
Mexico Operations: The company has diversified its contract portfolio in Mexico, reducing exposure to Pemex and increasing partnerships with IOCs and independents. Market turbulence in Mexico is expected to ease in 2026.
New Contracts and Mobilizations: Recent awards include a 6-month campaign in the Gulf of America starting January 2026 and a 6-month commitment in Angola beginning in Q1 2026. Additional mobilizations and contract extensions are planned in West Africa and Mexico.
Global Jack-Up Fleet: Global modern jack-up fleet utilization is approximately 93%. Demand increases in Asia and the Middle East are expected to reconcile current white space in the fleet over the next few quarters.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How do you view the next 12 to 24 months in the global jack-up market?
A:The market is improving with utilization levels at 93%, which is healthy. The rebalancing in the Middle East and ongoing tenders will likely lead to higher utilization and better day rates. Markets like West Africa are recovering faster, while Southeast Asia may take a quarter or two to see significant impact. Crude pricing is healthy for jack-ups, and no pricing movements are needed to spark additional activity.
Q:How does rising global demand for natural gas impact the jack-up market, particularly in Southeast Asia?
A:Rising demand for natural gas is expected to increase interest in gas projects globally. Projects in areas like Sarawak, Malaysia, are on hold due to political issues, but there is potential for offshore gas development by companies like Aramco. The company expects high interest from customers in developing gas projects.
Q:Can you provide details on the pricing for the two-year extensions on the Galar and Gersemi rigs in Mexico?
A:Specific numbers were not disclosed, but the day rates are slightly higher than current rates. Improved contract and payment terms were also negotiated to address collection issues in Mexico.
Q:What is your estimate for the Saudi Aramco jack-up rig count by 2027?
A:The rig count is expected to be in the high 60s to 70s, with a possibility of reaching the high 70s. Any increase from the current count of 55 rigs is likely to accelerate utilization and improve economics in the sector.
Q:What are your expectations for payments from Pemex in Mexico?
A:Payments have started flowing, with $17 million received in October. Payments are expected in November and December, with a return to normal monthly settlements. Improved payment terms in new contracts will cap outstanding payments, reducing working capital requirements.
Q:What is your stance on industry consolidation and potential M&A opportunities?
A:Consolidation is welcomed, and the company is open to opportunities that align with its strategy. Any M&A activity must not dilute the quality of the fleet and should support deleveraging efforts. The company will approach opportunities opportunistically.
Q:How do you balance portfolio diversification versus scale in specific markets?
A:The company focuses on large-scale operations in existing markets and expands into adjacent markets. For example, Angola is a natural growth opportunity due to its established presence in West Africa. The U.S. Gulf is not expected to be a large expanding market but is a strategic addition.
Q:Are there any changes to capital allocation priorities given the improved market outlook?
A:No changes are planned. Deleveraging remains a priority to position the company favorably for refinancing debt in 2028. Other priorities will be considered later.
Q:What is your outlook on the new build market for rigs?
A:No significant changes are expected. Supply chain challenges and the early stages of construction for some rigs make it unlikely for new builds to enter the market soon.
Q:What is your outlook for the Angola market?
A:Angola is a new area with substantial potential. The company has established infrastructure in West Africa, making Angola a natural growth opportunity. Activity levels in Angola and other West African markets are expected to increase.
Q:What is the plan for addressing receivables from Pemex?
A:The company is leveraging government mechanisms in Mexico to accelerate payments. New contract terms reduce exposure to Pemex payment friction, and efforts are ongoing to collect outstanding receivables.
Q:What is the expectation for the Hild rig and the impact of sanctions?
A:Operations on the Hild rig are winding down due to sanctions, with activities expected to finish by mid-November. The company is monitoring the situation and exploring opportunities for the rig, including potential redeployment.
Q:What are your expectations for operating cost trends?
A:Operating costs have been steady, with no significant changes expected. The company continues to find savings and streamline operations to offset inflation.
Q:What is your view on rig attrition and its impact on the market?
A:The older rig market is shrinking, with about 100 active rigs averaging over 40 years old. Attrition is expected due to lack of contracting opportunities and high maintenance costs. The company expects this trend to continue, benefiting the market.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the pricing for the Galar and Gersemi rigs in Mexico, only stating that rates are slightly higher. Additionally, they did not speculate on the exact number of rigs that could leave the market due to attrition or provide a clear plan for the Hild rig's future amid sanctions.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America Angola
Angola award
Arabia Mexico
Balder increase
Bermuda Chief
CEO result
Grid income
Grid suspension
Gulf America
Magnus result
Mexico increase
Mexico market
Mexico quarter
Mexico termination
Mexico world
Morand today
Mr Morand
Odin charter
Officer disclaimer
Pemex finance
Ran Thor
Subsequent end
Thor recognition
Today commitment
ability market
action Pemex
capital
charter increase
confidence
income increase
increase charter
increase day
increase decrease
increase trade
jack
number day
rate increase
receivables Mexico
sanction
trade receivables
BORR Transcript
Borr Drilling Limited (BORR) Q1 2026 Earnings Call Transcript
Neutral5-21
Borr Drilling Limited (BORR) Q4 2025 Earnings Call Transcript
Unknown2-19
The earnings call presents a mixed picture: strong liquidity and cash position, stable EBITDA, and positive market trends in Saudi Arabia and Mexico. However, the lack of clear guidance, net loss in Q4, and potential delays in rig deployment temper the outlook. The Q&A reveals cautious management communication and uncertainties in achieving EBITDA targets. Given the market cap of $1.63 billion, the stock is likely to experience limited volatility, resulting in a neutral short-term price movement.
Borr Drilling Limited (BORR) Q3 2025 Earnings Call Transcript
Positive11-6
The company's earnings call highlights strong market fundamentals, with high utilization rates and strategic positioning in Mexico and West Africa. Positive developments include improved payment terms with Pemex, potential growth in Angola, and rising demand for natural gas. While management was vague on some specifics, the overall sentiment is optimistic. With a market cap of $1.63 billion, the stock is likely to see a positive movement of 2% to 8% over the next two weeks due to these favorable conditions and strategic initiatives.
Borr Drilling Limited (BORR) Q2 2025 Earnings Call Transcript
Positive8-14
The earnings call highlights strong financial performance with increased operating income and net income, alongside a robust cash position. The strategic focus on securing contracts and optimizing fleet utilization, coupled with optimism in Mexico and potential M&A opportunities, adds positive sentiment. However, the suspension of dividends and lack of specific M&A details slightly temper enthusiasm. Given the company's small-cap status, the overall sentiment is positive, likely resulting in a stock price increase of 2% to 8% over the next two weeks.
BORR Report
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