Borr Drilling Limited

Good morning and thank you for joining Board Drilling's first quarter earnings call. I'm Bruno Moran and with me here today in Bermuda is Magnus Waller, our Chief Financial Officer. I'd 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 findings. 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'd 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, NAT, and MIST each achieved seven years LTI-free, while the SAGA and the Arabia III reached six and three years respectively. The NORVA also attained two years recordable incident-free. 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 of $8.5 million, primarily impacted by the delayed startup of the Oden $14 million credit loss provision. During the quarter, the Oden completed its mobilization from Mexico of where operations had initially been expected to start in February. However, the startup was disruptions during transit, additional contract preparation work approvals. While these delays are important, into the U.S. was based on the long-term opportunity outlook in the market. I remain confident with the positions with capabilities as available to operators in the U.S. Gulf, and we believe the rate will remain well-placed to secure the region. Looking ahead, we expect second quarter results to continue to be affected by the delayed startup of the old one, now anticipated to commence in late June, as well as rich transition . During the quarter, rising tensions and hostilities in the Middle East created disruptions, but 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 have 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 on the bearable charter with the former owner until December 2026. Our contracting strategy remains focused on increasing year-term coverage for balancing day rates and contract enter. 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 Jacob rigs from Paratus for $287 million through a new 50-50 joint venture with our longstanding Mexican well construction partners. This transaction will expand our fleet from 29 to 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 upside 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 strengthen our capital structure ahead of what we expect to be a constructive market environment. We'll walk through this in more detail shortly. While the Middle East conflict has created near-term uncertainty, key standards 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 lead to oil price increase by six to 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. Therefore, 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, board drilling's expanded fleet is well-placed to support our customer demand and deliver long-term shareholder value as the cycle develops. I'll walk you through our business outlook more thoroughly 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 bare-bolt 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 bare-bolt charter revenue was due to more rigs earning bare-bolt revenues after the rig acquisition from Noble. The total operating expenses were 201 million 8.9 million or 4.6% versus Q4. The increase was primarily due to 4.7 million of increased depreciation following the FIRI acquisition from Noble and 4.6 million by Rigopex. The increase in Rigopex was primarily due to 8.4 million on credit losses 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 Novo acquisition, Novo reacquisition, 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 RIC. Now 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. Now, moving into cash, cash at the end of the quarter was 246 million. The 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 novel acquisition in January. In addition, we incurred 7.5 million 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. All the financial events in the quarter that is worth highlighting and that 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 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 contract in 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 runs 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 5 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 SDS. The rig is now firmly committed into Q2 2027 with unpriced options that extend into 2028. In Europe, the options on the duro were exercised keeping the rig utilised 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 Joro will now demobilise later this month and operations will be handed over from Noble to Boer. In Asia, the Scout received a 180-day contract with Vesigo in Malaysia and is scheduled to mobilise to the first well location later this month. The Tor 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 the near term, we believe its resolution will release tens of demand that would likely be driven not only by deferred programs returned 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 referred to 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 in Mexico. In Asia, we see signs of new requirements in Malaysia and Vietnam. While both countries are showing growth, they remain below best cycle Jacob counts and provide notable upside as the current environment progresses. Energy security is clearly a priority topic for net 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 fuel 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 pooling rigged 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 jack-up utilization as a fundamental variable in the formula for PMAX to reach these data production targets. Recent news of StackRig's return to work, along with a fresh market inquiry from PMAX, leaves RIGS and 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 contracting 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 conclusion slide. I'll leave you with a few key take-outs. First, renewed focus on energy security coupled with improvement in 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, standards 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 tenor. And 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. So, in conclusion, taking these points together, the broader message is clear. We are managing through near-term variability while position 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 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. We will now take the first question. From the line of Ben Summers from BTIG, please go ahead.

Hey, good morning. Thank you for taking my question. So 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. And, you know, you mentioned the ongoing focus on energy security and just, you know, higher oil prices creating a strong long-term macro environment. So just kind of curious how we think about, you know, 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 Parapas acquisition through the year. And we are well-represented in in every market where we operate in decent scale. So I think in line with what we commented before, I think any further expansion from here, I think is a strategic flexibility that we have, and it's not a strategic mandate, let me put it this way. I think for now we have, 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 the market to see if other opportunities are out there, but I think at this time, our key priority is finding employment opportunities for these rigs before we look into further growth.

Super helpful, and 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 you know, 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. And we've seen already in the last few years, and I think more pronounced in the last several quarters now, that demanding West Africa has tracked positively and is being largely driven by Angola, Nigeria. I think that that continuous oil price is supportive to development of some of those programs. And 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. And I think this is a very positive development West Africa supply-demand balance is quite healthy. What we have seen, including our recent features, that that continues to provide opportunity for us to print leading-edge rates. And we see now, as the cycle develops, that there are more longer-term opportunities pop in the market. So that's all positively. It's a market that I think 400-foot capable rigs tend to fare well because of their operational flexibility. And we are largely in control of the capacity of 400 fleet-capable rigs in the region. So 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 strategic positioning.

Great. Super helpful. Thank you for taking my questions. Thanks for joining me.

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

Hey, thanks. Morning. So 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, so, you know, you guys have flagged 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, war clearly has one of the highest spec fleets, if not the highest spec in the shallow water drilling space. And I guess in a theoretical scenario where there's incremental demand pool outside of the Middle East, how do you think about it? how your fleet mix um 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 from the other regions that you flagged uh have a higher mix of high spec rig demand as well like asia pacific and and you know and and mexico um but yeah just wondering if you could talk about how if the new macro algorithm plays into or kind of feeds in the quality of the rigs?

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, but we are in a position to compete very efficiently and effectively across all kinds of work, right? I think we're selective, but the rigs are capable of delivering successful wells pretty much across all geographies. So I think that gives us tremendous amount of flexibility. You know, and maybe if I put into context and look at the larger picture of things, Last quarter, when we were reporting here in Q2, what did we have ahead of us? We had a modern jack-up fleet that was very resilient, still tracking around 90% utilization, and 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. Now you fast forward a quarter, what has changed effectively? And 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. And 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 you 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 we were. I mean, 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? And if you keep in mind that about 8% to 10% of the global supply has been basically shut in, 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 density for rigs. But I think beyond that, if you look across the globe, SPRs across pretty much every country, every region seems to be tracking at all time low levels or definitely recent low levels. So 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. So I think that the landscape is quite interesting here. The timing remains obviously a bit variable considering this conflict. So in the context of that, having the highest specification rigs that can actually address demand, whatever 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 or even better off. But in any case, I think we're very well positioned.

That's great color and context. Thank you. And then maybe one on UAE. I guess with the UAE announcing exit from OPEC and, you know, we're seeing some big incremental upstream investment and production growth plans coming out of UAE. Following that decision, you know, BOR is one of the few contract drillers outside of Ad Knock Drilling that works in the UAE. And, you know, so I was just wondering if you could talk about the implications of the UAE exit and the potential upside, activity upside in that market and, you know, the implications for BOR given your unique position as a company that, you know, does work in the UAE. Thanks.

Oh, for sure, Ben.

And I think it's obviously the development 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. And inevitably, I think that entails more jackups being needed, right? Whether it happens through adeno drilling, whether they're looking to... foreign players to come and help, I think time will tell, but the development is positive. We are currently located there, as you said, so we do have established presence, we do have an operating reputation, and 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. 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 jack-of-demand evolving in this kind of prolonged conflict situation hey Doug thanks for joining yeah so you're right I think that

If we look hypothetically about the straight bean 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 the ability to export that production. How realistic I think it is at the moment that the world can actually afford the straight bean 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 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 would be available in the Middle East. So I think that 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. So I don't think that, 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 this rate was to stay close, activity in other places will pick up. And 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 bore. There might be a bit of a learning curve. We're just hoping to get some more color on the contract prep and regulatory issues the ODIN's been seeing and what this might mean for additional rigs moving to the market going forward.

No, very good, Doug. And see, I think it's fair to say that the performance of the old and started in the U.S. has been lagging to what we would have expected. Starting raising 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., we found a bit more challenging than we would have anticipated, and 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 the 40-day delay during that process alone. Now, as I said in the earlier remarks, we didn't bring a rig into the U.S. Gulf hoping to just patch in short-term work. When we look at the U.S., what we saw is a market that was lacking high specification, shallow water capacity. I mean, if you think about the US 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 1970s, 1980s rigs that have limitations in terms of how efficiently and effectively they can drill wells to the newest standard. So the old and 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 old and how they will translate into well efficiencies. So 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 that could be more work coming, but a lot of the chatter across the customers that we were able to see in the last couple of weeks in the U.S. So I think that that is how we're thinking about. Now, in terms of incremental demand, I think it's possible at the moment for us, we need to get the housing order, get the old and 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, Doug.

Thank you. As a reminder, to ask a question, please press star 1 and 1. We will now take the next question from the line of Joshua Jane 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 developments in terms of incremental activity, for example. But our exposure is not only those regions. We have a few leagues that could become available in West Africa, for example. And 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. So don't take my comment as Asia and Mexico being The only interesting markets, I think there 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, Joshua.

Okay, thanks for that. And 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? And do you expect to see more consolidation potentially amongst your peers in the current environment?

Yeah, you're right. I think the consolidations that we completed or we announced pre-war, I don't think that looking at the current context that any of the developments in terms of the conflict seems 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 deal that we're able to put together. And 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 and for our jackups than it was coming into it, right? So I think that's the way I think about it. Now, from our side, at least, we're not having a different view to consolidation because of the conflict. Clearly, as I said earlier, for us, the priority here is to find employment for those rigs, and that's what we're focusing on at the moment. The sector as a whole, think can do with more consolidation. I think consolidation is a good thing. It's not a bad thing. And it's in the Jacob space. The consolidation is good, not only for the contractors, but I do think that they are positive for the customers as well. So I don't think that I wouldn't think about the conflict having a significant bearing to decisions on M&A, at least not from our side. But I agree that M&A is something that should be looked very serious in the sector because it is still a fairly fragmented industry. 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 Moran for closing remarks.

Thanks for joining and thanks for your interest in board drilling. I look forward to speaking to you next quarter.