UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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| ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20202023
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition periods from ______________________ to______________________
OR
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| ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report..................
Commission File Number: 001-39007
Borr Drilling Limited
(Exact name of registrant as specified in its charter)
Bermuda
(Jurisdiction of incorporation or organization)
S.E. Pearman Building
2nd Floor 9 Par-la-Ville Road
Hamilton HM11 Bermuda
+1 (441) 737-0152542-9234
(Address of principal executive offices)
Georgina SousaMi Hong Yoon
2nd Floor 9 Par-la-Ville Road
Hamilton HM11 Bermuda
+1 (441) 737-0152542-9234
James A. McDonald
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
40 Bank Street, Canary Wharf22 Bishopsgate
London E14 5DSEC2N 4BQ England
+44(0)44 (0)20 7519 7183
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Classeach class | | Trading Symbol | | Name of Each Exchangeeach exchange on Which Registeredwhich registered |
Common shares of par value $0.05$0.10 per share | | BORR | | The New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
As of December 31, 2020,2023, there were 218,858,990 common252,582,036 common shares outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐☒ No ☒☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐☒ Accelerated filer ☒☐ Non-accelerated filer ☐ Emerging growth company ☒☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☒☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☐
TABLE OF CONTENTS
NOTE ON THE PRESENTATION OF INFORMATION
We have prepared this annual report using a number of conventions, which you should consider when reading the information contained herein. In this annual report, unless the context otherwise requires, (i) references to “Borr Drilling Limited,” “Borr Drilling,” the “Company,” the “Registrant,” “we,” “us,” “Group,” “our” and words of similar import refer to Borr Drilling Limited and its consolidated subsidiaries, (ii) references to our “Board” or “Board of Directors” refer to the board of directors of Borr Drilling Limited as constituted at any point in time and “Director” or “Directors” refers to a member or members of the Board, as applicable, (iii) references to “Borr Drilling Management UK” refers to our subsidiary Borr Drilling Management (UK) Ltd (iv) references to our “Memorandum,” each provision thereof a “Clause,” or the “Bye-Laws,” each provision thereof a “Bye-Law,” refer to the memorandum of association and the amended and restated bye-laws of Borr Drilling Limited, respectively, each as in effect from time to time, (v) references to “Magni” or “Magni Partners” refers to Magni Partners (Bermuda) Limited, (vi) references to “Ubon” refer to Ubon Partners AS, (vii) references to “Drew” refer to Drew Holdings Limited,Ltd., (vii) references to our “2028 Notes” refer to our $1,025.0 million senior secured notes due 2028, (viii) references to our “DNB Revolving Credit Facility” or “DNB RCF”“2030 Notes” refer to our historical revolving credit facility with DNB Bank ASA,$515.0 million senior secured notes due 2030, (ix) references to our “Guarantee Facility”the “Notes” refer to our historical guarantee facility with DNB Bank ASA,the 2028 Notes and 2030 Notes together, (x) references to our “Bridge Facility” or “Bridge RCF” refer to our historical revolving credit facility with Danske Bank A/S and DNB Bank ASA, (xi) references to our “Hayfin Facility” refer to our term loan facility with Hayfin Services LLP, among others, (xii) references to our “Syndicated Facility” refer to our senior secured credit facilities with DNB Bank ASA, Danske Bank, Citibank N.A., Jersey Branch, Clifford Capital Pte. Ltd. and Goldman Sachs Bank USA, (xiii) references to our “New Bridge Facility” refer to our senior secured revolving credit facility with DNB Bank ASA and Danske Bank, (xiv) references to our “Convertible Bonds” refer to our $350.0$250 million convertible bonds due 2023, (xv)in 2028, (xi) references to our “jack-up rigs” shall be deemed“Super Senior Credit Facility” refer to include our semi-submersible rig (as the context may require) which was sold in 2020, (xvi)$180 million super senior credit facility, comprised of a $150 million Revolving Credit Facility and a $30 million Guarantee Facility, with DNB Bank ASA and Citibank N.A, Jersey Branch, (xii) references to our “Reverse Share Split” refer to the conversion of each of our shares into 0.20 shares, resulting in a reverse share split at a ratio of 5-for-1. Unless otherwise indicated, all share and per share data in this annual report are adjusted to give effect to our Reverse Share Split and is approximate due to rounding, (xvii) references to “Schlumberger” refer to Schlumberger Limited and affiliates and where this term is used to refer to one of our shareholders, means Schlumberger Oilfield Holdings Limited, (xviii) references to Mexican JVs“Mexican JVs” refers to Opex Perforadora S.A. de C.V. (“Opex”), Perforadora Profesional AKAL I, SA de CV (“Akal”), Perforaciones Estrategicas e Integrales Mexicana S.A. de C.V. (“Perfomex”) and Perforaciones Estrategicas e Integrales Mexicana II, SA de CV (“Perfomex II”) as the context may require, and (xix)(xiii) references to our “Shares”“Paragon” refer to our outstanding common shares of par value $0.05 per share.Paragon Offshore Limited, (xiv) r
References in this annual reporteferences to our “Financing Arrangements” refer to our Hayfin Facility, Syndicated Facility, New Bridge Facility, convertible bonds and shipyard delivery financing arrangements described more fully herein, collectively, including the agreements and other terms governing our Hayfin Facility, Syndicated Facility, New Bridge Facility, Convertible Bonds and delivery financing arrangements, respectively.
References in this annual report to (i) the “SEC” refer to the United States Securities and Exchange Commission and (ii) “U.S. GAAP” refer to the generally accepted accounting principles in the United States as in effect at any point in time.
References in this annual report to “Keppel”“Seatrium” and “PPL” refer to the shipyards Seatrium New Energy Limited (formerly known as Keppel FELS LimitedLimited) and PPL Shipyard Pte Ltd., respectively, including their respective subsidiaries and affiliates as the context may require.require and (xv) references to our “Shares” refer to our outstanding common shares, par value $0.10 per share.
References in this annual report to “NDC,” “Total,” “ExxonMobil,” “TAQA,” “BW Energy,” “Spirit Energy,” “Tulip,”“Pan American Energy”, “Chevron” and “ENI”(i) the "SEC" refer to our key customers the National Drilling Company, Total S.A., Exxon Mobil Corporation, Abu Dhabi National Energy Company PJSC, BW Offshore Limited, Spirit Energy Limited, Tulip Oil Holding B.V., Pan American Energy S.L., Chevron CorporationUS Securities and ENI SpA respectively, including their respective subsidiariesExchange Commission and affiliates as(ii) "U.S. GAAP" refer to the context may require.generally accepted accounting principles in the United States.
ReferencesUnless otherwise indicated, all share and per share data in this annual report are adjusted to “ABS” refergive effect to the American BureauDecember 2021 conversion of Shipping.each of our shares into 0.5 shares, resulting in a reverse share split at a ratio of 2-for-1 and are approximate due to rounding.
PRESENTATION OF FINANCIAL INFORMATION
We produce financial statements in accordance with U.S. GAAP and all financial information included in this annual report is derived from our U.S. GAAP consolidated financial statements, except as otherwise indicated. In particular, this annual report contains certain non-U.S. GAAP financial measures which are defined under “Item 3.A Selected Financial and Other Data.”
Our consolidated financial statements included in this annual report comprise ofour consolidated statements of operations, comprehensive loss,income/(loss), changes in shareholders’ equity, and cash flows for the years ended December 31, 2020, 20192023, 2022 and 20182021 and
consolidated balance sheets as of December 31, 20202023 and 20192022 (“Audited Consolidated Financial Statements”). We present our consolidated financial statements in U.S. dollars.
Unless otherwise indicated, all references to “U.S.$” and “$” in this annual report are to, and amounts are presented in, U.S. dollars. All references to “€,” “EUR,” or “Euros” are to the single currency of the European Monetary Union, all references to “£,” “Pounds” or “GBP” are to pounds sterling. All references to “NOK” are to Norwegian Kroner.
NON-U.S. GAAP FINANCIAL INFORMATION
In this annual report, we disclose non-GAAP financial measures, namely Adjusted EBITDA, each as defined under “Item 3.A Selected Consolidated"Item 5. Operating and Financial Review and Other Data.” Each of these measures areProspects". This measure is an important measures used by us, and our businesses,measure that we use to assess financial performance. Adjusted EBITDA is a non-GAAP financial measure and as used herein represents net lossincome/(loss) adjusted for: depreciation and impairment of non-current assets, amortization of contract backlog, income/(loss)other non-operating income, income from equity method investments, interest income, interest capitalized to newbuildings, foreign exchange loss (gain), net, othertotal financial expenses, interest expense, gross, change in unrealized loss on call spread transactions (as defined in note 19 to the Consolidated Financial Statements), (loss)/gain on forward contracts, gain from bargain purchase, amortizednet, amortization of deferred mobilization and contract preparation costs, amortizedamortization of deferred mobilization, demobilization and other revenue, and income tax expense.tax. We present Adjusted EBITDA because we believe that it and other similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance. We believe Adjusted EBITDA provides meaningful information about the performance of our business and therefore we use it to supplement our U.S. GAAP reporting. Moreover, our management uses Adjusted EBITDA in presentations to our Board to provide a consistent basis to measure operating performance of our business, as a measure for planning and forecasting overall expectations, for evaluation of actual results against such expectations and in communications with our shareholders, lenders, bondholders, rating agencies and others concerning our financial performance. We believe that Adjusted EBITDA improvesincreases the comparability of year-to-year results and is representative of our underlying performance and against the performance of other companies by excluding the items discussed above, although Adjusted EBITDA has significant limitations, including not reflecting our cash requirements for capital or deferred costs, rig reactivation costs, newbuild rig activation costs, taxes or debt
service. Non-GAAP financial measures may not be comparable to similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our net income or other operating results as reported under U.S. GAAP.
MARKET AND INDUSTRY DATA
In this annual report, we present certain market and industry data. Certain information contained in this annual report regarding our industry and the markets in which we operate is based on our own internal estimates and research. This information is based on third party services which we believe to be reliable. Unless otherwise indicated, the basis for any statements regarding our competitive position in this annual report is based on our own assessment and knowledge of the market in which we operate. Forward-looking information obtained from third party sources is subject to the same qualifications and the uncertainties regarding the other forward-looking statements in this annual report.
Market data and statistics are inherently predictive and subject to uncertainty and do not necessarily reflect actual market conditions. Such statistics are based on market research, which, itself, is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. As a result, investors should be aware that statistics, statements and other information relating to markets, market sizes, market shares, market positions and other industry data set forth in this annual report, including in the section entitled “Item 4.B4.B. Business Overview—Industry Overview” (and projections, assumptions and estimates based on such data) may not be reliable indicators of our future performance and the future performance of the offshore drilling industry. See the sections entitled “Item 3.D3.D. Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report and any other written or oral statements made by us or on our behalf may include forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Sections of this annual report on Form 20-F entitled "Risk Factors," "Business""Business Overview" and "Management's Discussion"Operating and Analysis of Financial ConditionReview and Results of Operations,Prospects," among others, discuss factors which could adversely impact our business and financial performance.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” "goals,", “intend,” “plan,” "projection", “believe,” “likely to” "target", "outlook" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, liquidity requirements, business strategy and financial needs. These forward-looking statements include statements about plans, objectives, goals, strategies, outlook, prospects, future events or performance, underlying assumptions, expected industry trends, including the attractiveness of shallow water drilling and activity levels in the jack-up rig and oil industry, day rates, market outlook, contract backlog, expected contracting and operation of our jack-up rigs, drilling contracts, and contract terms, including expectations with respect to contracting available rigs including warm stacked rigs, expected industry trends including with respect to demand for and expected utilization of rigs, expectations as to the role of the Company in any industry consolidation, and tender activity and new tenders, oil and gas price trends, plans regarding rig deployment, statements with respect to newbuilds, including expected delivery dates, entry into new drilling contracts and new tenders, including expected commencement date and duration of new contracts, statements with respect to our fleet and its expected capabilities and prospects, including plans regarding rig deployment, total contract backlog projections, contract terms, including indemnification, and potential cancellations or extensions; the strategy, outlook, growth prospects, operational and financial objectives, including any statements relating to expectations forexpected financial results and performance for periods for which historical financial information is not available and statements as to expected growth, margin, and dividend policy;policy, statements about our share repurchase program, statements with respect to our joint venture entities, or JVs, including statements with respect to our Mexican JVs, including plans and strategy and expected payments from our JVs’ customers, the sale ofclimate change matters and expected sale proceeds for rigs;energy transition, our commitment to safety and the environment; growth prospects,environment, competitive advantages and rig utilization, businessbusiness strategy, including our growing industry footprint, strengthening of our drilling industry relationships;relationships, our aim to establish ourselves as the preferred provider in the industry, establishment of high-quality and cost-efficient operations and integrated services, including expected benefits of certain collaborations and of relationships with key suppliers; statements with respect to compliance with laws and regulations; statements as to industry trends, including the attractiveness of shallow water drilling, expected recovery of demand and oil price trends, the impact of the COVID-19 outbreak, ourregulations, expected sources of liquidity and funding, statements about funding requirements expected ability to generate cash from operations, or extend our liquidity runway, ability to attract additional capital,and the statements in this report under the heading "—Going concern in Note 1 - Generalof the Audited Consolidated Financial Statements", outlook regarding results of operations and included herein, factors affecting results of operations, statements with respect to our obligations under our financing arrangements, statements with respect to amendments to agreements with certain of our secured creditors and other statements relating to agreements and expected arrangements with creditors, the sale of the "Balder" and expected sale proceeds for other rigs, our commitment to safety and the environment and expected enhancement of growth prospects, competitive advantages, and expected adoption of new accounting standards and their expected impact, the potential impact of Russian military actions across Ukraine, the ongoing conflict in the Middle East, and the current global economic conditions, on oil prices as well as our business, as well as other statements in the sections entitled “Item 4.B4.B. Business Overview—Industry Overview” and “Item 5.D5.D. Trend Information,” and other non historicalnon-historical statements, which are other than statements of historical or present facts or conditions.
The forward-looking statements in this documentannual report are based upon current estimates, expectations, beliefs and various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management’s examination of historical
operating trends, data contained in our records and other data available from third parties. These assumptions are inherently subject to significant risks, uncertainties, contingencies and contingenciesfactors that are difficult or impossible to predict and are beyond our control, we cannot assure youand that we will achievemay cause our actual results, performance or accomplish these expectations, beliefsachievements to be materially different from those expressed or projections. There are importantimplied by the forward-looking statements. Numerous factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by these forward-looking statements includingincluding: risks relating to our industry and business, including risks relating to industry conditions and liquidity,tendering activity, the risk of delays in payments to our Mexican JVsand consequent payments to us, the risk that our customers do not comply with their contractual obligations, including payment or approval of invoices for factoring, risks relating to industry conditions and tendering activity, risks relating to the agreements we have reached with lenders, risks relating to our liquidity, risksincluding the risk that the expected liquidity improvements dowe may not materialize or are not sufficientbe able to meet our liquidity requirements and other risks relating to our liquidity requirements, risks relating tofrom cash flows from operations, the risk that we may be unable to raise necessary fundsand through issuance of additional debt or equity or sale of assets;assets, risks relating to our loan agreementsdebt instruments and other debt instrumentsrig purchase and finance contracts, including risks relating to our ability to comply with covenants and obtain any necessary waivers and the risk of cross defaults, risks relating to our ability to meet or refinance our significant debt obligations including debt maturities and obligations under rig purchase and finance contracts and our other obligations as they fall due, risks relating to our Convertible Bonds maturing in 2028 and other risks describedthe Notes maturing in our working capital statement,2028 and 2030, risks relating to future financings including the risk that future financings may not be completed when required and future equity financings will dilute shareholders and the risk that the foregoing would result in insufficient liquidity to continue our operations or to operate as a going concern, risks relating to our newbuild purchase and financing agreements, risks related to climate change, including climate-change or greenhouse gas related legislation or regulations and the impact on our business from climate-change related physical changes or changes in weather patterns, and the potential impact of new regulations relating to climate change and the potential impact on the demand for oil and gas, risks relating to the military action in Ukraine and the Middle East and their impact on our business, and other risks described in “Item 3.D“Item 3.D. Risk Factors.Factors.” Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.
Any forward-looking statements that we make in this annual report speak only as of the date of such statements and we caution readers of this annual report not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The foregoing factors that
could cause our actual results to differ materially from those contemplated in any forward-looking statement included in this annual report should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement. You should read this annual report, and each of the documents filed as exhibits to the annual report, completely, with this cautionary note in mind, and with the understanding that our actual future results may be materially different from what we expect.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A.DIRECTORS AND SENIOR MANAGEMENT
Not applicable.
B.ADVISERS
Not applicable.
C.AUDITORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A.SELECTED FINANCIAL DATA
Our selected consolidated statement of operations, cash flow statement and other financial data for the years ended December 31, 2020, 2019, and 2018 and our selected consolidated balance sheets data as of December 31, 2020 and 2019 have been derived from our Consolidated Financial Statements, included herein, and should be read in conjunction with such statements and the notes thereto.
The selected statement of operations and cash flow statement data for the year ended December 31, 2017 and selected balance sheets data for the fiscal years ended December 31, 2018 and 2017 have been derived from our consolidated financial statements not included herein. 2016 is not presented as we were newly formed in 2016 with no operations and with an acquisition of two initial assets late in 2016.
Our Consolidated Financial Statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods.
The following table should be read in conjunction with the section entitled “Item 5. Operating and Financial Review and Prospects” and our Consolidated Financial Statements and notes thereto, which are included herein. Our Consolidated Financial Statements are presented in U.S. dollars. We refer you to the notes to our Consolidated Financial Statements for a discussion of the basis on which our Consolidated Financial Statements are prepared.
In June 2019, we converted each one of our Shares into 0.20 Shares, resulting in a Reverse Share Split at a ratio of 5-for-1. Unless otherwise indicated, all Share and per Share data in this annual report is adjusted to give effect to our Reverse Share Split and is approximate due to rounding.
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| | For the Year Ended December 31, | | |
| | 2020 | | 2019 | | 2018 | | 2017 | | |
| | (in $ millions, except per share data) | | |
| SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA: | | | | | | | | | |
| Dayrate revenue | $ | 265.2 | | | $ | 327.6 | | | $ | 164.9 | | | $ | — | | | |
| Related party revenue | 42.3 | | | 6.5 | | | — | | | — | | | |
| Total operating revenues | 307.5 | | | 334.1 | | | 164.9 | | | 0.1 | | | |
| Gain from bargain purchase | — | | | — | | | 38.1 | | — | | | |
| Gain on disposal | 19.0 | | 6.4 | | 18.8 | | — | | | |
| Operating expenses | (514.5) | | (491.3) | | (353.2) | | (109.8) | | |
| Operating loss | $ | (188.0) | | | $ | (150.8) | | | $ | (131.4) | | | $ | (109.7) | | | |
| Income/(loss) from equity method investments | 9.5 | | | (9.0) | | | — | | | — | | | |
| Total financial income (expenses), net | (122.9) | | | (128.1) | | | (57.0) | | | 21.7 | | | |
| Income tax expense | (16.2) | | | (11.2) | | | (2.5) | | | — | | | |
| Net loss | $ | (317.6) | | | $ | (299.1) | | | $ | (190.9) | | | $ | (88.0) | | | |
| Other comprehensive gain (loss) | — | | | 5.6 | | | 0.6 | | | (6.2) | | | |
| Total comprehensive loss | $ | (317.6) | | | $ | (293.5) | | | $ | (190.3) | | | $ | (94.2) | | | |
| | | | | | | | | |
| Net loss per common share: | | | | | | | | | |
| Basic | (2.11) | | | (2.78) | | | (1.85) | | | (1.70) | | | |
| Diluted | (2.11) | | | (2.78) | | | (1.85) | | | (1.70) | | | |
| Common shares outstanding | 218,858,990 | | | 110,818,351 | | | 105,068,351 | | | 95,264,500 | | | |
| Weighted average common shares outstanding | 150,354,703 | | | 107,478,625 | | | 102,877,501 | | | 51,726,288 | | | |
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| As of December 31, | | |
| 2020 | | 2019 | | 2018 | | 2017 | | |
| (in $ millions) | | | | |
| SELECTED BALANCE SHEET DATA: | | | | | | | | | |
| Cash and cash equivalents | 19.2 | | | 59.1 | | 27.9 | | | 164.0 | | | |
| Other current assets, including restricted cash | 121.6 | | | 218.8 | | | 180.7 | | | 61.5 | | | |
| Jack-up drilling rigs | 2,824.6 | | | 2,683.3 | | | 2,278.1 | | | 783.3 | | | |
| Newbuildings | 135.5 | | | 261.4 | | | 361.8 | | | 642.7 | | | |
| Other long-term assets | 70.2 | | | 57.4 | | | 65.2 | | | 20.7 | | | |
| Total Assets | $ | 3,171.1 | | | $ | 3,280.0 | | | $ | 2,913.7 | | | $ | 1,672.3 | | | |
| Trade accounts payable | 20.4 | | | 14.1 | | | 9.6 | | | 9.6 | | | |
| Accruals and other current liabilities | 75.7 | | | 235.6 | | | 106.5 | | | 11.5 | | | |
| Long-term debt (including current portion) | 1,906.2 | | | 1,709.8 | | | 1,174.6 | | | 87.0 | | | |
| Other liabilities | 132.1 | | | 26.4 | | | 89.5 | | | 71.3 | | | |
| Total Liabilities | $ | 2,134.4 | | | $ | 1,985.9 | | | $ | 1,380.2 | | | $ | 179.4 | | | |
| Total Equity | $ | 1,036.8 | | | $ | 1,294.1 | | | $ | 1,533.5 | | | $ | 1,492.9 | | | |
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| For the Year Ended December 31, | | |
| 2020 | | 2019 | | 2018 | | 2017 | | |
| (in $ millions) | | | | |
| SELECTED CASH FLOW DATA: | | | | | | | | | |
| Net cash used in operating activities | $ | (54.8) | | | $ | (89.0) | | | $ | (135.2) | | | $ | (184.8) | | | |
| Net cash used in investing activities | (119.7) | | | (271.1) | | | (560.1) | | | (1,256.5) | | | |
| Net cash provided by financing activities | 65.2 | | | 397.3 | | | 583.5 | | | 1,506.3 | | | |
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| For the Year Ended December 31, | | |
| 2020 | | 2019 | | 2018 | | 2017 | | |
| OTHER FINANCIAL AND OPERATIONAL DATA: | | | | | | | | | |
Adjusted EBITDA(1) (in $ millions) | $ | 21.5 | | | $ | (2.6) | | | $ | (55.3) | | | $ | (61.8) | | | |
Total Contract Backlog(2) (in $ millions) | 132.1 | | | 308.5 | | | 377.5 | | | 28.5 | | | |
Technical Utilization(3) (in %) | 99.5 | | | 99.0 | | | 99.3 | | | — | | | |
Economic Utilization(4) (in %) | 92.1 | | | 95.9 | | | 97.9 | | | — | | | |
TRIF(5)(number of incidents) | 1.66 | | | 2.12 | | | 1.54 | | | — | | | |
(1)Adjusted EBITDA is a non-GAAP financial measure and as used herein represents net loss adjusted for: depreciation and impairment of non-current assets, amortization of acquired contract backlog, interest income, interest capitalized to newbuildings, foreign exchange loss (gain), net, other financial expenses, interest expense, gross, change in unrealized (loss) on call spread transactions (as defined in Note 19 to our Consolidated Financial Statements), (loss)/gain on forward contracts, gain from bargain purchase, income/(loss) from equity method investments, amortization of mobilization cost, amortization of mobilization revenue and income tax expense. We present Adjusted EBITDA because we believe that it and other similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance. We believe Adjusted EBITDA provides meaningful information about the performance of our business and therefore we use it to supplement our U.S. GAAP reporting. Moreover, our management uses Adjusted EBITDA in presentations to our Board to provide a consistent basis to measure operating performance of our business, as a measure for planning and forecasting overall expectations, for evaluation of actual results against such expectations and in communications with our shareholders, lenders, bondholders, rating agencies and others concerning our financial performance. We believe that Adjusted EBITDA improves the comparability of year-to-year results and is representative of our underlying performance, although Adjusted EBITDA has significant limitations, including not reflecting our cash requirements for capital or deferred costs, rig reactivation costs, newbuild rig activation costs contractual commitments, taxes, working capital or debt service. Non-GAAP financial measures may not be comparable to similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under U.S. GAAP. The following table sets forth a reconciliation of Adjusted EBITDA to net loss for the years ended December 31, 2020, 2019, 2018 and 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, |
| | 2020 | | 2019 | | 2018 | | | | 2017 |
| | (in $ millions) | | | | |
| Net loss | $ | (317.6) | | | $ | (299.1) | | | $ | (190.9) | | | | | $ | (88.0) | |
| Depreciation and impairment of non-current assets | 195.0 | | | 112.8 | | | 79.5 | | | | | 47.9 | |
| Amortization of acquired contract backlog* | — | | | 20.2 | | | 24.2 | | | | | — | |
| Interest income | (0.2) | | | (1.5) | | | (1.2) | | | | | (3.2) | |
| Interest capitalized to newbuildings | (5.0) | | | (18.5) | | | (23.4) | | | | | — | |
| Foreign exchange (gain) loss, net | (1.5) | | | (0.7) | | | 1.1 | | | | | 0.3 | |
| Other financial expenses | 9.8 | | | 30.2 | | | 3.5 | | | | | — | |
| Interest expense, gross | 92.4 | | | 88.9 | | | 37.1 | | | | | 0.5 | |
| Change in unrealized loss on call spread transactions | 2.3 | | | 0.5 | | | 25.7 | | | | | — | |
| Loss (gain) on forward contracts | 26.6 | | | 29.2 | | | 14.2 | | | | | (19.3) | |
| Gain from bargain purchase | — | | | — | | | (38.1) | | | | | — | |
| Income/(loss) from equity method investments | (9.5) | | | 9.0 | | | — | | | | | — | |
| Amortized mobilization cost | 28.9 | | | 22.6 | | | 12.2 | | | | | — | |
| Amortized mobilization revenue | (15.9) | | | (7.4) | | | (1.6) | | | | | — | |
| Income tax expense | 16.2 | | | 11.2 | | | 2.5 | | | | | — | |
| Adjusted EBITDA | $ | 21.5 | | | $ | (2.6) | | | $ | (55.2) | | | | | $ | (61.8) | |
*Amortization of the fair market value of existing contracts at the time of the initial acquisition.[RESERVED]
(2)Our Total Contract Backlog includes only firm commitments for contract drilling services represented by definitive agreements. Total Contract Backlog (in $ millions) is calculated as the maximum contract drilling dayrate revenue that
can be earned from a drilling contract based on the contracted operating dayrate. Total Contract Backlog excludes revenue resulting from mobilization and demobilization fees, contract preparation, capital or upgrade reimbursement, recharges, bonuses and other revenue sources and is not adjusted for planned out-of-service periods during the contract period. The contract period excludes additional periods that may result from the future exercise of extension options under our contracts, and such extension periods are included only when such options are exercised. The contract operating dayrate may temporarily change due to, among other factors, mobilization, force majeure, weather or repairs. As used in this annual report, Total Contract Backlog (in $ millions) is not the same measure as the acquired contract backlog presented in our Consolidated Financial Statements. Please see Notes 2 and 17 to our Consolidated Financial Statements for further information. See the section entitled “Item 4.B Business Overview—Our Business—Customers and Contract Backlog.”
(3)Technical Utilization is the efficiency with which we perform well operations without stoppage due to mechanical, procedural or other operational events that result in down, or zero, revenue time. Technical Utilization is calculated as the technical utilization of each rig in operation for the period, divided by the number of rigs in operation for the period, with the technical utilization for each rig calculated as the total number of hours during which such rig generated dayrate revenue, divided by the maximum number of hours during which such rig could have generated dayrate revenue, expressed as a percentage measured for the period. We have not provided Technical Utilization data for the year ended December 31, 2017 because only one of our jack-up rigs was in operation for approximately one day at the end of December 2017. See “Item 4.B Business Overview—Acquisition from Transocean” for more information. Technical Utilization is calculated only with respect to rigs in operation for the relevant period and is not calculated on a fleet-wide basis. Technical Utilization is a measure of efficiency of rigs in operation and is not a measurement of utilization of our fleet overall.
(4)Economic Utilization is the dayrate revenue efficiency of our operational rigs and reflects the proportion of the potential full contractual dayrate that each jack-up rig actually earns each day. Economic Utilization is affected by reduced rates for standby time, repair time or other planned out-of-service periods. Economic Utilization is calculated as the economic utilization of each rig in operation for the period, divided by the number of rigs in operation for the period, with the economic utilization of each rig calculated as the total revenue, excluding bonuses, as a proportion of the full operating dayrate multiplied by the number of days on contract in the period. We have not provided Economic Utilization data for the year ended December 31, 2017 because only one of our jack-up rigs was in operation for approximately one day at the end of December 2017. See “Item 4.B Business Overview—Acquisition from Transocean” for more information. Economic Utilization is calculated only with respect to rigs in operation for the relevant period and is not calculated on a fleet-wide basis. Economic Utilization is a measure of efficiency of rigs in operation and is not a measurement of utilization of our fleet overall.
(5)Total recordable incident frequency (“TRIF”) is a measure of the rate of recordable workplace injuries. TRIF, as defined by the International Association of Drilling Contractors, is derived by multiplying the number of recordable injuries during the twelve- month period prior to the specified date by 1,000,000 and dividing this value by the total hours worked in that period by the total number of employees. An incident is considered “recordable” if it results in medical treatment over certain defined thresholds (such as receipt of prescription medication or stitches to close a wound) as well as incidents requiring the injured person to spend time away from work. We have not provided TRIF data for the year ended December 31, 2017 because only one of our jack-up rigs was in operation for approximately one day at the end of December 2017. See “Item 4.B Business Overview—Acquisition from Transocean” for more information.
B.CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C.REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D.RISK FACTORS
Our business, financial condition, results of operations and liquidity can suffer materially as a result of any of the risks described below. While we have described all of the risks we consider material, these risks are not the only ones we face. We are also subject to the same risks that affect many other companies, such as technological obsolescence, labor relations, geopolitical events, climate change and risks related to the conducting of international operations. Additional risks not known to us or that we currently consider immaterial may also adversely impact our businesses.business. Our business routinely encounters and addresses risks, some of which may cause our future results to be different—sometimes materially different—than we presently anticipate.
SUMMARY OF KEY RISKS
•Risk factors related to our industry
◦▪The offshore drilling industry and jack-up drilling market historically has been highly cyclical, and highly competitive, with periods of low demand and/or over-supply that could result in adverse effects on our business.
◦▪The offshore contract drilling industry isand the jack-up drilling market are highly competitive, with periods of excess rig availability which reduce dayrates and could result in adverse effects on our business.
◦▪The success of our business largely depends on the level of activity in the oil and gas industry, which can be significantly affected by volatile oil and natural gas prices.
◦▪Global geopolitical tensions and instability may rise and create heightened volatility in the oil and natural gas prices that could result in adverse effects on our business.
▪Down-cycles in the jack-upoffshore drilling industry and other factors may affect the market value of our jack-up rigs and the newbuild rigs we have agreed to purchase.
•Risk factors related to our business
◦▪We may not be able to renew contracts which expire, and our customers may seek to cancel or renegotiate their contracts, particularly in response to unfavorable industry conditions.contracts.
◦▪We may be unable to obtain favorable contracts for our jack-up rigs.
▪Our Total Contract Backlog may not be realized.
◦▪Our Joint Ventures for integrated well services business in MexicoWe may not make a profit, and we may receivebe obligated to fund cash calls from our Joint Ventures in Mexico in order to fund working capital, or capital expenditure outlays.outlays or any shortfalls, due to delays in invoices being approved and paid by customers.
◦▪We have a limited operating history and have experienced net losses for most years since inception.
◦▪We rely on a limited number of customers, and we are exposed to the risk of default or material non-performance by customers.
◦In connection with the audits of our consolidated financial statements, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
◦▪We are reliant on positive cash flow generation from our Joint Ventures, and we may not receive funds in a timely manner.
◦▪Our drilling contracts contain fixed terms and dayrates,day rates, and consequently we may not fully recoup our costs in the event of a rise in expenses, including operating and maintenance costs.
◦▪Prevailing market conditions,We incur expenses, such as preparation costs, relocation costs, operating costs and maintenance costs, which we may not fully recoup from our customers, including the supply of jack-up rigs worldwide, may affect our ability to obtain favorable contracts for our newbuild jack-up rigs orwhere our jack-up rigs that do not have contracts.incur idle time between assignments.
◦▪Outbreaks of epidemic and pandemic diseases, such as the COVID-19 outbreak, and governmental responses thereto have and could furtherInflation may adversely affect our business.operating results.
The limited availability of qualified personnel in the locations in which we operate may result in higher operating costs as the offshore drilling industry demands increase.◦▪If we are unable to attract and retain highly skilled personnel who are qualified and able to work in the locations in which we operate it could adversely affect our operations. Our information technology systems are subject to cybersecurity risks and threats.
◦▪We have suffered, and may suffer inare exposed to the future, losses through our investments in other companies in the offshore drilling and oilfield services industry, including debt and other securities issuedrisk of default or material non-performance by such companies.subcontractors.
◦▪The limited availabilityimpact and effects of qualified personnel in the locations in which we operate may result in higher operating costspublic health crises, pandemics and epidemics, such as the offshore drilling industry recovers.COVID-19 pandemic, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
•Risk factors related to our financing arrangements
◦▪We have significant debt maturities in the coming years.
▪Future cash flows may be insufficient to meet obligations under the terms of our Financing Arrangements.existing bonds and loansand operate our business.
◦▪Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, growth and prospects.
◦▪As a result of our significant cash flow needs, we may be required to raise funds through the issuance of additional debt or equity, and in the event of lost market access, we may not be successful in doing so.
◦▪TheWe are subject to restrictive debt covenants in certain ofthat may limit our Financing Arrangements impose operatingability to finance our future operations and financial restrictions on us.capital needs and to pursue business opportunities and activities.
◦▪Our Financing Arrangements allowWe may require additional working capital or capital expenditures, other than our secured creditors, under certain conditions,existing bonds and loans, from time to purchase our rigs attime and we may not be able to arrange the required or near the outstanding balance of debt, or to cancel planned newbuilding contracts thereby reducing our premium fleet.desired financing.
◦▪We face risks in connection with the delivery of our newbuild jack-up rigs and related financing arrangements in place with Keppel
◦Our Financing Arrangements are not necessarily reflective of those that may be in place from time to time.
◦Interest rate fluctuations could affect our earnings and cash flow.arrangements.
•Risk factors related to applicable laws and regulations
◦▪Compliance with, and breach of, the complex laws and regulations governing international drilling activity and trade could be costly, expose us to liability and adversely affect our operations.
◦▪Local content requirements may increase the cost of, or restrict our ability to, obtain needed supplies or hire experienced personnel, or may otherwise affect our operations.
◦▪We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.us.
◦▪Climate changeData protection and the regulation of greenhouse gasesregulations related to privacy, data protection and information security could increase our costs, and our failure to comply could result in fines, sanctions or other penalties, as well as have a negativean impact on our business.reputation.
◦Future government regulations may adversely affect the offshore drilling industry.
◦▪A change in tax laws in any country in which we operate could result in higher tax expense.
▪Climate change and the regulation of greenhouse gases could have a negative impact on our business.
▪Increasing attention to sustainability, environmental, social and governance matters and climate change may impact us.
•Risk factors related to our common shares
◦▪The price of our common shares may fluctuate widely in the future, and you could lose all or part of your investment.
◦▪Future sales of our equity securities in the public market, or the perception that such sales may occur, could reduce our share price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.
RISK FACTORS RELATED TO OUR INDUSTRY
The offshore drilling industry and jack-up drilling market historically has been highly cyclical, with periods of low demand and/or over-supply that could result in adverse effects on our business.
The jack-up drilling market historically has been highly cyclical and is primarily related to the demand for, jack-up rigs and the available supply of, jack-up rigs. Demand for jack-up rigs is directly related to the regional and worldwide levels of offshore exploration and development spending by oil and gas companies, which is beyond our control. It is not unusual for jack-up rigs to be un-utilizedunutilized or underutilized for significant periods of time and subsequently resume full or near full utilization when business cycles change.improve as evidenced by industry trends in recent years. During historical industry periods of high utilization and high dayrates, industry participants have ordered the construction of new jack-up rigs, which has resulted in an over-supply of jack-up rigs worldwide. During periods of supply andexceeding demand, imbalance, jack-up rigs are frequentlymay be contracted at or near cash breakeven operating rates for extended periods of time until dayrates increase when the supply/demand balance is restored and in recent years oversupply has resulted in "stacking" of rigs. In prior years there has been an oversupply of jack-up rigs, which impacted utilization and dayrates,
and while this oversupply has ceased recently, we may again face an oversupply of jack-up rigs in the event demand declines. Offshore exploration and development spending may fluctuate substantially from year-to-year and from region-to-region.
Over the past several years, crude oil prices have been volatile, reaching a high of $115 per barrel in 2014, declining to $55 per barrel by the end of 2014 and reaching as low as $28 per barrel during 2016. Moreover, as of December 2019, oil prices had rebounded from the 12-year lows experienced during early 2016, and in 2017 experienced the first increase in average prices since 2014, with prices ranging from a low of $44 to a high of $67 per barrel. Oil prices experienced both increases and declines throughout 2019 and remained generally volatile, with prices ranging from a low of $53 to a high of $75 per barrel, according to Bloomberg. In 2020, oil prices continued to be volatile, reaching as low as $19 per barrel as of April 21, 2020; as of December 31, 2020, the price of oil was $51 per barrel, having started 2020 in the mid-to-upper $60-per-barrel range. Oil prices have experienced significant volatility in part due to the COVID-19 as well as supply trends by the Organization of the Petroleum Exporting Countries ("OPEC") and other oil producing countries and prices are not at a level that supports rig demand which sufficiently absorbs existing rig supply and generates a meaningful increase in dayrates As a result of, among other things, the continued volatility in the oil price and its uncertain future, the offshore drilling industry has experienced a substantial decline in demand for its services in 2020 and this volatility and difficult trading environment continues, as well as a significant decline in dayrates for contract drilling services. The significant decline in oil and gas prices and resulting reduction in spending by customers, together with the increase in supply of jack-up rigs in recent years, has resulted in an oversupply of jack-up rigs and a decline in utilization and dayrates, a situation which may persist for many years. The decline in demand Demand for our contract drilling services and the dayrates for those services has had a significant impact onimpacts our operations and if theoperating results, and any industry downturn continues, may continue towould adversely affect our business, which may have an adverse effect on our financial condition, results of operations and cash flows, including negative cash flows, as well as our liquidity and ability to meet covenantsflows.
Volatility in our loan agreements.the oil price impacts demand in the offshore drilling industry. The protractedindustry downturn in our industry will exacerbate many of the other risks included below and other risks that we face, and we cannot predict if or when the downturn will end.
The current industry downturnrecent years has resulted in many operators idling rigs and a number of our rigs were not in operation for significant periods of 2020 andin 2021 which in turn impacted dayrates for those rigs that were activeactive. Since the downturn, the Company has experienced an increase in the number of contracted rigs, which stood at 21 and we have agreed deferrals22 on December 31, 2022 and December 31, 2023, respectively. However, several of deliveriesthese contracts are short term in nature and the number of newbuildworking and contracted rigs could reduce in the event that industry conditions deteriorate and/or the Company fails to maintain existing drilling contracts, renew or secure further contracts for these rigs. A prolonged period of reduced demand and/or excess jack-up rig supply may require us to idle or dispose of additional jack-up rigs or to enter into low dayrate contracts or contracts with unfavorable terms. For more information on our jack-up rig disposal policy, see the section entitled “Item 4.B Business Overview—Our Business—Our Fleet.” There can be no assurance that the demand for jack-up rigs will increase or even remain at current levels in the future.levels. Any further decline or if there is not an improvement in demand for services of jack-up rigs, could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flows.
The offshore contractoffshore drilling industry isand the jack-up drilling market are highly competitive, with periods of excess rig availability which reduce dayrates and could result in adverse effects on our business.
Our industry is highly competitive, and our contracts are traditionally awarded on a competitive bid basis. Pricing, rig age, safety records and competency are key factors in determining which qualified contractor is awarded a job. Competitive factors include: rig availability, rig location, rig operating features and technical capabilities, pricing, workforce experience, operating efficiency, condition of equipment, contractor experience in a specific area, reputation and customer relationships. If we are not able to compete successfully, our revenues and profitability may be impacted, which could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
The supply
While the jack-up rig industry is currently experiencing a period of offshore drilling rigs, including jack-up rigs, has increased significantly in recent years. Delivery of newbuild drilling rigs will continue to increaselimited rig supply, supported by an increase in coming years anddemand, a decline in demand could curtail a strengthening, or trigger a further reduction, in utilization and dayrates. Approximately 11Eight, nine and six newbuild jack-up rigs (of which two were delivered to us) were delivered during 2020,
2021, 2022 and 2023, respectively, representing an approximate 3%2.0%, 2.4% and 1.86% increase in the total worldwide fleet of competitive offshore jack-up drilling rigs since the end of 2019.2020, 2021 and 2022, respectively. As of April 2021,December 31, 2023, there were approximately 3417 newbuild jack-up rigs reported to be on order or under construction scheduled(including the two rigs we have agreed to purchase that are still located in shipyards), against the 23 and 32 newbuild jack-up rigs reported to be delivered no later thanon order or under construction at the end of 2023.2022 and 2021, respectively. Most of the newbuild jack-up rigs to be delivered no later than the end of 2023,under construction, including the five newbuild jack-up rigs we have agreed to purchase to be delivered no later than the second half of 2024, do not have drilling contracts in place. In addition, the supply of marketed offshore drilling rigs could further increase due to depressed market conditions resulting in an increase in uncontracted rigs as existing contracts expire. There is no assurance that theThe market in general or a geographic region in particular willmay not be able to fully absorb the supply of new rigs in future periods. Any continued oversupplyperiods and any over-supply of drilling rigs could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
The successsuccess of our business largely depends on the level of activity in the oil and gas industry, which can be significantly affected by volatile oil and natural gas prices.
The success of our business largely depends on the level of activity in offshore oil and natural gas exploration, development and production, which may be affected by oil and gas prices and conditions in the worldwide economy. Oil and natural gas prices, and market expectations of potential changes in these prices, significantly affect the level of drilling activity. Historically, when drilling activity and operator capital spending decline, utilization and dayrates also decline and drilling may be reduced or discontinued, resulting in an oversupply of drilling rigs. Oil and natural gasOver the past decade, crude oil prices have historically been volatile and started to steeply decline in late 2014, after reaching prices of over $100 per barrel in 2014, and dropped to as low as approximately $19 per barrel in April 2020 driven by the impact on demand resulting from the COVID-19 pandemic. Oil prices have recovered since then, reaching a price of approximately $130 per barrel of Brent Crude on March 7, 2022 but have remained volatile and more recently declined to approximately $77.9 per barrel in December 2023. Oil prices have continued to experience significant volatility in part due to global inflation, global economic downturn and volatility in global financial markets, actions of the Organization of the Petroleum Exporting Countries (“OPEC”) and other oil and gas producers and production cuts, the Russian invasion of Ukraine and the ongoing conflict between Israel and Hamas. In addition, increases in oil prices do not necessarily translate into increased drilling activity because our customers take into account a number of considerations when they decide to invest in offshore oil and gas resources, including expectations regarding future oil prices and demand for hydrocarbons, which typically have a greater impact on demand for our rigs. The level of oil and gas prices has had, and may have in the future, a material effect on demand for our rigs.
Although oil prices have declined significantlyrecovered since mid-2014 when prices were in excessthe low levels of $100 per barrel, causing operators to reduce capital spending and cancel or defer existing programs, substantially reducing the opportunities for new drilling contracts.
We expectearly 2020, we may experience insufficient demand to continue as long asif long-term oil prices anddecline below current levels and/or rig supply remainremains at or increases above current levels. A lackshort-lived (or expectation of
a meaningful and sustainedshort-lived) recovery in oil and natural gas prices, continued volatility in prices or further price reductions, may cause our customers to maintain historically low levels or further reduce their overall level of activity and capital spending, in which case demand for our services may decline and our results of operations may be adversely affected through lower rig utilization and/or low dayrates. Numerous factors may affect oil and natural gas prices and the level of demand for our services, including:
•regional and global economic conditions and changes therein;therein, including the effects of inflation, and concerns of a global recession and volatility in financial markets;
•oil and natural gas supply and demand;
•expectations regarding future energy prices;
•the ability or willingness of OPEC, and other non-member nations, to reach further agreements to set and maintain production levels and pricing and to implement existing and future agreements;
•any decision of OPEC and other non-member nations to abandon production quotas and/or member-country quota compliance within OPEC agreement;
•a reduction of capital spending and activities in the oil and gas sector by our customers as they are starting to allocate resources to green energy projects, leading to less focus on oil and natural gas production growth;
•the level of production by non-OPEC countries;
•inventory levels, and the cost and availability of storage and transportation of oil, gas and their related products;
•capital allocation decisions by our customers, including the relative economics of offshore development versus onshore prospects;
•tax policy;
•the occurrence or threat of epidemic or pandemic diseases and any government response to such occurrence or threat, specifically, the current implications of, and future expectations in relation to,including COVID-19, on global economic activity and therefore oil prices, cross border trade restrictions, employees’ ability and willingness to work, oil supply and demand, and resource ownersowners' ability to deliver future projects;
•advances in exploration and development technology;
•costs associated with exploring for,exploration, developing, producing and delivering oil and natural gas;
•the rate of discovery of new oil and gas reserves and the rate of decline of existing oil and gas reserves;
•trade policies and sanctions imposed on oil-producing countries or the lifting of such sanctions;sanctions, including sanctions resulting from the Russian military invasion of Ukraine;
•laws and government regulations that limit, restrict or prohibit exploration and development of oil and natural gas in various jurisdictions, or materially increase the cost of such exploration and development;
•the further development or success of shale technology to exploit oil and gas reserves;
•available pipeline and other oil and gas transportation capacity;
•the development and exploitation of alternative fuels;
•laws and regulations relating to environmental matters, including those addressing alternative energy sources and the risks of global climate change;change such as the variety of tax credits contained in the U.S. Inflation Reduction Act of 2022, to promote the use of renewable energy sources;
•increased demand for alternative energy and increased emphasis on decarbonization;
•changes in tax laws, regulations and policies;
•merger, acquisition and divestiture activity among exploration and production companies (“E&P Companies”);
•the availability of, and access to, suitable locations from which our customers can explore and produce hydrocarbons;
•activities by non-governmental organizations to restrict the exploration, development and production of oil and gas in light of environmental considerations;
•disruption to exploration and development activities due to hurricanes and other severe weather conditions and the risk thereof;
•natural disasters or incidents resulting from operating hazards inherent in offshore drilling, such as oil spills;
•the worldwide social and political environment, including uncertainty or instability resulting from changes in political leadership and environmental policies, changes in policies;
•geopolitical-social views toward fossil fuels and renewable energy and changes in investors’ expectations regarding environmental, social and governance matters; and
•the worldwide military and political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities, including the Russian military invasion of Ukraine, the ongoing conflict between Israel and Hamas, tensions in the Middle East and between the U.S., Russia and China, or other crises in oil or natural gas producing areas of the Middle East or geographic areas in which we operate, or acts of terrorism.
Despite
The industry has experienced significant declines in capital spending and cancelled or deferred drilling programs by many operators from 2015 to 2021, coupled with declining oil prices to its lowest level in April 2020. Oil prices have increased since 2015, oil and gas production has not been reduced by amounts sufficient to resultthe lows reached in a rebound in pricing to levels seen prior to the current downturn, and we may not see sufficient supply reductions or a resulting rebound in pricing for an extended period of time or at all. Further, any agreements of OPEC and certain non-OPEC countries to freeze and/or cut production may not be fully realized. The lack of actual production cuts or freezes, or the perceived risk that OPEC countries may not comply with such agreements, may result in depressed oil and gas prices for an extended period of time. In addition,2020, however higher oil and gas prices may not necessarily translate into sustained increased activity, and even during periods of high oil and gas prices, customers may cancel or curtail their drilling programs, or reduce their levels of capital expenditures for exploration and production for a variety of reasons, including their lack of success in exploration efforts. AnyAlthough, historically, higher sustained commodity prices have generally resulted in increases in offshore drilling projects, short-term or temporary increases in the price of oil and gas will not necessarily result in a sustained increase in offshore drilling activity or a sustained increase in the market demand for our rigs as the timing of commitment to offshore activity in a cycle depends on project deployment times, reserve replacement needs, availability of capital and alternative options for resource development, among other things. Timing can also be affected by availability, access to, and cost of equipment to perform work.
Further, any increase or reductiondecrease in drilling activity by our customers may not be uniform across different geographic regions. Locations where costs of drilling and production are relatively higher may be subject to greater reductions in activity or may recover more slowly. Such variation between regions may lead to the relocation of drilling rigs, concentrating drilling rigs in regions with relatively fewer reductions in activity leading to greater competition.
Advances in onshore exploration and development technologies, particularly with respect to onshore shale, could also result in our customers allocating more of their capital expenditure budgets to onshore exploration and production activities and less to offshore activities.
Moreover, there has historically been a strong link between the development of the world economy and the demand for energy, including oil and gas. An extended period of adverse developmentconditions or developments in the outlook for the world economy could also reduce the overall demand for oil and gas and therefore demand for our services. The continuing COVID-19 crisis hasSupply chain disruptions, inflation, rising interest rates, concerns of a global economic recession and volatility in the financial markets, the war in Ukraine and related sanctions, the ongoing conflict between Israel and Hamas and related hostilities in the Middle East, including the recent attacks to marine vessels in the Red Sea by the Houthi movement, which controls parts of Yemen and other impacts have caused, or may cause, significant adverse impacts on the global economy and we do not know when this trend will improve.improve or how long an improving trend will last.
These factors could impact our revenues and profits and as a result limit our future growth prospects as well as our liquidity and ability to meet debt repayment obligations or to comply with covenants in loan agreements. Any significant decline in dayrates or utilization of our rigs could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow. In addition, these risks could increase instability in the financial and insurance markets and make it more difficult for us to access capital and obtain insurance coverage that we consider adequate or are otherwise required by our contracts.
15Global geopolitical tensions and instability, supply disruptions, inflation, and concerns of a global recession and volatility in the financial markets may rise and create heightened volatility in the oil and natural gas prices that could result in adverse effects on our business.
Global geopolitical tensions and instability, including from the Russian military invasion of Ukraine and the conflict between Israel and Hamas and related hostilities in the Middle East, supply disruptions, inflation, concerns of a global recession and volatility in financial markets, have, and may continue to, result in continued or even higher levels of volatility in the oil and gas prices that could result in an adverse effect on our business, as we largely depend on the level of activity in the oil and gas industry and such volatility, including market expectations of potential changes in these prices, may significantly affect the level of drilling activity. The Russian invasion of Ukraine and the Israel-Hamas conflict and related hostilities in the Middle East, coupled with existing supply disruptions, high interest rates, has and may continue to exacerbate, inflation and significant volatility in commodity prices, credit and capital markets, as well as supply chain disruptions. The sanctions and other penalties imposed on Russia by the U.S., E.U. and other countries including restricting imports of Russian oil, liquefied natural gas and coal have caused supply disruptions in the oil and gas markets and could continue to cause significant volatility in oil prices, and inflation and may trigger a recession in the U.S., Europe, China, among other areas. This could have a material adverse effect on our business, financial condition, results of operations and cash flow along with our operating costs, making it difficult to execute our planned capital expenditure program and meet our debt repayment obligations. The tensions arising from the invasion of Ukraine and the conflict between Israel and Hamas, including related hostilities in the Middle East, could also increase other political tensions and international trade and other relations, with a further effect on world oil and gas markets, the supply of jack-up rigs worldwide, regional and worldwide levels of offshore exploration and development spending by oil and gas companies, reduce our utilization, dayrates and our revenue. In addition, sanctions imposed as a result of the military actions and related tensions could impose restrictions on our business and risk of non-compliance. In addition, any increase in the price of oil resulting from this and other conflicts and related sanctions may not result in increased demand for drilling services or any increase may not be sustained and may only contribute to the volatility in oil prices.
Global,, International international and Nationalnational trends to renewable energy based infrastructure and power supply and generation may cause longlong- term demand for our customers products and services to fall, and in turn affect the demand for our services.
Various global and transnational initiatives exist, and continue to be proposed by governments, non-governmental organizations and power suppliers in particular, which exist to hasten the long termlong-term transition from fossil fuels to low or zero carbon alternatives, such as wind, water or hydrogen based power or fuel sources. We provide drilling services to customers who own and produce fossil fuels, and therefore where low or zero basedzero-based carbon policies are implemented in territories in which we operate or may be capable of operating in the future, there exists a risk that demand for our customer’scustomers' services falls or fails to increase, and in turn the demand for our rigs and services falls or fails to increase.
Down-c
Current and future regulations or initiatives relating to low or zero carbon alternatives and renewable energy transition may also result in increased compliance costs or additional operating restrictions on our business. Furthermore, such initiatives have resulted in adverse publicity for the oil and gas industry, including for customers to whom we provide services, and could in turn cause damage to our reputation.
ycles
Failure to effectively and timely respond to the impact of energy rebalancing could adversely affect us.
Our long-term success depends on our ability to effectively respond to the impact of energy rebalancing, which could require adapting our fleet and business to potentially changing government requirements, customer preferences and customer base, as well as engaging with existing and potential customers and suppliers to develop or implement solutions designed to reduce or to decarbonize oil and gas operations or to advance renewable and other alternative energy sources. If the energy rebalancing
landscape changes faster than anticipated or in a manner that we do not anticipate, demand for our services could be adversely affected. Furthermore, if we fail to, or are perceived not to, effectively implement an energy rebalancing strategy, or if investors or financial institutions shift funding away from companies in fossil fuel-related industries, our access to capital or the market for our securities could be negatively impacted.
Down-cycles in the jack-upoffshore drilling industry and other factors may affect the market value of our jack-up rigs and the newbuild rigs we have agreed to purchase.
Consumer demand in the shallow-water offshore drilling market, or the jack-up drilling market, has been adversely impacted by trends in the price of oil since 2014 and has not yet recovered, as trendsTrends in the price of oil impact the spending for the services of jack-up rigs. IfContinued volatility in oil prices do not stabilize at favorable levels or we experience continued or further oil price down-cycles, we expectmay negatively impact customer demand will continue to be negatively affected.demand. Adverse developments in the offshore drilling industry including negative movements in the price of oil, can cause the fair market value of our existing and newbuild jack-up rigs to decline. In addition, the fair market value of the jack-up rigs that we currently own, have agreed to acquire, or may acquire in the future, may decrease depending on a number of factors, including:
•the general economic and market conditions affecting the offshore contract drilling industry, including competition from other offshore contract drilling companies;
•developments in the global economy including in oil prices and demand in the shall-watershallow-water offshore drilling market,industry, as well as the impactany resurgence of the COVID-19 crisisor other pandemics on the foregoing impact our ability to operate rigs;
•the types, sizes and ages of our jack-up rigs;
•the supply and demand for our jack-up rigs;
•the costs of newbuild jack-up rigs;
•prevailing drilling services contract dayrates;
•government or other regulations; and
•technological advances.
If jack-up rig values fall significantly, we may have to record an impairment in our financial statements, which could affect our results of operations. Certain of our competitors in the offshore drilling industry may have a larger or more diverse fleet and a more favorable capitalization than we do, which could allow them to better withstand any impairment recorded for their own fleets or the effects of a commodity price down-cycle. Additionally, if we sell one or more of our jack-up rigs at a time when drilling rig prices have fallen, we may incur a loss on disposal and a reduction in earnings, which may cause us to breach the covenants in certain of our finance agreements. We have stated that we may sell a small number of vessels on an opportunistic basis and we face difficult market conditions for any such sales and could incur losses. Under certain of our Financing Arrangements, we are required to comply with loan-to-value or minimum-value-clauses, which could require us to post additional collateral or prepay a portion of the outstanding borrowings should the value of the jack-up rigs securing borrowings under each of such agreements decrease below required levels. If we are unable to comply with the covenants in certain of our financing agreements and we are unable to get a waiver, a default could occur under the terms of those agreements. We have agreed amendments with secured creditors in respect of certain covenants under certain of our loan facilities including loan to value covenants and to change interest payment dates under certain of our loan facilities and we have also agreed to include loan to value covenants in other facilities as part of our agreement with creditors in January 2021, which included among other things, interest deferrals. See “Item 5.B Operating and Financial Review and Prospects—Liquidity and Capital Resources” for more information.earnings.
Our operationsoperations involve risks due to their international nature.
We operate in various regions throughout the world. As a result of our international operations, we may be exposed to political and other uncertainties, including risks of:
•terrorist acts;
•armed hostilities, war and civil disturbances;
•acts of piracy, which have historically affected marine assets;
•significant governmental influence over many aspects of local economies;
•the seizure, nationalization or expropriation of property or equipment;
•uncertainty of outcome in court proceedings in any jurisdiction where we may be subject to claims;
•the repudiation, nullification, modification or renegotiation of contracts;
•limitations on insurance coverage, such as war risk coverage, in certain areas;
•political unrest;
•the occurrence or threat of epidemic or pandemic diseases or any governmental or industry response to such occurrence or threat, which could impact demand and our ability to conduct operations;
•monetary policy and foreign currency fluctuations and devaluations;
•an inability to repatriate income or capital;
•complications associated with repairing and replacing equipment in remote locations;
•import-export quotas, wage and price controls, and the imposition of trade barriers;
•imposition of, or changes in, local content laws and their enforcement, particularly in West Africa and SoutheastSouth East Asia, where the legislatures are active in developing new legislation;
•sanctions or trade embargoes;
•compliance with various jurisdictional regulatory or financial requirements;
•compliance with and changes to tax laws and interpretations;
•other forms of government regulation and economic conditions that are beyond our control; and
•government corruption.
In addition, international drilling operations are subject to various laws and regulations of the countries in which they operate, including laws and regulating relating to repatriation of foreign earnings, taxation of offshore earnings and the earnings of expatriate personnel and use and compensation of local employees and suppliers by foreign contractors.
It is difficult to predict whether, and if so, when the risks referred to above may come to fruition and the impact thereof. Future governmental regulations or government enforcement could adversely affect the international drilling industry. Failure to comply with, or adapt to, applicable laws, and regulations, actions of governments or other disturbances as they occur may subject us to criminal sanctions, civil remedies or other increases in costs, including fines, the denial of export privileges, injunctions and seizures of assetsassets. In addition, applicable laws and regulations and government actions may result in an inability to repatriate income, capital or the inabilityforeign earnings or to otherwise remove oura jack-up rig from the country in which it operates.
We have from time to time been subject to limitations on repatriation of cash derived from earnings in certain of the countries in which we operate. Such limitations may result in a material adverse effect on our business, financial condition, results of operations and cash flow and our ability to service our indebtedness, including the Notes.RISK FACTORS RELATED TO OUR BUSINESS
We may not be able to renew contracts which expire and our customers may seek to cancel or renegotiate their contracts, particularly in response to unfavorable industry conditions.
Many jack-up drilling contracts are short-term, and oil and natural gas companies tend to reduce activity levels quickly in response to declining oil and natural gas prices. Our jack-up drilling contracts, including our bareboat contracts with equity method investments in Mexico, typically range from threetwo months to twenty-four months, although contractfive years. During periods may be longerof volatility in certain countries or regions. During oil price down-cycles,prices, our customers may be unwilling to commit to long-term contracts. Short-term drilling contracts do not provide the stability or visibility of revenue that we would otherwise receive with long-term drilling contracts.
In addition, in difficult market conditions, some of our customers may seek to terminate their agreements with us or to renegotiate our contracts using various techniques, including threatening breaches of contract, relying on force majeure clauses, and applying commercial pressure. Some of our customers have the right to terminate their drilling contracts without cause upon thein return for payment of an early termination fee or compensation to us for costs incurred up to termination. For example, in April 2020, one of our clients, ExxonMobil, served notice to exercise its rights to terminate two contracts in West Africa due to COVID-19 related issues, triggering an obligation to pay an early termination fee.termination. The general principle under our arrangements with customers typically is that any such early termination payment, where applicable, should compensate us for lost revenues less operating expenses for the remaining contract period;period. This typically results in approximately 50% to 100% of
the outstanding backlog days becoming due upon early termination; however, in some cases, any such payments may not fully compensate us for the loss of the drilling contract. Under certain circumstances our contracts may permit customers to terminate contracts early without any termination payment either for convenience or as a result of non-performance, periods of downtime or impaired performance caused by equipment or operational issues (typically after a specified remedial period), or sustained periods of downtime due to force majeure events beyond our control. In addition, state-owned oil company customers may have special termination rights by law. Our customers themselves may have contracts from their customers terminated in reliance on similar contractual provisions, putting pressure on our customers to terminate or renegotiate their agreements with us.
During periods of challenging market conditions, we may beWe are subject to an increasedthe risk of our (i) customers choosing not to renew short-term contracts or drill option wells, (ii) customers repudiating contracts or seeking to terminate contracts on grounds including extended force majeure circumstances or on the basis of assertions of non-compliance by us of our contractual obligations, (iii) customers seeking to renegotiate their contracts to reduce the agreed day ratesdayrates and (iv) cancellation of drilling contracts for convenience (with or without early termination payments). The Company has experienced such terminations or renegotiations in the past, and in the event of termination of a contract it is possible that any such early termination payments will not compensate the Company of the loss of the anticipated revenue from the relevant terminated drilling contract. For instance, in Springspring 2020, the Company received early terminations, suspensions and cancellation of contracts for six rigs. Loss of contracts may have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
Prevailin
We may be unableg market conditions, including the supply of jack-up rigs worldwide, may affect our ability to obtain favorable contracts for our newbuild jack-up rigs or our jack-up rigs that do not have contracts.rigs.
As of March 2021, 186 jack up rigs in the existing fleet were off contract and a relatively large number of the drilling rigs under construction have not been contracted for future work, including the five jack-up rigs we have agreed to purchase which have not been delivered. In addition, as of April 13, 2021 we had 10 rigs warm stacked which are available for contracting, with one of these - "Skald" - scheduled to start operations in June 2021.
The current over-supply of jack-up rigs may be exacerbated by the entry of newbuild rigs into the market, many of which are without drilling contracts (including the 5 rigs we have agreed to purchase). The supply of available uncontracted jack-up rigs has intensified price competition, reducing dayrates as the active fleet worldwide grows. The COVID-19 crisis has exacerbated this trend with its impact on rig operations and demand as a result of the impact on the global economy and oil prices. Customers may also opt to contract older rigs in order to reduce costs, which could adversely affect our ability to obtain new drilling contracts due to our newer fleet. For an overview of our fleet, see the section entitled “Item 4.B Business Overview—Our Business—Our Fleet.”
Our ability to obtain new contracts will depend on our customers and prevailing market conditions, which may vary among different geographic regions and types of drilling rigs sought. There is no assurance that we will secure drilling contracts for the newbuild rigs we have agreed to purchase or our jack-up rigs that are stacked, and the drilling contracts that we do secure may be at unattractive dayrates. If we are unable to secure contracts for our jack-up rigs, as contracts expire, or for the two newbuild jack-up rigs, we may idle or stack these rigs, which means such rigs will not produce revenues but will continue to require cash expenditures for crews, fuel, insurance, berthing and associated items. The key characteristicsWe have two newbuild rigs that we have agreed to buy, with a contractual delivery date of July 2025 and a best efforts expedited delivery date of August 2024 (for "Vale") and September 2025 with a best efforts expedited delivery date of November 2024 (for "Var"). There is no assurance that we will secure drilling contracts for the newbuild rigs we have agreed to purchase or our uncontractedother rigs whichas contracts expire, and the drilling contracts that we do secure may yield differences in their marketability or readiness for use include whether such rigs are warm stacked or cold stacked, age of the rig, geographic location and technical
specifications; please see “Item 4.B Business Overview—Our Business—Our Fleet” for further information concerning these features by rig.be at unattractive dayrates. We may also seek to delay delivery of our newbuild jack-up rigs, which could adversely affect our revenues and profitability. We have no right to delay delivery of the newbuild rigs we have agreed to purchase on grounds that we are unable to secure contracts. If we request a delay to the contractual delivery dates, we are dependent upon the outcome of any negotiations with the shipyard, which may not result in any delay or may lead to an increase in cost to compensate the shipyard.
If new contracts are entered into at dayrates substantially below the existing dayrates or on terms otherwise less favorable compared to existing contract terms among our then-active fleet, our business could be adversely affected. We may also be required to accept more risk in areas other than price to secure a contract and we may be unable to push this risk down to other contractors or be unable or unwilling at competitive prices to insure against this risk, which will mean the risk will have to be managed by applying other controls. Accepting such increased risk could lead to significant losses or us being unable to meet our liabilities in the event of a catastrophic event affecting any rig contracted on this basis.
Our Total Contract Backlog may not be realized.
The Total Contract Backlog (in $ millions) presented in this annual report is only an estimate and is not the same measure as the acquired contract backlog presented in our Consolidated Financial Statements. Many. Some of our contracts are short-term. As of December 31, 2020,2023, our Total Contract Backlog, excluding backlog from joint venture operations on a 100% basis and mobilization and demobilization revenues, was approximately $132.1$1,206.5 million excluding unexercised options, and we had ninerelates to 26 contracts, that expire during 2021letters of intent and two contracts that expire during 2022.letters of award with firm terms expiring between 2024 and 2028. Actual expiry dates could be earlier or later.
The actual amount of revenues earned and the actual periods during which revenues are earned will be different from our Total Contract Backlog projections due to various factors, including shipyard and maintenance projects, downtime and other events within or beyond our control. We do not adjust our Total Contract Backlog for expected or unexpected downtime. If we or our customers are unable to perform under our or their contractual obligations, this could lead to results that vary significantly from those contemplated by our Total Contract Backlog.
SomeIn addition, some of our customers have the right to terminate their drilling contracts without cause upon the payment of an early termination fee or compensation for costs incurred up to termination. Under certain circumstances our contracts may permit customers to terminate contracts early without any termination payment either for convenience or as a result of non-performance, periods of downtime or impaired performance caused by equipment or operational issues (typically after a specified remedial period), or sustained periods of downtime due to force majeure events beyond our control. In addition, state-owned oil company customers may have special termination rights by law.
The continuing global uncertainty caused If we or our customers are unable to perform under our or their contractual obligations or if customers exercise termination rights, this could lead to results that vary significantly from those contemplated by the COVID-19 crisis has contributed to the uncertainty as to our Total Contract Backlog. For example, in 2020 we received early termination notices for three ongoing contracts and one cancellation of an upcoming contract. This uncertainty and related impact on us
We may continue.
Our Joint Ventures for integrated well services business in Mexico may not make a profit, and we may receivebe obligated to fund cash calls from our Joint Ventures in Mexico in order to fund working capital, or capital expenditure outlays.outlays or any shortfalls, due to delays in invoices being approved and paid by customers.
Effective October 20, 2022, we entered into a joint venture with Proyectos Globales de Energia y Servicos CME, S.A. DE C.V. (“CME”) to provide integrated well services to Petróleos Mexicanos (“PEMEX”). This involved Borr Mexico Ventures Limited (“BMV”) subscribing for 49% of the equity of Opex and Akal. CME’s wholly owned subsidiary, Operadora Productora y Exploradora Mexicana, S.A. de C.V. (“Operadora”) owns 51% of each of Opex and Akal. . We provide five jack-up rigs on bareboat charters to two otherour joint venture companies,in Mexico, Perfomex, which is owned 51% by us, and Perfomex II, which are owned in the same way as Opex and Akal. Perfomex and Perfomex II provideprovides the jack-up rigs under traditional dayrate drilling and technical service agreements to OpexOPEX Perforadora S.A. de C.V. ("Opex") and Akal.Perforadora Profesional AKAL I, S.A. de C.V. (“Akal”). As a 51% shareholder in each of the Joint Ventures, we are obligated to fund any capital shortfall where the boards of Perfomex or Perfomex II make a cash call to the shareholders under the provisions of certain shareholder agreements. If the Joint Ventures do not have sufficient working capital to operate the rigs, due to delays in invoice approval and payments from customers or other reasons, we may have to fund working capital or capital expenditure outlays for the operation of our five jack-up rigs. In particular, Opex and Akal, also contract technical support services from BMV, management services from Operadora and well services from specialist well service contractors (including an affiliate of one of our principal shareholders, Schlumberger) and logistics and administration services from Logística y Operaciones OTM, S.A. de C.V, an affiliate of CME. This structure enables Opex and Akal to provide bundled integrated well services to PEMEX. The potential revenue earned is fixed under each of the PEMEX contracts, while Opex and Akal manage the drilling services and related costs on a per well basis. Therefore, if Opex or Akal are unable to complete each well within the time and cost agreed, they bear the completion risk.
Our Joint Ventures in Mexicowhich were previously 49% owned by us, have experienced payment delays from the customer, which has had and could continue to have a significant impact on our liquidity.
Our Joint Venture has experienced delays in getting invoices being approved and paid by PEMEX, the ultimate customer, which delays have had a significant impact on our liquidity at various times in 2020. In order to improve thisThe situation improved in May 2020, the Joint Venture
entered into an agreement2021 through 2023 with a Mexican state controlled bank whereby payment of a portion of these invoices, subject to PEMEX approval, can be advanced through a factoring solution with the target to secure a more stable cash flow. Ifregular payments, however if Opex or Akal are nonetheless unable to receive payment from their customerPEMEX in a timely fashion as shareholdersgoing forward, we may be required to fund working capital or capital expenditure outlays to our Joint Ventures as shareholders, or we may not be paid related party revenues, dividends or any other distributions in a timely manner or at all. If Opex or Akal are unable to make a profit, we will recognize losses from our equity method investments and may be unable to receive dividends or distributions from those businesses. This could have a significant adverse effect on our operations and liquidity. We are also obligated, as a 49% shareholder, to fund any capital shortfall in Opex or Akal where the Board of Opex or Akal make a cash call to the shareholders under the provisions of the Shareholder Agreements.
We have a limited operating history and have experienced net losses for most years since inception.
We have a limited operating history upon which to base an evaluation of our current business and future prospects. Also, our lack of operating history may affect our ability to obtain customer contracts.
We are establishingcontinuing to establish and strengthen our history as an operator of jack-up rigs and as a result, the revenue and income potential of our business is still developing. We have experienced net losses in each of our fiscal years since inception other than in the fiscal year ending December 31, 2023, and this trend may continue.we cannot rule out the possibility of experiencing further losses in the future. We may not be able to generate significant additional revenues in the future. We will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so may have a material adverse effect on our business, financial condition, and results of operations.
In connection with the audits of our consolidated financial statements, weoperations and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
We were established in 2016 and have since that time experienced significant expansion, especially during 2018 when we acquired Paragon Offshore Limited (or Paragon as defined below) and shortly thereafter proceeded with a reorganization program. This growth, combined with the loss of historically significant individuals and relationships in the legacy Paragon business, resulted in too few accounting personnel to adequately follow and maintain our accounting processes, and constrained our ability to deploy resources with which to address compliance with internal controls over financial reporting. Subsequently, and although we are not subject to the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, in the course of preparing and auditing our consolidated financial statements, we and our independent registered public accounting firm respectively identified a material weakness in our internal control over financial reporting as of December 31, 2018, December 31, 2019 and December 31, 2020. In accordance with reporting requirements set forth by the SEC, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weakness identified relates to lack of a sufficient number of competent financial reporting and accounting personnel to prepare and review our consolidated financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. Our independent registered public accounting firm did not undertake an assessment of our internal control under the Sarbanes-Oxley Act for purposes of identifying and reporting any material weakness in our internal control over financial reporting. Had they performed an assessment of our internal control over financial reporting, additional material weaknesses may have been identified.
In addition, during 2019 we determined that certain advances made to our chief executive officer and chief financial officer had not been approved by our compensation committee or board of directors and therefore we inadvertently violated Section 402 of the Sarbanes-Oxley Act of 2002. See “Item 7.B—Related Party Transactions.” Such payments without authorization could indicate insufficient controls over compensation payments.
To remedy our identified material weakness and other control deficiencies, we are continuing to take steps to strengthen our internal control over financial reporting, including hiring more technically qualified accounting personnel to strengthen the financial reporting function and to improve the financial and systems control framework. Further, we have engaged and may continue to engage external consultants to help us assess the design and implementation of our internal controls. Additionally, we may also engage external consultants for testing and compliance to assist us in the evaluation of the effectiveness of our controls, as defined in Rule 13a-15 of the Exchange Act. These measures may not be sufficient to improve our internal controls to remediate and eliminate any material weaknesses.
We rely on a limited number of customers, and we are exposed to the risk of default or material non-performance by customers.
We have a limited number of customers and potential customers for our services. Mergers among oil and gas exploration and production companies have further reduced the number of available customers, which may increase the ability of potential customers to achieve pricing terms favorable to them as the jack-up drilling market recovers. Our five largest customers subsidiaries of ExxonMobil, NDC, Spiritby revenue, Perfomex, Saudi Arabian Oil Company, ENI Congo S.A., Brunei Shell Petroleum Company Sendiran Berhad and BW Energy Perfomex and ENI,Gabon S.A. comprised 58%56% of our revenue, including related party revenue, for the year ended December 31, 2020.2023. As a result, a loss of one or more customers could have a significant adverse effect on our business.
We are exposed to the risk of default or material non-performance by customers.
We are subject to the risk of late payment, non-payment or non-performance by our customers. Certain of our customers may be highly leveraged and subject to their own operating and regulatory risks and liquidity risk, and such risks could lead them to seek to cancel, repudiate or seek to renegotiate our drilling contracts or fail to fulfill their commitments to us under those contracts. These risks are heightened in periods of depressed market conditions. If we experience payment delays or non-payments, we may be unable to make scheduled payments which exposes the business to risk of litigation or defaults, including under our Financing Arrangements, which may have a material adverse effect on our business.debt instruments.
In addition, ourOur drilling contracts provide for varying levels of indemnification and allocation of liabilities between our customers and us, including with respect to (i) well-control, reservoir liability and pollution, (ii) loss or damage to property, (iii) injury and death to persons arising from the drilling operations we perform and (iv) each respective parties’ consequential losses, if any. Apportionment of these liabilities is generally dictated by standard industry practice and the particular requirements of a customer. Under our drilling contracts, liability with respect to personnel and property customarily is generally allocated so that we and our customers each assume liability for our respective personnel and property, or a “knock-for-knock” basis but that may not always be the case.
Customers have historically assumed most of the responsibility for, and agreed to indemnify contractors from, any loss, damage or other liability resulting from pollution or contamination, including clean-up and removal and third-party damages arising from operations under the contract when the source of the pollution originates from the well or reservoir; damages resulting from blow-outs or cratering of the well; and regaining control of, or re-drilling, the well and any associated pollution. However, there can be no assurance that these customers will be willing, or financially able, to indemnify us against all these risks. Customers may seek to cap or otherwise limit indemnities or narrow the scope of their coverage, reducing our level of contractual protection.
In addition, under Under the laws of certain jurisdictions, such indemnities may not be enforceable in all circumstances, for example if the cause of the damage was our gross negligence or willful misconduct. If that were the case, we may incur liabilities in excess of those agreed in our contracts. Although we maintain certain insurance policies, the policy may not respond or insurance proceeds, if paid, may not fully compensate us in the event any key customers or potential customers default on their indemnity obligations to us. Our
insurance policies do not cover damages arising from the willful misconduct or gross negligence of our personnel (which may include our subcontractors in some cases). In the event of a default or other material non-payment or non-performance by any customers, our business, financial condition, and results of operations and cash flow could be adversely affected.
In addition, customers tend to request that we assume a limited amount of liability for pollution damage when such damage originates from our jack-up rigs and/or equipment above the surface of the water or is caused by our negligence, which liability generally has caps for ordinary negligence, with much higher caps or unlimited liability where the damage is caused by our gross negligence or willful misconduct, respectively. We may also be exposed to a risk of liability for reservoir or formation damage or loss of hydrocarbons when we provide, directly or indirectly (for example through our participation in joint ventures where there are parent company guarantees granted to the ultimate customer), integrated well services.
We are relianton positive cash flow generation from our Joint Ventures, and we may not receive funds in a timely manner.
Our Mexican Joint Venture businesses operate five of our rigs, which we provide to them on bareboat lease contracts. These rigs are bundled with other services from other providers by the two customers of our Joint Venture Businessesbusinesses (Opex and Akal) and the customers in turn provide Integrated Drilling Servicesintegrated drilling services to PEMEX, who is their sole ultimate customer. Within our operating and liquidity assumptions for 20212024 and future years, we have made certain assumptions around the profitability, timing and amounts of receipts of cash from the Joint Venture Businesses,businesses, whether by repayment of loans, payment of the bareboat or proposed distributions to shareholders, if declared. In addition, we had outstanding receivables due from the Joint Venture Businessesbusinesses on our balance sheetsheet of $34.9$95.0 million as of DecemberDecember 31, 2020,2023, collection of which is dependent on the customers of our Joint Venture Businessesbusinesses collecting amounts due to them from PEMEX.
The timing of payments made by PEMEX to suppliers, including the two customers of our Joint Venture Businesses, isbusinesses, has historically often been later than contractual terms and this has impacted our liquidity and continues to do so. Should PEMEX continue to not pay our Joint Venture Businessesbusinesses’ customers in a timely manner, the Joint Venture Businessesbusinesses in turn will continue to not be able to settle receivable balances with us in a timely manner which would continue to adversely affect our working capital, and may necessitate seeking additional funding and there is no assurance that we will be able to obtain such funding on reasonable terms or at all.
During 2020, one of our JVs, Opex, entered into a factoring agreement with NAFINSA, a state owned bank, subject to certain criteria including a timely approval of invoices by PEMEX. One of our Mexican JVs has also agreed the terms of a factoring agreement with an international financing entity which allows for $50 million to $150 million of receivables in the JV to be factored, with a variable rate of interest on balances outstanding until collection. As of the date of this report, no amounts have been factored under this facility. However there is no guarantee that they will receive timely approval of invoices from PEMEX, or receive funds in a faster timescale than their historical working capital cycle; and there is no assurance that they will enter into more effective, or indeed any other, factoring arrangements in the future; and where any factoring arrangement is entered into, the cost of such factoring may be expensive and could have a material and adverse impact on the results and cashflows of Opex or AKAL which could have a material impact on cashflows or us and accordingly our liquidity.
Our drilling contracts contain fixed terms and dayrates, and consequently we may not fully recoup our costs in the event of a rise in expenses, including operating and maintenance costs.
Our operating costs are generally related to the number of rigs in operation and the cost level in each country or region where the rigs are located, which may increase depending on the circumstances. In contrast, the majority of our contracts have dayrates that are fixed over the contract term. These provisions allow us to adjust the dayrates based on stipulated cost increases, including wages, insurance and maintenance costs. However, actual cost increases may result from events or conditions that do not cause correlative changes to the applicable indices. The adjustments are typically performed on a semi-annual or annual basis. For these reasons, the timing and amount awarded as a result of such adjustments may differ from our actual cost increases, which could result in us being unable to recoup incurred costs.
Some of our long-term drilling contracts may contain rate adjustment provisions based on market dayrate fluctuations rather than cost increases. In such contracts, the dayrate could be adjusted lower during a period when costs of operation rise, which could adversely affect our financial performance. Shorter-term contracts normally do not contain escalation provisions. In addition, although our contracts typically contain provisions for either fixed or dayrate compensation during mobilization, these rates may not fully cover our costs of mobilization, and mobilization may be delayed for reasons beyond our control, increasing our costs, without additional compensation from the customer.
We incur expenses, such as preparation costs, relocation costs, operating costs and maintenance costs, which we may not fully recoup from our customers, including where our jack-up rigs incur idle time between assignments.
Our operating expenses and maintenance costs depend on a variety of factors, including crew costs, provisions, equipment, insurance, maintenance and repairs, and shipyard costs, many of which are beyond our control. Operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues.revenues and are affected by many factors, including inflation. In connection with new contracts or contract extensions, we incur expenses relating to preparation for operations, particularly when a jack-up rig moves to a new geographic location. These expenses may be significant. Expenses may vary based on the scope and length of such required preparations and the duration of the contractual period over which such expenditures are amortized. In addition, equipment maintenance costs fluctuate depending upon the type of activity that the jack-up rig is performing and the age and condition of the equipment. In situations where our jack-up rigs incur idle time between assignments, the opportunity to reduce the size of our crews on those jack-up rigs is limited, as the crews will be engaged in preparing the rig
for its next contract, which could affect our ability to make reductions in crew costs, provisions, equipment, insurance, maintenance and repairs or shipyard costs.
When
When a jack-up rig faces longer idle periods, reductions in costs may not be immediate as some of the crew may be required to prepare the jack-up rig for stacking and maintenance in the stacking period. As of December 31, 2020, we had 12 jack-up rigs that were “warm stacked,” which means the rigs, including our newbuild jack-up rigs which have not yet been activated, are kept ready for redeployment and retain a maintenance crew, and one rig that was “cold stacked,” which means the rig is stored in a harbor, shipyard or a designated offshore area, and the crew is reassigned to an active rig or dismissed, not including our jack-up rigs being activated to commence drilling operations as of such date. When idled or stacked, jack-up rigs do not earn revenues, but continue to require cash expenditures for crews, fuel, insurance, berthing and associated items. These expenses may be significant. Should units be idle for a longer period, we may be unable to reduce these expenses. This could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
We incurincur activation and reactivation costs, which we may not fully recoup from our customers.
We have incurred, and may further incur, significant costs activating, reactivating and mobilizing our newbuild fleet as contracts have been secured, in particular for the five rigs which are working in Mexico. In addition, as of April 13, 2021, we had 10 rigs warm stacked which are available for contracting,secured. We have an agreement with one of these - "Skald" - scheduledSeatrium to start operations in June 2021. These rigs may require additional activation or reactivation costs before commencing operations, if contracted. Also, as of April 13, 2021, we had an order with Keppel for fiveacquire two newbuild jack-up rigs which are currently scheduled forwith contractual delivery in 2023 following the 2021 2025 and a best efforts expedited delivery date in 2024.Amendments (see please see “Item 5.B Liquidity and Capital Resources – Our Existing Indebtedness.” - “2021 Amendments”). In connectionconnection with contract commencement of any ourof these newbuild jack-up rigs, we will incur costs relating to the activation of such newbuild rigs.rigs. These costs are significant and historically have been in the range of $11 million to $14$20 million per newbuild jack-up rig activated and may be higher dependent upon the circumstances of the rig activation. Costs vary based on the scope and length of such required preparations and fluctuate depending upon the type of activity that the rig is intended to perform. Further, additional costs related to mobilization and demobilization will be incurred when rigs move between contracts. The Company historically has not been able to recoup all these costs and may not be able to do so in the future. Extensive capital expenditure related to the commencement of contracts has, and could continue to have, an effect on our cash flow.
In addition, construction of our newbuild jack-up rigs isand maintenance of our active fleet are subject to risks of delay or cost overruns, including inherent cost in any large construction project from numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment or shipyard construction, the failure of equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated actual or purported change orders, the inability to obtain required permits or approvals, unanticipated cost increases between order and delivery, design or engineering changes, and work stoppages and other labor disputes. Risks include adverse weather conditions or any other events such as yard closures due to epidemics or pandemics, terrorist acts, war, piracy or civil unrest (which may or may not qualify as force majeure events in the relevant contract). Significant cost overruns or delays could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow. Additionally, failure to deliver a newbuild rig or to reactivate a rig on time may result in the delay of revenue from that rig. Newbuild jack-up rigs and recently reactivated rigs may also experience start-up difficulties following delivery or reactivation or other unexpected operational problems that could result in uncompensated downtime or the cancellation or termination of drilling contracts, which could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
Inflation may adversely affect our operating results.
Inflationary factors such as increases in the labor costs, material costs and overhead costs may adversely affect our operating results. Inflation has increased significantly across the globe in 2022 and 2023 and the high levels of inflation continue, which impact our costs, as well as the global economy which can therefore impact oil prices and therefore demand for our services. Although we do not believe that inflation has had a material impact on our results of operations to date, a continued high rate of inflation may have an adverse effect on our ability to maintain current levels of gross margin and general and administrative expenses as a percentage of total revenue, if our dayrates do not increase with these increased costs and can impact overall demand for drilling services.
The limited availability of qualified personnel in the locations in which we operate may result in higher operating costs as the offshore drilling industry recovers.demands increase.
Competition for labor, both skilled and other, labor required for our drilling operations has increased in recent yearswill continue to increase as the number of rigs that are activated or added to worldwide fleets has increased, and this may continuecontinues to rise.grow. In some regions, the limited availability of qualified personnel in combination with local regulations focusing on crew composition are expected to further impact the supply of qualified offshore drilling crews. In addition, during industry down-cycles, such as the extended downturn experienced over the past few years, qualified personnel may elect to seek alternative employment and may not return to the offshore drilling industry immediately during periods of recovery, if at all, which may have the effect of further reducing the supply of qualified personnel.
Personnel salaries across the jack-up drilling market are affected by the cyclical nature of the offshore drilling industry, particularly during industry down-cycles.up-cycles. As the jack-up drilling market recovers,grows, the tightness of labor supply within the industry could further create and intensifycreates upward pressure on wages and makemakes it more difficult or costly for us to staff and service our rigs. Furthermore, asInflation levels can exacerbate the impact on wages. As a result of any increased competition for qualified personnel, we may experience a reduction
in the experience level of our personnel, which could lead to higher downtime and more operating incidents. Such developments could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
Furthermore, offshore
Offshore drilling personnel (both employees and contractors) in certain regions, including those personnel who are employed on rigs operating for example in West Africa, Middle East, Mexico and Europe, are represented by collective bargaining agreements. Pursuant to these agreements, we are required to contribute certain amounts to retirement funds and pension plans and are restricted in our ability to dismiss employees.terminate employment. In addition, individuals covered by these collective bargaining agreements may be working under agreements that are subject to salary negotiation. These negotiations could result in higher personnel or other increased costs or increased operating restrictions.
If we are unable to attract and retain highly skilled personnel who are qualified and able to work in the locations in which we operate it could adversely affect our operations.
We require highly skilled personnel in the right locations to operate and provide technical services and support for our business.business globally. At a minimum, all offshore personnel are required to complete Basic Offshore Safety Induction and Emergency Training (“BOSIET”) or a similar offshore survival and training course. We may also require additional training certifications prior to employment with us, depending on the position of each personnel, location of the drilling and related technical requirements. In addition to direct costs associated with BOSIET, other training courses and required training materials, there may be indirect costs to personnel
(such (such as travel costs and opportunity costs) which have the effect of limiting the flow of new qualified personnel into the offshore drilling industry.
In addition to the technical certification requirements, our ability to operate worldwide depends on our ability to obtain the necessary visas and work permits for such personnel to travel in and out of, and to work in, the jurisdictions in which we operate. Governmental actions in some of the jurisdictions in which we operate may make it difficult for us to move our personnel in and out of these jurisdictions by delaying or withholding the approval of these permits. This includes local content laws which restrict or otherwise effect our crew composition. If we are not able to obtain visas and work permits for the employees we need for operating our rigs on a timely basis, or for third-party technicians needed for maintenance or repairs, we might not be able to perform our obligations under our drilling contracts, which could allow our customers to cancel the contracts. These factors could increase competition for highly-skilled personnel throughout the offshore drilling industry, which may indirectly affect our business, financial condition, and results of operations.operations and cash flow. Furthermore, the unexpected loss of members of management, qualified personnel or a significant number of employees due to disease, disability or death, could have a material adverse effect on us.
The travel and other restrictions implemented in response to the COVID-19 outbreak have made it difficult to transport personnel to our rigs which has impacted operations and we expect to continue to experience such disruptions as long as this outbreak continues. It is difficult to predict whether certain countries will continue to operate ‘closed border’ policies, enable foreign employees to continue to travel or to prioritize the offshore sector as and when COVID-19 related restrictions begin to be relaxed. In addition, it is difficult to know when COVID-19 related restrictions may be relaxed or re-implemented in any given territory where we operate.
We have established, and may from time to time be a party to certain joint venture or other contractual arrangements with partners that introduce additional risks to our business.
We have established, and may again in the future establish, relationships with partners, whether through the formation of joint ventures with local participation or through other contractual arrangements. For example, in Mexico, our operations arehave been structured through the JVJoint Venture structures with our local partner in Mexico,Proyectos Globales de Energia y Servicios CME, S.A. DE C.V. (“CME”) to provide operations and maintenance services of the rigs to OPEX with integrated well services to PEMEX, pursuant to twointegrated well services contracts (“PEMEX Contracts”). We commenced operations under the first PEMEX Contract in August 2019 and under the second contract in March 2020.
Please see the section entitled “Item 4.B Business Overview—Our Business—Joint Venture, Partner and Agency Relationships” for more information.
We believe that opportunities involving partners may arise from time to time and we may enter into such arrangements. We may not realize the expected benefits of any such arrangements and such arrangements may introduce additional risks to our business. In order to establish or preserve our relationship with our partners, we may agree to bear risks and make contributions of resources that are proportionately greater than the returns we could receive, which could reduce our income and return on our investment in such arrangements.arrangements and increase our risks and costs. In certain joint ventures or other contractual relationships with our partners, we may transfer certain ownership stakes in one or more of our rig-owning subsidiaries and/or accept having less control over decisions made in the ordinary course of business. In certain arrangements with our local partners we may also guarantee the performance of their obligations under the relevant contract and we may not be able to enforce any contractual indemnifications we obtain from such parties. Any reduction in our ownership of our rig-owning subsidiaries and/or control over decisions made in the ordinary course of business could significantly reduce our income and return on our investment in such arrangements.
Our operations involving partners are subject to risks, including (i) disagreement with our partner as to how to manage the drilling operations being conducted; (ii) the inability of our partner to meet their obligations to us, the joint venture or our customer, as applicable; (iii) litigation between our partner and us regarding joint-operational matters and (iv) failure of a partner to comply
with applicable laws, including sanctions and anti-money laundering laws and regulations, and indemnity obligations. The happeningoccurrence of any of the foregoing events may have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
In addition, we rely on the internal controls and financial reporting controls of our subsidiaries and if any of our subsidiaries, including joint ventures which are subsidiaries, fail to maintain effective controls or to comply with applicable standards, this could make it difficult to comply with applicable reporting and audit standards. For example, the preparation of our consolidated financial statements requires the prompt receipt of financial statements from each of our subsidiaries and associated companies, some of whom rely on the prompt receipt of financial statements from each of their subsidiaries and associated companies. Additionally, in certain circumstances, we may be required to file with our annual report on Form 20-F, or a registration statement filed with the SEC, financial information of associated companies which has been audited in conformity with SEC rules and regulations and applicable audit standards. If we are unable for any reason to procure such financial statements or audited
financial statements, as applicable, from our subsidiaries and associated companies, we may be unable to comply with applicable SEC reporting standards.
We are exposed to the risk of default or material non-performance by subcontractors.
In order to provide drilling services to our customers, we rely on subcontractors to perform certain services. We may be liable to our customers in the event of non-performance by any such subcontractor. We cannot ensure that ourOur back-to-back arrangements with our subcontractors, contractual indemnities or insurance arrangements willmay not provide adequate protection for the risks we face. To the extent that there is any back-to-back arrangement, contractual indemnity and/or receipt of evidence of insurance from a subcontractor, there can be no assurance that our subcontractors will be in a financial position to honor such arrangements in the event a claim is made against us by a customer and we seek to pass on the related damages to the subcontractor. In addition, under the laws of certain jurisdictions, there may be circumstances in which such indemnities are not enforceable. The foregoing could result in us having to assume liabilities in excess of those agreed in our contracts, which may have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
Outbreaks
The impact and effects of epidemicpublic health crises, pandemics and pandemic diseases,epidemics, such as the COVID-19 outbreak,pandemic, could have a material adverse effect on our business, financial condition, results of operations and governmental responses thereto have and could further adversely affect our business.cash flow.
Public health threats,crises, pandemics and epidemics, such as the COVID-19 pandemic, and fear of an outbreak influenzaor resurgence of such events have adversely impacted and other highly communicable diseases or viruses, outbreaks of which have from time to time occurredmay in various parts of the world in which we operate, couldfuture adversely impact our operations, the timing of completion of any outstanding or future newbuilding projects, as well as the operations of our customers.
Duringcustomers and the currentglobal economy, including the worldwide demand for oil and natural gas and the level of demand for our services. Other effects of such public health crises, pandemics and epidemics, including the COVID-19 pandemic, we are facing ongoing operationalhave included and, in the event of an outbreak or resurgence, may in the future include significant volatility and disruption of the global financial markets, continued volatility of crude oil prices and related uncertainties around OPEC+ production, disruption of our operations, including suspension of drilling activities, impact to costs, loss of workers, labor shortages, supply chain disruptions or equipment shortages, logistics constraints, customer demand for our services and industry demand generally, capital spending by oil and natural gas companies, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, asset impairments and other accounting changes, certain of our customers experiencing bankruptcy or otherwise becoming unable to pay vendors, including delays, unavailability of normal infrastructureus, and services which cause limited access to, or movement of equipment, critical goods, and personnel. Movement of rigs between countries has been impacted byemployee impacts from illness, travel restrictions, including border closures and reduced availability of customs officials. Our crews work on a rotation basis, with a substantial portion relying on international air transport for rotation. Disruptions due to quarantine following positive testing on our rigs have impacted the cost of rotating crewsother community response measures. Such public health crises, pandemics and epidemics are continuously evolving and the abilityextent to maintain a full crew on all rigs at a given time. Global disruptions in the supply chain and industrial production may have a negative impact on our ability to secure necessary supplies for our rigs and services, among other potential consequences attendant to epidemic and pandemic diseases.
Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses. These restrictions, and future prevention and mitigation measures, have had and are likely to continue to have an adverse impact on global economic conditions, which has significantly impacted global economic activity and the price of oil. As our business depends to a significant extent on customers’ expectations in respect of the price of oil, the impact of this crisis may significantly impact demand from customers, which could also negatively impact our business,operations and financial condition and cash flows as well as our liquidity and ability to comply with loan facility covenants.
We also face risks in connection with the impact of COVID-19 and related restrictions on our on-shore staff. For example, increased reliance on remote working has increasedresults have been affected and may continue to increase the likelihood of cyber security attacks.
The extent of the continued impact of COVID-19be affected depends on various factors beyond our operational and financial performance will depend on future developments, includingcontrol, such as the duration, spreadseverity and intensitysustained geographic resurgence or emergence of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. The COVID-19 pandemic has had and is likely to continue to have, an adverse impact on, our business including our ability to keep all rigs operational at all times.
Our crews generally work on a rotation basis, with a substantial portion relying on international air transport for rotation. Public health threats, such as COVID-19, Ebola, influenza, SARS, the Zika virus and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate, could adversely impact our operations, and the operations of our customers. In addition, public health threats in any area, including areas where we do not operate, could disrupt international transportation. Any such disruptions could impact the cost of rotating our crews, and possibly impact our ability to maintain a full crew on all rigs at a given time. Any of these public health threats and related consequences could adversely affect our business and financial results. We have experienced and continue to experience disruption in crewing our rigs as a resultnew variants of the COVID-19 outbreak which has impacted our rig operations. Such disruptions could have a materialpandemic and the impact on our business, and effectiveness of governmental actions to contain and treat such impact is expected to continue as long as the outbreak impacts the global economy.outbreaks.
We rely on a limited number of suppliers and may be unable to obtain needed supplies on a timely basis or at all.
We rely on certain third parties to provide supplies and services necessary for our offshore drilling operations, including drilling equipment suppliers, catering and machinery suppliers. There areis a limited number of available suppliers throughout the offshore drilling industry and past consolidation among suppliers, combined with a high volume of drilling rigs under construction, may result in a shortage of supplies and services, thereby increasing the cost of supplies and/or potentially inhibiting the ability of suppliers to deliver on time.
With respect to certain items, such as blow-out preventers and drilling packages, we are dependent on the original equipment manufacturer for repair and replacement of the item or its spare parts. We maintain limited inventory of certain items, such as spare parts, and sourcing such items may involve long-lead times (six months or longer). Standardization across our fleet assists with our inventory management, however the inability to obtain certain items may be exacerbated if such items are required on
multiple jack-up rigs simultaneously. Furthermore, our suppliers may experience disruptions and delays in light of the COVID-19 outbreak,current global geopolitical tensions and instabilities, which could result in delays in receipt of supplies and services and/or force majeure notices.
If we are unable to source certain items from the original equipment manufacturer for any reason, including as a result of disruptions experienced by our suppliers, as a result of the restrictions imposed in many countries in response to the COVID-19 outbreak, or if our inventory is rendered unusable by the original equipment manufacturer due to safety concerns, resulting delays could have a material adverse effect on our results of operations and result in rig downtime and delays in the repair and maintenance of our jack-up rigs. In addition, we may be unable to activate our jack-up rigs in response to market opportunities.
We may be unable to obtain, maintain and/or renew the permits necessary for our operations or experience delays in obtaining such permits, including the class certifications of rigs.
The operation of our jack-up rigs requires certain governmental approvals, the number and prerequisites of which vary, depending on the jurisdictions in which we operate our jack-up rigs. Depending on the jurisdiction, these governmental approvals may involve public hearings and costly undertakings on our part. We may not be able to obtain such approvals or such approvals may not be obtained in a timely manner. If we fail to secure the necessary approvals or permits in a timely manner, our customers may have the right to terminate or seek to renegotiate their drilling contracts to our detriment.
Offshore drilling rigs, although not self-propelled units, are nevertheless registered in international shipping or maritime registers and are subject to the rules of a classification society, which allows such rigs to be registered in an international shipping or maritime register. The classification society certifies that a drilling rig is “in-class,” signifying that such drilling rig has been built and maintained in accordance with the rules of the relevant classification society and complies with applicable rules and regulations of the drilling rig’s country of registry, or flag state, and the international conventions to which that country is a party. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
Our jack-up rigs are built and maintained in accordance with the rules of a classification society, currently being ABS.American Bureau of Shipping. The class status varies depending on a jack-up rig’s status (stacked or in operation). Operational rigs are certified by the relevant classification society as being in compliance with the mandatory requirements of the relevant national authorities in the countries in which our jack-up rigs are flagged and other applicable international rules and regulations. If any jack-up rig does not maintain the appropriate class certificates for its present status, (stacked or in operation), fails any periodic survey or special survey and/or fails to comply with mandatory requirements of the relevant national authorities of its flag state, the jack-up rig may be unable to carry on operations and, depending on its status, (stacked or in operation), may not be insured or insurable. Any such inability to carry on operations or be employed could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
We are a holding company and are dependent upon cash flowsflow from subsidiaries and equity method investments to meet our obligations. If our operating subsidiaries or equity method investments experience sufficiently adverse changes in their financial condition or results of operations, or we otherwise become unable to arrange further financing to satisfy our debt or other obligations as they become due, we may become subject to insolvency proceedings.
Our
We are a holding company with no independent business operations and no significant assets and our only material assets are our interests in our subsidiaries. We conduct our operations through, and all of our assets are owned by, our subsidiaries and our operating revenues and cash flowsflow are generated by our subsidiaries. As a result, cash we obtain from our subsidiaries is the principal source of liquidity that we use to meet our obligations and we are dependent upon cash flow from our subsidiaries in the form of intercompany loans, dividends or other distributions or payments to meet our obligations. Given our international operations, we have a large number of subsidiaries and business participations, which individually contribute to our results. The amounts of dividends and distributions or loans and contributions available to us will depend on the profitability and cash flow of the operating subsidiaries and the ability of each of those operating subsidiaries to declare dividends. Contractual provisions and/or local laws, as well as our subsidiaries’ financial condition, operating requirements and debt requirements, may limit our ability to
obtain cash from subsidiaries that we require to pay our expenses or otherwise meet our obligations when due. Various agreements governing our debt restrict and, in some cases may actually prohibit, our ability to move cash within the group.
Applicable tax laws may also subject such payments to us by subsidiaries to further taxation. Applicable law as well as profit and loss transfer agreements between subsidiaries may also limit the amounts that some of our subsidiaries will be permitted to pay as dividends or distributions on their equity interests, or even prevent such payments. In particular, the ability of our holding
companies’ subsidiaries to pay dividends to the relevant holding company will generally be limited to the amount of distributable reserves available to each of them and the ability to pay their respective debt when due.
If we are unable to transfer cash from our subsidiaries, then even if we have sufficient resources on a consolidated basis to meet our obligations when due, we may not be permitted to make the necessary transfers from our subsidiaries to meet our debt and other obligations when due. The terms of certain of our Financing Arrangements,existing bonds and loans, which are described under “Item 5. Operating and Financial Review and Prospects—Our Existing Indebtedness,” also limit our ability to incur additional debt, including new secured financing. In addition, certain intragroup cash transfers andof our loans require us to maintain reserves of cash thata minimum liquidity ratio on particular test dates and during particular periods which could inhibit our ability to meet our debt and other obligations when due.
If our operating subsidiaries experience sufficiently adverse changes in their financial condition or results of operations, or we otherwise become unable to arrange further financing to satisfy our debt or other obligations as they become due, we may become subject to insolvency proceedings. Any such proceedings may have a material adverse effect on our business, financial condition and results of operations and could have a significant negative impact on the market price of our Shares.
Our business and operations involve numerous operating hazards.
Our operations are subject to hazards inherent in the drilling industry, such as blowouts, reservoir damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, punch-throughs, craterings, fires, explosions and pollution. Contract drilling and well servicing require the use of heavy equipment and exposure to hazardous conditions, which may subject us to liability claims by employees, customers, subcontractors and third parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by jack-up rig personnel, third parties or customers and suspension of operations. Our fleet is also subject to hazards inherent in marine operations, either while on-site or during mobilization, such as capsizing, sinking, grounding, collision, damage from or due to severe weather, including hurricanes, and marine life infestations. For instance, during Hurricane Harvey in the Gulf of Mexico in 2017, the hurricane caused a drillship owned by a subsidiary of Paragon (as defined below) to break loose from its moorings and it was subsequently involved in a series of collisions. Operations may also be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages. We customarily provide contractual indemnities to our customers and subcontractors for claims that could be asserted by us relating to damage to or loss of our equipment, including rigs, and claims that could be asserted by us or our employees relating to personal injury or loss of life.
Damage to the environment could also result from our operations, particularly through spillage of fuel, lubricants or other chemicals and substances used in drilling operations, or extensive uncontrolled fires. We may also be subject to fines and penalties and to property, environmental, natural resource and other damage claims, and we may not be able to limit our exposure through contractual indemnities, insurance or otherwise.
Consistent with standard industry practice, customers have historically assumed, and indemnifyindemnified contractors against, any loss, damage or other liability resulting from pollution or contamination when the source of the pollution originates from the well or reservoir, including damages resulting from blow-outs or cratering of the well, regaining control of, or re-drilling, the well and any associated pollution. However, there can be no assurances that these customers will be willing or financially able to indemnify us against all these risks. Customers may seek to cap indemnities or narrow the scope of their coverage, reducing a contractor’s level of contractual protection. In addition, customers tend to request that contractors assume (i) limited liability for pollution damage above the water when such damage has been caused by the contractor’s jack-up rigs and/or equipment and (ii) liability for pollution damage when pollution has been caused by the negligence or willful misconduct of the contractor or its personnel. Consistent with standard industry practice, we may therefore assume a limited amount of liability for pollution damage when such damage originates from our jack-up rigs and/or equipment above the surface of the water or is caused by our negligence, in which case such liability generally has caps for ordinary negligence, with much higher caps or unlimited liability where the damage is caused by our gross negligence. When we provide integrated well services, we may also be exposed to a risk of liability for reservoir or formation damage or loss of hydrocarbons.
In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable. For example, in a 2012 decision in a case related to the fire and explosion that took place on the unaffiliated Deepwater Horizon Mobile Offshore Drilling rig in the Gulf of Mexico in April 2010 (the “2010 Deepwater Horizon Incident”) (to which we were not a party), the U.S. District Court for the Eastern District of Louisiana invalidated certain contractual indemnities for punitive damages and for civil penalties under the U.S. Clean Water Act under a drilling contract governed by U.S. maritime law as a matter of public policy.
If a significant accident or other event occurs that is not fully covered by our insurance or an enforceable or recoverable indemnity from a customer, the occurrence could adversely affect us. Moreover, pollution and environmental risks generally are not totally insurable.
Our insurance policies and contractual rights to indemnity may not adequately cover losses, and we do not have insurance coverage or rights to indemnification for all risks. In addition, where we do have such insurance coverage, the amount recoverable under insurance may be less than the related impact on enterprise value after a loss or not cover all potential consequences of an incident and include annual aggregate policy limits. As a result, we retain the risk through self-insurance for any losses in excess of these limits or that are not insurable. Any such lack of reimbursement may cause us to incur substantial costs or may otherwise result in losses. No assurance can be made that we will be able to maintain adequate insurance in the future at rates that we consider reasonable, or that we will be able to obtain insurance against certain risks. We could decide to retain more risk through self-insurance in the future. This self-insurance results in a higher risk of losses, which could be material.
Our business could be materially and adversely affected by severe or unseasonable weather where we have operations.
Our business could be materially and adversely affected by severe weather, particularly in the Gulf of Mexico and the North Sea. Many experts believe global climate change could increase the frequency and severity of extreme weather conditions.
Repercussions of severe or unseasonable weather conditions may include:
•evacuation of personnel and inoperability of equipment resulting in curtailment of services;
•weather-related damage to offshore drilling rigs resulting in suspension of operations;
•weather-related damage to our facilities and project work sites;
•inability to deliver materials to jobsites in accordance with contract schedules;
•fluctuations in demand for oil and natural gas, including possible decreases during unseasonably warm winters; and
•loss of productivity.
In addition, acute or chronic physical impacts of climate change, such as sea level rise, coastal storm surge and hurricane-strength winds may damage our jack-up rigs. Any such extreme weather events may result in increased operating costs or decreases in revenue, which could adversely affect our financial condition, results of operations and cash flow.
Our information technology systems are subject to cybersecurity risks and threats.threats and failure to protect these systems could have a material adverse effect on us.
We increasingly depend on digital technologiestechnology systems that we manage, and other systems that our third parties, such as our service providers, vendors, and equipment providers, manage, including critical systems to conduct our offshore and onshore operations, to collect payments from customers and to pay vendors and employees. Additionally, since the beginning of the COVID-19 pandemic, certain of our offices have been closed, and a large proportion of our onshore employee base have either be
en required to or encouraged to work remotely which has made us more dependent on digital technology to run our business.
Our data protection measures and measures taken by our customers and vendors may not prevent unauthorized access of information technology systems.systems, and when such unauthorized access occurs, we, our customer or vendors may not detect the incident in time to prevent harm or damage. Threats to our information technology systems and the systems of our customers and vendors, associated with cybersecurity risks or attacks continue to grow. Threats to our systems and our customers’ and vendors’ systemsSuch threats may derive from human error, power outages, computer and telecommunication failures, natural disasters, fraud or malice, social engineering or may be the result of accidental technological failure.phishing attacks, viruses or malware, and other cyberattacks, such as denial-of-service or ransomware attacks. Our drilling operations or other business operations could also be targeted by individuals or groups including cybercriminals, competitors, and nation state actors seeking to sabotage, disable or disrupt our information technology systems and networks, or to steal data. A successful cyberattack could materially disrupt our operations, including the safety of our operations, or lead to an unauthorized release of information or alteration of information on our systems. In addition, breaches to our systems and systems of our customers and vendors could go unnoticed for some period of time. A breach could also originate from, or compromise, our customers’ and vendors’ or other third-party networks outside of our control. A breach may also result in legal claims or proceedings against us by our shareholders, employees, customers, vendors and governmental authorities, both US and non-US. Any such attack or other breach of our information technology systems, or failure to effectively comply with applicable laws and regulations concerning privacy, data protection and information security, could have a material adverse effect on our business and financial results.
Remote working increases the risk of cyber security issues.issues as it enables employees to work outside of our physical corporate offices and, in some cases, use their own personal devices. We have been subject to cyberattacks. For example, we have been targeted by parties using fraudulent “spoof” and “phishing” emails and other means to misappropriate information or to introduce viruses or other malware through “trojan horse” programs to our computers. In response to these attacks and to prevent future attacks, we have engaged, and may in the future engage, third party vendors to review and supplement our defensive measures and assist us in our effort to eliminate, detect, prevent, remediate, mitigate or alleviate cyber or other security problems, although such measures may not be effective.
WhileGiven the increasing sophistication and evolving nature of the above mentioned threats, we have not experienced any cybersecurity attacks or breaches to date that had a material impact on us, such attacks incannot rule out the future could have a material impact on our business or operations. There is risk that these typespossibility of activities will recur and persist. There can be no assurance that our defensive measures will be adequate to prevent them occurring in the future. The costs to us to eliminate, detect, prevent, remediate, mitigate or alleviate cyber or other security problems, viruses, worms, malicious software programs, phishing schemes and security vulnerabilities could be significant and our efforts to
address these problems may not be successfulsuccessful. We continue to face the risk of cybersecurity attacks or breaches which could disrupt our operations and result in downtime, loss of revenue, harm to the Company’s reputation, or the loss, theft, corruption or unauthorized release of critical data of us or those with whom we do business, as well as result in higher costs to correct and remedy the effects of such incidents, including potential extortion payments associated with ransomware or ransom demands and have a material impact on us and could adverselyhave a material impact on our business financial conditionor operations.
In addition, laws and resultsregulations governing, or proposed to govern, cybersecurity, data privacy and protection, and the unauthorized disclosure of operations.confidential or protected information, including the U.K. Data Protection Act, the GDPR (as defined herein), Bermuda Personal Information Protection Act 2016, the California Consumer Privacy Act, the Cyber Incident Reporting for Critical Infrastructure Act, and other similar legislation in domestic and international jurisdictions pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.
We may be subject to litigation, arbitration and other proceedings that could have an adverse effect on us.
We are from time to time involved in various litigation matters, and we anticipate that we will be involved in litigation matters from time to time in the future. The operating hazards inherent in our business expose us to litigation, including personal injury and employment-dispute litigation, environmental and climate change litigation, contractual litigation with customers, subcontractors and/or suppliers, intellectual property litigation, litigation regarding historical liabilities of acquired companies, tax or securities litigation and maritime lawsuits, including the possible arrest of our jack-up rigs. For example, we have appealed an award judgment currently set at a maximum of $11.5 million, originating from a 2017 accident involving a drillship owned by a Paragon subsidiary. during Hurricane Harvey in the Gulf of Mexico. The Company’s maximum exposure in connection with such award judgment is $2.7 million taking into account legal costs reimbursements covered by the self-insured retention (SIR) of our insurance policy. Risks associated with litigation include potential negative outcomes, the costs associated with asserting our claims or defending against such litigation, and the diversion of management’s attention to these matters. Accordingly, current and future litigation and the outcome of such litigation could adversely affect our business, financial condition, and results of operations.operations and cash flow.
We may be subject to claims related to Paragon and the financial restructuring of its predecessor.
Paragon Offshore Limited (“Paragon”) was incorporated on July 18, 2017 as part of the financial restructuring of its predecessor, Paragon Offshore plc, which commenced proceedings under Chapter 11 of the U.S. Bankruptcy Code on February 14, 2016.
We believe that substantially all of the material claims against Paragon Offshore plc that arose prior to the date of the bankruptcy filing were addressed during the Chapter 11 proceedings and have been or will be resolved in accordance with the plan of reorganization and the order of the Bankruptcy Court confirming such plan. If, however, we are subject to claims that are attributable to Paragon Offshore plc, or any of its subsidiary undertakings, including in accordance with certain litigation arrangements in place prior to the acquisition of Paragon, our business, financial condition, and results of operations and cash flow could be adversely affected.
RISK FACTORS RELATED TO OUR FINANCING ARRANGEMENTS
We have significant debt maturities in the coming years.
As of December 31, 2023, all of our debt, totaling $1,790.0 million in principal amount, has scheduled final maturity dates between 2028 and 2030. In addition, under our Notes, we have amortization payments of approximately $100 million per year (which increased to $114.6 million per year with the issuance in March 2024 of $200 million principal amount of additional 10% senior secured notes due in 2028) at a price of 105% of principal amount, plus accrued interest and an excess cash flow repayment offer requirement, starting in 2024. We do not expect we will have cash resources to pay this debt at final maturity so we expect we will need to refinance or extend this debt by 2028, and any refinancing could be at higher rates or subject to more onerous restrictions and if we are unable to extend or refinance our secured debt this could result in enforcement by creditors and insolvency for us.
Future cash flowsflow may be insufficient to meet obligations under the terms of our Financing Arrangements.existing bonds and loans and operate our business.
As of December 31, 2020,2023, we had $1,857.5$1,790.0 million in principal amount of debt outstanding (including current portion but excluding back-end fees)(excluding deferred finance charges and debt discount), representing 58.6%58.1% of our assets. As of December 31, 2020,2023, our principal debt instruments included the following:
•$2701,540 million drawn onoutstanding under our Syndicated Facility (which excludes utilization under the $70Senior Secured Notes, consisting of $1,025 million tranche for guarantees)principal amount of senior secured notes due 2028, bearing a coupon of 10% per annum and $515.0 million aggregate principal amount of senior secured notes due 2030, bearing a coupon of 10.375% per annum (of which $100.0 million is due annually);
•$30180 million Super Senior Credit Facility, comprised of a $150 million Revolving Credit Facility ("RCF") and a $30 million Guarantee Facility. As of December 31, 2023, $29 million was drawn on our New Bridgeunder the Guarantee Facility, and the $150 million under the RCF was undrawn.
•$195 million drawn on our Hayfin Facility,
•$1,012.5 million outstanding to shipyards under delivery financing arrangements, and
•$350250 million outstanding under our convertible bonds.Convertible Bonds.
Our Syndicated Facility
In March 2024, we issued $200 million principal amount of additional 10% senior secured notes due in 2028, with $14.6 million of amortization payable per year.
We also have agreed to acquire two new rigs from Seatrium for an aggregate purchase price of $159.9 million per rig, including $12.5 million acceleration cost per rig to expedite the contractual delivery dates on a best efforts basis from July 2025 and New Bridge FacilitySeptember 2025 for the "Vale" and "Var", respectively, to August 2024 and November 2024, respectively, with a $130.0 million yard finance facility available per each rig at the Company’s option with a four-year maturity, subject to a right for the lender to call the loan after three years. Upon delivery of these rigs, our debt obligations will increase accordingly and if we utilize the financing for each of such two rigs, our indebtedness will increase by $260 million.
The Notes are guaranteed by the Company and most of its subsidiaries and secured on a first-priority basis by among other things, mortgagesliens on eightsubstantially all of the assets of the Company and Subsidiary Guarantors, including our jack-up rigs and shares of certain of our subsidiaries.
Our Hayfin Facility is secured by mortgages over three of our22 delivered jack-up rigs, pledges over shares of and related guarantees from certain of our rig-owning subsidiaries, who provide thisassignment of certain receivables, earnings and insurances held by the subsidiary guarantors.
Our RCF and the Guarantee Facility are guaranteed by the Company and its subsidiaries that guarantee the Notes and secured on a super senior basis by the same security as ownersthat secures the Notes.
The Convertible Bonds are unsecured and not guaranteed by any subsidiary of the mortgaged rigs and general assignments of rig insurances, certain rig earnings, accounts charters, intragroup loans and management agreements from our related rig-owning subsidiaries.Company.
Our 2028 Notes mature on November 15, 2028, our 2030 Notes mature on November 15, 2030 and our Convertible Bonds mature on February 8, 2028.
In November 2023, the Company and certain of its subsidiaries issued the Notes to repay all of our outstanding secured debt, including the $175 million facility with DNB Bank ASA, the $195 million facility with Hayfin Services LLP, the shipyard delivery financing arrangements arearrangement with PPL and Seatrium, the $150 million principal amount of Norwegian law senior secured by the relevant rigs that are financed, being twelve rigs as of December 31, 2020. In relationbonds, and to ninepay related premiums, fees, accrued interest and expenses. While we have refinanced substantially all of our delivered PPL rigs, the respective rig owners’ financial obligations are cross-guaranteeddebt to 2028 and cross-collateralized.later, a substantial portion falls due in 2028 and we will need to refinance that debt. There is no assurance that we will be able to refinance our debt before it falls due on reasonable terms, or at all. In relationaddition, we have annual amortization payments due under our Notes and starting in 2024, an obligation to three ofuse certain excess cash flow to offer to repay our delivered Keppel rigs, secured finance is in place. We have committed delivery financing in relation to four of our undelivered rigs and one undelivered rig does not have delivery finance arrangements.
Following the amendments to the Syndicated Facility, the New Bridge Facility, the Hayfin Facility and the Existing Shipyard Financing in June 2020 and pursuant to the 2021 Amendments (see pleaseNotes. Please see – “Item 5.B5.B. Liquidity and Capital Resources – Our Existing Indebtedness.” - “2021 Amendments”), this debt will now mature between the first quarter of 2023 and 2026. In addition, outstanding obligations under our Hayfin Facility, Syndicated Facility and New Bridge Facility will mature in 2022. Certain payment obligations for accrued interest fall due in the first quarter of 2022 and obligations to make payments to purchase the undelivered rigs from Keppel fall due in May 2023 (“Tivar”), July 2023 (“Vale”), September 2023 (“Var”), October 2023 (“Huldra”) and December 2023 (“Heidrun”). Our convertible Bonds mature in 2023. Please see - “Item 5.B Liquidity and Capital Resources – Our Existing Indebtedness.”.
These obligations will require significant cash payments, or we will need to refinance such debt. Our future cash flowsflow, which depends on many factors beyond our control, may be insufficient to meet all of these debt obligations and contractual commitments and we do not expect to have sufficient cash to repay all of these facilities at their currently scheduled due dates or other obligations or to fund our other liquidity needs, or have future borrowings available under the RCF, and we expect we will need to refinance at least some of these
facilities, and if we are unable to repay or refinance our debt and make other debt service payments as they fall due, we would face defaults under such debt instruments which could result in cross-defaults under other debt instruments.
Our ability to fund planned expenditures and amortization payments related toand cash sweep obligations under our delivery financing arrangements,Notes, will be dependent upon our future operating performance and ability to generate sufficient cash, which will be subject, to some extent, to the success of our business strategy, to prevailing economic conditions, industry cycles and financial, business, regulatory and other factors affecting our operations, many of which are beyond our control. We also experience seasonal fluctuations in our cash flow.
Our outstanding and future indebtedness could affect our future operations, since
We expect that a significant portion of our cash flow from operations will be dedicated to the payment of interest and principal on suchour debt, and consequently will not be available for other purposes. We cannot assure that our business will generate sufficient
cash flow from operations, that anticipated revenues growth, cost savings and operating improvements will be realized and will be sufficient to enable us to pay our debts when due. If we are unable to repay our indebtedness as it becomes due at maturity,(including pursuant to amortization and cash sweep provisions in our Notes), we may need to refinance our debt, raise new debt, sell assets or repay the debt with the proceeds from equity offerings—however, covenants in certain of our credit facilitiesexisting bonds and loans limit our ability to take some of these actions without consent.consent, subject to several exceptions and qualifications. If we are not able to borrow additional funds, raise other capital or utilize available cash on hand, a default could occur under certain or all of our Financing Arrangements.existing bonds and loans. If we are able to refinance our debt or raise new debt or equity financing, such financing might not be on favorable terms. For the substantial doubt overterms and could be at higher interest rates and could require us to comply with more onerous covenants, which could further restrict our ability to continue as a going concern, please refer to note 1business, financial condition, results of our Consolidated Financial Statements.operations and cash.
If we fail to make a payment when due under our newbuilding contracts, fail to take delivery of our newbuild jack-up rigs in accordance with the relevant contract terms or otherwise breach the terms of any of our newbuilding contracts, we could lose all or a portion of the pre delivery installments paid to Keppel, which as of December 31, 2020, amounted to $190.2 million, and we could be liable for penalties and damages under such contracts in which case our business, financial condition, and results of operations and cash flow could be adversely affected.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, growth and prospects.
We are largely dependent on cash generated by our operations, cash on hand, borrowings under our Financing ArrangementsRCF and potential issuances of equity or long-term debt to cover our operating expenses, capital expenses, service our indebtedness and fund our other liquidity needs. The level of cash available to us depends on numerous factors, including the dayrates we are paid by our customers, the price of oil currentand global economic conditions, demand for our services the dayrates we are paid by our customers,and the level of utilization of our drilling rigs, our ability to control and reduce costs, our access to capital markets and amounts available to us under our Financing ArrangementsRCF and amounts received from our JVs. One or more of such factors could be negatively impacted and our sources of liquidity could be insufficient to fund our operations and service our obligations such that we may require capital in excess of the amount available from those sources. Our access to funding sources in amounts adequate to finance our operations and planned capital expenditures and repay our indebtedness or on terms that are acceptable could be impaired by factors such as negative views and expectations about us, the oil and gas industry or the economy in general and disruptions in the financial markets.
Our financial flexibility will be severely constrained if we experience a significant decrease in cash generated from our operations or are unable to maintain our access to or secure new sources of financing. IfIn such case, where additional financing sources are unavailable, or not available on reasonable terms, our financial condition, results of operations, growth and future prospects could be materially adversely affected, and we may be unable to continue as a going concern.meet our debt service obligations. As such, we cannot assure you that cash flow generated from our business and other sources of cash, including future borrowings under Financing Arrangementsour RCF and debt financings and new debt and equity financings, will be sufficient to enable us to pay our indebtedness and to fund our other liquidity needs. For the substantial doubt over our ability to continue as a going concern, please refer to note 1 of our Consolidated Financial Statements.
We currently have limited cash resources and we have limited incremental facilities and limited or no ability to draw on any incremental credit facilities without lender consent.
We are alsocurrently subject to a minimum liquidity covenants. (covenant in our RCF. Please see “Item 5.B5.B. Liquidity and Capital Resources – Our Existing Indebtedness.” for further detailsdetails of the agreed terms and conditions precedent to their effectiveness).terms. We have significant debt maturities in 20232028 and 2030 and amortization payments due each year and cash sweep repayment offer provisions applicable from 2024 which willmay require us to raise additional financing and/or extend maturities due in 2023.and there is no assurance that we will be able to do so.
As a result of our significant cash flow needs, we may be required to raise funds through the issuance of additional debt or equity, and in the event of lost market access, we may not be successful in doing so.
Our cash flow needs, both in the short-term and long-term, include:
•normal recurring operating expenses,expenses;
•planned and discretionary capital expenditures,expenditures; and
•repayment of debt and interest.interest including amortization payments and amounts payable under the cash sweep repayment offer provisions in our Notes.
We have incurred significant losses since inception and are dependent onmay require additional financing in order to fund continued losses expected in the next 12 months and to meet its existingour capital expenditure commitments and further execute on itsour planned capital expenditure program. The negative cash effects as a result of previousprogram and any future contract terminations further extend theto meet interest and principal payments due under our existing need for additional financing.bonds and loans.
We currently have limited cash resources and we have limited or no ability to draw on credit facilities without lender consent. We have significant debt maturities in 2028 and 2030, as well as amortization, capital commitments in 2023 which willexpenditures and other payment requirements applicable before then. These maturities may require us to raise additional financing and/or extend maturities due in 2023.financing.
We may seek to raise additional capital in a number of ways, including accessing capital markets, obtaining additional lines of credit or disposing of assets. We may also issue additional securities and our subsidiaries may also issue securities in order to fund working capital, capital expenditures, such as activation, reactivation and mobilization costs, or other needs. Any such equity issuance would have the effect of diluting our existing shareholders. However, weWe can provide no assurance that any of these options will be available to us on acceptable terms, or at all. Current capitalCapital market conditions as well as industry conditions and our debt levels could make it very difficult or impossible to raise capital until conditions improve. The current global economic conditions and related concerns of a global economic recession, instability in the global financial markets, financial turmoil and the current military action in Ukraine and sanctions implemented in response to that, in addition to the related global tensions, and the ongoing Israel-Hamas conflict and related hostilities in the Middle East have impacted capital markets and this may continue.
We may delay or cancel discretionary capital expenditures as a result of our cash flow needs or otherwise, which could have certain adverse consequences, including delaying upgrades or equipment purchases that could make the affected rigs less competitive, adversely affect customer relationships and negatively impact our ability to contract such rigs.
The
We are subject to restrictive debt covenants in certain ofthat may limit our Financing Arrangementsability to finance our future operations and capital needs and to pursue business opportunities and activities.
Our existing bonds and loans impose operating and financial restrictions on us.us, including, among other things, our ability to:
Certain
•incur or guarantee additional indebtedness;
•pay dividends or make other distributions or purchase or redeem our stock;
•make investments or other restricted payments;
•enter into agreements that restrict the ability of certain of our Financing Arrangements impose operatingsubsidiaries to pay dividends;
•transfer or sell assets;
•engage in transactions with affiliates;
•create liens on assets to secure indebtedness; and financial restrictions on us. These restrictions may affect our flexibility in planning for,
•merge or consolidate with or into another company.
Even though all of these limitations are subject to significant exceptions and reacting to, changes in our business or economic conditions and may otherwise prohibit orqualifications, they could still limit our ability to undertake certain business activities without consent of the lending banks. In addition, the restrictions contained in certain offinance our Financing Arrangementsfuture operations and future financing arrangements could impactcapital needs and our ability to withstand current or future economic or industry downturns, compete with otherspursue business opportunities and activities that may be in our industry for strategic opportunities or operationally (tointerest.
Furthermore, under certain circumstances, the extent our competitors are subjectRCF requires us to less onerous restrictions) and may also limit ourcomply with a number of financial covenants. Our ability to obtaincomply with these financial covenants may be affected by events beyond our control, and we cannot assure you that we will comply with such financial covenants. A default under the RCF, could lead to an acceleration of amounts due thereunder and a cancellation of available funds under the facility which could lead to an event of default and acceleration under other debt instruments that contain cross default or cross acceleration provisions, including the indenture governing the Notes, which has a cross acceleration provision.
We may require additional financingfunds or liquidity for working capital or capital expenditures, acquisitions, general corporateother than our existing bonds and other purposes. These restrictions include (i) paying dividendsloans, from time to time and repurchasing our Shares, (ii) changing the general nature of our business, (iii) making financial investments, (iv) entering into certain secured capital markets indebtedness. Furthermore, a change of control event occurs if Mr. Tor Olav Trøim ceases to serve on our Board or Mr. Tor Olav Trøim ceases to maintain ownership of at least six million shares (subject to adjustment for certain transactions).
The terms of certain of our Financing Arrangements require us to maintain specified financial ratios and to satisfy financial covenants. In June 2020 we obtained waivers from compliance with certain covenants and consents to defer certain interest payments, and we ultimately reached agreement with our secured creditors to defer certain payments and to amend financial covenants.Through the 2021 Amendments we have agreed similar amendments to our Financing Arrangements (Please see “Item 5.B Liquidity and Capital Resources – Our Existing Indebtedness.”) for further details of the agreed terms and conditions precedent to their effectiveness). We may not be able to obtain our lenders’ consent to waivearrange the required or amend covenants that are beneficial for our business, which may impact our performance. Moreover, in connection with any future waivers or amendments to our Financing Arrangements that we may obtain, our lenders may modify the terms of our Financing Arrangements or impose additional operating and financial restrictions on us. If we are unable to comply with any of the covenants in our current or future debt agreements, and we are unable to obtain a waiver or amendment from our lenders, a default could occur under the terms of those agreements.desired financing.
In addition, our Hayfin Facility agreement contains a requirement that we maintain minimum cash collateral equal to three months interest on the facility when the jack-up rigs providing security thereunder are not actively operating under an approved drilling contract (as defined in the Hayfin Facility agreement) from January 1, 2021. In addition, if there is a change of circumstances that the lenders under certain of our Financing Arrangements believe has had, or is reasonably likely to have, a material adverse effect on our business, our ability to comply with our obligations under our Financing Arrangements and/or the security we have provided for our obligations, the lenders may have the right to declare a default.
The lenders under certain of our Financing Arrangements may also require replacement or additional security if the fair market value of the jack-up rigs over which security is provided is insufficient to meet the market value-to-loan covenant in our
various agreements. Any impairment charges to our jack-up rigs or other investments and assets could adversely impact our ability to comply with the financial ratios and tests in certain of our Financing Arrangements. Our Financing Arrangements also contain events of default which include non-payment, cross default, breach of covenants, insolvency and changes that have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform obligations under any of such agreements or related security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders under our Financing Arrangements may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional security as a condition of not doing so. In addition, PPL also have a requirement that the Company should provide additional security if the average value of any rigs financed under the PPL arrangement falls below $70 million in 2021, $75 million in 2022 or $80 million thereafter. Additionally, the Syndicated Facility and New Bridge Facility agreements contain a “Most Favored Nation” clause whereby the lenders thereunder have a right to amend the financial covenants to reflect any more lender-favorable covenants in any other agreement pursuant to which loan or guarantee facilities are provided to us, including amendments to our Financing Arrangements.
We may not be able to obtain our lenders’ consent to waive or amend covenants that are beneficial for our business, which may impact our performance. Moreover, in connection with any future waivers or amendments to our Financing Arrangements that we may obtain, the terms of our Financing Arrangements may be modified to impose additional operating and financial restrictions on us. If we are unable to comply with any of the covenants in our current or future debt agreements, and we are unable to obtain a waiver or amendment from our lenders, a default could occur under the terms of those agreements.
If there is a default under our Financing Arrangements, this would enable the lenders thereunder to terminate their commitments to lend and accelerate the loan and declare all amounts borrowed due and payable or require the unwinding of certain guarantees provided under our Syndicated Facility. Our Financing Arrangements contain cross-default provisions, meaning that if we are in default under any of our Financing Arrangements, this would result in a cross-default under our other Financing Arrangements and shipyard loans as well as our convertible bonds, and enable such creditors to declare all amounts payable (i.e. “accelerate”) thereunder. We do not have funds to pay amounts outstanding under such debt instruments if amounts outstanding thereunder are accelerated. This could result in us seeking protection under bankruptcy laws or making an insolvency filing.
Our Financing Arrangements allow our secured creditors, under certain conditions, to purchase our rigs at or near the outstanding balance of debt, or to cancel planned newbuilding contracts thereby reducing our premium fleet.
As a result of the 2021 Amendments (Please see“Item 5.B Liquidity and Capital Resources – Our Existing Indebtedness.”), our secured lenders have purchase options on two of our rigs, the ‘Thor’ and the ‘Skald’, if we do not activate the rigs for work before the end of 2021, with a right for us to repay/refinance loan and retain the rig within a certain time period. In addition, our shipyard rig providers PPL has the right to repurchase one rig, the ‘Gyme’, if the rig is not activated, and which is currently not activated. Exercise of those purchase options would lead to an impairment of the book value of those rigs. In addition, Keppel have the right to terminate our five newbuilding contracts with no refund of deposits, or other compensation, if it receives an offer from a third party, unless Borr purchases the rigs at the offer price within a certain time period. PPL has been granted a purchase option in respect of the “Gyme” for the price of the outstanding secured debt on the relevant rig, with the right for the company to repay/refinance the loan and retain the rig within a certain time period. It is difficult to predict if and when any of these options will be exercised, and whether we would seek (or be able to raise) alternate financing at that time in order to retain the relevant rigs and newbuilding contracts.
Our Financing Arrangements are not necessarily reflective of those that may be in place from time to time.
We may need to borrow from time to time to fund working capital and capital expenditures, such as activation, reactivation and mobilization costs and/or to fund the issuance of guarantees required for temporary import of rigs, customs bonds, performance guarantees or other needs, subject to compliance with the covenants in certain of our Financing Arrangements. However, our business is capital intensive and to the extent we do not generate sufficient cash from operations and to the extent we are unable to draw under our credit facilities, we may need to raise additional funds through public or private debt or equity offerings or through bank, shipyard or other financing arrangements to fund our capital expenditures, and in industry down cycles, our operating expenses. We may need to borrow from time to time to fund working capital and capital expenditures, such as activation, reactivation and mobilization costs and/or to fund the issuance of guarantees required for temporary import of rigs, customs bonds, performance guarantees or other needs, subject to compliance with the covenants in our existing bonds and loans. We may not be able to raise additional indebtedness.indebtedness as this is dependent on numerous factors as set out below. Any additional
indebtedness which we are able to raise may include additional revolving credit facilities, term loans, bonds, refinancing of our Financing Arrangementsexisting bonds and loans or other forms of indebtedness. We may also issue additional Sharescommon shares or other securities and our subsidiaries may also issue securities in order to fund working capital, capital expenditures, such as activation, reactivation and mobilization costs, or other needs. Any such equity issuance would have the effect of diluting our existing shareholders.
Our ability to incur additional indebtedness or refinance our current Financing Arrangementsexisting bonds and loans will depend on a number of factors, including the general condition of the lending markets and capital markets, credit availability from banks and other financial institutions, investors' confidence in us, and our financial position at such time.time, our financial performance, cash flow generation, our indebtedness and compliance with covenants in debt agreements, among others. Any additional indebtedness or refinancing of our Financing Arrangementsexisting bonds and loans may result in higher interest rates or further encumbrances on our jack-up rigs and may require us to comply with more onerous covenants, which could further restrict our business operations. Increases in interest rates will increase interest costs on our variable interest rate debt instruments, which would reduce our cash flows.flow. If we are not able to maintain a level of cash flowsflow sufficient to operate our business in the ordinary course according to our business plan and are unable to incur additional indebtedness or refinance our Financing Arrangements,existing bonds and loans, our business and financial condition and results of operations maywould be adversely affected.
We face risks in connection with the delivery of our newbuild jack-up rigs and related financing arrangements in place with Keppelarrangements.
We have an order book with KeppelSeatrium for fivetwo newbuild jack-up rigs as of December 31, 2020,2023, for a purchase price of $159.9 million per rig, including $12.5 million acceleration cost per rig to expedite the delivery date, from a contractual delivery date in July 2025 to a best efforts expedited delivery date of August 2024 (for "Vale") and we have correspondingSeptember 2025 with a best efforts expedited delivery financing facilities with Keppel for fourdate of these rigs in the amount of $415.3November 2024 (for "Var"). There is a $130.0 million in respect of certainyard finance facility per each newbuild jack-up rigs that were originallyat the purchaser’s option with a four-year maturity, subject to be delivered by Keppel no later thana right for the end of 2020, but are now scheduledlender to be delivered in 2023.call the loan after three years. Accordingly, as the new rigs are delivered, our indebtedness will increase, as will our debt service payments, and we will be required to comply with the covenants in such facilities. WeIn addition, we have not secured financefinancing for 'Tivar". In addition, pursuant to the 2021 Amendments, Keppel may cancel these newbuilding contracts at any time prior to delivery, if they receive a bona fide offer from a third party. full purchase price of the "Vale" and "Var".
We have a right to match any offer they receive to continue with the newbuilding contracts, but this will accelerate payments due from us to Keppel.
We havenot been provided with refund guarantees and/or parent company guaranteesfrom third party banks as security for Keppel’sSeatrium’s obligation to refund predelivery installment payments in the event of a default by Keppel. Such guarantees entitle us to a refund under the relevant construction contract.Seatrium. If we are not able to secure financefinancing for "Tivar""Vale" and /or Keppel"Var" and/or Seatrium is unableunable to honor its obligations to us, subject to certain conditions, including the obligation to refund installment payments under certain circumstances or provide the underlying financing for our delivery financing arrangements, and we are not able to borrow additional funds, raise other capital or use available cash on hand or borrowings under our Syndicated Facility and New Bridge Facility and available current cash on hand areis not sufficient to pay the remaining installments related to our contracted commitments for our newbuild jack-up rigs, we may not be able to acquire these jack-up rigs and/or may be subject to lengthy arbitral or court proceedings, any of which may have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
We are also required to meet conditions to draw the loans to be provided under these delivery financing facilities, including giving customary representations and confirmation at the time of borrowing, and if we are unable to meet such conditions, we would need to obtain alternative financing. We believe it wouldfinancing, which may not be very challenging to obtain alternative financingavailable on favorable terms (or at this time, therefore aall). A failure to meet draw conditions and an absence of alternative financing could result in a breach of contract to acquire the rig, and loss of deposit, which could impact other financing arrangements.
We have suffered, and may suffer in the future, losses through our investments in other companies in the offshore drilling and oilfield services industry, including debt and other securities issued by such companies.
From time to time, we have made and held investments in other companies in our industry that own/operate offshore drilling rigs with similar characteristics to our fleet of jack-up rigs, subject to compliance with the covenants contained in certain of our Financing Arrangements that restrict such investments. We have also purchased and held debt or other securities issued by other companies in the offshore drilling industry from time to time.
The market value of our equity interest in, or debt or other securities issued by, these companies has been, and may continue to be, volatile and has fluctuated, and may continue to fluctuate, in response to changes in oil and gas prices and activity levels in the offshore oil and gas industry. If we sell our equity interest or debt or other securities in an investment at a time when the value of such investment has fallen, we may incur a loss on the sale or an impairment loss being recognized, ultimately leading to a reduction in earnings.
For example in 2019 we invested in forward contracts for marketable securities in Valaris PLC (formerly EnscoRowan PLC) and incurred total realized loss on expiration of the contracts of approximately $91.0 million.
An economic downturn could have an adverse effect on our ability to access the capital markets.
Negative developments in worldwide financial and economic conditions could impact our ability to access the lending and capital markets, which could impact our ability to react to changing economic and business conditions. Worldwide economic
conditions could in the future impact lenders' willingness to provide credit facilities to us, or our customers, causing them to fail to meet their obligations to us. The current global economic conditions and related concerns of a global recession, instability in the global financial markets, financial turmoil and military action in Ukraine and sanctions implemented in response as well as the related global tensions, and the ongoing Israel-Hamas conflictand related hostilities in the Middle East, coupled with rising inflation and interest rates, have impacted capital markets and lending markets. This impact may continue, which could impact our ability to refinance our significant indebtedness which falls due in the coming years.
A renewed period of adverse development in the outlook for the financial stability of European, Middle Eastern or other countries, or market perceptions concerning these and related issues, could reduce the overall demand for oil and natural gas and for our services and thereby could affect our business, financial condition, and results of operations.operations and cash flow. Brexit, or similar events in other jurisdictions, can impact global markets, which may have an adverse impact on our ability to access the capital markets. In addition, turmoil and hostilities in various geographic areas and countries around the world add to the overall risk picture.
Our Hayfin Facility and New Bridge Facility are provided by European banking and financing institutions and our Syndicated FacilityRCF is provided jointly by European and U.S.British banking and financing institutions. In addition, a substantial portion of our long-term debt, our delivery contracts and financing arrangements isare provided by KeppelSeatrium and PPL,Offshore Partners PTE. LTD., respectively, a Singaporean companiescompany that may be highly leveraged, areis not capitalized in the same manner as a financial institution and that areis subject to theirits own operating, liquidity or regulatory risks. These risks could lead KeppelSeatrium to seek to cancel, repudiate or renegotiate our construction contracts or fail to fulfill or challenge theirits commitments to us under those contracts, including the obligation to refund installment payments. The risks of liquidity concerns are heightened in periods of depressed market conditions. If economic conditions in European or AmericanBritish markets preclude or limit financing from European and/or Americanthese banking institutions, or if financial conditions in the Republic of Singapore impair the ability of Keppel or PPLOffshore Partners PTE. LTD. to honor theirits obligations to us, we may not be able to obtain financing from other institutions on terms that are acceptable to us, or at all, even if conditions outside Europe or the United StatesKingdom remain favorable for lending. If our ability to access the debt or capital markets is affected by general economic conditions and contingencies and uncertainties that are beyond our control, there may be a material adverse effect on our business and financial condition.
The COVID-19 outbreak and its impact on the global economy has had a significant adverse impact on the global economy and capital and lending markets, which has and may continue
We are subject to subject us to the risks and impacts described above.
Interest rate fluctuations could affect our earnings and cash flow.
In order to finance our growth, we have incurred significant amounts of debt. A significant portion of our debt bears floating interest rates. As such, movements in interest rates could have an adverse effect on our earnings and cash flow. Interest rates under certain of our Financing Arrangements are determined with reference to the London Inter-bank Offered Rate (“LIBOR”) above a specified margin.
We currently have no hedging arrangements in place with respect to our floating-rate debt. We may enter into hedging arrangements from time to time in the future with respect to our interest rate exposure, but such hedging may not significantly reduce the risk we face. If we are unable to effectively manage our interest rate exposure through interest rate swaps in the future, any increase in market interest rates would increase our interest rate exposure and debt service obligations, which would exacerbate the risks associated with our leveraged capital structure.
Moreover, on March 5, 2021, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of Sterling, Euro, Swiss franc and Japanese yen settings and immediately after June 30, 2023, in the case of remaining US dollar settings. The overall financial markets may be disrupted as a result of the phase-out or replacement of LIBOR. Uncertainty as to the nature of such potential phase-out and alternative reference rates or disruption in the financial market could have a material adverse effect on our business, financial condition and results of operation.
Flufluctuations in exchange rates and an inability to convert currencieslimitations on repatriation of earnings which could result in losses tonegatively impact us.
We use the U.S. dollar as our functional currency because the majority of our revenues and expenses are denominated in U.S. dollars. Accordingly, our reporting currency is also U.S. dollars. As a result of our international operations, we may be exposed to fluctuations in foreign exchange rates due to revenues being received and operating expenses paid in currencies other than U.S. dollars.
Notably, with respect to jack-up drilling contracts in the North Sea, revenues are commonlymay be received, and salaries generally paid, in Euros or Pounds. In addition, we may receive revenue or incur expenses in other currencies, including the Nigerian naira.Malaysian Ringgit, Mexican Pesos, Thai Baht, Central African CFA Franc (the common currency of the trading bloc of the Central African Economic and Monetary Community (CEMAC)) and the Saudi Riyal. Accordingly, we may experience currency exchange losses if we have not hedged, or adequately hedged our exposure to a foreign currency, or if revenues are received in currencies that are not readily convertible.currency. Moreover, we may experience adverse tax consequences attributable to currency fluctuations. We may also be unable to collect revenues because of a shortage of convertible currency
available in the country of operation, controls over currency exchange or controls over the repatriation of income or capital. As we earn revenues and incur expenses in currencies other than our reporting currency, there is a risk that currency fluctuations could have an adverse effect on our statements of operations and cash flows.flow.
Additionally, given the evolving and strict regulatory environment in some regions, notably within the CEMAC region, we may face challenges in repatriating our contract revenues, including foreign exchange regulations imposed by certain central banks of the countries in which we operate. Regulations, such as those imposed by the Bank of Central African States (BEAC), may introduce substantial hurdles in transferring money out of our bank accounts in the CEMAC region. This could affect our liquidity and operational flexibility. We have from time to time been subject to limitations on repatriating cash derived from income, capital or foreign earnings in certain of the countries in which we operate. Such limitations may result in a material adverse effect on our financial condition and cash flow and our ability to service our indebtedness.
RISK FACTORS RELATED TO APPLICABLE LAWS AND REGULATIONS
Compliance with, and breach of, the complex laws and regulations governing international drilling activity and trade could be costly, expose us to liability and adversely affect our operations.
We are directly affected by the adoption and entry into force of national and international laws and regulations that, for economic, environmental or other policy reasons, curtail, or impose restrictions, obligations or liabilities in connection with, exploration and development drilling for oil and gas in the geographic areas in which we operate.If legislative, regulatory or other governmental action is taken that restricts or prohibits offshore drilling in our current or anticipated future areas of operation we could be materially and adversely affected. Given the long-term trend towards increasing regulation, we may be required to make significant capital expenditures or operational changes to comply with governmental laws and regulations. It is also possible that these laws and regulations may, in the future, add significantly to our operating costs or significantly limit drilling activity.
The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. Import activities are governed by unique customs laws and regulations in each of the countries of operation. Moreover, many countries, including the United States, control the export and re-export, and in-country transfer of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from the failure to comply with existing legal and regulatory regimes. Delays or denials of shipments of parts and equipment that we need could cause unscheduled operational downtime. Future earnings may be negatively affected by compliance with any such new legislation or regulations.
Any failure to comply with applicable legal and regulatory trading obligations, including as a result of changed or amended interpretations or enforcement policies, could also result in administrative, criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, the seizure of shipments, the loss of import and export privileges and the suspension or termination of operations. New laws, the amendment or modification of existing laws and regulations or other governmental actions that prohibit or restrict offshore drilling or impose additional environmental protection requirements that result in increased costs to the oil and gas industry, in general, or to the offshore drilling industry, in particular, could adversely affect our performance.
Local content requirements may increase the cost of, or restrict our ability to, obtain needed supplies or hire experienced personnel, or may otherwise affect our operations.
Local content requirements are policies imposed by governments that require companies who operate within their jurisdiction to use domestically supplied goods and services or work with a domestic partner in order to operate within the jurisdiction. Governments in some countries in which we operate, or may operate in the future, have become increasingly active in the requirements with respect to the ownership of drilling companies, local content requirements for equipment used in operations within the country and other aspects of the oil and gas industries in their countries. In addition, national oil companies may impose restrictions on the submission of tenders, including eligibility criteria, which effectively require the use of domestically supplied goods and services or a local partner.
For example, the Nigerian Oil and Gas Industry Content Development Act, 2010 (the “Local Content Act”) was enacted to provide for the development, implementation and monitoring of Nigerian content in the oil and gas industry and places emphasis on the promotion of Nigerian content among companies bidding for contracts in the oil and gas industry. The Local Content Act provides the parameters and minimum level/percentages to be used in determining and measuring Nigerian content in the composite human and material resources and services applied by operators and contractors in any industry project within Nigeria.
Some foreign governments and/or national oil companies favor or effectively require (i) the awarding of drilling contracts to local contractors or to drilling rigs owned by their own citizens, (ii) the use of a local agent or (iii) foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. For example, in Mexico, where we have significant activities, there are no foreign investment restrictions for the operation of jack-up rigs for drilling operations in Mexico but the particular tender rules or the nature of the contractual obligations may make it necessary or prudent for these activities to be performed with a Mexican partner. We conduct our activities in Mexico through joint venture entities with a local Mexican partner experienced in providing services to PEMEX and use local labor and resources in order to comply with the contractual obligations to PEMEX. These practices may adversely affect our ability to compete in those regions and could result in increased costs and impact our ability to effectively control and operate our jack-up rigs, which could have a material impact on our earnings, operations and financial condition in the future.
As a limited liability company limited by shares incorporated under the laws of Bermuda law with subsidiaries in certain offshore jurisdictions, our operations are subject to economic substance requirements.
Certain of our subsidiaries may from time to time be organized in other jurisdictions identified by the Code of Conduct Group for Business Taxation of the European Union (the “COCG”), based on global standards set by the Organization for Economic Co-operation and Development ("OECD") with the objective of preventing low-tax jurisdictions from attracting profits from certain activities, as non-cooperative jurisdictions or jurisdictions having tax regimes that facilitate offshore structures that attract profits without real economic activity.
On
Beginning on December 5, 2017, following an assessment of the tax policies of various countries by the COCG, economic substance laws and regulations were enacted in these jurisdictions requiring that certain entities carrying out particular activities comply with an economic substance test whereby the entity must show, for example, that it (i) carries out activities that are of central importance to the entity from the jurisdiction, (ii) has held an adequate number of its board meetings in the jurisdiction when judged against the level of decision-making required and (iii) has an adequate (a) amount of operating expenditures, (b) physical presence and (c) number of full-time employees in the jurisdiction.
If we fail to comply with our obligations under applicable economic substance legislation or any similar law applicable to us in any other jurisdictions, we could be subject to financial penalties and spontaneous disclosure of information to foreign tax officials in related jurisdictions and may be struck from the register of companies in that jurisdiction. Any of these actions could have a material adverse effect on our business, financial condition, and results of operations.operations and cash flow.
The obligations of being a public company, including compliance with the reporting requirements of the Norwegian Securities Trading Act, the Oslo Stock Exchange Rules, the Exchange Act and NYSE Listed Company Manual, require certain resources and has caused us to incur additional costs.
We are subject to reporting and other requirements as a result of our listing on the Oslo Børs and on the New York Stock Exchange, or NYSE. As a result of these listings, we incur significant costs in complyingassociated with corporate governance and reporting
requirements that are applicable statutes, regulations and requirements related to beingus as a public company, which occupiesincluding the Securities Act and the Exchange Act, rules of the NYSE,the European Union Corporate Sustainability Reporting Directive (the "CSRD") and the rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010. These rules and regulations significantly increase our accounting, legal and financial compliance costs and make some activities more time consuming. For example, the SEC has adopted new rules that require us to provide greater disclosures around cybersecurity risk management, strategy and governance, as well as disclose the occurrence of material cybersecurity incidents; whereas the CSRD, will require us to include in our next annual report for the 2024 fiscal year certain information necessary to understand our impact on sustainability matters, as well as how these matters affect our own development, performance and position. We cannot predict or estimate the amount of additional timecosts we will incur in order to comply with these or other new rules or directives, as applicable to us, or the timing of such costs.For more information relating to the CSRD, please see the section entitled “Item 3.D. Risk Factors — Risk Factors Related to Applicable Laws and Regulations — Increasing attention to sustainability, environmental, social and governance matters and climate change may impact us.”
We are obligated to maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our Company and, as a result, the value of our Board and management and the listing on the NYSE has increased our costs and expenses.common shares may be negatively affected.
As an emerging growtha public company whose common shares are listed in the United States, we are not currently subject to the requirement of auditor attestation ofan extensive regulatory regime, requiring us, among other things, to maintain various internal controls and certain disclosure requirements.facilities and to prepare and file periodic and current reports and statements. Complying with these requirements is costly and time consuming. In the event that we are unable to demonstrate ongoing compliance with our obligations as a public company, or are unable to produce timely or accurate financial statements, we may be subject to sanctions or investigations by regulatory authorities and investors may lose confidence in our operating results, and the price of our common shares could decline.
We qualifyhave lost our status as an emerging“emerging growth company undercompany” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”) because we have raised more than $1 billion in non-convertible bonds and because as of 2012 (the “JOBS Act”December 31, 2023, we are deemed a “large accelerated filer”.
As a result of losing our “emerging growth company” status, we are no longer entitled to the exemption provided in the JOBS Act and pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), which exempts us from including the filing ofour independent registered public accounting firm is now required to provide an auditor’s attestation report regardingon the effectiveness of our internal controls oncontrol over financial reporting until we are no longeron an emerging growth company,annual basis beginning with this Annual Report on form 20-F and on an annual basis thereafter. Our compliance with Section 404 requires us to incur additional costs and expend significant management efforts.
Our testing, or we become a large accelerated filer and have and intend to continue to take advantage of this exemption. By relying on this exemption, investors will not have the benefit of an auditor attestation report onsubsequent testing (if required) by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. If our independent registered public accounting firm identifies any deficiencies in connection with the issuance of their attestation report, we may encounter problems or delays in completing the appropriate remediation.
If we identify one or more material weaknesses in our internal control over financial reporting, our management will be unable to conclude that our internal control over financial reporting is effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which could impact investor confidence and ultimately investors' abilityour internal controls are documented, designed, implemented or reviewed. If we are unable to evaluateconclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm were to express an adverse opinion on the effectiveness of our internal controlscontrol over financial reporting because we had one or more material weaknesses, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our common shares to identifydecline. Internal control deficiencies and weaknesses. As an emerging growth company we arecould also exempt from certain other disclosure requirements applicableresult in a restatement of our financial results in the future or restrict our future access to other SEC reporting companies such as the requirement for our auditor to disclosure critical audit matters in its audit report, and therefore investors will not benefit from such disclosures as they would if we were not an emerging growth company.capital markets.
We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.us.
Our business is subject to international, national and local, environmental and safety laws, and regulations, treaties and conventions in force from time to time including:
•the United Nation’s International Maritime Organization, or the “IMO,” International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended, or “MARPOL,” including the designation of Emission Control Areas, or “ECAs” thereunder;
•the IMO International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended, or the “CLC”;
•the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the “Bunker Convention”;
•the International Convention for the Safety of Life at Sea of 1974, as from time to time amended, or “SOLAS”;
•the IMO International Convention on Load Lines, 1966, as from time to time amended;
•the International Convention for the Control and Management of Ships’ Ballast Water and Sediments in February 2004, or the “BWM Convention”;2004;
•the U.S. Oil Pollution Act of 1990, or the “OPA”;
•requirements of the U.S. Coast Guard;
•requirements of the U.S. Environmental Protection Agency, or the “EPA”;
•the U.S. Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA”;
•the U.S. Maritime Transportation Security Act of 2002, or the “MTSA”;
•the U.S. Outer Continental Shelf Lands Act, or the “OCSLA”;
•the Code for the Construction and Equipment of Mobile Offshore Drilling Units, 2009, or the “MODU Code 2009”;
•the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, or the “Basel Convention”;
•the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009, or the “Hong Kong Convention”; and
•certain regulations of the European Union, including Regulation (EC) No 1013/2006 on Shipments of Waste and Regulation (E.U.) No 1257/2013 on Ship Recycling.
Compliance with applicable laws, regulations and standardsconventions may require us to incur capital costs or implement operational changes and may affect the value or useful life of our jack-up rigs which could have a material adverse effect on our profitability. A failure to comply with applicable laws, regulations and regulationsconventions may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Conventions, laws and regulations are often revised and may only apply in certain jurisdictions with the effect that we cannot predict the ultimate cost of complying with them or their impact on the value or useful lives of our rigs. New conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business and that may materially adversely affect our operations.
Environmental laws often impose strict liability for the remediation of spills and releases of oil and hazardous substances, which could subject us to liability irrespective of any negligence or fault on our part. Under the US Oil Pollution Act of 1990, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. If we were to operate in these areas, an oil or chemical spill could result in us incurring significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.flow. Furthermore, future major environmental incidents involving the offshore drilling industry, such as the 2010 Deepwater Horizon Incident (to which we were not a party) may result in further regulation of the offshore industry and modifications to statutory liability schemes, thus exposing us to further potential financial risk in the event of any such oil or chemical spill in areas in which we operate.
Our jack-up rigs could cause the release of oil or hazardous substances and wesubstances. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations, and to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Any releases may be large in quantity, above permitted limits or occur in protected or sensitive areas where public interest groups or governmental authorities have special interests. Any releases of oil or hazardous substances could result in fines and other costs to us, such as costs to upgrade our jack-up rigs, clean up the releases, compensate for natural resource damages and comply with more stringent requirements in our discharge permits. Moreover, such releases may result in our customers or governmental authorities
suspending or terminating our operations in the affected area, which could have a material adverse effect on our business, results of operations and financial condition.
Our jack-up rigs are owned by separate single-purpose subsidiaries, but certain obligations of these subsidiaries are and may in the future be guaranteed by the parent company.
Even if we are able to obtain contractual indemnification from our customers against pollution and environmental damages in our contracts, such indemnification may not be enforceable in all instances or the customer may not be financially able to comply with its indemnity obligations in all cases. We do not have full contractual indemnification under all of our current contracts, and we may not be able to obtain such indemnification agreements in the future. In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable.
Although we have insurance to cover certain environmental risks, there can be no assurance that such insurance will respond and if it does, that the proceeds will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flowsflow and financial condition.
In the future, insurance coverage protecting us against damages incurred or fines imposed as a result of our violation of applicable environmental laws may not be available or we may choose not to obtain such insurance, and this could have a material adverse effect on our business, results of operations and financial condition.
Future government regulations may adversely affect the offshore drilling industry.
International contract drilling operations are subject to various laws and regulations of the countries in which we operate, including laws and regulations relating to:
•the equipping and operation of drilling rigs;
•exchange rates or exchange controls;
•oil and gas exploration and development;
•the taxation of earnings;
•the ability to receive drilling contract revenue outside the country of operation;
•the ability to move income or capital;
•the environment and climate change;
•the taxation of the earnings of expatriate personnel; and
•the use and compensation of local employees and suppliers by foreign contractors.
It is difficult to predict what government regulations may be enacted in the future that could adversely affect the offshore drilling industry. Failure to comply with applicable laws and regulations, including those relating to sanctions and export restrictions, may subject us to criminal sanctions or civil remedies, including fines, the denial of export privileges, injunctions or the seizures of assets.
Data protection and regulations related to privacy, data protection and information security could increase our costs, and our failure to comply could result in fines, sanctions or other penalties, as well as have an impact on our reputation.
We rely on information technology systems and networks in our operations and administration of our business and are bound by national and international regulations related to privacy, data protection and information security.
Increasing regulatory enforcement and litigation activity in these areas of privacy, data protection and information security in the U.S., the European Union and other relevant jurisdictions are increasingly adopting or revising privacy, data protection and information security laws. For example, the General Data Protection Regulations of the European Union (“GDPR”), which became enforceable in all 2827 E.U. member states as of May 25, 2018, requires us to undertake enhanced data protection safeguards, with fines for noncompliance up to 4% of global total annual worldwide turnover or €20 million (whichever is higher), depending on the type and severity of the breach. Compliance with current or future privacy, data protection and information security laws could significantly impact our current and planned privacy, data protection and information security related practices, our collection, use, sharing, retention and safeguarding of customer and/or employee information, and some of our current or planned business activities.
As our business grows, our compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place and adapted to development in the laws and regulations in all of the relevant jurisdictions. Failure to comply with applicable privacy, data protection and information security laws could affect our results of operations and overall business, as well as have an impact on our reputation.
Our abil
ity to operate our jack-up rigs in the U.S. Gulf of Mexico could be impaired by governmental regulation and new regulations adopted in response to the investigation into the 2010 Deepwater Horizon Incident.
In the aftermath of the 2010 Deepwater Horizon Incident (to which we were not a party), new and revised regulations governing safety and environmental management systems with a focus on operator obligations, were implemented. The guidelines or regulations that may apply to jack-up rigs may subject us to increased costs and limit the operational capabilities of our jack-up rigs if, in the future, we decide to have operations in the U.S. Gulf of Mexico region.
A change in tax laws in any country in which we operate could result in higher tax expense.
We conduct our operations through various subsidiaries and branches in countries around the world. Our operations are subject to tax laws, regulations and treaties which are highly complex, subject to interpretation, frequent changes and have generally become more stringent over time. Consequently, there is substantial uncertainty with respect to tax laws, regulations, treaties and the interpretation and enforcement thereof. Tax directives issued by the EU and theThe base erosion and profit shifting project established by the Organization for Economic Co-operation and Development (OECD)OECD which generally targeted profits earned in low tax jurisdictions or transactions between affiliates where payments are made from jurisdictions with high tax rates to jurisdictions with lower tax rates, called for member states to take action against base erosion and profit shifting. In response to the OECD recommendations, various countries where we operate have recentlya 15% worldwide minimum tax (Pillar 2) implemented on a country-by-country basis has been introduced changeswith many jurisdictions committed to their tax laws and it is possible that further changes will be made in the future which may be applied retroactively. Thisa January 1, 2024 effective date. These rules may have an adverse effect on our financial position and cash flows.flow as well as material impact on our effective tax rate.
Effective from January 1, January 2020, Mexico enacted a tax reform which has the potential to materially increase our tax expense. We are continuing
In December 2023, Bermuda passed into law the Corporate Income Tax 2023 in response to assess and keep track of the implications of this reform. Taxing authorities around the world are increasingly focused on the effects of the current worldwide pandemic and may increaseOECD’s Pillar 2 to impose a 15% corporate income tax ratesthat will be effective for fiscal years beginning on or become aggressiveafter 1 January 2025, providing in scrutinizing tax returnsscope Bermuda multinational groups time to transition and increasing frequency of audits to generate revenue.make the necessary adjustments.
The UK Government announced in its March Budget in 2021 that the rate of Corporation Tax was set to rise from 19% to 25% starting in 2023.
Our income tax expense is based on our interpretation of the tax laws in effect in the countries that we operate in, at the time that the expense was incurred. If a taxing authority successfully challenges our tax structure or if a change in these tax laws, regulations or treaties, or in the interpretation thereof occurs in a manner that is adverse to our structure, this could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings. Additionally, due to
Given the dynamic nature of our business and the frequent changesshifts in the taxing jurisdictions of our operations,where we operate, our consolidated effective income tax rate may varyundergo substantial variations from one period to another. The movement of rigs between operating locations might necessitate the transfer of rig ownership within the group, potentially leading to transfer taxes. Additionally, the diverse tax bases applicable to our operating companies, coupled with instances where income tax is levied on gross revenue or a deemed profit basis in certain jurisdictions, could result in tax rates remaining unchanged despite lower profitability. This, coupled with the uncertainty in tax law changes and tax audits could result in an increase in our effective tax rate.
A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries could result in a higher tax rate on our worldwide earnings, which could result in a significant negative impact on our earnings and cash flowsflow from operations.
Our income tax returns are subject to review and examination.examination by the relevant authorities in the countries in which we operate. We do not recognize the benefit of income tax positions which we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges positions we have taken in tax filings related to our operational structure, intercompany pricing policies, the taxable presence of our subsidiaries in certain countries or any other situation, or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase substantially and our earnings and cash flowsflow from operations could be materially adversely affected.
Climate change and the regulation of greenhouse gases could have a negative impact on our business.
In response
Due to concernsconcern over the risk of climate change, a number of countries, the EU and the IMO (as defined herein) have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. Currently,emissions in the emissionsshipping industry. For example, as of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions or the Paris Agreement, which resulted from the 2015 United Nations Framework Convention on Climate Change conference in Paris and entered into force on November 4, 2016. As at January 1, 2013, all ships (including
jack-up jack up rigs) must comply with mandatory requirements adopted by the IMO’s Maritime Environment Protection Committee, or the “MEPC,” in July 2011 relating to greenhouse gas emissions. A roadmap for a “comprehensive IMO strategy on a reduction of GHG emissions from ships” was approved by MEPC at its 70th session in October 2016, and inIn April 2018, the IMO adopted an initiala strategy designed to, among other things, reduce the emission2008 level of greenhouse gases from ships, including short-term, mid-term and long-term candidate measures, with a vision of reducing and phasing out greenhouse gas emissions from ships as soon as possible in the 21st Century. These requirements could cause us to incur additional compliance costs. In May 2019,shipping industry by 50% by the MPEC approved a number of measures aimed at achieving the IMO initial strategy’s objectives.
In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has adopted regulations to limityear 2050. Other governmental bodies may begin regulating greenhouse gas emissions from certain mobileshipping sources and large stationary sources. Althoughin the mobile source emissionsfuture, but the future of such regulations do not applyis difficult to greenhouse gas emissions from drilling rigs, such regulation of drilling rigs is foreseeable, and the EPA has received petitions from the California Attorney General and various environmental groups seeking such regulation. In the United States, individual states can also enact environmental regulations. For example, California has introduced caps for greenhouse gas emission and has signaled it might take additional actions regarding climate change.
predict. Compliance with existing regulations and changes in laws, regulations and obligations relating to climate change could increase our costs related to operatingoperate and maintainingmaintain our assets, and might also require us to install new emission controls, require us to acquire emission allowances or pay taxes related to our greenhouse gas emissions, or require us to administer and manage a greenhouse gas emissions program. Any passage of climate control legislation or other regulatory initiatives by the IMO, the European Union,EU, the United States or other countriesjurisdictions in which we operate, or any treaty or agreement adopted at the international level, to succeedsuch as the Kyoto Protocol or Glasgow Climate Pact, which restricts emissions of greenhouse gases could require us to make significant financial expenditures thatwhich we cannot predict with certainty at this time.
In addition to regulatory efforts, there have also been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with fossil fuel companies, to promote the divestment of fossil fuel equities and to limit funding to companies engaged in the extraction of fossil fuels
. For example, BlackRock, one of the largest asset managers in the world, recently affirmed its commitment to divest from investments in fossil fuels due to concerns over climate change. The Church of England also voted for divestment from investments in fossil fuels in 2018, which was set to begin in 2020. Furthermore, certain state pension funds, including the New York State pension fund, have started divesting from their investments in fossil fuels. Members of the investment community have begun to screen companies for sustainability performance, included practices related to greenhouse gasses (GHGs) and climate change before investing in stock. If we are unable to find economically viable, as well as publicly acceptable, solutions that reduce our GHG emissions and/or GHG intensity for new and existing projects, to the extent financial markets view climate change and greenhouse emissions as a financial risk, this could negatively impact our share price and our cost of or access to capital. Moreover, increased attention regarding the risks of climate change and the emission of GHGs augments the possibility of litigation or investigations being brought by public and private entities against oil and natural gas companies in connection with their GHG emissions. Should we be targeted by any such litigation or investigations, we may incur liability, which to the extent that political or societal pressures or other factors involved, could be imposed without regard to the causation of, or contribution to, the asserted damage, or to other mitigating factors.
Further, physical effects of climate change, such as increased frequency and severity of storms, floods and other climatic events, could have a material adverse effect on our operations, particularly given that our rigs may need to curtail damages or may suffer damages during significant weather events.
Additionally, adverse effects upon the oil and gas industry relatedrelating to the worldwide social and political environment, including uncertainty or instability resulting from climate change, changes in political leadership and environmental policies, changes in geopolitical-social views toward fossil fuels and renewable energy,including growing public concern about the environmental impact of climate change, and investors’ expectations regarding environmental, social and governance matters, may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for the use of alternative energy sources. In addition, parties concerned about the potential effects of climate change have directed their attention at sources of funding for energy companies, which has resulted in certain financial institutions, funds and we could experience additional costsother sources of capital, restricting or financial penalties, delayedeliminating their investment in or cancelled projects, and/or reduced productionlending to oil and reduced demand for hydrocarbons, which could have a material adverse effect on our earnings, cash flows and financial condition.gas activities. Any long-term material adverse effect on the oil and gas industry relating to climate change concerns could have a significant adverse financial and operational adverse impact on our business and operations.
Finally, the impacts of severe weather, such as hurricanes, monsoons and other catastrophic storms, resulting from climate change could cause damage to our equipment and disruption to our operations and cause other financial and operational impacts, including impacts on our major customers.
Increasing attention to sustainability, environmental, social and governance matters and climate change may impact us.
Companies across all industries are facing increasing scrutiny relating to their sustainability policies, including their Environmental, Social and Governance (“ESG”) policies. Governments across the globe and investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on sustainability and ESG practices and in recent years have placed growing importance on the implications and social cost of their investments. The increased focus and activism related to sustainability and ESG and similar matters may hinder access to capital, expendituresas investors and lenders may decide to upgradereallocate capital or not to commit capital as a result of their assessment of a company’s sustainability and ESG practices. Companies that do not adapt to or comply with governmental, investor, lender or other industry shareholder rules, expectations and standards, as applicable, which are evolving, or which are perceived to have not responded appropriately to the growing concern for sustainability and ESG issues, whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition or share price of such a company could be materially and adversely affected.
By way of example, on January 5, 2023, the CSRD entered into force. Among other things, the CSRD expands the number of companies required to publicly report sustainability and ESG-related information on their management report, to understand their impact on sustainability matters as well as how sustainability matters affect their own development, performance and position, and defines the related information that companies are required to report in accordance with European Sustainability Reporting Standards (“ESRS”). The CSRD raises the bar on ESG matters and requires a "double materiality" analysis, meaning companies will have to detail both their impacts on the environment (e.g. the impact of corporate activity on sustainability matters from perspective of citizens, consumers, employees, etc.) and the climate-related risks they face (e.g. sustainability matters which from the investor perspective are material the company's development, performance and position). Impacts, risks and opportunities are material if they satisfy one or both of these materiality tests. As a public company listed on the Oslo Stock Exchange, we fall under the scope of application of such new reporting requirements under the CSRD, effective January 1, 2024, and we are required to provide such information with our jack-up rigs,next management report for the 2024 financial year. This will involve implementing processes to gather the relevant data, conduct materiality assessments and prepare a CSRD-compliant report, which will likely be a time-consuming and costly exercise and in the event that our disclosures prove incorrect we cannot predict with certainty at this time.may incur liabilities.
We may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments in us. If we do not meet these standards, our business or our ability to access capital could be harmed.
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Additionally, certain investors and lenders may exclude companies engaged in the fossil fuel industry, such as us, from their investing or loan portfolios altogether due to ESG factors. These limitations in both the debt and equity capital markets may affect our ability to grow as our plans for growth may include accessing those markets. If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to refinance our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with international anti-corruption legislation, includingwide-ranging ESG requirements and goals, targets or objectives set in connection therewith. Similarly, these policies may negatively impact the U.S. Foreign Corrupt Practices Actability of 1977, the U.K. Bribery Act 2010 or the Bermuda Bribery Act 2016, could resultother businesses in fines, criminal penalties, damageour supply chain to our reputationaccess debt and drilling contract terminations.
We currently operate, and historically have operated, our jack-up rigs in a numbercapital markets. The occurrence of countries throughout the world, including some with developing economies and some known to have a reputation for corruption. We interact with government regulators, licensors, port authorities and other government entities and officials. Also, our business interaction with national oil companies as well as state or government-owned shipbuilding enterprises puts us in contact with persons who may be considered to be “foreign officials” under the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), and the Bribery Act 2010any of the United Kingdom (the “U.K. Bribery Act”).
We are committed to doing business in accordance with applicable anti-corruption laws and this is reflected in our Code of Conduct and our business ethics. There is nevertheless a risk that we, our affiliated entities or our or their respective officers, directors, employees and agents act in a manner which is found to be in violation of applicable anti-corruption laws, including the FCPA, the UK Bribery Act and the Bermuda Bribery Act of 2016 (the “ABC Legislation”).
We utilize local agents and/or establish entities with local operators or strategic partners in some jurisdiction and these activities may involve interaction by our agents with government officials. Some of our agents and partners may not themselves be subject to any ABC Legislation but they are made aware of our Code of Conduct, our Anti-Bribery and Anti-Corruptions Policy and Procedures and obligations under applicable ABC Legislation. If, however, our agents or partners should nevertheless make improper payments to government officials or other persons in connection with engagements or partnerships with us, we could be investigated and potentially found liable for violations of such ABC Legislation (including the books and records provisions of the FCPA) and could incur civil and criminal penalties and other sanctions, whichforegoing could have a material adverse effect on our business and resultsfinancial condition.
Any violation of operation.anti-bribery or anti-corruption laws and regulations could have a negative impact on us.
We operate in a number of countries around the world. We are subject to the risk that we or, our affiliated entities or their respective officers, directors, employees and agents may take actions determined to be in violation of anti-corruption laws, including theForeign Corrupt Practices Act of 1977 (the “FCPA”), the United Kingdom Bribery Act 2010 (the “UK Bribery Act”), the Bermuda Bribery Act 2016 or other anti-bribery laws to which we may be subject (together, the “ABC Legislation”) and similar laws in other countries. Any violation of the FCPA, UK Bribery Act, the ABC Legislation. Any such violationLegislation or other applicable anti-corruption laws could result in substantial fines, sanctions, civil and/or criminal penalties, and curtailment of operations in certain jurisdictions, and might adversely affect our business, financial condition, results of operations or financial condition.and cash flow. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
If our jack-up rigs are located in countries that are subject to, or targeted by, economic sanctions, export restrictions or other operating restrictions imposed by the United States or other governments, our reputation and the market for our debt and common shares could be adversely affected.
The U.S. and other governments may impose economic sanctions against certain countries, persons and other entities that restrict or prohibit transactions involving such countries, persons and entities. U.S. sanctions in particular are targeted against countries (such as Russia, Venezuela, Iran and others) that are heavily involved in the petroleum and petrochemical industries, which includes drilling activities. In connection with the Russian military actions across Ukraine which began in February 2022, the United States, U.K. and the European Union have imposed aggressive sanctions against Russia and certain Russian controlled regions of Ukraine. U.S. and other economic sanctions change frequently, and enforcement of economic sanctions worldwide is increasing. Subject to certain limited exceptions, U.S. law continues to restrict U.S.-owned or -controlled entities from doing business with Iran and Cuba, and various U.S. sanctions have certain other extraterritorial effects that need to be considered by non-U.S. companies. Moreover, any U.S. persons who serve as officers, directors or employees of our subsidiaries would be fully subject to U.S. sanctions. It should also be noted that other governments are more frequently implementing and enforcing sanctions regimes.
From time to time, we may be party to drilling contracts with countries or government-controlled entities that become subject to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of terrorism. Even in cases where the investment would not violate U.S. law, potential investors could view any such contracts negatively, which could adversely affect our reputation and the market for our common shares. We do not currently have any drilling contracts or plans to initiate any drilling contracts involving operations in countries or with government-controlled entities that are subject to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of terrorism.
There can be no assurance that we will be in compliance with all applicable economic sanctions and embargo laws and regulations, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Rapid changes in the scope of global sanctions may also make it more difficult for us to remain in compliance. Any violation of applicable economic sanctions could result in civil or criminal penalties, fines, enforcement actions, legal costs, reputational
damage or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest,
in our shares.common shares or other securities. Additionally, some investors may decide to divest their interest, or not to invest, in our common shares and other securities simply because we may do business with companies that do business in sanctioned countries. Moreover, our drilling contracts may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us, or our jack-up rigs, and those violations could in turn negatively affect our reputation. Investor perception of the value of our common shares and other securities may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Changing corporate laws and reporting requirements could have an adverse impact on our business.
We may face greater reporting obligations and compliance requirements as a result of changing laws, regulations and standards such as the UK Modern Slavery Act 2015 and GDPR. We have invested in, and intend to continue to invest in, reasonable resources to address evolving standards and to maintain high standards of corporate governance and disclosure, including our Whistleblowing Policy and Procedures. Non-compliance with such regulationregulations could result in governmental or other regulatory claims or significant fines that could have an adverse effect on our business, financial condition, results of operations, cash flows,flow, and ability to make distributions.
The UnitedUnited Kingdom’s withdrawal from the European Union willmight have uncertain effects and could adversely impact the offshore drilling industry.
In June 2016, the United Kingdom voted to exit from the European Union (commonly referred to as “Brexit”). The U.K. formally exited the EU on January 31, 2020. On December 24, 2020, the U.K. and the EU entered into a trade and cooperation agreement (the “Trade and Cooperation Agreement”), which was applied on a provisional basis from January 1, 2021. While the new economic relationship does not match the relationship that existed during the time the U.K. was a member state of the EU, the Trade and Cooperation Agreement sets out preferential arrangements in certain areas such as trade in goods and in services, digital trade and intellectual property. Negotiations between the U.K. and the EU are expected to continue in relation to other areas which are not covered by the Trade and Cooperation Agreement. The long term effects of Brexit will depend on the effects of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the U.K. and EU. Brexit has also given rise to calls for the governments of other EU member states to consider withdrawal.
The terms of the eventual UK/EU relationship have been uncertain for companies doing business both in the United Kingdom and the broader global economy. There are a number of areas of uncertainty in connection with the future of the United Kingdom and its relationship with the EU. As a result, it is not currently possible to determine the impact that the United Kingdom’s departure from the EU and/or any related matters may have on general economic conditions in the United Kingdom or the EU. The exit of the United Kingdom (or any other country) from the EU or prolonged periods of uncertainty relating to any of these possibilities could result in significant macroeconomic deterioration, including further decreases in global stock exchange indices, increased foreign exchange volatility, decreased GDP in the European Union or other markets in which we operate, issues with cross-border trade, political and regulatory uncertainty and further sovereign credit downgrades.
17%0.9% of our total revenues were generated in the United KingdomU.K. for the year ended December 31, 2020.2023. In addition, certain of our warm stacked jack-up rigs may from time to time be located in the United Kingdom and our remaining jack-up rigs may from time to time move into territorial waters of the United Kingdom.U.K. In September 2019, some of our management team relocated to the United KingdomU.K. and certain of our on-shoreonshore employees may from time to time be employed by Borr Drilling Management UK, which is based in the United Kingdom. OuU.K.
r business
The U.K. formally exited the EU on January 31, 2020 (commonly referred to as “Brexit”). On December 24, 2020, both parties entered into a trade and operations maycooperation agreement (the “Trade and Cooperation Agreement”), which offers U.K. and E.U. companies preferential access to each other’s markets, ensuring imported goods will be impacted by any actions taken byfree of tariffs and quotas (subject to rules of origin requirements). Uncertainty exists regarding the United Kingdom after Brexit, including with respect to employee and related persons permits and visas, and other authorizations required to live, work or operate within the United Kingdom. In particular, theultimate impact of potential changes to the United Kingdom’s migration policy could adversely impact our employees of non-U.K. nationality that may from time to time be working in the United Kingdom,Trade and Cooperation Agreement, as well as have an uncertain impact on cross-border labor. The potential lossthe extent of the EU “passport,” or anypossible financial, trade, regulatory and legal implications of Brexit. Brexit also contributes to global political and economic uncertainty, which may cause, among other potential restrictions on free travel of United Kingdom citizens to Europe,consequences, volatility in exchange rates and vice versa, could adversely impact the jobs marketinterest rates, and changes in general and our operations in Europe. Moreover, our business and operations may be impacted by any subsequent vote in Scotland to seek independence from the United Kingdom. Brexit, or similar events in other jurisdictions, can impact global markets, including foreign exchange and securities markets. An extended period of adverse development in the outlook for the world economy could also reduce the overall demand for oil and gas and for our services. Such changes could adversely affect our results of operations and cash flows.
RISK FACTORS RELATED TO OUR COMMON SHARES
The price of our common shares may fluctuate widely in the future, and you could lose all or part of your investment.
The market price of our Sharescommon shares has fluctuated widely and may continue to do so as a result of many factors, such as actual or anticipated fluctuations in our operating results, changes in financial estimates by securities analysts, and economic trends. The following is a non-exhaustive list of factors that could affect our share price:
•our operating and financial performance;
•quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues;
•the public reaction to our press releases, our other public announcements and our filings with the SEC;
•strategic actions by our competitors;
•our failure to meet revenue or earnings estimates by research analysts or other investors;
•changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;
•speculation in the press or investment community;
•the failure of research analysts to cover our Shares;common shares;
•sales of our Sharescommon shares by us or shareholders, or the perception that such sales may occur;
•changes in accounting principles, policies, guidance, interpretations or standards;
•additions or departures of key management personnel;
•actions by our Shareholders;shareholders;
•general market conditions, including fluctuations in oil and gas prices;
•domestic and international economic, legal and regulatory factors unrelated to our performance; and
•the realization of any risks described in this section “Item 3.D3.D. Risk Factors.”
In addition, the stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Shares.
If we do not comply with the continued listing requirements of the New York Stock Exchange, our shares may be subject to delisting from the New York Stock Exchange.
On two occasions in 2020, we received written notice from the New York Stock Exchange (the "NYSE") that we were not in compliance with the NYSE continued listing standard with respect to the minimum average share price required by the NYSE because the average closing price of our common shares had fallen below $1.00 per share over a period of 30 consecutive trading days. With respect to both notifications, we regained compliance with this NYSE listing standard as a result of our shares trading above $1.00 average stock price for the relevant 30 trading day period.shares.
If in the future we again fail to comply with the NYSE minimum price requirement or other NYSE rules, we could face delisting by the NYSE. A delisting of our shares from the NYSE could negatively impact us by, among other things, reducing the liquidity and market price of our shares, reducing the number of investors willing to hold or acquire our shares and limiting our ability to issue securities or obtain financing in the future.
We are permitted to follow certain home country practices in relation to our corporate governance instead of certain NYSE rules, which may afford you less protection.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to our corporate governance matters that differ significantly from the NYSE corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.
As an issuer whose shares are listed on the NYSE, we are subject to corporate governance listing standards of the NYSE. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in Bermuda, which is our home country, may differ significantly from NYSE corporate governance listing standards. We follow certain home country practices instead of the relevant NYSE rules. See the section entitled “Item 16.G16.G. Corporate Governance.” Therefore, our shareholders may be afforded less protection than they otherwise would have under NYSE corporate governance listing standards applicable to U.S. domestic issuers.
The Call Spread transaction we have entered into in connection with our convertible bonds may affect the value of our shares.
In connection with the pricing of our convertible bonds, we (i) purchased from Goldman Sachs International call options over 10,453,534 Shares with a strike price of $33.482 and (ii) sold to Goldman Sachs International call options over the same number of shares with a strike price of $42.6125 (together, the “Call Spread Transactions”). The Call Spread Transactions mitigate the economic exposure from a potential exercise of the conversion rights embedded in our convertible bonds by improving the effective conversion premium for the Company in relation to our convertible bonds from 37.5% to 75% over the reference price of $24.35 per share. The Call Spread Transactions may separately have a dilutive effect on our earnings per share to the extent that the market price per share of our Shares exceeds the applicable strike price of the options at the time of exercise.
We may modify our initial hedge position by entering into or unwinding various derivatives with respect to our shares and/or purchasing or selling shares in secondary market transactions. This activity could also affect the number of shares and value of the consideration that holders of our convertible bonds will receive upon conversion of the convertible bonds, which could impact the market price of our shares.
Future sales of our equity securities in the public market, or the perception that such sales may occur, could reduce our share price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.
We may sell additional equity securities, including additional shares or convertible securities, in subsequent public offerings. In June 2020 we issued 46,153,846 shares, in September 2020 we issued 51,886,793 and in November 2020 we issued 10,000,000 shares. On January 26, 2021, we issued an additional 54,117,647 shares at a subscription price of $0.85, a premium to the market price of the Shares at the time. In light of current market conditions, and the trading price of our common shares, any issuance of new equity securities could be at prices that are significantly lower than the purchase price of such Sharescommon shares by other investors, thereby resulting in dilution of our existing shareholders.
As of April 13, 2021the date of this filing, we have 252,996,439 common shares outstanding, 273,526,900 shares, and the Related Parties (as defined below) collectively owned 20,417,45117,787,506 of our common shares or approximately 7.5%7.0% of our total outstanding common shares. Such common shares, as well as common shares held by our employees and others are eligible for sale in the United States under Rule 144 under the Securities Act (“Rule 144”) and are generally freely tradable on the Oslo Børs. In addition, our two largest shareholders Granular Capital Ltd and Allan & Gill Gray Foundation, in the aggregate, hold 28.1% of our total outstanding common shares.
Future issuances by us and sales of common shares by significant shareholders may have a negative impact on the market price of our common shares. In particular, sales of substantial amounts of our common shares (including common shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our common shares.
We depend on directors who are associated with affiliated companies, which may create conflicts of interest.
Our shareholders include Drew Holdings Limited and affiliates thereof, including Magni Partners (Bermuda) Limited (collectively, the “Related Parties”). We maintain commercial relationships with our Related Parties, including advisory arrangements that are currently in place and under which services continue to be provided to us. Certain of our Related Parties have, in the past, provided foundational loans to us, including our initial payment under the Hercules Acquisition (as defined below). Furthermore, certain Related Parties are required to serve on our Board pursuant to covenants contained in certain of our financing arrangements.us.
The deputy chairman of our Board, Mr. Tor Olav Trøim, also serves as a director of one of our Related Parties. These dual positionsThis position may conflict with his duties as one of our directors regarding business dealings and other matters between each of the Related Parties and us. Our directorsDirectors owe fiduciary duties to both us and each respective Related Party and may have conflicts of interest in matters involving or affecting us and our customers.interest. The resolution of these conflicts may not always be in our or our shareholders’ best interests.
Please see the section entitled “Item 7.B7.B. Related Party Transactions” for more information, including information on the commercial arrangements between us and the Related Parties.
If securities or industry analysts do not publish research reports or publish unfavorable research about our business, the price and trading volume of our common shares could decline.
The trading market for our common shares may depend in part on the research reports that securities or industry analysts publish about us or our business. We may never obtain significant research coverage by securities and industry analysts. If limited securities or industry analysts continue coverage of us, the trading price for our common shares and other securities would be negatively affected. In the event we obtain significant securities or industry analyst coverage, and one or more of the analysts who covers us downgrades our securities, the price of our common shares would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our common shares could decrease, which could cause the price of our common shares and other securities and their trading volume to decline.
We may notcannot guarantee we will pay dividends in any specified amounts or particular frequency or at all.
In the future.
fourth quarter of 2023 and the first quarter of 2024, we announced that our Board had approved a cash distribution of $0.05 per share for the third quarter of 2023 and the fourth quarter of 2023 respectively. Under our Bye-Laws, any further dividends declared will be in the sole discretion of our Board and will depend upon earnings, market prospects, current capital expenditure programs and investment opportunities, although the payment of certain dividends is restricted by the covenants in certain of our Financing Arrangements.existing bonds and loans. Under Bermuda law, we may not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (a) we are, or would after the payment be, unable to pay our liabilities as they become due or (b) the realizable value of our assets would thereby be less than our liabilities. In addition, since we are a holding company with no material assets other than the shares of our subsidiaries through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries distributing to us their earnings and cash flow and liquidity. Furthermore,Any future declaration, amount and payment of dividends will be at our sole discretion and depend upon factors, such as our results of operations, financial condition, earnings, capital requirements, restrictions in our debt instruments (including the indenture for our Notes, which restricts dividends) and legal requirements. Although we require the consent of our lenders under certain of our financing arrangements in ordercurrently intend to pay dividends. Weregular quarterly cash dividends, we cannot predict when, or if,provide any assurances that any such regular dividends will be paid in the future.any specified amount or at any particular frequency, or at all.
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have.
We are incorporated under the laws of Bermuda, and substantially all of our assets are located outside of the United States. In addition, our directors and officers generally are or will be nonresidents of the United States, and all or a substantial portion of the assets of these nonresidents are located outside the United States.States As a result, it may be difficult or impossible for you to effect service of process on these individuals in the United States or to enforce in the United States judgments obtained in U.S. courts against us or our directorsDirectors and officersOfficers based on the civil liability provisions of applicable U.S. securities laws.
In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. securities laws or (2) would enforce, in original actions, liabilities against us based on those laws.
U.S. tax authorities may treat us as
If we are a “passive foreign investment company” for U.S. federal income tax purposes whichfor any taxable year, U.S. Holders of our common shares may havebe subject to adverse tax consequences for U.S. shareholders.consequences.
A non-U.S. corporation, such as the Company, will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for a taxable year if either (1) at least 75% of its gross income for such taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets (generally determined on the basis of
a quarterly average) during such year produce or are held for the production of those types of “passivepassive income.” For purposes of these tests, “passive income” includes dividends, interest, net gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business but does not generally include income derived from the performance of services. In addition, a non-U.S. corporation is treated as holding directly and receiving directly its proportionate share of the assets and income of any other corporation in which it directly or indirectly owns at least 25% (by value) of such corporation’s stock. Also, for purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business but does not include income derived from the performance of services.
Based on the current and anticipated valuation of our assets, including goodwill, and composition of our income and assets, we do not believe we were not a PFIC for the taxable year ended December 31, 20202023 and we do not anticipate being a PFIC for the current taxable year or inforeseeable future taxable years. There can be no assurance, however, that we were not a PFIC for the foreseeable future. We believetaxable year ended December 31, 2023 or that we will not be treated as a PFIC for any relevant period becausethe current taxable year or foreseeable future taxable years. The application of the PFIC rules is subject to uncertainty in several respects, and we must make a separate determination after the close of each taxable year as to whether we were a PFIC for such year. Moreover, we believe that any income we receive from offshore drilling service contracts should not be treated as “services income” rather than as passive income under the PFIC rules. In addition,rules and that the assets we own and utilize to generate this “services income”income should not be considered to betreated as passive assets. GivenBecause there are uncertainties in the lack of authority and highly factual natureapplication of the analysis, no assurance can be given in this regard. Moreover, we have not sought, and we do not expect to seek, a ruling fromrelevant rules, however, it is possible that the Internal Revenue Service (“IRS”(the “IRS”) on this matter. As a result, the IRSmay challenge our classification of such income or a courtassets as non-passive, which could disagree with our position. In addition, although we intendcause us to conduct our affairs in a manner to avoid, to the extent possible, beingbecome classified as a PFIC with respect to anyfor the current or subsequent taxable year, the nature of our operations may change in the future in a manner that causes us to become a PFIC.years.
If we were treated as a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10.E Additional Information—10.E. Taxation—U.S. Federal Income Tax Considerations—General”) held a common share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Item 10.E Additional Information—10.E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations” for a more comprehensive discussion.
ITEM 4. INFORMATION ON THE COMPANY
A.HISTORY AND DEVELOPMENT OF THE COMPANY
Borr Drilling Limited was incorporated in Bermuda on August 8, 2016, pursuant to the Companies Act 1981 of Bermuda (the “Companies Act”), as an exempted company limited by shares. On December 19, 2016, our shares were introduced to the Norwegian OTC market. On August 30, 2017, our shares were listed on the Oslo Børs under the symbol “BDRILL” and on November 30, 2020 we changed our symbol to "BORR". On July 31, 2019, our shares were listed on the New York Stock Exchange under the symbol “BORR.”
Our current agent in the U.S. is Puglisi & Associates upon whom process may be served in any action brought against us under the laws of the United States.
Our principal executive offices are located at S. E. Pearman Building, 2nd Floor, 9 Par-la-Ville Road, Hamilton HM11, Bermuda and our telephone number is +1 (441) 737-0152.542-9234.
For further information on important events in the development of our business, please see the section entitled “—B.“Item 4.B. Business Overview—Our Business.” For further information on our principal capital expenditures and divestitures, including the distribution of these investments geographically and the method of financing, please see the section entitled “Item 5.B Operating and Financial Review and Prospects—5.B. Liquidity and Capital Resources.” We have not been the subject of any public takeover offers by any third party.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov. Our internet address is http://www.borrdrilling.com/.www.borrdrilling.com. The information contained on our website is not incorporated by reference and does not form part of this annual report.
B.BUSINESS OVERVIEW
We are an offshore shallow-water drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership, contracting and operation of jack-up rigs for operations in shallow-water areas (i.e., in water depths up to approximately 400 feet), including the provision of related equipment and work crews to conduct oil and gas drilling and workover operations for exploration and production customers. We currently own 2322 rigs with an additional fivetwo jack-up rigs scheduled to be delivered by the end of 2023.2024. Upon delivery of these newbuild jack-up rigs, we will have a fleet of 2824 premium jack-up rigs, which refers to rigs delivered from the yard in 20012000 or later.
We are a preferred operatorone of jack-upthe largest international operators of drilling rigs within the jack-up drilling market. Thesegment and the shallow-water market is our operational focusfocus. Jack-up rigs can, in principle, be used to drill (i) exploration wells, i.e. explore for new sources of oil and gas or (ii) new production wells in an area where oil and gas is already produced; the latter activity is referred to as we expect demand will recover sooner thandevelopment drilling and constitutes the vast majority of current activity. Shallow-water oil and gas production is generally a lower-cost production, in terms of cost per barrel of oil, as compared to other offshore production. As a result, and due to the mid- and deepwater segments of the contract drilling market. shorter period from investment decision to cash flow, E&P Companies have an incentive to invest in shallow-water developments over other offshore production categories.
We contract our jack-up rigs and offshore employees primarily on a dayrate basis to drill wells for our customers, including integrated oil companies, state-owned national oil companies and independent oil and gas companies. During 2020,2023, our top five customers by revenue, including related party revenue were subsidiaries of ExxonMobil, NDC, SpiritPerfomex, Saudi Arabian Oil Company, ENI Congo S.A., Brunei Shell Petroleum Company Sendiran Berhad and BW Energy Perfomex and ENI.Gabon S.A.. A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells, or covering a stated term. Our Total Contract Backlog (excluding backlog from joint venture operations which earn related party revenue) was $132.1$1,206.5 million as of December 31, 20202023 and $308.5$929.8 million as of December 31, 2019. 2022. We currently operate in significant oil-producing geographies throughout the world, including the Middle East, the North Sea, the Middle
East, Mexico, West Africa and SoutheastSouth East Asia. We continue to operate our business with a competitive cost base, driven by a strong and experienced organizational culture and an actively managed capital structure.
From our initial acquisition of rigs in early 2017, we have expanded rapidly into one of the world’s largest international offshore jack-up drilling contractors by number of jack-up rigs. The following chart illustrates the development in our fleet since our inception:
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of and For the Year Ended
December 31, |
| | 2020 | | 2019 | | 2018 | | 2017 |
| Total Fleet as of January 1 | 28 | | | 27 | | | 13 | | | — | |
Jack-up Rigs Acquired(1) | — | | | 1 | | | 23 | | | 12 | |
| Newbuild Jack-up Rigs Delivered from Shipyards | 2 | | | 2 | | | 9 | | | 1 | |
Jack-up Rigs Disposed of (1) | 6 | | | 2 | | | 18 | | | — | |
| Total Fleet as of the end of the Year | 24 | | | 28 | | | 27 | | | 13 | |
| Newbuild Jack-up Rigs not yet Delivered as of the end of Period | 5 | | | 7 | | | 9 | | | 13 | |
Total Fleet, including Newbuild Rigs not yet Delivered, as of the end of Period(2) | 29 | | | 35 | | | 36 | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, |
| | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 |
| Total fleet as of January 1, | 22 | | 23 | | 24 | | 28 | | 27 | | 13 | | — | |
Jack-up rigs acquired (1) | — | | — | | — | | — | | 1 | | 23 | | 12 | |
| Newbuild jack-up rigs delivered from shipyards | — | | — | | — | | 2 | | 2 | | 9 | | 1 | |
| Jack-up rigs disposed | — | | (1) | | (1) | | (6) | | (2) | | (18) | | — | |
| Total fleet as of December 31, | 22 | | 22 | | 23 | | 24 | | 28 | | 27 | | 13 | |
Newbuild jack-up rigs not yet delivered as of December 31, (2) | 2 | | 5 | | 5 | | 5 | | 7 | | 9 | | 13 | |
| Total fleet as of December 31, | 24 | | 27 | | 28 | | 29 | | 35 | | 36 | | 26 | |
(1)Includes the acquisition of one semi-submersible rig in 2018 which was subsequently sold in 2020.
(2)Since During the year ended December 31, 2020,2022, the Company agreed to sell three newbuild rigs which the Company had previously agreed to purchase from Seatrium to an undisclosed third-party. As of December 31, 2023, we have disposed of one jack-up rig, bringing the total fleet of jack-up rigs as of April 13, 2021 to 23. We have 5 new buildhad two newbuild jack-up rigs not yet delivered, as of April 13, 2021. Ourresulting in a total fleet including newbuildof 24 rigs not yet delivered, as(giving effect to delivery of April 13, 2021 is 28.the newbuilds).
Our History
Important events in the development of our business include the following.
(i) Acquisition of Hercules Rigs
On December 2, 2016, we agreed to purchase two premium jack-up rigs (the “Hercules Rigs”) from Hercules British Offshore Limited (“Hercules”). The transaction was completed on January 23, 2017 (the “Hercules Acquisition”). The Hercules Rigs, named “Frigg”(in 2023 renamed "Arabia III") and “Ran,” were acquired for a total price of $130$130.0 million. Each rig is a premium jack-up rig.
(ii) Acquisition from Transocean
On March 15, 2017, we signed a letter of intent with Transocean Inc. (“Transocean”) for the purchase of all of certain Transocean subsidiaries owning 10 jack-up rigs and the rights under five newbuilding contracts (the “Transocean Transaction”). On May 31, 2017, we completed the Transocean Transaction for a total price of $1,240.5 million. Three of the jack-up rigs we acquired, “Idun,” “Mist” and “Odin,” were, at the time, employed with Chevron for operations in Thailand. Transocean, as the seller, retained the revenue, expenses and cash flow associated with the three rigs under contract upon closing of the Transocean Transaction. Since the acquisition closed, two of the rigs under the newbuilding contracts have been delivered, “Saga” and “Skald,” one rig under newbuilding contract "Tivar" was sold in the fourth quarter of 2022, and an additional three are scheduled to be deliveredtwo rigs with a contractual delivery in 2023.July 2025 and a best efforts expedited delivery
date of August 2024 (for "Vale") and September 2025 with a best efforts expedited delivery date of November 2024 (for "Var"). Of the rigs initially delivered at closing, four were standard jack-up rigs and six were premium jack-up rigs. Since the closing of the Transocean Transaction, we have divested all of the four standard jack-up rigs and two cold stacked premium jack-up rigs, as there was no economic incentive to reactivate these rigs.
(iii) Acquisition from PPL
On October 6, 2017, we entered into a master agreement with PPL Shipyard Pte Ltd. (“PPL”) for six premium jack-up drilling rigs and three premium jack-up drilling rigs under construction at its yard in Singapore (together, the “PPL Rigs”). The consideration in the transaction with PPL (the “PPL Acquisition”) was approximately $1.3 billion,$1,300 million, of which $55.8 million of this was paid per rig on October 31, 2017, and we entered into loans for delivery financing for a portion of the purchase price equal to $87.0 million per rig from PPL Shipyard Pte. Ltd.PPL. All of the PPL Rigs have been delivered to us as of the date hereof.and one rig, "Gyme", was sold in 2022.
(iv) Acquisition of Paragon
On March 29, 2018, we concluded the Paragon Transaction, subsequently acquiring the majority of the remaining shares in July 2018. At the closing of the Paragon Transaction, Paragon owned two premium jack-up rigs, 20 standard jack-up rigs (built before 2001)2000) and one semi-submersible (built in 1979) (the “Paragon Rigs”). The Paragon Transaction provided us with a solid operational platform which matches the quality of our jack-up fleet. Paragon’s five-year track record has helped position us to win tenders from key E&P Companies. As part of the acquisition, Paragon became a subsidiary of Borr Drilling. Subsequent to the acquisition, we divested all standard jack upjack-up rigs and the one semi-submersible rig in the Paragon Transaction as there was no economic incentive to reactivate these rigs.
(v) Acquisition from KeppelSeatrium
On May 16, 2018, we entered into an agreement with Seatrium to acquire five premium jack-up rigs three completed and two under construction from KeppelSeatrium (the “Keppel“Seatrium Acquisition”). The purchase price for the KeppelSeatrium Rigs was $742.5 million. We took delivery of the newnewbuild jack-up rigs "Hermod", “Heimdal” (in 2022 renamed "Arabia I" and "Arabia II"), and “Hild” in October 2019, January 2020 and April 2020, respectively. We were due to take delivery of the remaining two newbuild jack-up rigs "Huldra" and "Heidrun" under the agreement in 2020. However2020, however, the delivery of these rigs was initially deferred to 2022 thenand subsequently to 2023. In the fourth quarter of 2022, we sold "Huldra" and "Heidrun" to a third party, and in 2023 following the Company's agreement with Keppel entered into in January 2021.rigs were delivered to the buyer.
(vi) Acquisition of Keppel’sSeatrium’s Hull B378
In March 2019, we entered into an assignment agreement with BOTL Lease Co. Ltd. (the “Original Owner”) for the assignment of the rights and obligations under a construction contract to take delivery of one KFELS Super B Bigfoot premium jack-up rig identified as Keppel’sSeatrium’s Hull No. B378 from KeppelSeatrium for a purchase price of $122.1 million. The construction contract was, at the same time, novated to our subsidiary, Borr Jack-Up XXXII Inc., and amended. We took delivery of the jack-up rig on May 9, 2019 and the rig was subsequently renamed “Thor.”
To finance the rig purchase we entered into a $120.0 million senior secured term loan facilities agreement, consisting of two facilities (Facility A and Facility B) of $60.0 million each, which we refer to as our Bridge Facility. The facilities had a maturity date of September 30, 2019. Following the signing of our Hayfin Facility, Syndicated Senior Secured Credit Facilities and New Bridge Revolving Credit Facility agreements on June 25, 2019, which collectively provided $645 million in financing, we repaid the outstanding balance due under our Bridge Facility, which was subsequently cancelled.
Divestments
From time to time we consider opportunities to sell our standard jack-up rigs if it can be achieved in a manner in which such jack-up rigs are contractually obligated to leaverigs. Set forth below is an overview of the jack-up drilling market, thereby decreasingrig divestments since the worldwide supplybeginning of jack-up rigs available for contract.2022.
In 2018, we divested 18 jack-up rigs for total proceeds of $37.6 million and recorded a gain of $18.8 million.
In May 2019, we entered into sale agreements for the sale of the “Eir,” “Baug” and “Paragon C20051,” none of which were operating or on contract, for cash consideration of $3.0 million each. The jack-up rigs have been sold with a contractual obligation not to be used for drilling purposes and so retired from the international jack-up fleet. The sales of “Baug” and “Paragon C20051” were completed in May 2019 for total cash consideration of $6.0 million and the sale of “Eir” was completed in October 2020 for cash consideration of $3.0 million.
In March 2020, we sold “B391” for recycling for total proceeds of $0.8 million, resulting in a loss of $0.4 million. In April 2020, we sold “B152” and “Dhabi II” with associated backlog for total proceeds of $15.8 million, resulting in a gain of $11.7 million. In May 2020,September 2022, we entered into an agreement with a third party to sell the semi-submersible MSS1, built in 1981, for recyclingthree rigs under construction "Tivar", "Heidrun" and "Huldra" for total proceedsconsideration of $2.3 million,$320.0 million. The Company and we had previously recorded an impairment charge of $18.4 millionSeatrium agreed to novate the rights and obligations under the newbuilding contracts for the three rigs from the Company to the buyer, thereby releasing the Company from all obligations under these contracts. The "Tivar" was delivered to the buyer in 2020. In November 2020, we entered an agreement to sell the "Atla" and "Balder", none of which were operating or on contract. The sale of "Atla" was completed in December of 2020,2022, and the company received total proceeds of $10.0 million"Huldra" and recognized a gain of $5.0 million was recorded. The sale of "Balder" was completed"Heidrun" were delivered to the buyer in February 2021July 2023 and the company received total proceeds of $4.5 million. We recorded an impairment charge of $58.7 million in 2020 in respect of "Atla" and "Balder".October 2023, respectively.
These divestments bringIn November 2022, we sold the total number"Gyme" for a price of jack-up rigs divested$120.0 million, pursuant to an undertaking by us, and retired from the international jack-up fleet to 26 plus one semi-submersible since the beginning of 2018.
The following chart sets forth an overview of the acquisitions and disposals we have made since our formation through December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
ACQUISITIONS AND DISPOSALS SINCE OUR FORMATION |
Acquisition | | Closing Date | | Description of Transaction | | Transaction
Value
(in $ millions) | | Rigs Subsequently
Divested |
Hercules Acquisition | | January 23, 2017 | | Acquisition of two premium jack-up rigs | | $ | 130.0 | | | — |
Transocean Transaction | | May 31, 2017 | | Acquisition of 10 jack-up rigs and novation of contracts in respect of five newbuild premium jack-up rigs(1)
| | $ | 1,240.5 | | | 4 standard and 1 premium jack-up rigs |
Company under its most recent refinancing with PPL Acquisition | | October 6, 2017 | | Acquisition of nine newbuild premium jack-up rigs(2)
| | $ | 1,300.0 | | | — |
Paragon Transaction | | March 29, 2018 | | Acquisition of 22 jack-up rigs and one semi-submersible(3)
| | $ | 241.3 | | | 20 standard jack-up rigs and one semi-submersible |
Keppel Acquisition | | May 16, 2018 | | Acquisition of five newbuild premium jack-up rigs(4)
| | $ | 742.5 | | | — |
Keppel Hull
B378 (“Thor”)
Acquisition | | March 29, 2019 | | Acquisition of one newbuild premium jack-up rig | | $ | 122.1 | | | — |
(1)Since December 31, 2020 we completed the sale of the premium jack-up rig "Balder" in February 2021. Six premium jack-up rigs remain in our fleet from the Transocean Transaction, including two newbuild premium rigs delivered in 2018. Three premium jack-up rigs are due to be delivered in 2023.
(2)All jack-up rigs acquired in the PPL Acquisition have been delivered.
(3)As of December 31, 2020, two premium jack-up rigs "Prospector 1" and "Prospector 5" remained from the Paragon Transaction.
(4)As of December 31, 2020, three jack-up rigs have been delivered. Two jack-up rigs will be delivered in 2023.October 2022.
OUR BUSINESS
Our Competitive Strengths
Due to the volatility of oil prices, the current pandemic and ongoing economic crisis our industry is in a degree of instability. Nevertheless, weWe believe that our competitive strengths include:include the following:
One of the largest jack-up drilling rig contractors with one of the youngest and largest offshore drilling contractorsfleets
We have one of the youngest and largest fleets in the jack-up drilling market. All but one of our rigs were built in or after 20132011 and, as of December 31, 2020,2023, the average age of our premium fleet (excluding our newbuilds not yet delivered and Balder sold in 2021)delivered) is 3.87.0 years (implying an average building year of 2018)2017), which we believe iis ams amongong the lowest average fleet age in the industry. New and modern rigs that offer technically capable, operationally flexible, safe and reliable contracting are increasingly preferred by customers. We compete for and secure new drilling contracts from new tenders as well as privately negotiated transactions, which we estimate represent approximately half of new contract opportunities.transactions. We believe, based on our young fleet and growing operational track record, that we will beare better placed to secure new drilling contracts ifas offshore drilling demand rises, than our competitors who operate older, less modern fleets.
Largely uniform and modern fleet
BecauseAs our fleet is one of the youngest and largest jack-up drilling fleets, and the drilling equipment on, and operating capability of our jack-up rigs is largely uniform, we have the capacity to bid for multiple contracts simultaneously, including those requiring active employment of multiple rigs over the same period, as in the case of our operations for PEMEX in Mexico.Mexico and Saudi Aramco in Saudi Arabia. We have acquired
(including (including newbuilds not yet delivered) a fleet of premium jack-up rigs from shipyards with a reputation for quality and reliability. Moreover, due to the uniformity of the jack-up rigs in our fleet, we have been able to achieve operational and administrative efficiencies.
Commitment to safety and the environment
We are focused on developing a strong quality, health, safety and environment or QHSE,("QHSE"), culture and performance history. We believe that the combination of quality jack-up rigs and experienced and skilled employees contributes to the safety and effectiveness of our operations. Since the 2010 Deepwater Horizon Incident (as defined below) (to which we were not a party)party to), there has been an increased focus on offshore drilling QHSE issues by regulators as well as by the industry. As a result, E&P Companies have imposed increasingly stringent QHSE rules on their contractors, especially when working on challenging wells and operations where the QHSE risks are higher. Our commitment to strong QHSE culture and performance is reflected in our Technical Utilization rate, excluding our joint venture operations,of 99.5%98.3% in 2020,2023 (98.9% in 2022), and our excellent safety record inover the same period. We believe our focus on providing safe and efficient drilling services will enhance our growth prospects as we work towardtowards becoming one of the preferred providers in the industry as the market recovers.continues to improve.
Strong and diverse customer relationships
We have strong relationships with our customers rooted in our employees’ expertise, reputation and history in the offshore drilling industry, as well as our growing operational track record and the quality of our fleet. Our customers are oil and gas exploration and production companies,E&P Companies, including integrated oil companies, state-owned national oil companies and independent oil and gas companies. For the year ended December 31, 2020,2023, our five largest customers in terms of revenue, including related party revenue were ExxonMobil NDC, SpiritPerfomex, Saudi Arabian Oil Company, ENI Congo S.A., Brunei Shell Petroleum Company Sendiran Berhad and BW Energy Perfomex and ENI.Gabon S.A. We believe that we are responsive and flexible in addressing our customers’ specific needs and seek collaborative solutions to achieve customer objectives. We focus on strong operational performance and close alignment with our customers’ interests, which we believe provides us with a competitive advantage and will contribute to contracting success and rig utilization.
Management team and Board members with extensive experience in the drilling industry
Our management team and Board of Directors have extensive experience in the oil and gas industry in general and in the drilling industry in particular. In addition, the members of our management team have extensive experience with drilling companies and companies in the oil and gas industry operating in the jack-up drilling market. MThe membersembers of our management team and Board have held leadership positions at prominent offshore drilling and oilfield services companies, including Schlumberger Limited, Marine Drilling Companies, Inc., Seadrill Limited, Noble Corporation, Valaris Limited and North Atlantic Drilling Ltd and have experience which complements one another and have assisted, and continue to assist, in our ongoing development.
Our Business Strategies
Despite the ongoing volatility in our industry, weWe intend to continue to strive to meet our primary business objective of becomingcontinuing to be a preferred operator to our customers in the jack-up drilling market while also maximizing the return to our shareholders. To achieve this, our strategies include the following:
Deploy high-quality rigs to service the industry
We have acquired one of the leading jack-up rig fleets in the industry with capacity to service existing and future client needs.industry. We believe that shallow-water drilling, such as that performed by our jack-up rigs, has a shorter lifecycle between exploration and first oil and lower capital expenditure than other forms of drilling performed by mobile offshore drilling units, such as drillships. We believe this makes shallow-water drilling more attractive than deep-water projects in the current economic and industry climates. In addition to tender activity in which we participate through bidding, we also compete for new contract opportunities through privately negotiated transactions, including private tenders and direct negotiations with customers, which we estimate represent approximately half of new contract opportunities. We believe our footprint in the industry is growing. Between April 1, 2018, and December 31, 2020,2023, (excluding our Mexican operations)backlog from joint venture operations which earns related party revenue) we signed 27 new76 contracts (64 as at December 31, 2022) for drilling services with an aggregate value of approximately $512.4$2,445.7 million ($1,713.0 million as at December 31, 2022), including 1739 (35 as at December 31, 2022) with new customers. During this period, we also signed seven extensions and have had six36 options exercised.As of April 13, 2021, 13March 22, 2024, all of our 2322 rigs are under contract.contract or committed for future contracts. Our Economic Utilization, which reflects the We experienced some early terminations and suspensions of contracts in 2020 in lightproportion of the COVID-19 crisis, but we have also been awarded new contracts sincepotential full contractual dayrate that each contracted jack-up rig actually earned each day, excluding joint venture operations, for the onset of the pandemic.year ended December 31, 2023 was 97.9% (98.1% in 2022).
BecomeBe a preferred provider in the industry
We have established strong and long-term relationships with key participants and customers in the offshore drilling industry, including through our acquisition of Paragon Offshore Limited, the hiring of experienced personnel and contracts signed since our inception, and we will seek to deepen and strengthen these relationships as part of our strategy. This involves identifying value add services for our customers (such as integrated well contracts). We also plan to hire employees, when industry conditions permit, with long track-records in the industry and extensive contacts with potential key customers to further improve customer relationships.customers. Based on our largely premium, young and largely uniform fleet, our experienced team and a solid industry network, we believe that we are well-positioned to capitalize on improving trends as we seek to continue to establish ourselves as a preferred provider to these customers.
Establish high-quality, cost-efficient operations
We intend to beestablish ourselves as a leading offshore shallow-water drilling company by operating with a competitive cost base while continuing to grow our reputation as a high-quality contractor. Our key objective is to deliver the best operations possible— both in terms of Technical Utilization and QHSE culture and performance while also maximizing deployment of our rigs and maintaining a competitive cost structure.
To facilitate our strategy, we have acquired one of the most modern and uniform fleets in the industry, with experienced and skilled individuals across the organization and on our Board. We expect tobelieve we have an advantage not only with regard to operating expenditures as a result of our largely standardized fleet.
Establish and offer integrated services
Through our joint venture in Mexico, we are currently offering integrated drilling/well services together with oil field service providers, including Schlumberger, and we have been tendering our services on this basis for some contract tenders. Integrated drilling services offer all services and equipment (and in some cases, material procurement) in a single contract. We believe this model is economically feasible and thus attractive for smaller E&P Companies operating offshore, as the model could reduce the number of contracts required for a project from above ten to two or three. Significant cost saving potential is evident in the model. As a result, project management could become simpler, cheaper and more efficient for customers with integrated drilling services. Further, this could lead to improved well design, better selection and more efficient operators of rig equipment and technology.
Our Fleet
We believe that we have one of the most modern jack-up fleets in the offshore drilling industry. Our drilling fleet currently consists of 2322 rigs, of which all are premium jack-up rigs. In addition, we have agreed to purchase fivetwo additional premium jack-up rigs which are expected to be delivered prior toin the endsecond half of 2023. Premium2024. We define premium jack-up rigs meansas rigs delivered from the yardbuilt in 20012000 or later and which are suitable for operations in water depths up to 400 feet with an independent leg cantilever design. The majorityAll but one of our rigs were built after 2013 and as of December 31, 2020, the average age of our fleet (excluding "Balder", which was sold in February 2021 and newbuilds not yet delivered) was 3.8 years. As of the date of the last expected delivery of the newbuild jack-up rigs we have agreed to purchase, which is in 2023, the average age of our fleet will be 5.8 years (excluding "Balder", consisting entirely of premium jack-up rigs, which we believe to be among the lowest average fleet age in the industry (both currently and as of the date of our last expected delivery).was 7.0 years.
Jack-up rigs are mobile, self-elevating drilling platforms equipped with legs that are lowered to the seabed. A jack-up rig is towed to the drill site with its hull riding in the water and its legs raised. At the drill site, the jack-up rig’srigs' legs are lowered until they penetrate the seabed. Its hull is then elevated (jacked-up) until it is above the surface of the water. After the completion of drilling operations at a drill site, the hull is lowered until it rests on the water and the legs are raised. Theraised at which point the rig can then be relocated to another drill site. Jack-up rigs typically operate in shallow water, generally in water depths of less than 400 feet and with crews of 90 to 120150 people. We believe athat our modern fleet allows us to enjoy better utilization and higher daily rates for our jack-up rigs than competitors with older rigs.
As of December 31, 2020, we had 24 total jack-up rigs, of which 12 rigs were “warm stacked,” which means the rigs, including our newbuild jack-up rigs which have been delivered but not yet been activated, are kept ready for redeployment and retain a maintenance crew, and one rig was “cold stacked,” which means the rig is stored in a harbor, shipyard or a designated offshore area and the crew is reassigned to an active rig or dismissed. We entered into an agreement in 2020 to sell our cold stacked jack-up rig, the “Balder,” and the sale was completed in February 2021. We believe that well-planned and well-managed stacking will significantly reduce reactivation cost and the cost of mobilization of a rig towards a contract. We are therefore
focusing on securing cost efficiencies during stacking while limiting future risk from premature reactivation. This means concentrating stacked rigs in as few locations as possible to be able to share crew, running reduced but sufficient maintenance programs on equipment and preserving critical equipment.
We intend to prioritize the deployment of our currently contracted premium jack-up rigs. Reactivation of our premium jack-up rigs that are stacked will be undertaken for select contract opportunities when economically viable. Between April 1, 2018 and December 31, 2020, we signed 27 new contracts for drilling services, including 17 with new customers. Our Technical Utilization (which reflects our ability to keep our jack-up rigs operational when under contract), for the year ended December 31, 2020 was 99.5%, and the proportion of the potential full contractual dayrate that each contracted jack-up rig actually earned each day, or Economic Utilization, for the year ended December 31, 2020 was 92.1%. We have experienced early terminations and suspensions of contracts in 2020 in light of the COVID-19 crisis. For example, in April 2020, one of our clients, ExxonMobil, served notice to exercise its rights to terminate two contracts in West Africa due to COVID-19 related issues, triggering an obligation to pay an early termination fee. We also received a notice of termination for “Mist” on its contract from the independent Australian oil company Roc Oil for work in Malaysia, which had been estimated to start up in May 2020 for an estimated duration of 210 days. We have also been awarded new contracts since the onset of the pandemic. In April 2020, we were awarded two contracts in Malaysia for 365 days and 200 days respectively for the rigs “Saga” and “Gunnlod”, which commenced operations in September 2020.
Each rig in our fleet is certified by ABS,the American Bureau of Shipping ("ABS"), enabling universal recognition of our equipment as qualified for international operations. The key characteristics of our rigs owned but not under contract which may yield differences in their marketability or readiness for use include age of the rig, geographic location, technical specifications and whether such rigs are warm stacked or cold stacked, age of the rig, geographic location and technical specifications.
The following table sets forth additional information concerningregarding our fleet.consolidated jack-up rig fleet as of March 22, 2024:
Fleet Status Report
As of April 13, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rig Name | | Rig Design | | Rig
Water
Depth
(ft) | | Year
Built | | Customer/
Status | | Contract
Start | | Contract
End | | Location | | Comments |
| PREMIUM JACK-UP RIGS |
GymeRig Name | Rig Design | PPL Pacific Class 400Rig Water Depth (ft) | Year Built | 400 ftCustomer/Status | Contract Start | 2018Contract End | Location | AvailableComments |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Singapore | | Warm StackedPREMIUM JACK-UP RIGS |
ThorSkald | | KFELS Super B Bigfoot Class | | 400 ft | 2018 | 2019PTT Exploration and Production Public Company Limited ("PTTEP") | Jun 2021 | AvailableJun 2024 | Thailand | Operating |
| | | | PTTEP | July 2024 | Sept 2025 | Thailand | Singapore | | Warm StackedCommitted with option to extend |
HermodGroa | | KFELS B Class | | 400 ft | | 2019 | | Available | | | | | | Singapore | | Warm Stacked |
Heimdal | | KFELS B Class | | 400 ft | | 2020 | | Available | | | | | | Singapore | | Warm Stacked |
Hild | | KFELS Super B Class | | 400 ft | | 2020 | | Available | | | | | | Singapore | | Warm Stacked |
Gerd | | PPL Pacific Class 400 | | 400 ft | | 2018 | Qatar Energy | Available | | | | | | Cameroon | | Warm Stacked |
Groa | | PPL Pacific Class 400 | | 400 ft | | 2018 | | Available | | | | | | Cameroon | | Warm Stacked |
Frigg1
| | KFELS Super A | | 400 ft | | 2013 | | Available | | | | | | Cameroon | | Warm Stacked |
Ran1
| | KFELS Super A | | 400 ft | | 2013 | | Available | | | | | | United Kingdom | | Warm Stacked |
Mist | | KFELS Super B Bigfoot Class | | 350 ft | | 2013 | | ROC Oil | | October 2020 | | May 2021 | | Malaysia | | Operating |
Prospector 11
| | F&G, JU2000E | | 400 ft | | 2013 | | One Dyas | | October 2020 | | March 2021 | | Netherlands North Sea | | Operating with option to extend |
| | | | | | | | Undisclosed | | April 2021 | | November 2021 | | North Sea | | LOI |
Norve | | PPL Pacific Class 400 | | 400 ft | | 2011 | | BWE | | April 2021 | | July 2021 | | Gabon | | Committed |
Idun | | KFELS Super B Bigfoot Class | | 350 ft | | 2013 | | Vestigo | | March 2021 | | JanuaryApr 2022 | Apr 2024 | MalaysiaQatar | | Operating |
Gunnlod | | PPL Pacific Class 400 | | 400 ft | | 2018 | | PTTEP | | September 2020 | | May 2021 | | Malaysia | | Operating with option to extend |
SagaIdun | | KFELS Super B Bigfoot Class | | 400350 ft | | 20182013 | | PTTEP | Feb 2024 | September 2020Feb 2026 | Thailand | October 2021 | | Malaysia | | Operating with option to extend |
GalarThor | | PPL Pacific Class 400 | | 400 ft | | 2017 | | PEMEX | | April 2020 | | December 2021 | | Mexico | | Operating |
Njord | | PPL Pacific Class 400 | | 400 ft | | 2019 | | PEMEX | | June 2020 | | December 2021 | | Mexico | | Operating |
Gersemi | | PPL Pacific Class 400 | | 400 ft | | 2018 | | PEMEX | | August 2019 | | December 2021 | | Mexico | | Operating |
Grid | | PPL Pacific Class 400 | | 400 ft | | 2018 | | PEMEX | | August 2019 | | December 2021 | | Mexico | | Operating |
Odin | | KFELS Super B Bigfoot Class | | 350400 ft | 2019 | 2013PETRONAS Carigali Sdn Bhd | Jan 2024 | PEMEXJune 2024 | | March 2020Indonesia | | August 2021 | | Mexico | | Operating |
| Undisclosed | July 2024 | Sept 2024 | South East Asia | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Letter of Award |
Rig NameNorve | | Rig DesignPPL Pacific Class 400 | | Rig
Water
Depth
(ft) | | Year
Built | | Customer/
Status | | Contract
Start | | Contract
End | | Location | | Comments |
Prospector 51
| | F&G, JU2000E | | 400 ft | 2011 | 2014BW Energy | | CNOOCDec 2022 | | November 2020 | | May 20222024 | Gabon | Operating |
| Jun 2024 | July 2024 | Gabon | Committed |
| Gerd | PPL Pacific Class 400 | 400 ft | 2018 | Bunduq | Dec 2023 | Aug 2024 | United KingdomArab Emirates | | Operating with option to extend |
| Natt | | PPL Pacific Class 400 | 400 ft | 2018 | ENI | Jan 2022 | March 2024 | Congo | Operating |
| Apr 2024 | Dec 2025 | Congo | Letter of Award |
Ran (1) | KFELS Super A Class | 400 ft | 2013 | 2018Total Energies | Nov 2023 | First E&PSep 2024 | | April 2019Mexico | | April 2021 | | Nigeria | | Operating with option to extend |
SkaldWintershall | Oct 2024 | Dec 2024 | Mexico | Committed |
| Odin | KFELS Super B Bigfoot Class | 350 ft | 2013 | (Opex Perforadora) PEMEX | Oct 2022 | Dec 2025 | Mexico | Operating |
| Gersemi | PPL Pacific Class 400 | 400 ft | 2018 | (Opex Perforadora) PEMEX | Oct 2022 | Dec 2025 | Mexico | Operating |
| Grid | PPL Pacific Class 400 | 400 ft | 2018 | (Opex Perforadora) PEMEX | Mobilization
Oct 2022 | Dec 2025 | February 2021Mexico | | May 2021 | | Singapore | | Contract preparation and Mobilization |
| | | | | | | | PTTEP | | June 2021 | | November 2024 | | Thailand | | LOA |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
PREMIUM JACK-UP RIGS UNDER CONSTRUCTION/NOT DELIVEREDOperating |
Rig NameGalar | PPL Pacific Class 400 | Rig Design400 ft | 2017 | Rig
Water
Depth
(ft)(Opex Perforadora) PEMEX | Oct 2022 | Year
BuiltDec 2025 | Mexico | Customer/
Status | | Contract
Start | | Contract
End | | Location | | CommentsOperating |
TivarNjord | PPL Pacific Class 400 | 400 ft | 2019 | (Opex Perforadora) PEMEX | Oct 2022 | Dec 2025 | Mexico | Operating |
Prospector 1 (1) | F&G, JU2000E | 400 ft | 2013 | Neptune Energy | Sep 2023 | March 2024 | Netherlands North Sea | Operating |
| Saga | KFELS Super B Bigfoot Class | 400 ft | 2018 | Brunei Shell Petroleum | Nov 2022 | Nov 2026 | Brunei | Operating with option to extend |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| PREMIUM JACK-UP RIGS |
Prospector 5 (1) | F&G, JU2000E | 400 ft | | | 2014 | Under ConstructionENI | | | | | Nov 2022 | KFELS shipyard, SingaporeMarch 2024 | Congo | Rig Delivery in June 2023Operating with option to extend |
ValeApr 2024 | May 2026 | Congo | Letter of Award |
| Mist | KFELS Super B Bigfoot Class | 350 ft | 2013 | Valeura Energy | Dec 2023 | Aug 2024 | Thailand | Operating |
| Sept 2024 | Aug 2025 | Thailand | Committed with option to extend |
| Gunnlod | PPL Pacific Class 400 | 400 ft | | | 2018 | Under ConstructionROC Oil | Jan 2024 | May 2024 | Malaysia | Operating |
Arabia III(4) | KFELS shipyard, SingaporeSuper A Class | 400 ft | Rig Delivery in July2013 | Saudi Arabian Oil Company | Sept 2023 | Sept 2028 | Saudi Arabia | Operating with option to extend |
Arabia I(2) | KFELS B Class | 400 ft | 2020 | Saudi Arabian Oil Company | Oct 2022 | Oct 2025 | Saudi Arabia | Operating with option to extend |
Arabia II(3) | KFELS B Class | 400 ft | 2019 | Saudi Arabian Oil Company | Oct 2022 | Oct 2025 | Saudi Arabia | Operating with option to extend |
VarHild | KFELS Super B Class | 400 ft | 2020 | Fieldwood Energy | Oct 2023 | Oct 2025 | Mexico | Operating |
(1) HD/HE Capability
(2) Rig previously known as 'Heimdal'
(3) Rig previously known as 'Hermod'
(4) Rig previously known as 'Frigg''
| | | | | | | | | | | | | | | | | |
| PREMIUM JACK-UP RIGS UNDER CONSTRUCTION |
| Rig Name | Rig Design | Rig Water Depth (ft) | Customer/Status | Location | Comments |
| Vale | KFELS Super B Bigfoot Class | | 400 ft | | | | Under Construction | | | | | | KFELS shipyard, Singapore | | Rig Deliverydelivery expected in September 2023August 2024 |
HuldraVar | | KFELS Super B Bigfoot B Class | | 400 ft | | | | Under Construction | | | | | | KFELS shipyard, Singapore | | Rig Deliverydelivery expected in October 2023 |
Heidrun | | KFELS Bigfoot B Class | | 400 ft | | | | Under Construction | | | | | | KFELS shipyard, Singapore | | Rig Delivery in December 2023 |
COLD STACKED JACK-UP RIGS |
Balder2
| | F&G, JU 2000 | | 400 ft | | 2003 | | | | | | | | Cameroon | | Not MarketedNovember 2024 |
1.HD/HE Capability
2.
Customer and Contract Backlog
Our customers are oil and gas exploration and production companies, including integratedintegrated oil companies, state-owned national oil companies and independent oil and gas companies. As of December 31, 2020,2023, our largest customers in terms of revenue including related party revenue were subsidiaries of ExxonMobil, NDC, SpiritPerfomex, Saudi Arabian Oil Company, ENI Congo S.A., Brunei Shell Petroleum Company Sendiran Berhad and BW Energy Perfomex and ENI. We obtain the majority of our contracts through tenders, market surveys and direct approaches to customers.
Several of ourGabon S.A. Our jack-up rigs are contracted to customers for periods between a couple of months, to several months and our contracts generally range from three to 24 months. Our Total Contract Backlog excluding our Mexican operations was $132.1 million asyears.
As of December 31, 2020. As included2023, excluding our joint venture operations in this annual report, Total Contract Backlog is notMexico, we had 17 operating or committed jack-up rigs in total, including six in South East Asia, five in the same measure asMiddle East, three in West Africa, two in Mexico, and one in the acquiredNorth Sea. The Technical Utilization and Economic Utilization for our drilling fleet, excluding our joint venture operations in Mexico, was 98.3% and 97.9%, respectively, during 2023.
During the year ended December 31, 2023, we received a number of new contracts, letters of award and options exercised, increasing our total contract backlog, presentedexcluding our joint venture operations in our Consolidated Financial Statements. Please see Notes 2 and 17Mexico, to our Consolidated Financial Statements for further information.
The amount$1,206.5 million as at December 31, 2023, a significant increase from $929.8 million as at December 31, 2022. Amounts of actual revenues earned and the actual periods duringfor which revenues are earned willmay be different from those implied by the Total Contract Backlog projections due to various factors. For example, several factors, including shipyard and maintenance projects, downtime or standby time, and various other factors which may result in lower revenues than implied by our average Total Contract Backlog per day. Downtime,total contract backlog. For example, downtime, caused by unscheduled repairs, maintenance, weather and other operating factors, may result in lower applicable daily rates than the full contractual operating daily rate.
As of December 31, 2020, excluding our Mexican operations we had nine committed jack-up rigs in total, including four jack-up rigs in operation in the North Sea, one in West Africa, four in Southeast Asia and one other premium jack-up rig contracted. The Technical Utilization and Economic Utilization for our drilling fleet was 99.5% and 92.1%, respectively during 2020.
We had experienced early terminations and suspensions of contracts in 2020 in light of the COVID-19 crisis, but we have also signed new contracts since the onset of the pandemic. A number of our customers have contractual rights in place to suspend operations in certain circumstances, and we could be subject to further suspension notices in light of market conditions and the ongoing pandemic.
Contractual Terms
Our drilling contracts are individually negotiated and vary in their terms and provisions. We obtain most of our drilling contracts through competitive bidding against other contractors and direct negotiations with operators.
Our drilling contracts provide for payment on a dayrate basis, with higher rates for periods while the jack-up rig is operating. A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering a stated term. We currently only have historically not provided “turnkey” or other risk-based drilling services to customers. Thedayrate contracts for which the customer bears substantially all of the ancillary costs of constructing the well and supporting drilling operations, as well as the economic risk relative to the success of the well. In addition, dayrate contracts may provide for a lump sum amount or dayrate for mobilizing or demobilizing the rig to and from the initial operating location, which is usually lower than the contractual dayrate for uptime services, and a reduced dayrate when drilling operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or other conditions beyond our control.
Certain of our drilling contracts contain terms which allow them to be terminated at the convenienceoption of the customer, in some cases upon payment of an early termination fee or compensation for costs incurred up to termination. Any such payments, however, may not fully compensate us for the loss of the contract. Contracts also customarily provide for either automatic termination or termination at the option of the customer, typically without any termination payment, in certain circumstances such as non-performance, in the event of extended downtime or impaired performance caused by equipment or operational issues or periods of extended downtime due to other conditions beyond our control, of which there are many. A number of our customers have contractual rights to terminate their contracts with us if performance is prevented for a prolonged period due to force majeure events. We may also be affected by force majeure provisions in contracts between our customers or suppliers and third parties. We may also face contract suspension due to prevailing market conditions.
The contract term in some instances may be extended by the customer exercising options for the drilling of additional wells or for an additional term. Our contracts also typically include a provision that allows the customer to extend the contract to finish drilling a well-in-progress. During periods of depressed market conditions, our customers may seek to renegotiate firm drilling contracts to reduce the term of their obligations or the average dayrate through term extensions, or may seek to suspend, terminate or repudiate their contracts. Suspension of drilling contracts will result in the reduction in or loss of dayrate for the period of the suspension. If our customers cancel some of our contracts and we are unable to secure new contracts on a timely basis and on substantially similar terms, or if contracts are suspended for an extended period of time or if a number of our contracts are renegotiated, it could adversely affect our business, financial condition and results of operations. See “Item 5.D Trend Information” "Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations and Future Results" for more information.
Consistent with standard industry practice, our customers generally assume, and indemnify us against, well control and subsurface risks under dayrate drilling contracts. Under all of our current drilling contracts, our customers, as the operators, indemnify us for pollution damages in connection with reservoir fluids stemming from operations under the contract and we indemnify the operator for pollution from substances in our control that originate from the rig, such as diesel used onboard the rig or other fluids stored
onboard the rig and above the water surface. Also,In addition, under all of our current drilling contracts, the operator indemnifies us against damage to the well or reservoir and loss of subsurface oil and gas and the cost of bringing the well under control. However, our drilling contracts are individually negotiated, and the degree of indemnification we receive from the operator against the liabilities discussed above can vary from contract to contract, based on market conditions and customer requirements existing when the contract wasis negotiated. In some instances, we have contractually agreed upon certain limits to our indemnification rights and can be responsible for damages up to a specified maximum dollar amount. The nature of our liability and the prevailing market conditions, among other factors, can influence such contractual terms. In most instances in which we are indemnified for damages to the well, we have the responsibility to redrill the well at a reduced dayrate as the customer’s sole and exclusive remedy if such well damages are due to our negligence. Notwithstanding a contractual indemnity
from a customer, there can be no assurance that our customers will be financially able to indemnify us or will otherwise honor their contractual indemnity obligations.
Although our drilling contracts are the result of negotiations with our customers, our drilling contracts may also contain, among other things, the following commercial terms: (i) payment by us of the operating expenses of the drilling rig, including crew labor and incidental rig supply costs; (ii) provisions entitling us to adjustments of dayrates (or revenue escalation payments) in accordance with published indices, changes in law or otherwise; (iii) provisions requiring us to provide a performance guarantee; and (iv) provisions permitting the assignment to a third party with our prior consent, such consent not to be unreasonably withheld.
Joint Venture and Partner Relationships
In some areas of the world, local content requirements, customs and practicepractices, necessitate the formation of joint ventures with local participation. Local laws or customs or customer requirements in some jurisdictions also effectively mandate the establishment of a relationship with a local agent or partner. For more information regarding certain local content requirements that may be applicable to our operations from time to time, please see the section entitled “—Regulation—“Item 4.B. Business Overview — Regulation — Environmental And Other Regulations in the Offshore Drilling Industry—Industry — Local Content Requirements.” When appropriate in these jurisdictions, we will enter into agency or other contractual arrangements. We may or may not control these joint ventures. We participate in joint venture drilling operations in Mexico and may participate in additional joint venture drilling operations.operations in the future. We may also enter into joint ventures even if not required, where we seek to partner with another party.
Mexico
In February 2019, we,We, along with our local partner in Mexico, CME, successfully tendered forare party to a contract to provide integrated well services ("IWS") to PEMEX.Pemex. On March 20, 2019, our subsidiary, Borr Drilling Mexico S. de R.L. de C.V. (“BDM”), and a CME subsidiary, Opex (together with BDM, the “Contractor”), entered into a contract for the provision of integrated well servicesIWS to PEMEXPemex (the “Cluster 2 Contract”). Borr Drilling Limited guaranteesguaranteed the performance of the Contractor’s obligations under the first PEMEXPemex Contract and our subsidiary, BMV participated asBorr Mexico Ventures Limited ("BMV") is a shareholder in the joint venture arrangements in connection with the Cluster 2 Contract (the “Mexican“IWS JVs”). In June 2019, we finalized the Mexican JVs structure and withWith effect from June 28, 2019, BMV ownsowned a 49% interest in both Opex and a second joint venture entity, Perfomex.Perfomex and CME ownsowned the remaining 51%. Operations under the first PEMEXPemex Contract commenced in August 2019. The PEMEXPemex Cluster 2 Contract was extended in December 2019 to include a third rig. In December 2019, we also participated with CME, to take an assignment ofwe were assigned a second integrated contract with PEMEXPemex under a similar structure for two further rigs (the “Cluster 3 Contract” and, together with the Cluster 2 Contract, the “PEMEX“Pemex Contracts”). For the purposes of these additional contracts, two new subsidiaries were incorporated with the same shareholding interests as Opex and Perfomex:Perfomex; Akal was established to deliver integrated well servicesIWS to PEMEXPemex, and Perfomex II to deliver drilling, technical, management and logistics services to Akal. Operations under the Cluster 3 Contract commenced in March 2020.
Opex and Akal are integrated well serviceswere IWS contractors under the PEMEXPemex Contracts and within the structure of the MexicanIWS JVs. Opex and Akal have entered into contracts with an affiliateSchlumberger, and certain of Schlumbergerits affiliates, and other third party contractors for the provision of integrated well services.IWS. Perfomex and Perfomex II arewere the entities subcontracted by Opex and Akal, respectively, to provide the other services required by Opex and Akal in order to comply with their respective obligations under the PEMEXPemex Contracts. In connection with the provision of drilling services by Perfomex and Perfomex II, our rigs “Grid”, “Gersemi” and “Galar” (for the Cluster 2 Contract) and “Odin” and “Njord” (for the Cluster 3 Contract) arewere chartered to Perfomex and Perfomex II, respectively, under bareboat charter agreements. In addition to the rigs, we provideprovided technical and operational management for all jack-up rigs being operated through the IWS JVs.
On August 4, 2021, the Company's subsidiary BMV executed a Stock Purchase Agreement with Operadora Productora y Exploradora Mexicana, S.A. de C.V. (“Operadora”) for the sale of the Company's 49% interest in each of Opex and Akal joint ventures, representing the Company's disposal of the IWS operating segment, as well as the acquisition of a 2% incremental
interest in each of Perfomex and Perfomex II joint ventures. The sale enabled us to streamline our operations in Mexico, and focus on our dayrate drilling services provided by the remaining Mexican JVs. TheJoint Ventures. Connected with the sale, we received cash consideration of $10.6 million, and a repayment of funding of $5.4 million.
Effective October 20, 2022, all five jack-up rigs "Grid", "Gersemi", "Galar", "Odin" and "Njord" are contracted to Perfomex on bareboat charters, thereby consolidating activities for Perfomex's provision of traditional dayrate drilling and technical services to Opex. Effective from this date, Perfomex II continues to provide technical services to Opex, in addition to rig management services to external parties.
Our Mexican JVsJoint Ventures may be used to provide integrated well and/or drilling services utilizing other rigs owned by our subsidiaries and/or subsidiaries of CME and, if we enter into further contracts with PEMEXPemex to provide integrated well and/or drilling services, we may enter into other joint venture structures with CME in order to provide such services.
Opex and Akal have experienced delays in getting invoices approved and paid by PEMEX, which delays have had a significant impact on Perfomex' and Perfomex II's liquidity, which in turn has impacted our liquidity at various times in 2020. One of our Mexican JVs has agreed the terms of a factoring agreement with an international financing entity which allows for $50 million to $150 million of receivables in the JV to be factored, with a variable rate of interest on balances outstanding until collection. As of the date of this report, no amounts have been factored under this facility.
Geographical Focus
We bid for contracts globally, however our current geographical focus is the West Africa,Middle East, South East Asia, Europe, Mexico, and the Middle East.West Africa. This is based on our current assessment of potential contracting opportunities, including, pre-tender and tender activity. Several countries within these regions, such as Nigeria and Malaysia, have laws that regulate operations and/or ownership of rigs operating within their jurisdiction, including local content and/or local partner requirements. In order to comply with these regulations, and successfully secure contracts to operate in these regions, we have employed personnel with longsignificant experience from securing contracts and operating rigs in countries within these regions. Adapting to the above-mentioned factors is, and will continue to be, part of our business. TheSee Note 4 - Segments of our Audited Consolidated Financial Statements included herein for the amount of operating revenues earned by each geographical region for the years ended December 31, 2020, 20192023, 2022 and 2018 was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (in $ millions) | 2020 | | 2019 | | 2018 |
| West Africa | 108.1 | | | 102.4 | | | 44.4 | |
| South East Asia | 70.6 | | | 23.8 | | | 4.3 | |
| Europe | 52.6 | | | 114.7 | | | 75.1 | |
| Mexico | 43.2 | | | 50.0 | | | — | |
| Middle East | 33.0 | | | 43.2 | | | 41.1 | |
Suppliers
Our material supply needs include labor agencies, insurance brokers, maintenance providers, shipyard access and drilling equipment. Our senior management team has extensive experience in the oil and gas industry in general, and in the offshore drilling industry in particular, and has built an extensive industry network. We believe that our relationships with our key suppliers and service providers is critical as it allows us to benefit from economies of scale in the procurement of goods and services and sub-contracting work.
We maintain commercial relationships with certain affiliates of Schlumberger. To date, we have been able to obtain the services, equipment, materials and supplies necessary to support our operations on a timely basis. We believe that we will be able to make satisfactory alternative arrangements in the event of any interruption in the supply of these services, equipment and/or materials by any of our suppliers, as we have established alternative vendors for all critical products for our business.
Competition
The shallow-water offshore contract drilling industry is highly competitive. We compete on a worldwide basis and competition varies by region at any particular time. Our competition ranges from large international companies offering a wide range of drilling and other oilfield services to smaller, locally owned companies. Some of our competitors’ fleets comprise a combination of offshore, onshore, shallow, midwater and deepwater rigs. We seek to differentiate our company from most of our competitors, which have mixed fleets, by exclusively focusing on shallow-water drilling which we believe allows us to optimize our size and scale and achieve operational efficiency.
Drilling contracts are traditionally awarded on a competitive basis, whether through tender or private negotiations. We believe that the principal competitive factors in the markets we serve are pricing, technical capability of service and equipment, condition and age of equipment, rig availability, rig location, safety record, crew quality, operating integrity, reputation, industry standing and customer relations. We have made significant equity investments in our jack-up rigs and have built a fleet consisting of premium jack-up rigs with proven design and quality equipment, acquired at what we believe are attractive prices. We believe we have athat our fleet of high-quality jack-up rigs which allowallows us to competitively bid on industry tenders on the basis of the modern technical capability, condition and age of our jack-up rigs. In addition, we believe our focus on QHSE performance will complement our modern fleet, further allowing us to competitively bid for drilling contracts.
Seasonality
In general, seasonal factors do not have a significant direct effect on our business. However, we have operations in certain parts of the world where weather conditions during parts of the year could adversely impact the operational utilization of the rigs and our ability to relocate rigs between drilling locations, and as such, limit contract opportunities in the short term. Such adverse
weather could occur during, among other times, the winter season in the North Sea, hurricane season in the Mexican Gulf and the monsoon season in SoutheastSouth East Asia.
Risk of Loss and Insurance
Our operations are subject to hazards inherent in the drilling of oil and gas wells, including blowouts, punch through, loss of control of the well, abnormal drilling conditions, mechanical or technological failures, seabed cratering, fires and pollution, which could cause personal injury, suspend drilling operations, or seriously damage or destroy the equipment involved. Offshore drilling contractors such as us are also subject to hazards particular to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Litigation arising from such an event may result in us being named a defendant in lawsuits asserting large claims.
As is customary in the drilling industry, we attempt to mitigate our exposure to some of these risks through indemnification arrangements and insurance policies. We carry insurance coverage for our operations in line with industry practice and our insurance policies provide insurance cover for physical damage to the rigs, loss of income for certain rigs and third-party liability, including:
Physical Damage Insurance: Hull and Machinery Insurance
We purchase hull and machinery insurance for our entire fleet and all of our fleet equipment to cover the risk of physical damage to a rig. The level of coverage for each rig reflects its agreed value when the insurance is placed. We effectively self-insure part of the risk as any claim we make under our insurance will be subject to a deductible. The deductible for each rig reflects the market value of the rig and is currently a weighted average maximum of approximately $1.1approximately $1.0 million per claim.claim.
War Risk Insurance
We maintain war risk insurance for our rigs up to a maximum amount of [$500$200 million per rig]rig depending on the value of the protection and indemnity and hull and machinery insurance policies for each rig and subject to certain coverage limits, deductibles and exclusions. The terms of our war risk policies include a provision whereby underwriters can, upon service of seven days’ prior written notice to the insured, cancel the policies in the event that the insured has or may have breached sanctions. Further, the policies will automatically terminate after the outbreak of war, or war-like conditions, between two or more of China, the United States, of America, the United Kingdom, Russia and France.
Loss of Hire Insurance
We maintain loss of hire insurance for certain of our jack-up rigs to cover loss of revenue in the event of extensive downtime caused by physical damage covered by our hull and machinery insurance policies. Provided such downtime continues for more than 45 days, the policies will cover an agreed daily rate of hire for such downtime up to a maximum of 180 days, not to exceed 100% of the daily loss of hire for such period. The decision to obtain loss of hire insurance is taken where required by the terms of our finance agreements in respect thereof and otherwise on a case-by-case basis whenever a rig is contracted for drilling operations. The amount covered under a loss of hire policy will depend on, among other things, the duration of the contract, the contract rates and other terms of the relevant drilling contract.
Protection and Indemnity Insurance
We purchase protection and indemnity insurance and excess umbrella liability insurance. Our protection and indemnity insurance covers third-party liabilities arising from the operation of our rigs, including personal injury or death (for crew and other third-parties), collisions, damage to fixed and floating objects and statutory liability for oil spills and the release of other forms of pollution, such as bunkers, and wreck removal. The protection and indemnity insurance policies, together with our excess umbrella policy, cover claims up to the maximum of the agreed total claim amount, but not exceeding the maximum of $510 million (for our operational rigs) or $210 million (for our stacked rigs), as applicable, depending on contractual obligations and area of operation. The excess umbrella insurance policy referred to above covers an additional $100 million to $300$200 million per event, in addition to our protection and indemnity insurance policies, as part of our overall combined maximum insurance coverage. If the aggregate value of a claim against one of our rig-owning subsidiaries under a protection and indemnity insurance policy exceeds the maximum of $210 million or $310 million (for our rigs in Mexico) $310 million,, the excess umbrella insurance policy will cover an additional agreed amount. We are self-insured for costs in excess of the overall combined maximum limit of coverage, or $210 million for stacked rigs and the agreed aggregate limit between $310 million and $510 million for an operational rig, as agreed. If the aggregate value of a claim against one of our subsidiaries under a protection and indemnity insurance policy
exceeds $210 million or $310 million, the excess umbrella policy will for rigs that are not laid-up cover an additional sum between $100 million and $300$200 million as agreed for each rig, but maximum $510 million combined, meaning that we are self-insuredself-
insured for costs in excess of the total combined limit, as agreed. We retain the risk for the deductible of up to $25,000 per claim relating to protection and indemnity insurance or up to $250,000 for claims made in the United States.
We also maintain insurance policies and excess insurance policies against general liability and public liability for onshore statutory and contractual risks, mainly related to employment, tenant, warehouses and other on-shoreon-shore activities. The insured value under each individual policy is between $1 million and $5 million and is complemented by the excess umbrella policy which provides for an additional aggregate excess limit of $50 million per annum.
Management's determination of the appropriate level of insurance coverage is made on an individual asset basis taking into account several factors, including the age, market value, cash flow value and replacement value of our jack-up rigs, their location and operational status.
LEGAL PROCEEDINGS
We are from time to time involved in civil litigation, and we anticipate that we will be involved in such litigation matters from time to time in the future. The operating hazards inherent in our business expose us to a wide range of legal claims including claims arising from personal injury; environmental issues; claims from and against contractual counterparties such as customers, suppliers, partners and agents; intellectual property litigation; tax or securities claims and maritime claims, including the possible arrest of our jack-up rigs. Risks associated with litigation include the risk of having to make a payment to satisfy a judgment against us, legal and other costs associated with asserting our claims or defending lawsuits, and the diversion of management’s attention to these matters. Even if successful, we may not be able to recover all of our costs.
REGULATION
We are registered under the laws of Bermuda and our principal executive offices are located in Bermuda. The management headquarters of Borr Drilling Management UK are located in the United Kingdom, while we have business operations in four regions,regions; Europe, Middle East and Asia, Africa and Americas as well as in various countries where our rigs are operating or stacked. As a result of this organizational structure and the scope of our operations, we are subject to a variety of laws in different countries, including those related to the environment, health and safety, personal privacy and data protection, content restrictions, telecommunications, intellectual property, advertising and marketing, labor, foreign exchange, competition and taxation. These laws and regulations are constantly evolving and may be interpreted, implemented or amended in a manner that could harm our business. It also is likely that if our business grows and evolves and our rigs and services are used more globally, we will become subject to laws and regulations in additional jurisdictions. This section sets forth the summary of material laws and regulations relevant to our business operations.
Environmental and Other Regulations in the Offshore Drilling Industry
Our operations are subject to numerous QHSE laws and regulations in the form of international treaties and maritime regimes, flag state requirements, national environmental laws and regulations which may include laws or regulations pertaining to climate change, carbon emissions or energy use, navigation and operating permits requirements, local content requirements, and other national, state and local laws and regulations in force in the jurisdictions in which our jack-up rigs operate or are registered, which can significantly affect the ownership and operation of our jack-up rigs. See the section entitled “Item 3.D3.D. Risk Factors—Factors — Risk Factors Related to Applicable Laws and Regulations—Regulations — We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.us.”
Class and Flag State Requirements
Each of our rigs is subject to regulatory requirements of its flag state. Flag state requirements reflect international maritime requirements and are in some cases further interpolated by the flag state itself. These include engineering, safety and other requirements related to offshore industries generally. In addition, in order to be permitted to operate, each of our jack-up rigs must be certified by a classification society as being “in-class,” which provides evidence that the jack-up rig was built, and is maintained, in accordance with the rules of the relevant classification society and complies with applicable rules and regulations of the flag state as well as the international conventions to which that country is a party. Maintenance of class certification has a significant cost and although dry docking is not necessary for the five year special periodic survey, or underwater inspections which are required every thirty months, in each case beingmonths. This is required to verify the integrity of our jack-up rigs and maintain compliance with class requirements,requirements. Moreover, we could be required to take a jack-up rig out of service for repairs or modifications. Our jack-up rigs are certified as being “in-class” by ABS and we comply with the mandatory requirements of the national authorities in the countries in which our jack-up rigs operate. In addition, Classificationclassification societies are authorized to issue statutory certificates on the basis of delegated authority from the flag states for some of the internationally required certifications, such as the Code for the Construction and Equipment of Mobile Offshore Drilling Units certificate.
International Maritime Regimes
Applicable international maritime regime requirements include, but are not limited to, the International Convention for the Prevention of Pollution from Ships ("MARPOL"), the International Convention on Civil Liability for Oil Pollution Damage of 1969, the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001 (ratified in 2008), the International Convention for the Safety of Life at Sea of 1974 as amended, the Code for the Construction and Equipment of Mobile Offshore Drilling Units, 2009 and the International Convention for the Control and Management of Ships’ Ballast Water and Sediments, effective as of 2017 (the “BWM Convention”“BWM Convention”). These conventions have been widely adopted by U.N.United Nation member countries, and in some jurisdictions in which we operate, these regulations have been expanded upon. These various conventions regulate air emissions and other discharges to the environment from our jack-up rigs worldwide, and we may incur costs to comply with these regimes and continue to comply with these regimes as they may be amended in the future. In addition, these conventions impose liability for certain discharges, including strict liability in some cases.
Annex VI to MARPOL sets limits on sulfur dioxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances. Annex VI applies to all ships and, among other things, imposes a global cap on the sulfur content of fuel oil and allows for specialized areas to be established internationally with even more stringent controls on sulfur emissions. For vessels 400 gross tons and greater, platforms and drilling rigs, Annex VI imposes various survey and certification requirements. Moreover, Annex VI regulations impose progressively stricter limitations on sulfur emissions from ships. Since January 1, 2015, these limitations have required that fuels of vessels in covered ECAs, including the Baltic Sea, North Sea, North America and United States Caribbean Sea ECAs, contain no more than 0.1% sulfur. For non-ECA-areas, a global cap on sulphursulfur content of no more than 0.5% entered into force on January 1, January, 2020. Annex VI also established new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. All of our rigs are in compliance with these requirements.
The BWM Convention required for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with a requirement for mandatory ballast water treatment. The BWM Convention entered into force on September 8, 2017. Under its requirements, for jack-up rigs with a ballast water capacity of more than 5,000 cubic meters that were constructed in 2011 or before, only ballast water treatment will be accepted by the BWM Convention. All of our jack-up rigs considered in operational status are in full compliance with the staged implementation of the BWM Convention by IMO guidelines.
Environmental Laws and Regulations
We are subject to laws which govern discharge of materials into the environment or otherwise relate to environmental protection, including complying with regulations on the transit and safe recycling of hazardous materials which are relevant when we retire rigs from the international fleet. In certain circumstances, these laws may impose strict liability, rendering us liable for environmental and natural resource damages without regard to negligence or fault on our part. Implementation of new environmental laws or regulations that may apply to jack-up rigs may subject us to increased costs or limit the operational capabilities of our rigs and could materially and adversely affect our operations and financial condition. Applicable environmental laws and regulations for our current operations include the Basel Convention, the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 (when it enters into force) as well as European Union regulations, including the E.U. Directive 2013/30 on the Safety of Offshore Oil and Gas Operations, Regulation (EC) No 1013/2006 on
Shipments of Waste and Regulation (E.U.) No 1257/2013 on Ship Recycling. Were we to operate in other regions, such as the US or Brazil, additional environmental laws and regulations would apply to our operations.
Safety Requirements
Our operations are subject to special safety regulations relating to drilling and to the oil and gas industry in many of the countries where we operate. The United States undertook substantial revision of the safety regulations applicable to our industry following the Macondo well blowout situation that led to the 2010 Deepwater Horizon Incident (to which we were not a party). Other countries are also undertaking a review of their safety regulations related to our industry. These safety regulations may impact our operations and financial results by adding to the costs of exploring for, developing and producing oil and gas in offshore settings. For instance, in April 2016, BSEE published a final rule that sets more stringent design requirements and operational procedures for critical well control equipment used in offshore oil and gas drilling. The rule adds new requirements and amends existing ones to, among other things, set new baseline standards for the design, manufacture, inspection, repair and maintenance of blowout preventers and the use of double shear rams. The rule contains a number of other requirements, including third-party verification and certifications, real-time monitoring of deepwater and certain other activities, and sets criteria for safe drilling margins. In May 2019, BSEE revised the 2016 rule to correct errors and reduce regulatory burdens determined to be unnecessary. The requirements of these regulations are likely to increase the costs of our operations and may lead our customers to not pursue certain offshore opportunities because of the increased costs, delays and regulatory risks. In July 2016, BOEM issued a final Notice to Lessees and Operators substantially revising and making more stringent supplemental bonding procedures for the decommissioning of offshore wells, platforms, pipelines, and other facilities. In June 2017, BOEM announced that the implementation timeline would be extended, except in circumstances where there is a substantial risk of nonperformance of such obligations. In addition, in December 2015, BSEE announced the launch of a pilot risk-based inspection program for offshore facilities. New requirements resulting from the program may cause us to incur costs and may result in additional downtime for our jack-up rigs in the U.S. Gulf of Mexico. Also, ifIf material spill events similar to the 2010 Deepwater Horizon Incident (to which we were not a party) were to occur in the future, the United States or othercertain countries could elect to again issue directives to temporarily cease drilling activities and, in any event, may from time to timetime-to-time issue additional safety and environmental laws and regulations regarding offshore oil and gas exploration and development. The E.U. has also undertaken a significant revision of its safety requirements for offshore oil and gas activity through the issuance of the E.U. Directive 2013/30 on the Safety of Offshore Oil and Gas Operations.
Navigation and Operating Permit Requirements
Numerous governmental agencies issue regulations to implement and enforce the laws of the applicable jurisdiction, which often involve lengthy permitting procedures, impose difficult and costly compliance measures, particularly in ecologically sensitive areas, and subject operators to substantial administrative, civil and criminal penalties or may result in injunctive relief for failure to comply. Some of these laws contain criminal sanctions in addition to civil penalties.
Local Content Requirements
Governments in some countries have become increasingly active in local content requirements on the ownership of drilling companies, local content requirements for equipment utilized in operations within the country and other aspects of the oil and gas industries in their countries. These regulations include requirements for participation of local investors in our local operating subsidiaries, including in Mexico. Some foreign governments favor or effectively require (i) the awarding of drilling contracts to local contractors or to drilling rigs owned by their own citizens, (ii) the use of a local agent or (iii) foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In addition, national oil companies may impose restrictions on the submission of tenders, including eligibility criteria, which effectively require the use of domestically supplied goods and services or a local partner.
Data Protection Laws and Regulations
We are subject to rules and regulations governing protection of personal data including the General Data Protection Regulation (EU) 2016/679 (the “GDPR”),GDPR, repealing the 1995 European Data Protection Directive (Directive 95/46/EC) and any national laws within the European Economic Area (“EEA”) supplementing the GDPR. Data protection legislation, including the GDPR, regulates the manner in which we may hold, use and communicate personal data of our employees, customers, vendors and other third parties. Data protection is a sector of significant regulatory focus with scrutiny of cybersecurity practices and the collection, storage, use and sharing of personal data increasing around the world. As a consequence, there is uncertainty associated with the legal and regulatory environment relating to privacy, e-privacy and data protection laws, which continue to
develop in ways we cannot predict. Changes in applicable data protection and cybersecurity legislation could materially and adversely affect our business.
The companies within our Group which are employers are “data controllers” for the purposes of the GDPR, meaning that, among other obligations, they are required to ensure that personal data collected for instance from our employees is safely stored, that its accuracy is maintained (meaning that inaccurate data is corrected) and that personal data is only stored for as long as necessary further to the purpose for which it was collected. With respect to transfers of our employees’ personal data that is subject to the GDPR, whether externally to third parties or internally within our Group, the GDPR requires that we establish safeguards to ensure that personal data is safely transferred and that the rights of the data subject are respected and upheld.
The companies within our Group which communicate with vendors and other third parties, in connection with contracts or otherwise, may be “data controllers” or “data processors” for the purposes of the GDPR and are required to handle any personal data received from vendors and other third parties in accordance with the provisions of the GDPR.
The GDPR applies primarily to our companies established in the EEA but may also apply to other companies in the Group to the extent that their business involves personal data of persons located within the EEA. Noncompliance with the GDPR can lead to
the imposition of government enforcement actions and prosecutions, private litigation (including class actions) and administrative fines, currently up to the greater of €20 million and 4% of our global turnover in the financial year preceding the imposition of the fine, as well as an obligation to compensate the relevant individual(s) for financial or non-financial damages claimed under Article 82 of the GDPR. Any such compromise could also result in damage to our reputation and a loss of confidence in our security and privacy or data protection measures. A breach of the GDPR (or other applicable data protection legislation) could have a material adverse effect on our business, financial condition and results of operations.
Other Laws and Regulations
In addition to the requirements described above, our international operations in the offshore drilling segment are subject to various other international conventions and laws and regulations in countries in which we operate, including laws and regulations relating to the importation of, and operation of, jack-up rigs and equipment, cabotage rules, currency conversions and repatriation, oil and gas exploration and development, taxation of offshore earnings, taxation of the earnings of expatriate personnel, the use of local employees and suppliers by foreign contractors, duties on the importation and exportation of our rigs and other equipment, local community development and social corporate responsibility requirements. There is no assurance that compliance with current laws and regulations or amended or newly adopted laws and regulations can be maintained in the future or that future expenditures required to comply with all such laws and regulations in the future will not be material.
INDUSTRY OVERVIEW
We operate in the global offshore contract drilling industry, which is a part of the international oil industry, and within the global offshore contract drilling industry we predominately operate jack-up rigs in shallow-water. The activity and pricing within the global offshore contract drilling industry is driven by a multitude of demand and supply factors, including expectations regarding oil and gas prices, anticipated oil and gas production levels, worldwide demand for oil and gas, products, the availability of quality reservoirs, exploration success, availability of qualified drilling rigs and operating personnel, relative production costs, the availability of or lead time required for drilling and production equipment, the stage of reservoir development and the political and regulatory environments.
One fundamental demand driver is the level of investment by E&P Companies and their associated capital expenditures. Historically, the level of upstream capital expenditures has primarily been driven by future expectations regarding the price of oil and natural gas. It remains to be seen whether the trends in oil prices will continue and what will be the impact on the offshore spending of E&P Companies and therefore our business. The impact of the COVID-19 crisis and OPEC and non-OPEC country production decisions during 2020 has had a significant and adverse impact on our operations, a continuation of the impact of the COVID-19 pandemic or additional supply cuts as a response to a slow demand recovery could continue to have a disadvantageous effect on our business. See also “Item 5.D Trend Information.”
Overview of the Global Offshore Contract Drilling Market
The offshore contract drilling industry provides drilling, workover and well construction services to E&P Companies through the use of Mobile Offshore Drilling Units ("MODUs"). Historically, the offshore drilling industry has been highly cyclical. Offshore spending by E&P Companies has fluctuated substantially on an annual basis depending on a variety of factors. See “Item 3.D3.D. Risk Factors—Risk Factors Related to Our Industry.”
The profitability of the offshore contract drilling industry is largely determined by the balance between supply and demand for MODUs. Offshore drilling contractors can mobilize MODUs from one region of the world to another, or reactivate stacked/laid upstacked rigs in order to meet demand in various markets.
Offshore drilling contractors typically operate their MODUs under contracts received either by submitting proposals in competition with other contractors or following direct negotiations. The rate of compensation specified in each contract depends on, among other factors, the number of available rigs capable of performing the work, the nature of the operations to be performed, the duration of work, the amount and type of equipment and services provided, the geographic areas involved and other variables. Generally, contracts for drilling services specify a daily rate of compensation and can vary significantly in duration, from weeks to several years. Competitive factors include, among others: price, rig availability, rig operating features, workforce experience, operating efficiency, condition of equipment, safety record, contractor experience in a specific area, reputation and customer relationships.
Periods of high demand are typically followed by a shortage of rigs and consequently higher dayrates which, in turn, makes it advantageous for industry participants to place orders for new rigs. This was the case prior to the oil price decline in 2014, where several industry participants ordered new rigs in response to the high demand in the market. However, despite the deterioratingAfter difficult market conditions in 2020 and 2021, we have seen market recovery in 2022 and 2023 with all the recent downturn, the number ofCompany's jack-up rigs availableexcluding newbuildings being operational at December 31, 2023, with rig global fleet utilization exceeding pre-COVID-19 levels, reaching levels in the market continued to increase due to both rigs coming off contract with no follow on work and continued inflow of new rigs (albeit at a slower rate than originally planned). This increaselast seen in spare capacity, when met with reduced demand for services, shifted excess rig demand into an excess supply of rigs and, consequently reduced dayrates. These conditions continue, although we are starting to see signs of improvement.2014.
The Jack-Up Rig Segment
Jack-up rigs can, in principle, be used to drill (a)(i) exploration wells, i.e. explore for new sources of oil and gas or (b)(ii) new production wells in an area where oil and gas is already produced; the latter activity is referred to as development drilling.drilling and constitutes the vast majority of current demand. Shallow-water oil and gas production is generally a low-cost production, in terms of cost per barrel of oil. As a result, and due to the shorter period from investment decision to cash flow, E&P Companies have an inventiveincentive to invest in shallow-water developments over other offshore production categories.
The jack-up drilling market is characterized by a highly competitive and fragmented supplier landscape, with market participants ranging from large international companies to small, locally owned companies and rigs owned by national oil companies (“NOCs”)NOCs (the latter are referred to as owner-operated rigs). The operations of the largest players are generally dispersed around the globe due to the high mobility of most MODUs. Although the cost of moving MODUs from one region to another and/or the availability of rig-moving vessels may cause a short termshort-term imbalance between supply and demand in one region, significant variations between regions do not exist in the long-term due to MODU mobility.
There are several sub-segments within the jack-up drilling segment based on different attributes of the rigs, typically water depth capability, age, hook load capacity, cantilever reach and environmental conditions a rig can operate in. The sub-segment classification varies across market participants, third parties (researchers, consultants etc.), classification societies and others. In this annual report, we have used the following classification of the jack-up sub-segments, which are as follows:
•“modern” or “premium” – rigs delivered in 20012000 or later; and
•“standard” – rigs delivered prior to 2001.2000.
Recently,In recent years, the jack-up drilling market has experienced a shift in demand towards modern jack-up rigs. In line with this trend, several drilling contractors are renewing their fleets through both newbuildings and rig acquisitions.
C.ORGANIZATIONAL STRUCTURE
A full list of our significant management, operating and rig-owning subsidiaries is shown in Exhibit 8.1 to this annual report and the following diagram depicts our simplified organizational and ownership structure. Our significant subsidiaries depicted below are 100% owned by Borr Drilling Limited either directly or indirectly, unless specifically noted otherwise.
| | | | | |
*
Our subsidiary Borr Mexico Ventures Limited holds a 51% interest in two Mexican entities Perfomex and Perfomex II, and a subsidiary of our local operating partner in Mexico holds the remaining 49% interest.
| As more fully described herein, our subsidiary Borr Mexico Ventures Limited also holds a 49% interest in four Mexican entities and a subsidiary of our local operating partner in Mexico holds the remaining 51% interest. |
D.PROPERTY, PLANTSPLANT AND EQUIPMENT
We do not own any material interest in real estate. Our principal executive officesoffice is located in Bermuda, while our operational headquarters are located at S. E. Pearman Building, 2nd Floor, 9 Par-la-Ville Road, Hamilton HM11, Bermuda. The operational headquartersin London. Our principal lease is the rental of Borr Drilling Managementapproximately 16,206 sq ft of office space in Aberdeen, UK under a ten year lease which began in 2019. In addition we rent office space in Oslo, Stavanger, Singapore, Kuala Lumpur,
Kuala Belait, Doha, Bangkok, London, Dubai, Al-Khobar, Pointe Noire and Port Gentil, however we do not consider these as material leases. In addition to office space, we also rent storage and yard facilities to support our operations in the United Kingdom and our other offices, including in Singapore, Aberdeen in the United Kingdom, Beverwijk in the Netherlands, Oslo in Norway, Abu Dhabi in the United Arab Emirates, Port Gentile in Gabon, Port Harcourt in Nigeria and Bangkok in Thailand are leased.countries we operate in.
We own a substantially modern fleet of premium jack-up rigs. See “—B.“Item 4.B. Business Overview—Overview - Our Business—Business - Our Fleet” for a table setting forth thesummary of our consolidated fleet of jack-up rigs that we own or areas well as jack-up rigs under construction as of April 13, 2021.March 22, 2024.
A number of our rig-owning subsidiaries' shares and assets are pledged to secure loan facilities. See Item 5.B.Liquidity"Item 5.B. Liquidity and Capital Resources - Our Existing Indebtedness - Key Borrowing Facilities"Indebtedness" for more information.
We are subject to several international, national, and local environmental laws, regulations, treaties and conventions which may affect the utilization of our rigs. In addition, other environmental issues may influence the Company's use of property, plant and equipment. See "Item 3.D. Risk Factors - Risk Factors Related to Applicable Laws and Regulations" and "Item 4.B. Business Overview - Regulation" above.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Audited Consolidated Financial Statements included herein and the related notes thereto included elsewhere in this annual report. The discussion and analysis below contain certain forward-looking statements about our business and operations that are subject to the risks, uncertainties and other factors described in the section entitled “Item 3.D—3.D. Risk Factors,” and elsewhere in this annual report. These risks, uncertainties and other factors could cause our actual results to differ materially from those expressed in, or implied by, the forward-looking statements. See the section entitled “Special Note Regarding Forward-Looking Statements.”
Overview of Financial Information Presented
We are an offshore shallow-water drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership, contracting and operation of jack-up rigs for operations in shallow-water areas (i.e., in water depths up to approximately 400 feet), including the provision of related equipment and work crews to conduct oil and gas drilling and workover operations for exploration and production customers.
We are a preferred operator to our customers of jack-up rigs within the jack-up drilling market. The shallow-water market is our operational focus as we expect demand will recover soonerit has a shorter lifecycle between exploration and first oil and lower capital expenditure than in the mid and deepwater segmentsother forms of the contract drilling market.performed by mobile offshore drilling units, such as drillships. We contract our jack-up rigs and associated offshore employeescrews, primarily on a dayrate basis, to drill wells for our customers, including integrated oil companies, state-owned national oil companies and independent oil and gas companies. During 2020, our top five customers by revenue, including related party revenue were subsidiaries of ExxonMobil, NDC, Spirit Energy, Perfomex and ENI. A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering a stated term. Our Total Contract Backlog (excluding our Mexican operations)backlog from joint venture operations which earns related party revenue) was $132.1$1,206.5 million as of December 31, 20202023 and $308.5$929.8 million as of December 31, 2019.2022. We currently operate in significant oil-producing geographies throughout the world, including the North Sea the Middle East,, Mexico, West Africa, Middle East and SoutheastSouth East Asia. We intend to operate our business with a competitive cost base, driven by a strong and experienced organizational culture and a carefully managed capital structure.
From our initial acquisition of rigs in early 2017, we have expanded rapidly intobecome one of the world’s largest international offshore jack-up drilling contractors by number of jack-up rigs. rigs, with an average fleet age among the lowest in the industry. The following chartsummary in “Item 4.B. Business Overview” illustrates the development in our fleet since our inception:
| | | | | | | | | | | | | | | | | |
| As of and For the Year Ended
December 31, |
| 2020 | | 2019 | | 2018 |
| Total Fleet as of January 1 | 28 | | | 27 | | | 13 | |
Jack-up Rigs Acquired(1) | — | | | 1 | | | 23 | |
| Newbuild Jack-up Rigs Delivered from Shipyards | 2 | | | 2 | | | 9 | |
| Jack-up Rigs Disposed of | 6 | | | 2 | | | 18 | |
| Total Fleet as of the end of the Period | 24 | | | 28 | | | 27 | |
| Newbuild Jack-up Rigs not yet Delivered as of the end of Period | 5 | | | 7 | | | 9 | |
Total Fleet, including Newbuild Rigs not yet Delivered, as of the end of Period(2) | 29 | | | 35 | | | 36 | |
(1)Includes acquisition of one semi-submersible rig in 2018 which was sold in 2020.
(2)Since December 31, 2020, we have disposed of one jack-up rig with a total fleet as of April 13, 2021 of 23 jack-up rigs. We have five new build jack-up rigs not yet delivered as of April 13, 2021. Our total fleet, including newbuild rigs not yet delivered, as of April 13, 2021 is 28.inception.
How We Evaluate Our Business
We have two operating segments:During the years ended December 31, 2023 and 2022, we had one operating segment consisting of operations performed under our dayrate model (which includes rig charters and ancillary services) and, however, prior to 2022, we had an additional operating segment consisting of operations performed under the IWS model, that are reviewedmodel. IWS operations were performed by our joint venture entities Opex and Akal. On August 4, 2021, the CODM, as an aggregated sumCompany executed a Stock Purchase Agreement for the sale of assets, liabilitiesthe Company's 49%
interest in each of Opex and activities that exist to generate cash flows. Akal (see Note 7 - Equity Method Investments of our Audited Consolidated Financial Statements included herein), representing the Company's disposal of the IWS operating segment.
We evaluate our business based on a number of operational and financial measures that we believe are useful in assessing our historical and expected future performance throughout the commodity-price cycles that have characterized the offshore drilling industry since our inception. These operational and financial measures include the following:
Operational Measures
Total Contract Backlog
Our Total Contract Backlog includes only firm commitments for contract drilling services represented by definitive agreements.
Total Contract Backlog (in $ millions) is calculated as the maximum contract drilling dayrate revenue that can be earned from a drilling contract based on the contracted operating dayrate. Total Contract Backlog excludes revenue resulting from mobilization and demobilization fees, contract preparation, capital or upgrade reimbursement, recharges, bonuses and other revenue sources and is not adjusted for planned out-of-service periods during the contract period. Total Contract Backlog excludes backlog from joint venture operations which earn related party revenue.
Total Contract Backlog (in contracted rig years) is calculated as our total number of contracted rig years based on firm commitments, which illustrates the time it would take one jack-up rig to perform the obligations under all agreements for all rigs consecutively.
The contract period excludes additional periods that may result from the future exercise of extension options under our contracts, and such extension periods are included only when such options are exercised. The contract operating dayrate may temporarily change due to, among other factors, mobilization, weather or repairs. As used in this annual report, Total Contract Backlog (in $ millions) is not the same measure as the acquired contract backlog presented in our Consolidated Financial Statements. Please see Notes 2 and 17 to our Consolidated Financial Statements and the section entitled “Item 4.B Business Overview—Our Business—Customers and Contract Backlog.”
Our Total Contract Backlog (excluding our Mexican operations)backlog from joint venture operations which earn related party revenue), expressed in U.S. dollars and in number of years, as of December 31, 2020, 20192023, 2022 and 2018, was2021, were as follows:
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| As of December 31, | | | As of December 31, |
| 2023 | | | 2023 | 2022 | 2021 |
Total Contract Backlog (in $ millions)(1) | Total Contract Backlog (in $ millions)(1) | $ | 132.1 | | | $ | 308.5 | | | $ | 377.5 | | Total Contract Backlog (in $ millions)(1) | $1,206.5 | $929.8 | $324.8 |
Total Contract Backlog (in contracted rig years)(1) | Total Contract Backlog (in contracted rig years)(1) | 3.9 | | 11.8 | | 14.3 | Total Contract Backlog (in contracted rig years)(1) | 25 | 24 | 12 |
(1)The table assumes no exercise of extension options or renegotiations under our current contracts. Also excludes our Mexican operations.
Technical Utilization
Technical Utilization is the efficiency with which we perform well operations without stoppage due to mechanical, procedural or other operational events that result in down, or zero, revenue time. Technical Utilization is calculated as the technical utilization of each rig in operation for the period, divided by the number of rigs in operation for the period, with the technical utilization for each rig calculated as the total number of hours during which such rig generated dayrate revenue, divided by the maximum number of hours during which such rig could have generated dayrate revenue, expressed as a percentage measured for the period. Technical Utilization is calculated only with respect to rigs in operation for the relevant period and is not calculated on a fleet-wide basis. Technical Utilization is a measure of efficiency of rigs in operation and is not a measurement of utilization of our fleet overall.
Economic Utilization
Economic Utilization is the dayrate revenue efficiency of our operational rigs and reflects the proportion of the potential full contractual dayrate that each operating jack-up rig actually earns each day. Economic Utilization is affected by reduced rates for standby time, repair time or other planned out-of-service periods. Economic Utilization is calculated as the economic utilization of each rig in operation for the period, divided by the number of rigs in operation for the period, with the economic utilization of each rig calculated as the total revenue, excluding bonuses, as a proportion of the full operating dayrate multiplied by the number of days on contract in the period. Economic Utilization is calculated only with respect to rigs in operation for the relevant period and is not calculated on a fleet-wide basis. Economic Utilization is a measure of efficiency of rigs in operation and is not a measurement of utilization of our fleet overall.
Rig Utilization
Rig Utilization is calculated as the weighted average number of operating rigs divided by the weighted average number of rigs owned for each period.
Total Recordable-Incident Frequency (TRIF)
TRIF is a measure of the rate of recordable workplace injuries. TRIF, as defined by the International Association of Drilling Contractors, is derived by multiplying the number of recordable injuries during the twelve-month period prior to the specified date by 1,000,000 and dividing this value by the total hours worked in that period by the total number of employees.period. An incident is considered “recordable” if it results in medical treatment over certain defined thresholds (such as receipt of prescription medication, or stitches to close a wound) as well as incidents requiring the injured personwound, inability to spendcarry out normal work activity, or time spent away from work.work).
Weighted Average Number of Operating Rigs
Weighted Average Number of Operating Rigs describes the number of jack-up rigs operating, which may be compared to our total available jack-up fleet. We define operating rigs as all of our jack-up rigs that are currently operating on firm commitments for contract drilling services, represented by definitive agreements. This excludes our jack-up rigs which are stacked, undergoing reactivation programs and newbuild rigs under construction. The Weighted Average Number of Operating Rigs is the aggregate number of expected revenue days to be realized during the period from firm commitments for contract drilling services, divided by the number of days in the applicable period.
Our Technical Utilization and Economic Utilization (both excluding joint venture operations), Rig Utilization, TRIF and Weighted Average Number of Operating Rigs for the years ended December 31, 2020, 20192023, 2022 and 2018 were:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Technical Utilization (in %) | 99.5 | | | 99.0 | | | 99.3 | |
| Economic Utilization (in %) | 92.1 | | | 95.9 | | | 97.9 | |
| Rig Utilization (in %) | 48.3 | | | 43.3 | | | 27.3 | |
| TRIF (number of incidents) | 1.66 | | 2.12 | | 1.54 |
| Weighted Average Number of Operating Rigs | 12.8 | | 11.9 | | 7.0 |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | 2022 | 2021 |
| Technical Utilization (in %) | 98.3 | | 98.9 | | 98.4 | |
| Economic Utilization (in %) | 97.9 | | 98.1 | | 94.8 | |
| Rig Utilization (in %) | 92.4 | | 72.3 | | 53.3 | |
| TRIF (number of incidents) | 0.65 | 1.68 | 1.00 |
| Weighted Average Number of Operating Rigs | 20.1 | 15.9 | 11.9 |
Non-GAAP Financial Measures
Operating Revenues
Operating revenues includes the gross revenue generated from jack-up rigs operated by us under our drilling contracts, including amortization of mobilization revenue received from customers.
Adjusted EBITDA
Adjusted EBITDA is aIn addition to disclosing financial results in accordance with U.S. GAAP, this report includes the non-GAAP financial measure, please refer to Item 3.A Selected Financial Data - forAdjusted EBITDA. We believe that this non-GAAP financial measure provides useful supplemental information about the reconciliation of Adjusted EBITDA to net loss for the years ended December 31, 2020, 2019 and 2018.
Recent Developments
Completion of Equity Offering
In January 2021, we completed a private placement of 54,117,647 new depositary receipts, representing the beneficial interests in the same numberfinancial performance of our underlying common shares, each atbusiness, enables comparison of financial results between periods where certain items may vary independent of business performance, and allows for greater transparency with respect to key metrics used by management in operating our business and measuring our performance.
The non-GAAP financial measure should not be considered a subscription price of $0.85 per share (equivalentsubstitute for, or superior to, NOK 7.1655 per share), raising gross proceeds of $46 million. Following completion of this equity offering, our outstandingfinancial measures calculated in accordance with GAAP, and issued share capital increasedthe financial results calculated in accordance with GAAP. Non-GAAP measures are not uniformly defined by to 274,436,351 shares. The increase of the Company’s authorized share capital required for the offeringall companies and may not be comparable with similarly titled measures and disclosures used by other companies.
| | | | | | | | | | | |
| Non-GAAP Measure | Closest Equivalent to GAAP Measure | Definition | Rationale for Presentation of this non-GAAP Measure |
| Adjusted EBITDA | Net income / (loss) attributable to shareholders of Borr Drilling Limited | Net income / (loss) adjusted for: gain on disposal of jack-up rigs; depreciation of non-current assets; impairment of non-current assets; other non-operating income; income from equity method investments; total financial expenses, net; amortization of deferred mobilization and contract preparation costs; amortization of deferred mobilization and demobilization and other revenue; and income tax. | Increases the comparability of total business performance from period to period and against the performance of other companies by excluding the results of our equity investments and removing the impact of depreciation, financing and tax items. |
We believe that Adjusted EBITDA improves the comparability of year-to-year results and is representative of our underlying performance, although Adjusted EBITDA has significant limitations, including not reflecting our cash requirements for capital or deferred costs, rig reactivation costs, newbuild rig activation costs, contractual commitments, taxes, working capital or debt service. Non-GAAP financial measures may not be comparable to similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under U.S. GAAP.
Significant Events in 2023
Issuance of Unsecured Convertible Bonds due 2028
In February 2023, we raised gross proceeds of $250.0 million through the issuance of new unsecured convertible bonds, which mature in February 2028, the proceeds of which were used to repay our Convertible Bonds due in May 2023. The initial conversion price was approved$7.3471 per share, with the full amount of the Convertible Bonds convertible into 34,027,031 shares. Following the declaration and payment of a $0.05 per share cash distribution in January 2024 and a further $0.05 per share cash distribution paid in March 2024, the adjusted conversion price is $7.2384 per share, with the full amount of the convertible bonds convertible into 34,538,019 shares. The Convertible Bonds have a coupon of 5.0% per annum payable semi-annually in arrears in equal installments.
Issuance of Senior Secured Bonds due in 2026
In February 2023, we raised gross proceeds of $150.0 million through the issuance of senior secured bonds, due in 2026, the proceeds of which were used to repay the remaining parts of our Convertible Bonds due in May 2023 that were not repaid by the proceeds of the Convertible Bonds due 2028, and for general corporate purposes. The senior secured bonds had a coupon of 9.50% per annum payable semi-annually in arrears, and were secured by, among other assets, first priority mortgages over the jack-up rigs “Frigg”, “Odin” and “Ran”. The senior secured bonds were fully repaid in November 2023 (see below).
Amendment to the Secured Facility with DNB Bank ASA (DNB Facility)
In April 2023, we amended our $150.0 million bilateral facility provided by DNB Bank ASA increasing the facility to $175.0 million. In addition, we entered into a facility with DNB Bank ASA to provide guarantees and letters of credit of up to $25.0 million, enabling the Company to make freely available the $10.5 million restricted cash related to guarantees and letters of credit in the Consolidated Balance Sheets as at March 31, 2023. In August 2023, we amended our $25.0 million guarantee facility provided by DNB Bank ASA temporarily increasing the facility to $40.0 million until December 31, 2023. The DNB facility was fully repaid in November 2023 (see below).
Issuance of Senior Secured Notes
In November 2023, the Company's wholly-owned subsidiary Borr IHC Limited, and certain other subsidiaries, issued $1,540.0 million in aggregate principal amount of senior secured notes, consisting of $1,025.0 million principal amount of senior secured notes due 2028, issued at a special general shareholders’ meeting heldprice of 97.750% of par, raising proceeds of $1,001,937,500 and bearing a coupon of 10% per annum and $515.0 million principal amount of senior secured notes due 2030, issued at a price of 97.000% of par, raising proceeds of $499,550,000 and bearing a coupon of 10.375% per annum.
The net proceeds from the issuance of the Notes, together with the proceeds of the private placement of shares in Norway (discussed below), were used to repay all of the Company’s outstanding secured borrowings, being the Company’s $175.0 million facility with DNB Bank ASA, $195.0 million facility with Hayfin Services LLP, the shipyard delivery financing arrangements with PPL and Seatrium, the Company’s $150 million principal amount of Norwegian law senior secured bonds, and to pay related premiums, fees, accrued interest and expenses, in connection with the foregoing.
Entry into Super Senior Credit Facility
In addition, in November 2023, the Company entered into a $180 million Super Senior Credit Facility, comprised of a $150 million RCF and a $30.0 million Guarantee Facility.
See Note 21 - Debt of our audited Consolidated Financial Statements included herein, for further information on January 8, 2021. Following the special general shareholders’ meeting,financing facilities described above.
Increases in Share Capital
In connection with the issuance of our authorized$250.0 million Convertible Bonds discussed above, the Company entered into a Share Lending Framework Agreement with DNB Markets ("SLA") with the intention to make up to 25,000,000 loan shares available to DNB for the purposes of facilitating investors’ hedging activities on the Oslo Stock Exchange.
In February 2023, to issue the 25,000,000 loan shares to be made available for borrowing to DNB by the Company under the SLA, the Company's issued share capital was increased by $2,500,000 to 290,000,000$25,426,359.80 divided into 254,263,598 shares, each with a nominal value of $0.10 per share.
During July 2023, we sold 1,293,955 shares of par value $0.10 each under our ATM program, raising gross proceeds of $9.7 million and on August 16, 2023, the Company issued 1,000,000 of shares, of par value $0.10 each, which were subsequently repurchased to be held in treasury for purposes of equity compensation awards.
Further, on October 2023, the Company conducted a private placement of new shares in Norway of NOK equivalent to gross proceeds of $50.0 million, by issuing 7,522,838 shares of par value $0.10 each. On October 27, 2023, the equity offering was settled and the Company's issued number of shares increased to 264,080,391 common shares of $0.05with a par value of $0.10 per share.
Amendments to Financing and Delivery Financing Arrangements
In January 2021, the terms of certainSee Note 28 - Stockholders' Equity of our Syndicated Credit Facility, Hayfin Facilityaudited Consolidated Financial Statements included herein, for further information.
Share Repurchase Program
In December 2023, the Company announced that its Board of Directors approved a share repurchase program for the Company's shares, to be purchased in the open market and limited to a total amount of $100.0 million. The approval does not have a fixed expiration and the delivery financing arrangements relatedrepurchase program may be suspended or discontinued at any time. During December 2023, we repurchased into treasury 125,000 of our shares for a total of $0.8 million.
See Note 28 - Stockholders' Equity of our audited Consolidated Financial Statements included herein, for further information.
Contributed Surplus
On December 22, 2023, at a Special General Meeting, pursuant to the Bermuda Companies Act, the Company's shareholders approved a reduction of the Share Premium (Additional Paid in Capital "APIC") account of the Company from $2,290,578,712 to $290,578,712 by the transfer of $2,000,000,000 of the Share Premium (APIC) to the Company’s Contributed Surplus account, with effect from December 22, 2023. The Contributed Surplus account, as defined by Bermuda law, consists of amounts previously recorded as Share Premium (APIC).
Dividend Declaration
In December 2023, the Company announced that its Board of Directors approved a cash distribution of $0.05 per share for the third quarter of 2023. This cash distribution was paid in January 2024, to shareholders of record at close of business on December 29, 2023.
In February 2024, the Company announced that its Board of Directors approved a cash distribution of $0.05 per share for the fourth quarter of 2023. This cash distribution was paid on March 18, 2024 to shareholders of record at close of business on March 4, 2024.
See Note 28 - Stockholders' Equity of our newbuild rigs were amended. The amendments revised certain specified financial covenants, including minimum free liquidity, deferred certain interest payments and changed the dates of certain amortization payments which otherwise would have fallen due in 2021 to 2022. See “—Liquidity and Capital Resources–Our Existing Indebtedness—Loan amendments and Covenants”audited Consolidated Financial Statements included herein, for morefurther information.
New ContractsRecent Developments
In March 20212024, we entered into three agreements that potentially add a totalcompleted the issuance of $48$200 million over approximately 590 days to the contract backlog.
The rig "Prospector 1"principal amount of additional 10% senior secured a three-well plus option contract with Tulip for operationsnotes due in the Netherlands. As a result, the “Prospector 1” is expected to be operating on the Dutch Continental Shelf for the remainder2028, raising gross proceeds of 2021.
The rig “Gunnlod” secured an optional period extension from PTTEP which is expected to keep the rig operating up to September 2021. The rig has one further option period.
For the rig “Natt” we received a letter of intent with an undisclosed new operator in Nigeria to commence operations in April 2021 for an estimated duration of 150 days, in continuation of its previous contract.$211.9 million.
Key Components of Our Results of Operations
See Note 2 - Basis of Preparation and Accounting Policies of our audited Consolidated Financial Statements included herein, for further information on our accounting policies.
Operating revenues
We earn revenues primarily by performing the following activities: (i) providing our jack-up rigs, work crews, related equipment and services necessary to operate our jack-up rigs; (ii) providing our jack-up rigs to our Mexican equity method investments (Perfomex and Perfomex II) under bareboat lease contracts, and providing management and laborservices under management agreements to Perfomex and Perfomex II; (iii) delivering our jack-up rigs by mobilizing to and demobilizing from the drill location; and (iv) performing certain pre-operating activities, including rig preparation activities or equipment modifications required for our contracts.
We recognize revenues earned under our drilling contracts based on variable dayrates, which range from a full operating dayrate to lower rates or zero rates for periods when drilling operations are interrupted or restricted, based on the specific activities we perform during the contract. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the firm term of the contract and probable liquidated damages. Revenues are recorded based on these blended rates, applied to the actual Economic Utilization of each period. Such dayrate consideration is attributed to the distinct time period to which it relates within the contract term, and therefore, is recognized as we perform the services. We recognize reimbursement revenues and the corresponding costs as we provide the customer-requested goods and services, when such reimbursable costs are incurred while performing drilling operations. Prior to performing drilling operations, we may receive pre-operating revenues, on either a fixed lump sum or variable dayrate basis, for mobilization, contract preparation, customer-requested goods and services or capital upgrades, which we recognize on a straight-line basis over the estimated firm contract period. We recognize losses related to contracts as such losses are incurred.
We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the demobilization of our rigs. Demobilization revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception and recognized over the term of the contract. In most of our contracts, there is uncertainty as to the likelihood and amount of expected demobilization revenue to be received as the amount may vary dependent upon whether or not the rig has additional contracted work following the contract. Therefore, the estimate for such revenue may be constrained, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions.
Weprovide corporate support services, secondment of personnel and management services to our equity method investments under management and service agreements. The services are based on costs incurred in the period with appropriate margins and have been recognized under relatedRelated party revenues in our Statement of Operations,revenue with associated costs included within Operating Expenses.Rig operating and maintenance expenses in our Consolidated Statements of Operations.
We lease rigs on bareboat charters to our equity method investments, Perfomex and Perfomex II. We expect lease revenue earned under the bareboat charters to be variable over the lease term, as a result of the contractual arrangement which assigns the bareboat a value over the lease term equivalent to residual cash after payments of operating expenses and other fees. We, as a lessor, do not recognize a lease asset or liability on our balance sheets at the time of the formation of the entities nor as a result of the lease. Revenue is recognized when management are able to reasonably predict the expected underlying bareboat rate over the contract term.
Gains or losses on disposals
Gains on disposals
From time to time we may sell, or otherwise dispose of, our jack-up rigs and/or other fixed assets to external parties or related parties. In addition, assets, including certain jack-up rigs, may be classified as “held for sale” on our balance sheets when, among other things, we are committed to a plan to sell such assets and consider a sale probable within twelve months. We may recognize a gain or loss on any such disposal depending on whether the fair value of the consideration received is higher or lower than the carrying value of the asset.
Operating expenses
Our operating expenses primarily expenses include jack-up rig operating and maintenance expenses, depreciation and impairment, amortization of contract backlog, general and administrative expenses and restructuring costs.expenses.
Rig operating and maintenance expenses are the costs associated with owning a jack-up rig that may from time to time be either in operation or stacked, including:
•Rig personnel expenses: compensation, transportation, training, as well as catering costs while the crewscrew are on the jack-up rig. Such expenses vary from country to country and reflect the combination of expatriatesexpatriate and nationals,national, local market rates, unionized trade arrangements, local law requirements regarding social security, payroll charges and end of service benefit payments.
•Rig maintenance expenses: expenses related to maintaining our jack-up rigs in operation, including the associated freight and customs duties, which are not capitalized noror deferred. Such expenses do not directly extend the rig life or increase the functionality of the rig.
•Other rig-related expenses: all remaining operating expenses such as supplies, insurance costs, professional services, equipment rental, and other miscellaneous costs.costs and new provisions and recoveries of previous provisions for expected credit losses.
Depreciation costs are based on the historical cost of our jack-up rigs.rigs, less impairment charges. Rigs are recorded at historical cost less accumulated depreciation.depreciation and impairment. Jack-up rigs and related equipment acquired as part of asset acquisitions are stated at fair market value as of the date of the acquisition. The cost of these assets, less estimated residual value, issalvage values, are depreciated on a straight-line basis over their estimated remaining economic useful lives. The estimated economic useful life of our jack-up rigs, when new, is 30 years and jack up rig equipment and machinery three to 20 years. We evaluate the carrying value of our jack-up rigs on a quarterly basis to identify events or changes in circumstances that indicate that the carrying value of such jack-up rigs may not be recoverable. If the carrying value of the asset is not recoverable, an impairment loss is recognized as the difference between the carrying value of the asset and its fair value. Costs related to periodic surveys and other major maintenance projects are capitalized as part of drilling units and amortized over the anticipated period covered by the survey or maintenance project, which is up to five years. These costs are primarily shipyard costs and the costs related to employees directly involved in the work. Amortization costs for periodic surveys and other major maintenance projects are included in depreciation and amortization expense.expense.
Amortization of contract backlog is the amortization expense for acquired drilling contracts with above market rates. Where we acquire an in-progress drilling contract at above market rates through a business combination, we record an intangible asset equal to its fair value on the date of acquisition. The asset is then amortized on a straight-line basis over its estimated remaining contract term.
Our general and administrative expenses primarily include all office personnel costs and other miscellaneous expenses incurred by the operational headquarters of Borr Drilling Management UK in the UK as well as share-based compensation expenses, fees payable to certain Related Parties under a management agreement for providing business, organizational, strategic, financial and other advisory services and doubtful debt provisions or releases.
Our restructuring costs related to the Paragon Transaction are as further described below.services.
Material Factors Affecting Results of Operations and Future Results
Our results of operations have a number of key components and are primarily affected by the number of jack-up rigs under contract, the contractual dayrates we earn and the associated operating and maintenance expenses. Our future results may not be comparable to our historical results of operations for the periods presented. In addition, when evaluating our historical results of operations and assessing our prospects in the periods under review, you should consider the following factors:
Acquisitions and Disposals
Since our inception in 2016, we have acquired more than 50 jack-up rigs through both the purchase of existing jack-up rigs, companies owning jack-up rigs and contracts for newbuild jack-up rigs, of which we have sold 2630 and one semi-submersible. This increase in jack-up rigs and related expansion of operations resulting from an increased number of jack-up rigs under contract has had a significant impact on our results of operations and our balance sheets during the periods presented in our Audited Consolidated Financial Statements.Statements included herein. The key characteristics of our rigs owned but not under contract which may yield differences in their marketability or readiness for use, include the age of the rig, the geographic location, the technical specifications and whether such rigs are warm stacked or cold stacked, age of the rig, geographic location and technical specifications;stacked; please see our fleet status report in “Item 4.B4.B. Business
Overview—Our Business—Our Fleet” for further information concerningregarding these features by rig.
For more information on our acquisitions and disposals, please see the section entitled “Item 4. Information on the Company.”4.B. Business Overview—Our History”.
Acquisitions and Disposals: The table below sets forth information relating to our acquisitions and disposals since our formation:
| | | | | | | | | | | | | | | | | |
Transaction
(Closing
Date) | Transaction (Closing Date) | Transaction Value(1) (inIn $ millions) | Purchase Price
Allocation
(in $ millions)
| Rigs Purchased(2) | Rig Status at
| Rig Status as of
2020(1)2 |
| Hercules Acquisition (January 23, 2017) | $130
(Asset
Acquisition)130.0 | Premium jack-up rigs: 2 | N/AWarm stacked: 2 | •Under contract: 2 premium jack-up rigs
| •Warm Stacked: 2
| •Warm Stacked: 2
|
| Transocean Transaction (May 31, 2017) | $1,240.5
(Business
Combination) | •Jack-up Rigs: $547.7Premium jack-up rigs: 6
•Onerous Contract: $(223.7)Standard jack-up rigs: 4
•Current Assets: $0.5 Total: $324.5(2)
•Future Newbuild Contracts: $916.0 Total: $1,240.5Contracts for NB jack-up rigs: 5
| •6 premium jack-up rigsWarm stacked: 7
•4 standard jack-up rigsUnder legacy contract: 3
•Under construction: 5 contracts for newbuild jack-up rigs
| •Warm Stacked:Under contract: 6
Disposed: 7 •Under Legacy Contract: 3
•Under Construction: 5
| •Warm Stacked: 3
•Cold Stacked: 1
•Under New Contract: 3
•Disposed of: 5
•Under Construction: 3construction: 2
|
PPL Acquisition (October
(October 6, 2017) | $1,300
(Asset
Acquisition) | •N/A
Contracts for NB jack-up rigs: 9 | Under construction: 9 | •9 contracts for newbuild jack-up rigs
| •Under Construction: 9
| •Warm Stacked:3contract: 8
•Under New Contract: 6Disposed: 1
|
Paragon Transaction (March
(March 29, 2018) | $241.3
(Business
Combination) | •Jack-up Rigs: $261.0Premium jack-up rigs: 2
•Other Net Assets: $18.4Standard jack-up rigs: 20
•Bargain Gain: $(38.1)
•Total: $241.3Semi-submersible: 1
| •2 premium jack-up rigsWarm stacked:16
•20 standard jack-up rigs
•1 semi- submersibleUnder legacy contract: 7
| •Warm Stacked:16
•Under Legacy Contract: 7
| contract: 2
•Under New Contract: 2
•Disposed of:Disposed: 21
|
KeppelSeatrium Acquisition (May
(May 16, 2018) | $742.5
(Asset
Acquisition) | N/AContracts for NB jack-up rigs: 5 | •Under construction: 5 contracts for newbuild jack-up rigs
| •Under Construction: 5
| •Under Construction:contract: 3
Disposed: 2
•Warm Stacked: 3
|
KeppelSeatrium Hull
(March 29, 2019) | $122.1
(Asset
Acquisition) | N/A | •1 contractContract for a newbuildNB jack-up rig
rig: 1 | •Under Construction:construction: 1
| •Warm Stacked:Under contract: 1
|
(1)Jack-up rigs “Under New Contract” include those rigs which are being mobilized to, or are otherwise awaiting the commencement of, drilling operations under the relevant contract.
(2)(1) This is the amount reflected in the balance sheets as a result of purchase accounting.
•(3)Recent and Future Jack-up rigs “Under Contract” include those rigs which are operating or being prepared or mobilized, or are otherwise awaiting the commencement of drilling operations under the relevant contract.
Acquisitions and Disposals:
We are contractedhave agreements to takepurchase two undelivered rigs from Seatrium, “Vale” and “Var”. In September 2023, we entered into an agreement with Seatrium, to amend the Construction Contracts for the rigs “Vale” and “Var” and give notice to expedite their delivery dates, on a best efforts basis, to August 15, 2024 and November 15, 2024, respectively, in consideration for an additional payment of $12.5 million (“acceleration costs”) per rig on each respective delivery date. The terms of these future and contingent obligations include: (i) the payment of the final installments on each rig, of $147,406,000 per rig, payable on delivery; (ii) “holding costs” and “cost cover”, accruing until delivery of the remaining five newbuild jack-up rigs, not yet delivered no later thanwhich are payable quarterly in arrears; (iii) acceleration costs, payable on delivery; and (iv) the endability to draw on committed delivery financing of $130.0 million for each rig, with a four-year maturity, subject to a right for the lender to call the loan after three years, with repayments of principal at the rate of $15.0 million per year per rig in years 1 and 2 with the balance of the 2023. Keppel have the right to cancel these newbuilding contracts ifprincipal amortizing in receipt of a bone fide offer, which we can match to retain the contracts.years 3 and 4. We have made and may consider in the future acquisitions and disposals of jack-up rigs. Acquisitions or disposals of our jack-up rigs are likely to impact our revenue as well as our operating and maintenance expenses. For details of acquisitions or disposals in 2018, 2019 and 2020 see 'Item 4.B“Item 4.B. Business Overview - Divestments,
•Restructuring Costs: Following the Paragon Transaction in March 2018, we undertook a rigorous review of the acquired business and have undertaken steps to reduce headcount, office locations and administrative costs. In 2018, we recognized $30.7 million of restructuring costs in connection with such cost reduction measures, which also impacted on our operating and general and administrative costs. We continued to implement our restructuring and integration of the acquired business during 2019 and 2020, which has affected our operating and general and administrative costs as well as restructuring costs during these years and future years.
•Purchase Price Allocations: In connection with any past or future acquisition accounted for as a business combination, including the Transocean Transaction and the Paragon Transaction, we use a purchase price allocation so that the value of the assets acquired reflects the estimates, assumptions and judgments of our management relative to the carrying values, remaining useful lives and residual values. The estimates, assumptions and judgements involved in accounting for acquisitions, including the recognition of goodwill, may result in the impairment of certain assets in the future and have the effect of creating assets and liabilities which directly affect our financial statements and may indirectly affect our results of operations.Overview—Our History—Divestments”.
Other Factors Affecting our Financial StatementsResults of Operations
In addition to the factors identified above, you should consider the following facts when evaluating our financial statements and assessing our prospects:results of operations for the periods presented:
•Revenues: Our revenues are primarily affected by the number of jack-up rigs under contract from time to time and the dayrates we are able to charge our customers, which vary from time to time. To a significant extent, the dayrates we charge our customers depend on the market cycle of the jack-up drilling market at a given point in time. Historically, when oil prices decrease, capital spending and drilling activity decline, which leads to an oversupply of drilling rigs and reduced dayrates. Conversely, higher oil prices, increased capital spending and drilling activity and limited supply of drilling rigs have historically led to higher dayrates. In addition, the number of jack-up rigs under contract from time to
time is affected by, among other factors, our relationships with new and existing customers and suppliers, which have grown substantially since our inception in 2016. Going forward, our ability to leverage those relationships into new contracts and advantageous rates will be critical to our success and prospects for growth. Our revenues may also be affected by other situations, including when our jack-up rigs cease operations due to technical failures and other situations where we do not collect revenue from our customers. Our ability to keep our jack-up rigs operational when under contract is monitored by our Board and management as Technical Utilization statistics.
•Nature of Our Operating and General and Administrative Expenses: Our operating expenses in 20192023 and 20202022 reflect much higher levels of expenses relating to operating and non-operating rigs than was the case in prior years. To the extent that the offshore drilling market recovers, we(e.g. costs relating to warm stacking of rigs). We expect the nature of our operating expenses will shift to include primarily expenses related to the ongoing operation of our jack-up rigs. In such case, our operating expenses will depend on various factors, including expenses related to operating our jack-up rigs, maintenance projects, downtime, weather and other operating factors. In addition, we have incurred and expect to incur direct, incremental general and administrative expenses as a result of our being a publicly traded company in the United States and Norway, including costs associated with hiring personnel for positions created as a result of our U.S. and Norway public company status, publishing annual and interim reports to shareholders consistent with SEC, NYSE and NYSEOslo Børs requirements, expenses relating to compliance with the rules and regulations of the SEC, listing standards of the NYSE and the costs of independent director compensation. These incremental generalcompensation as well as professional and administrative expenses related to being a publicly traded companylegal fees incurred in the United States are not included in our historical consolidated resultsordinary course of operations prior to 2019.business.
•Financing Arrangements and Investments in Securities: The financial income and expenses reflected in our Audited Consolidated Financial Statements included herein may not be indicative of our future financial income and expenses and may, along with other line items related to our Financing Arrangementsfinancing arrangements and historical financing arrangements detailed in the section entitled “—“Item 5.B. Liquidity and Capital Resources—Our Existing Indebtedness,” change as the number of our jack-up rigs under contract increases. As we take delivery of
the newbuild rigs we have agreed to purchase, we expect to finance a portion of the purchase price and thus our debt levels and finance expense will increase. The financing arrangements we have had in place historically may not be representative of the agreements that will be in place in the future or that we had in place during our first two years of operations. For example, we have amended our Financing Arrangementsfinancing arrangements in the past, including in 2019, 2020, 2021, 2022 and 20212023, and we may amend our existing Financing Arrangementsfinancing arrangements or enter into new financing arrangements and such new agreements may not be on the same terms as our current Financing Arrangements.financing arrangements. In addition, from time to time, we may make and hold investments in other companies in our industry that own/operate offshore drilling rigs with similar characteristics to our fleet of jack-up rigs, subject to compliance with the covenants contained in certain of our Financing Arrangementsfinancing arrangements which restrict such investments. We also may purchase and hold debt or other securities issued by other companies in the offshore drilling industry from time to time. The impact of theseThese financial investments will impact our results of operations.
•Interest Rates and Derivative Values: A significant portionFollowing the issuance of the Notes, all of our debt bears floatingas of December 31, 2023 is on fixed interest rates. For example,However, under the RCF we entered to in November 2023, undrawn as of December 31, 2023, the interest rates under certain of our Financing Arrangements arerate is determined with reference to LIBORSOFR plus a specified margin. As such, movements in interest rates, and LIBOR specifically, could have an adverse effect on our results of operations and cash flows. In addition, in connection with the issuance of our convertible Bonds we entered into the Call Spread Transactions, which may have a dilutive effect on our earnings per share to the extent that the market price per share of our shares exceeds the applicable strike price of the options. In future periods, interest expense will depend on, among other things, our overall level of indebtedness, interest rates and the value of our shares and related-derivative values.
•Income Taxes: Income tax expense reflects current tax and deferred taxes related to the operation of our jack-up rigs and may vary significantly depending on the jurisdiction(s) of operation of our subsidiaries, the underlying contractual arrangements and ownership structure and other factors. In most cases, the calculation of tax is based on net income or deemed income in the jurisdiction(s) where our subsidiaries operate. As we transition our focus to the operation of our jack-up rigs, ourOur income tax expense will be primarily affected by the number of jack-up rigs under contract from time to time and the dayrates we are able to charge our customers as well as the expenses we incur which can vary from time to time. Because taxes are impacted by taxable income of our subsidiaries, our tax expense may not be correlated with our income on a consolidated basis.
Critical Accounting Policies and Significant EstimatesThe discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements.
We provide expanded discussion of our more significant accounting policies, estimates and judgments below. We believe that most of these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements. For a more complete discussion of our accounting policies, see Note 2—“Accounting policies” to our Consolidated Financial Statements.
Jack-up Rigs
The carrying amount of our jack-up rigs is subject to various estimates, assumptions, and judgments related to capitalized costs, useful lives and residual values and impairments. As of December 31, 2020, 2019 and 2018, the carrying amount of our jack-up rigs was $2,824.6 million, $2,683.3 million and $2,278.1 million, representing 89.1%, 81.8% and 78.2% of our total assets, respectively.
Jack-up rigs and related equipment are recorded at historical cost less accumulated depreciation. The cost of these assets, less estimated residual value, is depreciated on a straight-line basis over their estimated remaining economic useful lives. The estimated economic useful life of our jack-up rigs, when new, is 30 years.
We determine the carrying values of our jack-up rigs and related equipment based on policies that incorporate estimates, assumptions and judgments relative to the carrying values, remaining useful lives and residual values. These assumptions and judgments reflect both historical experience and expectations regarding future operations, utilization and performance. The use of different estimates, assumptions and judgments in establishing estimated useful lives and residual values could result in significantly different carrying values for our jack-up rigs, which could materially affect our results of operations.
The useful lives of our jack-up rigs and related equipment are difficult to estimate due to a variety of factors, including technological advances that impact the methods or cost of oil and gas exploration and development, changes in market or economic conditions and changes in laws or regulations affecting the drilling industry. We re-evaluate the remaining useful lives of our jack-up rigs as of and when events occur that may directly impact our assessment of their remaining useful lives. This includes changes the operating condition or functional capability of our rigs as well as market and economic factors.
The carrying values of our jack-up rigs and related equipment are reviewed for impairment when certain triggering events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. We assess recoverability of the carrying value of an asset by estimating the undiscounted future net cash flows expected to result from the asset, including eventual disposal. If the undiscounted future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. In general, impairment analyses are based on expected costs, utilization and dayrates for the estimated remaining useful lives of the asset or group of assets being assessed. An impairment loss is recorded in the period in which it is determined that the aggregate carrying amount is not recoverable. Asset impairment evaluations are, by nature, highly subjective. They involve expectations about future cash flows generated by our assets and reflect management’s assumptions and judgments regarding future industry conditions and their effect on future utilization levels, dayrates and costs. The use of different estimates and assumptions could result in significantly different carrying values of our assets and could materially affect our results of operations.
Our management has identified certain indicators, among others, that the carrying value of our jack-up rigs and related equipment may not be recoverable and our market capitalization was lower than the book value of our equity. These market indicators include the reduction in new contract opportunities, fall in market dayrates and contract terminations. We assessed recoverability of our jack-up rigs by first evaluating the estimated undiscounted future net cash flows based on projected dayrates and utilization of the rigs. The estimated undiscounted future net cash flows were found to be greater than the carrying value of our jack-up rigs. As a result at December 31, 2020 we did not need to assess the discounted cash flows of our rigs, and no impairment charges were recorded
With regard to our non-core jack-up rigs, "MSS1", "Atla" and "Balder" which were impaired during 2020 and have subsequently been sold, the fair value of these assets were derived by applying a combination of an income approach, using projected undiscounted cash flows and estimated sale or scrap value. These valuations were based on unobservable inputs that required significant judgments for which there was limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.
Equity method investments
We account for our ownership interests in certain Mexican companies, Perfomex, Opex, Akal and Perfomex II, as equity method investments in accordance with ASC 323, Investments — Equity Method and Joint Ventures and record the investment in equity method investments in the Consolidated Balance Sheets. The equity method of accounting is applied when the investor has an ownership interest of less than 50% and/or does not control the entity, but nonetheless has significant influence over the operating or financial decisions of the investee. Under the equity method, investments are stated at initial cost, in addition, guarantees issued to the equity method investments and in-substance capital contributions and capital contributions are allocated to the investment. Our proportionate share of the investees net income (loss) is reflected as a single-line item in the Consolidated Statement of Operations and as increases or decreases, as applicable, in the carrying value of our investment in the Consolidated Balance Sheet. In addition, the proportionate share of net income (loss) is reflected as a non-cash activity in operating activities in the Consolidated Statement of Cash Flows. Contributions increase the carrying value of the investment and are reflected as an investing activity in the Consolidated Statement of Cash Flows.
Investments in equity method investments are assessed for other-than-temporary impairment whenever changes in the facts and circumstances indicate an other-than-temporary loss in carrying value has occurred.
Accounting for debt modifications
We account for debt modifications in accordance with ASC 470, Debt. A debt modification can be an amendment to the terms or cash flows of an existing debt instrument, exchanging existing debt for new debt with the same lender, repaying an existing debt obligation and contemporaneously issuing new debt to the same lender. Although this may be a legal extinguishment, the transaction may need to be accounted for as a debt modification.
Modification of debt is assessed as either a troubled debt restructuring ("TDR") or as modification or exchange of a term loan or debt security. A modification is a TDR if (1) the borrower is experiencing financial difficulty, and (2) the lender grants the borrower a concession. A lender is deemed to grant a concession when the effective borrowing rate on the restructured debt is less than the effective borrowing rate on the original debt.
An exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a non-troubled debt situation is deemed to have been accomplished if the exchanged debt instruments are substantially different if the present value of the cash flows under the terms of the new debt instrument are at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the cash flow effect on a present value basis is less than 10 percent the change is considered a modification to the debt. If a debt instrument is restructured more than once in a twelve-month period, the debt terms (e.g., interest rate, prepayment penalties) that existed just prior to the earliest restructuring in that twelve-month period should be used to apply the 10% test, provided the restructuring was (or restructurings were) accounted for as a modification.
The effective borrowing rate of the restructured debt is calculated by determining the discount rate that equates to the present value of the cash flows under the terms of the restructured debt to the current carrying value of the original debt.
Cost associated with debt modifications accounted for as amendments are charged to the income statement. For debt extinguishments the cost is charged to the balance sheet and any unamortized amount remaining upon the extinguishment is charge to the income statement.
Our debt modifications throughout 2020 have been assessed as non-troubled debt modifications.
Income Tax Positions
Borr Drilling Limited is a Bermuda company that has a number of subsidiaries, affiliates and branches in various jurisdictions. Whilst the Company is resident in Bermuda, it is not subject to taxation under the laws of Bermuda, so currently, the Company is not required to pay taxes in Bermuda on ordinary income or capital gains. The Company and each of its subsidiaries and affiliates that are Bermuda companies have received written assurance from the Minister of Finance in Bermuda that in the event that Bermuda enacts legislation imposing taxes on ordinary income or capital gains, any such tax shall not be applicable to the Company or such subsidiaries and affiliates until March 31, 2035. Certain subsidiaries, affiliates and branches operate in other jurisdictions where withholding taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions when appropriate. Our income tax expense is based on our income and statutory tax rates in the various jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which operations are conducted and income is earned.
The determination and evaluation of our annual group income tax provision involves interpretation of tax laws in various jurisdictions in which we operate and requires significant judgment and use of estimates and assumptions regarding significant future events, such as amounts, timing and character of income, deductions and tax credits. There are certain transactions for which the ultimate tax determination is unclear due to uncertainty in the ordinary course of business. We recognize tax liabilities based on our assessment of whether our tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant taxing authority’s widely understood administrative practices and precedence. Changes in tax laws, regulations, agreements, treaties, foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability in any given year. While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined. Current income tax expense reflects an estimate of our income tax liability for the current period, withholding taxes, changes in prior year tax estimates as tax returns are filed, or from tax audit adjustments.
Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules.
Deferred tax assets and liabilities are based on temporary differences that arise between carrying values used for financial reporting purposes and amounts used for taxation purposes of assets and liabilities and the future tax benefits of tax loss carry forwards.
Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected in the Consolidated Balance Sheets. Valuation allowances are determined to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To determine the amount of deferred tax assets and liabilities, as well as of the valuation allowances, we must make estimates and certain assumptions regarding future taxable income, including assumptions regarding where our jack-up rigs are expected to be deployed, as well as other assumptions related to our future tax position. A change in such estimates and assumptions, along with any changes in tax laws, could require us to adjust the deferred tax assets, liabilities, or valuation allowances. The amount of deferred tax provided is based upon the expected manner of settlement of the carrying amount of assets and liabilities, using tax rates enacted at the Consolidated Balance Sheet date. The impact of tax law changes is recognized in periods when the change is enacted.
Business Combinations
The Company applies the acquisition method of accounting for business combinations in accordance with ASC 805. The acquisition method requires the total of the purchase price of acquired businesses and any non-controlling interest recognized to be allocated to the identifiable tangible and intangible assets and liabilities acquired at fair value, with any residual amount being recorded as goodwill as of the acquisition date. Costs associated with the acquisition are expensed as incurred. The Company allocates the purchase price of acquired businesses to the identifiable tangible and intangible assets and liabilities acquired, with any remaining amount being recorded as goodwill.
The estimated fair value of the jack-up rigs in a business combination is derived by using a market and income-based approach with market participant-based assumptions. When we acquire jack-up rigs there may exist unfavorable contracts which are recorded at fair value at the date of acquisition. An unfavorable contract is a contract that has a carrying value which is higher than prevailing market rates at the time of acquisition. The net present value of such contracts when lower than prevailing market rates, is recorded as an onerous contract at the purchase date.
In a business combination, contract backlog is recognized when it meets the contractual-legal criterion for identification as an intangible asset when an entity has a practice of establishing contracts with its customers. We record an intangible asset equal to its fair value on the date of acquisition. Fair value is determined by using multi-period excess earnings method. The multi-period excess earnings method is a specific application of the discounted cash flow method. The principle behind the method is that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible asset after deducting contributory asset charges. The asset is then amortized over its estimated remaining contract term.
A.OPERATING RESULTS
Year ended December 31, 20202023 compared to the Yearyear ended December 31, 20192022
The following table summarizes our results of operations for the years ended December 31, 20202023 and 2019:2022:
| | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2020 | | 2019 |
| (in $ millions) |
| SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS DATA: | | | |
| Dayrate revenue | $ | 265.2 | | | $ | 327.6 | |
| Related party revenue | 42.3 | | | 6.5 | |
| Operating revenues | 307.5 | | 334.1 | |
| | | |
| Gain on disposals | 19.0 | | 6.4 | |
| Operating expenses | (514.5) | | | (491.3) | |
| Operating loss | $ | (188.0) | | | $ | (150.8) | |
| Income/(loss) from equity method investments | 9.5 | | (9.0) | |
| Total financial expenses, net | (122.9) | | | (128.1) | |
| Income tax expense | (16.2) | | | (11.2) | |
| Net loss | $ | (317.6) | | | $ | (299.1) | |
| Other comprehensive income | — | | | 5.6 | |
| Total comprehensive loss | $ | (317.6) | | | $ | (293.5) | |
| | | | | | | | | |
| For the Year Ended December 31, | |
| (in $ millions) | 2023 | 2022 | |
| Dayrate revenue | 642.0 | | 358.7 | | |
| Related party revenue | 129.6 | | 85.1 | | |
| | | |
| Operating revenues | 771.6 | | 443.8 | | |
| | | |
| Gain on disposals | 0.6 | | 4.2 | | |
| Total operating expenses | (521.8) | | (549.9) | | |
| Operating income / (loss) | 250.4 | | (101.9) | | |
| Other non-operating income | — | | 2.0 | | |
| Income from equity method investments | 4.9 | | 1.2 | | |
| Total financial expenses, net | (199.2) | | (175.7) | | |
| Income tax expense | (34.0) | | (18.4) | | |
| Net income / (loss) and total comprehensive income / (loss) | 22.1 | | (292.8) | | |
The following table sets forth a reconciliation of net income / (loss) to Adjusted EBITDA for the years ended December 31, 2023 and 2022:
| | | | | | | | |
| | For the Year Ended December 31, |
| (in $ millions) | 2023 | 2022 |
| Net income / (loss) | 22.1 | | (292.8) | |
| Depreciation of non-current assets | 117.4 | | 116.5 | |
| Impairment of non-current assets | — | | 131.7 | |
| Interest income | (4.9) | | (5.4) | |
| Interest expense | 177.2 | | 139.2 | |
| Foreign exchange loss, net | 2.8 | | 0.9 | |
| Other financial expenses | 24.1 | | 41.0 | |
| Income from equity method investments | (4.9) | | (1.2) | |
Gain on disposals (1) | — | | (3.5) | |
| Other non-operating income | — | | (2.0) | |
| Amortization of deferred mobilization and contract preparation costs | 44.6 | | 36.7 | |
| Amortization of deferred mobilization, demobilization revenue and other revenue | (61.9) | | (22.2) | |
| Income tax expense | 34.0 | | 18.4 | |
| Adjusted EBITDA | 350.5 | | 157.3 | |
(1) Gain on disposals includes $3.5 million associated with the net gain on disposal of jack-up rigs, which is excluded from our Adjusted EBITDA calculation. See Note 6 - Gain on Disposals of our Audited Consolidated Financial Statements included herein.
Operating Revenues
OurTotal operating revenues were $307.5increased by $327.8 million to $771.6 million for the year ended December 31, 2020,2023 compared to $334.1$443.8 million for 2019. The decrease of $26.6 millionin 2022. This was primarily due toprincipally due to the reducedfollowing increases:
•$114.3 million increase due to an increase in the number of rigs which were operating during the yearin operation;
•$63.6 million increase due to the economic downturn brought on by the Covid-19 pandemic. As of December 31, 2020, we had 24 jack-up rigs of which 11 were operating at the year end, compared with 28 rigs, including one semi-submersible of which 16 were operating at December 31, 2019. During 2020, we sold six vessels of which five were on contract in 2019 contributing dayrate revenues. In addition, the rigs "Mist", "Prospector 1" "Norve", "Prospector 5", "Gerd", "Groa" and "Ran" were warm stacked for part of 2020 contributing less day rate revenue than 2019.
Offsetting this reduced activity was an increase in dayratenumber of operating days for rigs which were in operation in the current and comparative period;
•$58.7 million increase due to an increase in average dayrates;
•$46.7 million increase due to an increase in other revenue, which is primarily comprised of $31.5 million of amortization of deferred mobilization and demobilization revenue;
•$36.3 million increase in related party revenues generated by the "Natt"primarily as a result of improved profitability of jack-up rigs "Galar", "Frigg","Idun""Grid", "Saga""Njord", "Gersemi" and "Gunnlod"."Odin", that we lease to our joint ventures, Perfomex and Perfomex II, on a bareboat charter basis; and
•$8.2 million increase in related party revenues primarily as a result of amortization of other deferred revenue.
Gain on Disposals
Our gainGain on disposals was $19.0$0.6 million for the year ended December 31, 2020,2023 compared to $6.4$4.2 million for 2019. We completedin 2022. In 2023 the gain on disposals related to the sale of six jack-up rigsscrap assets. In 2022 we recognized a gain on disposal of $3.7 million in 2020 for total proceedsrelation to the agreement to sell the three newbuildings "Tivar", "Huldra" and "Heidrun" and a gain on disposal of $31.4 million. We completed$0.7 million in relation to the sale of tworig related equipment, offset by a $0.2 million loss on the sale of jack-up rigs during 2019, for total proceeds of $6 million.rig "Gyme".
Total Operating Expenses
Operating expenses include the following items:
| | For the Year Ended
December 31, |
| 2020 | | 2019 |
| (in $ millions) |
| For the Year Ended December 31, | |
| For the Year Ended December 31, | |
| For the Year Ended December 31, | |
| (in $ millions) | |
| (in $ millions) | |
| (in $ millions) | |
| Rig operating and maintenance expenses | |
| Rig operating and maintenance expenses | |
| Rig operating and maintenance expenses | Rig operating and maintenance expenses | $ | 270.4 | | | $ | 307.9 | |
| Depreciation of non-current assets | Depreciation of non-current assets | 117.9 | | | 101.4 | |
| Depreciation of non-current assets | |
| Depreciation of non-current assets | |
| Impairment of non-current assets | Impairment of non-current assets | 77.1 | | 11.4 |
| Amortization of acquired contract backlog | 0.0 | | 20.2 |
| Impairment of non-current assets | |
| Impairment of non-current assets | |
| General and administrative expenses | |
| General and administrative expenses | |
| General and administrative expenses | General and administrative expenses | 49.1 | | 50.4 |
| | Operating expenses | $ | 514.5 | | | $ | 491.3 | |
| Total operating expenses | |
| | Total operating expenses | |
| | Total operating expenses | |
OurTotal operating expenses were $514.5decreased by $28.1 million to $521.8 million for the year ended December 31, 2020,2023 compared to $491.3$549.9 million for 2019. The increase of $23.2 million is primarily due to the impairment of non-current assets recorded in 2020 on three jack-up rigs that were reduced to their expected realizable value.2022.
Our rigRig operating and maintenance expenses including stacking costs, were $270.4increased by $94.4 million to $359.3 million for the year ended December 31, 2020,2023 compared to rig operating and maintenance expenses of $307.9$264.9 million for 2019. The decrease2022. This was principally due to an increase of $91.2 million as a result of an increase in rig operating expenses for 2020days primarily in relation to jack-up rigs "Arabia I", "Arabia II", Arabia III", "Thor", "Hild", "Groa", "Prospector 5" and "Ran" during 2023 compared to 2019 reflects the reduced number2022. This increase was offset by a decrease of $6.4 million related to jack-up rigs operating"Tivar", "Huldra", "Heidrun" and "Gyme" which were sold during 2022, resulting in 2020 compared with 2019 dueno expenses in 2023 for these rigs.
Depreciation of non-current assets increased by $0.9 million to the sale of six rigs and the higher number of rigs warm stacked and not operational. During 2020, the Company took delivery of two newbuild rigs, which have been warm stacked since delivery.
Our depreciation charge was $117.9$117.4 million for the year ended December 31, 2020,2023 compared to $101.4$116.5 million for 2019. The increased depreciation charge2022. This was principally due to deliveryan increase in depreciation of two$6.2 million primarily as a result of an increase in depreciable additions of jack-up rigs in January and May 2020 and a full years depreciation on the three rigs delivered in 2019, partially offset by the sale of six rigs during 2020.
Impairment of non-current assets was $77.1 million for the year ended December 31, 2020, compared2023. This increase was offset by a decrease by $3.0 million in relation to $11.4 million for 2019. The impairment charge in 2020 principally related "Atla" and "Balder" charge of $58.7 million arising from the impairment reviewjack-up rig "Gyme" which took place in the second quarter of 2020, the "Atla" was sold in November 2020 and the Balder in February 2021. In addition an impairment charge of "MSS1" was recorded in the first quarter of 2020 reducing the rig to its agreed sale value, the vessel was sold in September 2020. The 2019 impairment charge related to “Eir” for which the book value of the rig was reduced to its agreed sale value and classified as held for sale at December 31, 2019during the quarter ended September 30, 2022 and subsequently sold, thereby ceasing depreciation, and a decrease by $2.3 million in October 2020.relation to certain long-term maintenance projects being fully amortized during 2023.
AmortizationImpairment of acquired contract backlognon-current assets was nil for the year ended December 31, 2020,2023 compared to $20.2$131.7 million for 2019in 2022. In 2022, we recognized an impairment loss of $124.4 million representing the impairment of advance payments and capitalized interest on the newbuilding jack-up rigs "Tivar", "Huldra", and "Heidrun" as well as a $7.3 million impairment loss on the contract backlog asset was fully depreciated during 2019.jack-up rig "Gyme", both following an impairment review as a result of the Company entering into agreements to the sell the newbuildings and jack-up rig. The three newbuildings and the jack-up rig were subsequently sold.
Our generalGeneral and administrative expenses were $49.1increased by $8.3 million to $45.1 million for the year ended December 31, 2020, which2023 compared to $36.8 million in 2022. This was comparableprincipally due to an increase by $3.0 million in relation to costs associated with $50.4the issuance of share options and performance stock units to certain employees as well as various insignificant movements associated with general corporate activities.
Other non-operating income
Other non-operating income was nil for the year ended December 31, 2023 compared to $2.0 million for 2019 and reflectsin 2022. In 2022, we recognized $2.0 million in relation to an amendment to a historical agreement to recycle one of our onshore base costs including our corporate offices.jack-up rigs.
Income from Equity Method Investments
Income from equity method investments
Our income from equity method investments was $9.5 increased by $3.7 million to $4.9 million for the year ended December 31, 2020,2023 compared to a loss of $9.0$1.2 million for the year ended 2019. The increase of $18.5 million2022. This was principally as a result of an increase in number of operating rigs from two in 2019 to five in 2020 in addition to improved operating margins for the integrated well services segment.net foreign exchange gains.
Total Financial Expenses, netTotal financial expenses, net, include the following items:
Our total | | | | | | | | | |
| For the Year Ended December 31, | |
| (in $ millions) | 2023 | 2022 | |
| Interest income | (4.9) | | (5.4) | | |
| Interest expenses | 177.2 | | 139.2 | | |
| Other financial expenses, net | 26.9 | | 41.9 | |
| Total financial expenses, net | 199.2 | | 175.7 | | |
Total financial expenses, net was a loss of $122.9increased by $23.5 million to $199.2 million for the year ended December 31, 20202023 compared to a loss of $128.1$175.7 million for 2019. The main reason for the decrease of financial expenses of $5.22022.
Interest income decreased by $0.5 million in 2020 is a realised gain on financial instruments of $1.5 million in 2020 compared to a loss on marketable debt securities of $15.4 million in 2019, as in 2020 we settled in full our forward position and took delivery of 4.2 million shares in Valaris plc which we then subsequently sold at a gain of $1.5 million. In addition, $5.6 million was recorded as loan fees related to settled debt in 2019, with no comparative item in 2020. This was offset by an increase in interest expense of $87.4 million in 2020 compared to $70.4 million in 2019 driven by incremental debt increase of $196.4 million as a result of the issuance of $181.8 million of debt as non-cash settlement for newbuild delivery installments on the Heimdal and Hild rigs.
Income Tax Expense
Our income tax expense for the year ended December 31, 2020 was $16.2 million, compared to $11.2 million for 2019, an increase of $5.0 million which reflects increased activity in higher tax jurisdictions, specifically in Mexico and Asia.
Year ended December 31, 2019 compared to the Year ended December 31, 2018
The following table summarizes our results of operations for the years ended December 31, 2019and 2018:
| | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2019 | | 2018 |
| (in $ millions) |
| SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS DATA: | | | |
| Operating revenues | $ | 334.1 | | | $ | 164.9 | |
| Gain from bargain purchase | — | | | 38.1 | |
| Gain on disposals | 6.4 | | | 18.8 | |
| Operating expenses | (491.3) | | | (353.2) | |
| Operating loss | $ | (150.8) | | | $ | (131.4) | |
| Income/(loss) from equity method investments | (9.0) | | | — | |
| Total financial expenses, net | (128.1) | | | (57.0) | |
| Income tax expense | (11.2) | | | (2.5) | |
| Net loss | $ | (299.1) | | | $ | (190.9) | |
| Other comprehensive income | 5.6 | | | 0.6 | |
| Total comprehensive loss | $ | (293.5) | | | $ | (190.3) | |
Operating Revenues
Our operating revenues were $334.1$4.9 million for the year ended December 31, 2019,2023 compared to $164.9$5.4 million for 2018. The increase of $169.2 millionin 2022. This was primarilyprincipally due to an increased numbera decrease of rigs on contract in 2019 compared to 2018. The “Odin”, “Gerd”, “Groa”, “Ran”, “Natt” and “Idun” rigs entered into dayrate contracts in 2019. The “Grid” and “Gersemi” rigs entered into bareboat contracts in September 2019 providing $2.4$4.0 million of revenue during the year. There were no rigs on bareboat contracts in 2018. All of these rigs entering into contracts in 2019 were premium jack-up rigs.
In addition, we had substantially higher reimbursable revenue from rebilling costs in 2019 compared to 2018 withinterest income from our joint ventures offset by an increase of $17.5$3.5 million coming from reimbursement of logistic services and rebilled management fees coming from our operation in Mexico alone.interest income on term deposits.
Offsetting thisInterest expenses increased activity was a decrease in revenues generated by the “B391”, “C20051” and “B152”, all of which contributed more dayrate revenue from contracts in 2018 than in 2019. The “B391” and “B152” rigs are non-premium jack-up rigs and are currently warmed stacked. The “C20051”, along with the “Baug” and the “Eir”, were sold in May 2019. None of these rigs have been on contract through 2019 or 2018. As of December 31, 2019, the sale of “Eir” had not been concluded so it was classified within jack-up drilling rigs held for sale. The vessel was sold in October 2020.
Gain from Bargain Purchase
Our gain from bargain purchase was $nil$38.0 million to $177.2 million for the year ended December 31, 20192023 compared to $38.1$139.2 million for 2018 which relates2022. This was principally due to the following increases:
•$32.0 million increase in interest expense associated with amendments made to our acquisitionvarious financing facilities and the issuance of Paragon Offshore. This represents our determination thatNotes due in 2028 and 2030 and repayment of existing secured debt during 2023;
•$11.6 million increase in loss on debt extinguishment associated with the purchase price paid to acquire the business was lower than the fair valuerepayment of the assets$150 million senior secured bonds and liabilities acquired.facility with Hayfin Services LLP; and
Gain on Disposals•$3.4 million increase in amortization of deferred finance charges and debt discounts.
OurThese increases were offset by a $9.0 million increase in gain on disposals was $6.4debt extinguishment associated with the repayment of the shipyard delivery financing arrangements with PPL and Seatrium and the DNB Facility.
Other financial expenses, net, decreased by $15.0 million to $26.9 million for the year ended December 31, 2019,2023 compared to $18.8$41.9 million for 2018. We sold three jack-up rigs in 2019 for total proceeds of $9 million of which $3 million2022. This was received in 2020. We sold 18 jack-up rigs during 2018, 16 of which we acquired in the Paragon Transaction, for total proceeds of $37.6 million.
Operating Expenses
Operating expenses includeprincipally due to the following items:decreases:
| | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2019 | | 2018 |
| (in $ millions) |
| Rig operating and maintenance expenses | $ | 307.9 | | | $ | 180.1 | |
| Depreciation of non-current assets | 101.4 | | | 79.5 | |
| Impairment of non-current assets | 11.4 | | | — | |
| Amortization of acquired contract backlog | 20.2 | | | 24.2 | |
| General and administrative expenses | 50.4 | | | 38.7 | |
| Restructuring costs | — | | | 30.7 | |
| Operating expenses | $ | 491.3 | | | $ | 353.2 | |
Our operating•$6.1 million decrease in yard cost cover expenses as a result of the disposal of jack-up rig "Tivar" during the quarter ended December 31, 2022.
These decreases were $491.3offset by a $1.9 million increase in foreign exchange losses.
Income Tax Expense
Income tax expense increased by $15.6 million to $34.0 million for the year ended December 31, 2019,2023 compared to $353.2$18.4 million for 2018. The increase of $138.0 million2022. This is primarilyprincipally due to an incrementalthe following:
•$17.7 million increase relatingdue to five additional operating rigsincreased profitability in 2019Africa;
•$7.8 million increase due to increased operations and profitability in Asia;
•$5.2 million increase due to increased bareboat revenues in Mexico;
•$4.4 million increase due to increased operations in the Middle East; and
•$4.4 million increase due to increased operations in Mexico.
These increases were offset by a $16.5 million release of valuation allowance on deferred tax assets and a $9.3 million release of uncertain tax position in 2023.
Year ended December 31, 2022 compared to 2018, including the “Grid” and “Gersemi” which are not operated by us, but by oneyear ended December 31, 2021
For a discussion of our equity method investments “Perfomex”. In addition, our overall fleet has increased to 28 rigs as of December 31, 2019 compared to 27 rigs as of December 31, 2018.
Our rig operating and maintenance expenses, including stacking costs, were $307.9 millionresults for the year ended December 31, 2019,2022 compared to rig operatingthe year ended December 31, 2021, please see “Item 5. Operating and maintenance expenses of $180.1 million for 2018.
Our rig operatingFinancial Review and maintenance expensesProspects A. Operating Results – Year ended December 31, 2022, compared to the year ended December 31, 2021” contained in our annual report on Form 20-F for the year ended December 31, 2019 consisted of $21.4 million in rig maintenance expenses, which includes stacking costs, and $286.5 million in rig operating expenses. The increase of $127.8 million from 2019 compared to 2018 was primarily driven by increased operational activity relating to2022 filed with the larger operational fleet offset by cost control measures to reduce daily stacking cost. Our rig operating and maintenance expenses for the year ended December 31, 2019 also include $22.4 million related to amortization of mobilization costs compared with $12.0 million for 2018. For 2018, rig operating and maintenance expenses consisted of $59.0 million in rig maintenance expenses and $121.1 million in rig operating expenses. The increase in rig operating expenses of $165.4 million for 2019 compared to 2018 reflects the significantly higher number of jack-up rigs in operation throughout the period.
Our depreciation charge was $101.4 million for the year ended December 31, 2019, compared to $79.5 million for 2018, which was partially a result of the delivery of five rigs in 2019 compared to 2018, and partially a result of the sale of some older, fully depreciated assets which were sold during 2019.
Impairment of non-current assets was $11.4 million for the year ended December 31, 2019, whereas we did not take an impairment charge during 2018. The impairment charge in 2019 related to a rig classified as held for sale, the “Eir” for which the book value of the rig was reduced to its agreed sale value.
Amortization of acquired contract backlog was $20.2 million for the year ended December 31, 2019, compared to $24.2 million for 2018. The decrease of $4.0 million was the result of contract backlog asset fully depreciating during 2019.
Our general and administrative expenses were $50.4 million for the year ended December 31, 2019, compared to $38.7 million for 2018. The increase was a result of increased number of employees, office leases and professional costs due to the significant growth in operations and contractual activity.
Our restructuring costs were $nil million for the year ended December 31, 2019, compared to $30.7 million for 2018. Costs in 2018 relate to costs incurred in connection with closure of certain offices following the Paragon Transaction, including termination payments to certain Paragon employees and lease agreement counterparties following the Paragon Transaction, which was completed in 2018.
Income/(loss) from equity method investments
Our loss from equity method investments was $9.0 million for the year ended December 31, 2019, whereas we did not record any loss or gain for 2018, due to the entry into our Mexican joint venture in 2019.
Total financial expenses, net
Our total financial expenses, net was a loss of $128.1 million for the year ended December 31, 2019 compared to a loss of $57.0 million for 2018. The main reasons for the increase in loss of $71.1 million in 2019 are interest expense of $70.4 million in 2019 compared to $13.7 million in 2018 driven by incremental debt increase of $535.2 million: an increase in unrealized lossesSEC on forward contracts of $15.0 million, to $29.2 million in 2019 compared to $14.2 million in 2018 and which relates to market to market adjustments in connection with our investments in shares of Valaris PLC; and realized losses on financial instruments of $15.4 million compared to $nil million in 2018 relating to our investment in debt securities of Oro Negro. These increased expenses were partly offset by a decrease in mark to market expenses of $25.2 million related to our call spread derivative.
Income Tax Expense
Our income tax expense for the year ended December 31, 2019 was $11.2 million, compared to $2.5 million for 2018, an increase of $8.7 million which reflects our increased activity and significant growth in our deployed fleet, especially in West Africa and Mexico.March 30, 2023.
B.LIQUIDITY AND CAPITAL RESOURCES
Short-TermLiquidity and Cash Requirements
Historically, we have met our liquidity needs principally from proceeds fromofferings of equity, offerings and our convertible bonds cash generated from operations, availabilityand secured bonds, available funds under our Financing Arrangements,financing arrangements and secured loan facilities, including the shipyard delivery Financing Arrangementsfinancing arrangements related to our newbuild rigs and revolving credit facilities, cash generated from operations, and sale of non-core assets.
Our primary uses of cash during 2020the year ended December 31, 2023 were operating expenses, investing activities including capital expenditures mainly related to activations and re-activations of jack-up rigs, purchase of marketable securities arising from settlement of previously entered into forward contract for shares, funding into our equity method investments,and interest payments and income tax payments.
During 2020 and 2019, our capital expenditures associated with our newbuild rigs, including deferred costs, were $181.8 million and $302.0 million, respectively, of which $181.8 million in 2020 and $177.9 million in 2019 was settled by issuing long term debt.
Capital expenditures related to contract preparation, purchase and refurbishment of rig equipment, and other investments are highly dependent on how many jack-up rigs we activate or reactivate,re-activate, which is in turn dependent on the number of contracts we are able to secure. We funded our 20202023 capital expenditures and deferred costs using available cash and cash flows from operations, proceeds from our various share issuances (discussed below) and proceeds from long term debt and from share issuances.financings. We expect our funding sources to be similar in 2021,2024, primarily using available cash and cash flows from operations, as well as potentiallypotential debt and equity financings.financings, although there is no assurance wethat future equity raises or debt financings will be able to complete any necessary financings. During 2020 we raised $60.2 million and in January 2021, we raised a further $46 million in equity financing.available.
Our primary commitments for capital expenditures relate to contracts to acquire five newbuild premium jack-up rigs from Keppel to be delivered in 2023. The total price of these jack-up rigs is $742.5 million.
Our sources of liquidity consist of cash and cash equivalents excluding restricted cash, plus cash generated from operations and available amounts under our financing arrangements (if any). As of December 31, 20202023 we had $19.2$102.5 million in cash and cash equivalents compared to $59.1 million as of December 31, 2019. In addition, as of December 31, 2020, we had $10 million and $20 million undrawn under our Syndicated Facility and New Bridge Facility, respectively and which is available only with the consent from all lenders. (December 31, 2019: $35.0$0.1 million in total underrestricted cash.
Our funding and treasury activities are conducted within our Syndicated Facilityestablished corporate policies and are intended to maximize investment returns in light of our New Bridge Facility).
We are dependent on cash generated by our subsidiaries which are subject to legal and contractual restrictions. See the section entitled "Item 3.D.Risk Factors - 3.D. Risk Factors—Risk Factors related to our business -business". We are a holding company and are dependent upon cash flows from subsidiaries and equity method investments to meet our obligations. If our operating subsidiaries or equity method investments experience sufficiently adverse changes in their financial condition or results of operations, or we otherwise become unable to arrange further financing to meet our liquidity requirements to satisfy our debt or other obligations as they become due, we may become subject to insolvency proceedings,proceedings.
As of the date of this report, we believe that our cash flow from operations, together with our cash and cash equivalents, will meet our anticipated capital expenditure commitments, working capital requirements, our debt obligations and our debt covenants, for the next 12 months. Please refer to Note 1 - General of our Audited Consolidated Financial Statements included herein.
Going Concern assumption
The Company has incurred significant losses since inception and may be dependent on additional financing in order to fund future losses that may arise in the next 12 months if the Company's rigs are unable to secure continued work or if payments from its customers, particularly in Mexico, does not improve or deteriorates, and to meet capital expenditure commitments mainly for activations of newbuild rigs. In addition the Company is experiencing the impact of current unprecedented market conditions and the global market reaction to the COVID-19 pandemic. At this stage the Company cannot predict with reasonable accuracy the impact on the Company. In 2020, the Company received early termination notices for three ongoing contracts and one cancellation of an upcoming contract. The negative cash effects as a result of any future contract terminations further could create need for additional financing.
This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements included in this annual report on Form 20-F do not include any adjustments that might result from the outcome of this uncertainty.Equity Offerings
To help improveDuring the Company's liquidity situation the company raised new equity of $60.2 million in 2020. We entered into debt amendments in June (see Borrowing Activities below), with further amendments announced on September 30, 2020, to the Syndicated Facility and Hayfin Facility, subject to certain conditions including the shipyards agreeing the same. The key announced amendments were: (i) extend the maturity on the Syndicated Facility and the Hayfin Facility to January 2023, (ii) no bank debt amortization before maturity, (iii) amending the level of the minimum cash covenant until expiry of the Syndicated Facility and the Hayfin Facility, (iv) extend the maturity of interest payments due September 30, 2020 andyear ended December 31, 2020 with the banks by 12 months, and (v) defer requirement to replenish the minimum restricted liquidity account with Hayfin until September 30, 2021.
In January 2021, we completed the amendments to the Syndicated Facility and Hayfin Facility described in the preceding paragraph and2023, in connection with those amendments,the $250.0 million Convertible Bonds (see "Our Existing Indebtedness"), we amended certainentered into a share lending agreement with the intention of our shipyard financing agreements, whereby we are requiredmaking up to pay $12 million in 2021 and $24 million in 2022,25,000,000 common shares available to our shipyards, in orderlend to defer debt amortization, interest payments and maturity payments (including delivery paymentsDNB for five newbuild rigs) into 2023. As a conditionthe purposes of these agreements, we raised a gross amount of $46 million in new equity in January 2021. The completion of admendments to shipyard agreements and equity raise, satisfiedallowing the conditions precedent to the Syndicated Facility and the Hayfin Facility in September 2020 discussed above. All of these amendments were effective on January 30, 2021.
We will continue to explore additional financing opportunities and strategic sale of a limited number of modern jack-ups in order to further strengthen the liquidityholders of the Company. While$250.0 million Convertible Bonds to perform hedging activities on the Oslo Stock Exchange (see Note 28 - Stockholders' Equity). In connection with this arrangement, during the year ended December 31, 2023, we issued 25,000,000 shares at par value, which were repurchased into treasury.
As of December 31, 2023, 14,443,270 shares have confidence that these actions will enable usbeen issued to better manage our liquidity position, and we have a track recordDNB Markets by the Company under the share lending agreement for the purpose of delivering additional financing and selling rigs, there is no guarantee that any additional financing or sale measures will be concluded successfully.allowing the Convertible Bond holders to perform hedging activities on the Oslo Stock Exchange. For more information see Note 28 - Stockholders' Equity.
Cash FlowsIn October, 2023, the Company conducted a private placement of new shares of NOK equivalent to $50 million by issuing 7,522,838 new common shares of par value $0.10 each at a subscription price of NOK equivalent to $6.6464 per share and, as a result, the Company's issued number of shares increased to 264,080,391 common shares of par value $0.10 each.
Our cash flowsIn addition, during the year ended December 31, 2023, we sold and issued 1,293,955 shares of par value $0.10 each under our ATM program, raising gross proceeds of $9.7 million and net proceeds of $9.6 million, with compensation paid by the Company to Clarksons Securities of $0.1 million.
Following the October 2023 private placement and issuance of shares under our share lending agreement and ATM program, the Company's issued number of shares increased to 264,080,391, as of December 31, 2023.
For details of the Company's equity offerings for the years ended December 31, 2020, 20192023 and 2018 are presented below:2022, see Note 28 - Stockholders' Equity of our Audited Consolidated Financial Statements included herein.
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (in $ millions) |
| Net Cash Used in Operating Activities | $ | (54.8) | | | $ | (89.0) | | | $ | (135.2) | |
| Net Cash Used in Investing Activities | (119.7) | | | (271.1) | | | (560.1) | |
| Net Cash Provided by Financing Activities | 65.2 | | | 397.3 | | | 583.5 | |
| Net Change in Cash and Cash Equivalents | $ | (109.3) | | | $ | 37.2 | | | $ | (111.8) | |
Long-Term Liquidity and Cash Flows Used in Operating ActivitiesRequirements
NetOur long-term liquidity and cash usedrequirements are primarily for funding our activation projects, repaying our debt and interest obligations as well as cash requirements in operating activities was $54.8 million during the year ended December 31, 2020, comparedrelation to $89.0 million used intaking delivery of rigs under construction. Sources of funding for our long-term requirements include cash from operations, during the year ended December 31, 2019. The decreaserefinancing of $34.2 million was primarily due to movements in working capital. Included within net cash used in operating activities during the year ended December 31, 2020, are interest paymentsour existing financing arrangements, delivery financing from shipyards and equity offerings. See Note 1 - General of $40.1 million, net of capitalized interest and income tax payments of $8.6 million; compared with interest payments, net of capitalized interest of $69.0 million and $1.3 million used in operations during the year ended December 31, 2019.our Audited Consolidated Financial Statements included herein for our going concern assessment.
Capital Expenditures Commitments
Net cash used in operating activities was $89.0 million during the year ended December 31, 2019, compared to $135.2 million used in operations during the year ended December 31, 2018 The decrease of $46.2 million was primarily due to a reduction in our net loss in the year, reduced by non-cash items and movements in working capital. Included within net cash used in operating activities during the year ended December 31, 2019, are interest payments of $69.0 million, net of capitalized interest and income tax payments of $1.3 million compared with interest payments , net of capitalized interest and income tax payments of $8.6 million and $3.2 million respectively used in operations during the year ended December 31, 2019.
Cash Flows Used in Investing Activities
Net cash used in investing activities was $119.7 millionOur primary commitments for the year ended December 31, 2020, compared to $271.1 million for year ended December 31, 2019. Payments in 2020 primarilycapital expenditures relate to the purchase of marketable securities to settle forward contracts of $92.5 million (2019: purchase of marketable securities of $6.9 million), offset by proceeds from sale of marketable securities of $31.3 million mainly relating to our Oro Negro debt instruments) and $37.4 million payments in respect ofnewbuild jack-up drilling rigs (2019 : $127.3 million) relating to activation costs of newbuilds. This was offset by higher proceeds from sale of fixed assets in 2020 of $37.7 million ( 2019: $7.1 million).Seatrium.
Net cash usedWe acquired five newbuildings in investing activities was $271.1 million forconnection with the year ended December 31, 2019, compared to $560.1 million for year ended December 31, 2018. Payments in 2019 primarily relate to payments in respect of jack-up drilling rigs of $142.6 million, payments and costs in respect of jack-up rigs of $127.3 million (mainly relating to activation costs of newbuilds), funding in respect of our equity method investments in Mexico of $30.8 million and purchase of marketable securities of $6.9 million, offset by proceeds from sale of marketable securities of $31.3 million mainly relating to our Oro Negro debt investments and proceeds from sale of fixed assets of $7.1 million. Payments in 2018 primarily related to costs in respect of newbuildings of $362.4 million, payments to acquire Paragon Offshore, net of cash acquired of $195.1 million, purchase of marketable securities of $13.0 million, payments and costs in respect of jack-up drilling rigs of $23.4 million and purchase of plant and equipment of $7.8 million, offset by proceeds from the sale of rigs of $41.6 million.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities was $65.2 million for the year ended December 31, 2020, compared to $397.3 million for the year ended December 31, 2019. Proceeds from share issuance, net of issuance costs were $60.2 million in 2020, compared with $49.2 million in 2019. Proceeds from issuance of long-term debt, net of deferred loan costs were $5.0 million in 2020. In 2019, proceeds from issuance of long-term debt, net of deferred loan costs were $679.6 million, and proceeds from
issuance of short-term debt, net of deferred loan costs were $58.5 million offset in 2019 by the repayment of long-term debt of $390.0 million.
Net cash provided by financing activities was $397.3 million for the year ended December 31, 2019, compared to $583.5 million for the year ended December 31, 2018. Our financing activities in the year ended December 31, 2019 relate to proceeds, net of deferred loan costs, from issuance of long-term debt of $679.6 million, proceeds, net of deferred loan costs, from issuance of short-term debt $58.5 million, proceeds from share issuance, net of issuance costs and conversion of shareholders loans of $49.2 million, offset by repayment of long-term debt $390.0 million. Proceeds from financing activities in 2018 primarily related to proceeds from long-term debt, net of deferred loan costs, of $474.4 million, proceeds from share issuance net of issuance costs of $218.9 million, proceeds from a shareholder loan of $27.7 million, offset by repayment of long-term debt of $89.3 million and purchase of financial instruments and purchase of treasury shares of $19.7 million.
Equity Offerings
Set forth below is an overview of key information relating to our equity offerings in 2018 through 2020 and January 2021.
Share issuances post December 31, 2020
On January 22, 2021, we conducted a private placement of $46 million by issuing 54,117,647 new depository receipts at a subscription price of $0.85 per depository receipt.
Details of shares issuances in 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Date of Issue | | Type of Listing | | Exchange | | Shares issued | | Price per share $ | | Gross Proceeds (in $ millions) |
| June 5, 2020 | | Private placement | | Oslo | | 46,153,846 | | | $ | 0.65 | | | 30.0 |
| October 5, 2020 | | Private placement | | Oslo | | 51,886,793 | | | $ | 0.53 | | | 27.5 |
| November 30, 2020 | | Subsequent (repair) offer | | Oslo | | 10,000,000 | | | $ | 0.53 | | | 5.3 |
| Totals for 2020 | | | | | | 108,040,639 | | | | | 62.8 | |
Details of Share issuances in 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Date of Issue | | Type of Listing | | Exchange | | Shares issued | | Price per share $ | | Gross Proceeds (in $ millions) |
| August 2, 2019 | | Public offering | | New York | | 5,000,000 | | | $ | 9.30 | | | 46.5 |
| August 2, 2019 | | Public offering | | New York | | 750,000 | | | $ | 9.30 | | | 7.0 |
| Totals for 2019 | | | | | | 5,750,000 | | | | | 53.5 | |
Shares issuances in 2018
On June 21, 2019 the Board of Directors approved a 5-to-1 reverse share split of the Company’s shares. Upon effectiveness of the Reverse Split, every five shares of the Company’s issued and outstanding ordinary shares, par value $0.01 per share was combined into one issued and outstanding ordinary share, par value $0.05 per share. Shares issued and price per share reflect this reverse share split:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Date of Issue | | Type of Listing | | Exchange | | Shares issued | | Price per share $ | | Gross Proceeds (in $ millions) |
| March 23, 2018 | | Private placement | | Oslo | | 9,341,500 | | | $ | 23.00 | | | 211.6 |
| May 30, 2018 | | Private placement | | Oslo | | 1,528,065 | | | $ | 23.00 | | | 35.2 |
| Totals for 2018 | | | | | | 10,869,565 | | | | | 246.8 | |
Our Existing Indebtedness
Key Borrowing Facilities
Our loan financing arrangements include our Hayfin Facility, Syndicated Senior Secured Facility and New Bridge Revolving Facility agreements entered into in June 2019, which collectively provided $745 million in financing, we used to refinance existing loan facilities. We agreed amendments to our secured facilities with our secured lenders in June 2020 and further amendments in January 2021. Set forth below is a description of these facilities.
Hayfin Term Loan Facility.
On June 25, 2019, we entered into a $195.0 million senior secured term loan facility agreement with funds managed by Hayfin Capital Management LLP, as lenders, among others. Our wholly-owned subsidiary, Borr Midgard Assets Ltd., is the borrower under the Hayfin Facility, which is guaranteed by Borr Drilling Limited and secured by mortgages over three of our jack-up rigs, pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs (collectively the “Ring Fenced Entities”) and general assignments of rig insurances, certain rig earnings, charters, intra-group loans and management agreements from our related rig-owning subsidiaries. Our Hayfin Facility originally matured in June 2022. Following amendments to the loan agreements with conditions which were fulfilled in January 2021 the lenders agreed to defer the maturity date to January 2023. The Hayfin Facility agreement includes a make-whole obligation if repaid during the first twelve months and, thereafter, a fee for early prepayment and final repayment.Transocean Transaction. As of December 31, 2020,2023 two rigs have been delivered ("Saga", "Skald") in 2018, one was sold ("Tivar") in 2022 and two remain under construction ("Vale" and "Var"). We may exercise an option to take delivery financing from Seatrium. with respect to “Vale” and “Var” of $130 million for each rig, subject to certain conditions. In September 2023, we amended the facility was fully drawnconstruction contract with Seatrium for the Vale and we had $195.0 million outstanding under our Hayfin Facility. The facility bears interest at a rate of LIBOR plus a specified margin.
Our Hayfin Facility agreement contains various financial covenants, including, the following covenantsVar and gave notice to expedite their delivery dates which were amendedthe third quarter of 2025, on a best efforts basis only, to August 2024 and November 2024, respectively, in June 2020:
| | | | | | | | | | | |
| Original | | June 2020 Amendments |
Minimum liquidity requirements | three months interest on the facility at times when the jack-up rigs providing security are not actively operating under an approved drilling contract. | | No Minimum Liquidity requirement until January 1, 2021 when minimum liquidity of three months interest ($2.4million at the time) requires replenishment |
Value to Loan Ratio* | 175% of loan value | | 175% of loan value |
*ratio of market values of assets to the outstanding loan facility amount
The facility also contains various covenants which restrict distributions of cash from Borr Midgard Holding Ltd., Borr Midgard Assets Ltd. and our related rig-owning subsidiaries to us or our other subsidiaries and the management fees payable to Borr Midgard Assets Ltd.’s directly-owned subsidiaries. Our Hayfin Facility agreement also contains customary events of default which include any change of control, non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the Hayfin Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders
under our Hayfin Facility may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional security as a condition of not doing so. The lenders under our Hayfin Facility may also require replacement or additional security if the market value of the jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant. On December 30, 2020, the Company received waivers for certain covenants which were applicable both at December 31, 2020 and up to finalization of the 2021 Amendments (see note 32 of the consolidated financial statements). As part of the amendments agreed in January 2021, the threshold of the minimum value to loan covenant was lowered from 175% to 140%. Following these amendments being formalized in January 2021, the Company was in compliance with the requirements of the amended value to loan covenant.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
Syndicated Senior Secured Credit Facilities
On June 25, 2019, we entered into a senior secured credit facilities agreement with DNB Bank ASA, Danske Bank, Citibank N.A., Jersey Branch and Goldman Sachs Bank USA, as lenders, among others. The senior credit facilities comprised a $230 million credit facility, $50 million newbuild facility (which in 2020 was cancelled), $70 million facility for the issuance of guarantees and other trade finance instruments as required in the ordinary course of business and a $100 million incremental facility subject to transferring both secured rigs by the New Bridge Revolving Credit Facility (outlined below). In total $450 million of commitments, or $400 million following the cancellation of the newbuild facility. This agreement was amended on September 12, 2019, when Clifford Capital Pte. Ltd. became a new lender with a commitment of $25 million and one rig as security was transferred from the New Bridge Revolving Credit Facility utilizing $50 million of the incremental facility. On December 23, 2019 certain financial covenants were amended and again in June 2020 when certain amortization payments due in 2021 were deferred and financial covenants amended as outlined below. Our obligations under our Syndicated Facility are secured by mortgages over seven of our jack-up rigs, pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs and general assignments of rig insurances, certain rig earnings, charters, intra-group loans and management agreements from our related rig-owning subsidiaries. The terms of the facility allowconsideration for an additional jack-uppayment of $12.5 million acceleration cost per rig Odin, currently securedpayable on each respective delivery date. The remaining contracted installments, including the acceleration costs, for these two rigs under the New Bridge Facility, to be transferred to our Syndicated Facility if thereconstruction, payable on delivery, are incremental commitments from other financiers in the Syndicated Facility (in which case the New Bridge Facility would be repaid at that time).
Our Syndicated Facility originally matured in June 2022. Following amendments to the loan agreement and conditions which were fulfilled in January 2021 the lenders agreed to defer the maturity date to January 2023. This facility bears interest at a rate of LIBOR plus a specified margin.
Our Syndicated Facility agreement contains various financial covenants. In June 2020, the lenders agreed to amend the terms of some of the covenants, and the dates of certain amortization payments which otherwise would have occurred in 2021 to occur on the original maturity date in the second quarter of 2022. The key covenants are listed below:
approximately
| | | | | | | | | | | |
| Original | | June 2020 Amendments |
| Minimum liquidity requirements | From December 31, 2020 greater of $50 million and 3% of net interest-bearing debt | | Cash requirement: $5 million until December 31, 2020; $10 million from and including January 1, 2021 to and including June 30, 2021; $15 million from and including July 1, 2021 to and including September 30, 2021;$20 million from and including October 1, 2021 to and including December 31, 2021. Thereafter greater of $30 million and 3% of net interest-bearing debt |
| Working Capital | Maintain Positive Working Capital | | Maintain Positive Working Capital |
| Debt service cover ratio | 1.25x of our interest and related expenses | | 1.25x of our interest and related expenses from January 1, 2022 |
| Book Equity Ratio | 33.3% | | 25% up to December 31, 2021 and 40% thereafter |
| Value to Loan Ratio* | 175% | | 175% |
*ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the facility.
The Syndicated Facility agreement also contains various covenants, including, among others, restrictions on incurring additional indebtedness and entering into joint ventures; covenants subjecting dividends to certain conditions which, if not met, would require the approval of our lenders prior to the distribution of any dividend; restrictions on the repurchase of our shares; restrictions on changing the general nature of our business; and restrictions on Tor Olav Trøim ceasing to serve on our Board. Furthermore, a change of control results if Mr. Tor Olav Trøim does not maintain ownership of at least six million shares (subject to adjustment for certain transactions). Our Syndicated Facility agreement also contains customary events of default which include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the Syndicated Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional security as a condition of not doing so. The lenders may also require replacement or additional security if the market value of the jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant. In addition, our Syndicated Facility contains a “Most Favored Nation” clause giving the lenders a right to amend the financial covenants to reflect any more lender-favorable covenants in any other agreement pursuant to which loan or guarantee facilities are provided to us, including amendments to our Financing Arrangements.
As of December 31, 2020, we had $270.02023 ($294.8 million outstanding under our Syndicated Facility; in addition we have a $70 million guarantee line under the Syndicated Facility, of which $43.3 million has been utilized. Asas of December 31, 2020, there was $102022), of which Seatrium has committed to finance $130 million undrawn underfor each rig, with a four-year maturity, subject to a right for the facility which may only be drawn atlender to call the discretion of all lenders. On December 30, 2020,loan after three years, with repayments beginning on the Company received waivers for certain covenants which were applicable both at December 31, 2020 and up to finalizationfirst anniversary of the 2021 Amendments (see note 32 of the consolidated financial statements). As part of the amendments agreed in January 2021, the threshold of the minimum value to loan covenant was lowered from 175% to 140%. Following these amendments being formalized in January 2021, the Company was in compliance with the requirements of the amended value to loan covenant.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
New Bridge Revolving Credit Facility
On June 25, 2019, we entered into a $100 million senior secured revolving loan facility agreement with DNB Bank ASA and Danske Bank, as lenders, originally secured by mortgages over two of our jack-up rigs, assignments of intra-group loans, rig insurances and certain rig earnings and pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs. In connection with our utilization of the first incremental tranche under our Syndicated Facility in September 2019, the security over one of the rigs, “Ran”, was released and the facility amount was reduced to $50 million and $50 million was repaid and transferred into the Syndicated Senior Secured Credit Facilities. Our New Bridge Facility agreement was amended on October 30, 2019, when certain changes were made to the margin. On December 23, 2019 when certain financial covenants were amended, and some changes were made to the security documents in connection with an internal sale of the shares in a rig owner and again in June 2020 when certain amortization payments due in 2021 were deferred and financial covenants were further amended as outline below.
Our New Bridge Facility originally matured in June 2022, with amortization starting in 2021. Following amendments to the loan agreement and conditions which were fulfilled in January 2021, the lenders agreed to defer the maturity date to January 2023 without amortization.
This facility bears interest at a rate of LIBOR plus a specified margin. As of December 31, 2020, we had $30 million outstanding under our New Bridge Facility and $20 million was undrawn under our New Bridge Facility, which may be drawn with the consent of all of the lenders.
Our New Bridge Revolving Credit Facility agreement contains various financial covenants. In June 2020, the lenders agreed to amend the terms of some of the covenants, and the dates of certain amortization payments which otherwise would have occurred in 2021 were amended to occur on maturity in the second quarter of 2022. The key covenants are listed below:
| | | | | | | | | | | |
| Original | | June 2020 Amendments |
| Minimum liquidity requirements | From December 31, 2020 greater of $50 million and 3% of net interest-bearing debt | | Cash requirement: $5 million until December 31, 2020; $10 million from and including January 1, 2021 to and including June 30, 2021; $15 million from and including July 1, 2021 to and including September 30, 2021;$20 million from and including October 1, 2021 to and including December 31, 2021. Thereafter greater of $30 million and 3% of net interest-bearing debt and ring fenced liquidity. |
| Working Capital | Maintain Positive Working Capital | | Maintain Positive Working Capital |
| Debt service cover ratio | 1.25x of our interest and related expenses | | 1.25x of our interest and related expenses from January 1, 2022 |
| Book Equity Ratio | 33.3% | | 25% up to December 31, 2021 and 40% thereafter |
| Value to Loan Ratio* | 175% | | 175% |
*ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the facility.
The agreement also contains various covenants, including, among others, restrictions on incurring additional indebtedness and entering into joint ventures; covenants requiring the approval of our lenders prior to the distribution of any dividends; and restrictions on the repurchase of our shares; restrictions on changing the general nature of our business; restrictions on Mr. Tor Olav Trøim ceasing to serve on our Board. Furthermore, a change of control results if Mr. Tor Olav Trøim does not maintain ownership of at least six million shares (subject to adjustment for certain transactions). Our New Bridge Facility agreement also contains customary events of default which include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the New Bridge Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional security as a condition of not doing so. The lenders may also require replacement or additional security if the market value of the jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant. In addition, our New Bridge Facility contains a “Most Favored Nation” clause giving the lenders a right to amend the financial covenants to reflect any more lender-favorable covenants in any other agreement pursuant to which loan or guarantee facilities are provided to us, including amendments to our Financing Arrangements. On December 30, 2020, the Company received waivers for certain covenants which were applicable both at December 31, 2020 and up to finalization of the 2021 Amendments (see note 32 of the consolidated financial statements). As part of the amendments agreed in January 2021, the threshold of the minimum value to loan covenant was lowered from 175% to 140%. Following these amendments being formalized in January 2021, the Company was in compliance with the requirements of the amended value to loan covenant.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
Our Delivery Financing Arrangements
In addition to three jack-up rigs which we have taken delivery of against full payment to Keppel, we had contracts with Keppel to take delivery of five jack-up rigs under construction as of year end 2020. For two of our newbuild jack-up rigs under construction at Keppel and ten additional jack-up rigs which have been delivered from PPL and Keppel, we have agreed to accept and accepted, respectively, delivery financing from the yards subject to the terms described below. Additionally, we have the option to take on delivery financing for four of the jack-up rigs to be delivered from Keppel.
PPL Newbuild Financing
In October 2017, we agreed to acquire nine premium “Pacific Class 400” jack-up rigs from PPL (the “PPL Rigs”). All nine PPL Rigs have been delivered as of the date of this annual report. In connection with delivery of the PPL Rigs, our rig-owning subsidiaries as buyers of the PPL Rigs agreed to accept delivery financing for a portion of the purchase price equal to $87.0 million per jack-up rig (the “PPL Financing”). The financing also includes a mechanism for certain fees payable in connection with increases in the market values of the relevant PPL Rigs above a certain level from October 31, 2017 until the repayment date. Please see notes 14 and 22 to our Consolidated Financial Statements for more information.
The PPL Financing for each PPL Rig is an interest-bearing secured seller’s credit, with the borrower either being a rig owner, in which case its obligations are guaranteed by the Company, or the borrower is the Company, with the rig owner as guarantor and provider of security in its assets. Each seller’s credit originally matured on the date falling 60 months from the delivery date of the respective PPL Rig (later amended in the January 2021 amendments). The PPL Financing bears interest at 3-month USD LIBOR plus a variable marginal rate. Interest accrues and is payable quarterly in arrears.
The PPL Financing is cross-collateralized and secured by a mortgage on such PPL Rig and an assignment of the insurances in respect of such PPL Rig. The PPL Financing also contains various covenants and the events of default include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the PPL Financing agreements or security documents, or jeopardize the security. In addition, each rig-owning subsidiary is subject to covenants which management consider to be customary in a transaction of this nature. Following amendments in June 2020, cash payments of interest were suspended in relation to these rigs for the period from the first quarter of 2020 to the fourth quarter of 2021, and accrued interest was deferred and payable in the first quarter of 2022. Accrued, unpaid interest is guaranteed by an intermediate holding company Borr IHC Limited. The security for the PPL Financing will also include share security over the owners of the rigs which were delivered by PPL with finance under the PPL Financing agreements.maturity.
As of December 31, 2020,2023, we had $796.1 million outstanding underestimate our shipyard facilities with PPL, which includes a $3.3 million back-end fee percapital expenditures in the next twelve months relating to upcoming contracts and rig payableactivations is approximately $91.6 million. This is based on known contracts as at maturity, and were in compliance with the covenants and our obligations under the PPL Financing agreements. We expect to satisfy our obligations under the PPL Financing for each respective PPL Rig with refinancing of debt when due.
This loan was further amended in January 2021. Please see "loan amendments and covenants" below.
Keppel Newbuild Financing
In May 2018, we agreed to acquire five premium KFELS B class jack-up rigs, three completed and two under construction from Keppel (the “Keppel H-Rigs”). As of December 31, 2020, two of the Keppel H-Rigs ("Huldra" and "Heidrun") remain to be delivered. In connection with delivery of the Keppel H-Rigs, Keppel has agreed to provide delivery financing for a portion of the purchase price equal to $90.9 million for the three delivered jack-up rigs and $77.7 million each for the two undelivered rigs "Huldra" and "Heidrun" ( together to be referred to as the "H-Rig Financing"). Separately from the H-Rig Financing described below, we may exercise an option to accept delivery financing from Keppel with respect to two additional newbuild jack-up rigs, “Vale” and “Var,” acquired in connection with the Transocean Transaction (which together with the H-Rig Financing will be referred to as the "Keppel H & V Financing"). We will, prior to delivery of each jack-up rig from Keppel, consider available alternatives to such financing.
In June 2020, we agreed to defer the delivery of two of the Keppel H-Rigs to the third quarter of 2022 and three of the newbuild jack-up rigs acquired in connection with the Transocean Transaction to 30 June 2022 (“Tivar”) and the third quarter of 2022 (“Vale” and “Var”). In January 2021, we have agreed with Keppel to further postpone the deliveries to May ("Tivar"), July ("Vale"), and September ("Var"), October ("Huldra") and December ("Heidrun) 2023.
We have agreed to pay certain holding and other costs for each of the five rigs in respect of the period from the original delivery dates to the revised delivery date. Payments of such costs fall due in quarterly installments from the first quarter of 2021 until delivery.
The H-Rig Financing is an interest-bearing secured facility from Offshore Partners Pte. Ltd (formerly known as Caspian Rigbuilders Pte. Ltd.) (an affiliate of Keppel), guaranteed by Borr Drilling Limited, which will be made available on delivery of each rig and matures on the date falling 60 months from the delivery date of each respective rig (later amended in the January
2021 amendments). The H-Rig Financing bears interest at 3-month USD LIBOR plus a variable marginal rate, which accrues and first cash payment of interest is payable beginning on the third anniversary of delivery.
The H-Rig Financing for each respective Keppel Rig is secured by a mortgage on such Keppel Rig, assignments of earnings and insurances and a charge over the shares of the rig-owning subsidiary which owns each such Keppel Rig. The H-Rig Financing agreements also contain a loan to value clause requiring that the market value of each Keppel Rig shall at all times cover at least 130% of the loan and also contains various covenants, including, among others, restrictions on incurring additional indebtedness. Each H-Rig Financing agreement also contains events of default which include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the H-Rig Financing agreements or security documents, or jeopardize the security.
As of December 31, 2020, we had three Keppel Financing outstanding and were in compliance with our covenants and obligations under that Keppel Financing and the pre-drawdown covenants and obligations under the remaining Keppel Financing agreements. We expect to satisfy our obligations under each H-Rig Financing agreement entered into or to be entered into with debt refinancing when due.
As of December 31, 2020, we had $272.6 million outstanding under our shipyard facilities with Keppel, including a back-end fee of $4.5 million per rig. The interest under the facility accrues with no cash payments until the third anniversary of the loan.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
Loan amendments and Covenants
Our loan agreements contain certain financial covenants which require us to maintain minimum free liquidity and specified financial ratios to satisfy financial covenants. Our loan agreements include cross defaults. Failure to comply with any of the covenants in the loan agreements could result in a default which would permit the lender to accelerate the maturity of the debt and to foreclose upon any collateral securing the debt.
In January 2021. we agreed with our lenders to amend certain of the terms of the Hayfin Term Loan Facility, Syndicated Senior Secured Credit Facilities and New Bridge Revolving Credit Facility, the key amendments are as follows:
| | | | | | | | | | | | | | | | | |
| Hayfin Term Loan Facility | | Syndicated Senior Secured Credit Facilities | | New bridge Revolving Credit Facility |
| Maturity dates | Extended to the first quarter of 2023 | | Extended to January 2023 | | Extended to January 2023 |
| Amortizations | N/A | | Extended to January 2023 | | Extended to January 2023 |
| Interest Payments | N/A | | Q3 2020 and Q4 2020 interest payments deferred by one year to 2021 | | Q3 2020 and Q4 2020 interest payments deferred by one year to 2021 |
| Minimum liquidity requirements | N/A | | Cash requirement: $5 million until December 31, 2021; $10 million from and including January 1, 2022 to and including June 30, 2022; $15 million from and including July 1, 2022. | | Cash requirement: $5 million until December 31, 2021; $10 million from and including January 1, 2022 to and including June 30, 2022; $15 million from and including July 1, 2022. |
| Restricted cash requirement | No requirement to September 30, 2021. From October 1, 2021 - three months interest payments for rigs which are not operating on a contract | | N/A | | N/A |
| Debt service cover ratio | N/A | | Waived until final maturity | | Waived until final maturity |
| Book Equity Ratio 2021 | N/A | | 25% | | 25% |
| Book Equity Ratio 2022 | N/A | | 30% | | 30% |
| Book Equity Ratio 2023 | N/A | | 35% | | 35% |
| Value to Loan Ratio* | 140% | | 140% | | 140% |
*ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the facility.
In addition, to the above on the Hayfin Term Loan Facility, a purchase option exists for the benefit of Hayfin in respect of the “Thor” and “Skald” unless the rigs are activated, in order to repay the secured debt on the relevant rig, with the right for the company to repay/refinance the loan and retain the rig within a certain time period.
Amendments to Delivery Financing Arrangements
In January 2021, we agreed with our shipyard lenders to amend certain of the terms and covenants of the our delivery financing arrangements. The key amendments are as follows:
| | | | | | | | | | | |
| PPL Newbuild Financing | | Keppel H & V Financing |
Interim Payments required 2021 | $6 million | | $6 million |
Interim payments required 2022 | $12 million | | $12 million |
Maturity | Date for repayment of the seller's credit on the rigs are amended to May 2023 | | Three delivered rigs are extended by one year until 2023 |
Interest payments | Deferred until March 2023 | | First interest payment date deferred from third to fourth anniversary of each loan (Delivered Rigs) |
Minimum liquidity requirements | Cash requirement: $5 million until December 31, 2021; $10 million from and including January 1, 2022 to and including June 30, 2022; $15 million from and including July 1, 2022. | | Not amended |
Value to Loan | There is also an requirement to provide additional security if the value of any rigs falls below $70 million in 2021, $75 million in 2022 or $80 million thereafter. | | Not amended |
*Ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the facility.
On the PPL facility, 2023, in addition to the above a purchase option has been grantedpotential rig activations for the benefit of PPL in respect of the “Gyme", unless the rig is activated, in order to repay the secured debt on the relevant rig, with the right for the company to repay/refinance loan and retain the rig within a certain time period. Capitalized interest is now guaranteed by Borr IHC Limited.
For the Keppel H & V Financing, in addition to the above thedelivery dates for the five undelivered rigs were extended to the following for the Tivar (May 2023), Vale (July 2023), Var (September 2023), Huldra (October 2023) and Heidrun (December 2023). All purchase price installments, holding costs and cost cover payments in respect of the five undelivered rigs are deferred until 2023 bar the interim payments above in 2021 and 2022. We have also given rights to Keppel to terminate newbuilding contracts with no refund or other compensation to the rig owner(s) if it receives an offer form a third party, unless Borr purchases the rigs at the offer price within a certain time period.
Our 3.875% convertible bonds due 2023
In May 2018 we raised $350 million through the issuance of our convertible bonds, which mature in 2023. The initial conversion price (which is subject to adjustment) is $33.4815 per Share, for a total of 10,453,534 shares. The convertible bonds have a coupon of 3.875% per annum payable semi-annually in arrears in equal installments. The terms and conditions governing our convertible bonds contain customary events of default, including failure to pay any amount due on the bonds when due, and certain restrictions, including, among others, restrictions on our ability and the ability of our subsidiaries to incur secured capital markets indebtedness. As of December 31, 2020 we had $350 million outstanding under our convertible bonds.
Call Spread Transactions
In connection with the pricing of our convertible bonds, we (i) purchased from Goldman Sachs International call options over 10,453,612 shares with a strike price of $33.4815 and (ii) sold to Goldman Sachs International call options over the same number of shares with a strike price of $42.6125. The average maturity of the call options purchased and sold is May 14, 2023 with maturities starting on May 16, 2022 and ending on May 16, 2024. The call options bought and sold are European options exercisable only at maturity, are cash settled and are subject to customary anti-dilution provisions.
The Call Spread Transactions mitigate the economic exposure from a potential exercise of the conversion rights embedded in our convertible bonds by improving the effective conversion premium for the Company in relation to our convertible bonds from 37.5% to 75% over the reference price of $24.35 per share. The Call Spread Transactions may separately have a dilutive effect on our earnings per share to the extent that the market price per share of our shares exceeds the applicable strike price of the options at the time of exercise.
Fair value adjustments related to the Call Spread Transactions resulted in an unrealized loss recognized in Total financial income (expenses), net, of $2.3 million for the year ended December 31, 2020. See Note 7—“Total other financial income (expenses), net” to our Consolidated Financial Statements for more information.
Following our equity offerings in 2020 and on January 26, 2021 and in accordance with the loan agreement for the Company's $350 million 3.875% Senior Unsecured convertible bonds, an adjustment to the conversion price was triggered and the conversion price of the bond as of the date of filing is $31.7946 per depository receipt listed on the Oslo Stock Exchange.
We may modify our position by entering into further derivative transactions with respect to our shares and/or purchasing our shares in secondary market transactions. This activity could also cause or avoid an increase or a decrease in the market price of our shares, which could affect any potential exercise of the conversion rights embedded in our convertible bonds.
Average Interest Rate
The average interest rate for our interest-bearing historical financing arrangements, which consist of LIBOR plus a margin specified in each such historical financing arrangement (excluding our convertible bonds), was 4.93% for the year ended December 31, 2020. The average margin of our interest-bearing Financing Arrangements is calculated as the weighted average of the forecasted outstanding loan balance and margin, and excludes our convertible bonds.
C.RESEARCH & DEVELOPMENT
We do not undertake any significant expenditure on research and development. Additionally, we have no significant interests in patents or licenses.
D.TREND INFORMATION
Throughout 2020, we continued our strategy of putting our premium rigs to work. We brought an additional two rigs into service in 2020 and divested six to reach a total of eleven on contract by the end of the year, including rigs working for our Joint Ventures in Mexico. This was down from 16 at the end of 2019.
In contrast to the positive development in 2019, 2020 was impacted by the outbreak of COVID-19 combined with the actions taken by certain members of OPEC and its partners which resulted in an initial dramatic drop in oil prices and subsequent cuts in capital expenditure by E&P companies. Our business was in 2020 and continues to be affected by these factors, both through travel restrictions for crew members and through significant uncertainty around the timing of planned drilling programs.
The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy, resulting in an economic downturn that had and is likely to continue to have a material impact on our business. We expect this volatility in oil prices to continue and if the price of oil declines further and/or remains at a low price for an extended period there could be a material adverse effect on our business, financial condition, and results of operations.
In January 2021, we raised gross proceeds of $46 million in an equity offering conducted as a private placement on the Oslo Stock Exchange through the issuance of 54,117,647 shares, at a subscription price of $0.85 per share. Also in January 2021, we made certain amendments to our secured financing arrangements and yard delivery agreements. The amendments revised certain financial covenants that we are required to meet, including minimum free liquidity and equity ratio. Furthermore, the lenders and shipyards under certain of these arrangements agreed to defer certain interest payments from 2022 to 2023, defer certain amortization payments which otherwise would have fallen due in 2022 to 2023 and to change delivery dates for the remaining newbuild rigs from 2022 to the second, third and fourth quarters of 2023. See “Item 5.B Operating and Financial Review and Prospects—Going Concern Assumption" for further information.
In March, 2021 we entered into three agreements that potentially add a total of $48 million over approximately 590 days to the contract backlog these agreements are summarized below.
"Prospector 1" secured a three-well plus option contract with Tulip for operations in the Netherlands. As a result, the “Prospector 1” is expected to be operating on the Dutch Continental Shelf for the rest of 2021.
The rig “Gunnlod” secured an optional period extension from PTTEP which is expected to keep the rig operating up to September 2021. The rig has one further optional period still to be confirmed.
For the rig “Natt” we received a letter of intent with an undisclosed new operator in Nigeria to commence operations in April 2021 for an estimated duration of 150 days, in direct continuation of its previous contract.
Our Joint Ventures in Mexico have collected $103.7 million from PEMEX through April 13, 2021, enabling increased settlement of balances from the joint ventures to us and our partner. Timing of collections from PEMEX is uncertain and has been challenging in 2020. If we continue to face collection delays, it could have a significant impact on our liquidity.
E.OFF-BALANCE SHEET ARRANGEMENTSmanagement believes favorable contracting opportunities exist.
We had no off-balance sheet arrangements as of December 31, 2020,2023, other than commitments in the ordinary course of business that we are contractually obligated to fulfill with cash under certain circumstances. These commitments include guarantees in favor of our equity method investment and guarantees towards third parties such as surety performance guarantees to customers as they relate to our drilling contracts. Obligations under these guarantees are not normally called, as we typically comply with the underlying performance requirement. As ofDuring the year ended December 31, 2020,2023, we had not been requiredentered into a new facility with DNB Bank ASA to make collateral deposits with respectprovide guarantees and letters of credit of up to these agreements.
F.TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
In$30.0 million collateralized by the ordinary course of business, we enter into various contractual obligationssame security that impact or could impact our liquidity. The table below reflects our estimated contractual obligations statedsecures the Notes. As a result, no restricted cash is supporting bank guarantees as at face value as of December 31, 2020 for referenced years:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less
than
1 year | | 1–3
years | | 3–5
years | | More
than
5 years | | Total |
| (in $ millions) |
| Long-term debt obligations | — | | | 1,540.7 | | | 359.7 | | | — | | | $ | 1,900.4 | |
| Interest obligations (1) | 51.8 | | | 190.6 | | | 15.8 | | — | | — | | | 258.2 | |
| Operating lease obligations (2) | 2.6 | | | 1.2 | | | 0.7 | | | 1.1 | | | 5.6 | |
| Purchase obligations (3) | — | | | 621.0 | | | — | | | — | | | 621.0 | |
| Other long-term liabilities | 5.9 | | | 3.1 | | | 7.9 | | | — | | | 16.9 | |
| Total | 60.3 | | | 2,356.6 | | | 384.1 | | | 1.1 | | | 2,802.1 | |
(1)The estimated interest obligations take into account both contractual interest rates and expected margins.
(2)Operating lease obligations are shown net of 'sub- letting income'.
(3)After the balance sheet date, the agreements to purchase rigs in 2022 has been renegotiated and these will now be delivered in 2023.
Other Commercial Commitments2023 ($10.1 million as ofrestricted cash as at December 31, 2020
We have other commercial commitments that contractually obligate us to settle with cash under certain circumstances. Parent company guarantees issued by Borr Drilling Limited in favor of certain customers and governmental bodies guarantee our performance in connection with certain drilling contracts, customs import duties and other obligations in various jurisdictions.
As of December 31, 2020, we had outstanding surety bonds, bank guarantees and performance bonds amounting to $49.2 million (2019: $76.0 million), including performance guarantee to our equity method investments, Opex, of $5.9 million (2019: $5.9 million)2022).
G.SAFE HARBOR
See “Special Note Regarding Forward-Looking Statements.”Cash Flows
Our cash flows for the years ended December 31, 2023 and 2022 are presented below:
| | | | | | | | |
| For the Year Ended December 31, |
| (In $ millions) | 2023 | 2022 |
| Net cash (used in) / provided by operating activities | (50.7) | | 62.5 | |
| Net cash used in investing activities | (104.2) | | (82.6) | |
| Net cash provided by financing activities | 139.0 | | 92.6 | |
| Net change in cash and cash equivalents and restricted cash | (15.9) | | 72.5 | |
Net cash (used in) / provided by operating activities
Net cash used in operating activities was $50.7 million during the year ended December 31, 2023, compared to $62.5 million provided by operations during the year ended December 31, 2022. The decrease of $113.4 million was primarily due to cash expenditures for contract drilling services and the timing of working capital movements offset in part by the increase in number of operating rigs and associated cash receipts from contract drilling services. Included within net cash used in operating activities during the year ended December 31, 2023, are interest payments of $217.4 million and income tax payments of $38.2 million compared with interest payments of $83.9 million and income tax payments of $16.2 million during the year ended December 31, 2022.
Net cash used in investing activities
Net cash used in investing activities of $104.2 million for the year ended December 31, 2023 is comprised of:
•$111.2 million in additions to jack-up rigs primarily as a result of activation and reactivation, primarily for the jack-up rigs "Arabia III", "Hild", "Arabia I" and "Arabia II";
•$1.5 million in purchases of property, plant and equipment; and
•$1.3 million in additions to newbuildings pertaining to "Vale" and "Var".
This was partially offset by $9.8 million in net distributions from our equity method investments as a result of the return of previous shareholder funding.
Net cash used in investing activities of $82.6 million for the year ended December 31, 2022 is comprised of:
•$81.5 million in additions to jack-up rigs primarily as a result of activation and reactivation, of which $25.0 million pertains to the jack-up rig "Arabia I", $24.8 million pertains to "Arabia II" and $15.5 million pertains to "Thor"; and
•$1.8 million in purchases of property, plant and equipment.
This was partially offset by $0.7 million proceeds from the sale of rig related equipment.
Net cash provided by financing activities
Net cash provided by financing activities of $139.0 million for the year ended December 31, 2023 is comprised of:
•$1,465.2 million proceeds, net of transaction costs from our Notes issued in November 2023;
•$391.3 million proceeds, net of transaction costs from our Convertible Bonds and the $150 million principal amount of Norwegian law senior secured bonds issued in February 2023;
•$48.6 million proceeds, net of transaction costs from our October 2023 $50.0 million equity offering;
•$25.0 million proceeds from the drawdown in April 2023 on our upsized facility with DNB Bank ASA;
•$9.6 million proceeds, net of transaction costs from the sale of shares under our ATM program; and
•$0.8 million proceeds from the exercise of share options.
This was partially offset by the repayment of debt of $1,800.6 million and the purchase of treasury shares of $0.7 million. The repayment of debt of $1,800.6 million in comprised of the following:
•$695.6 million used to repay the PPL shipyard delivery financing arrangement;
•$350.0 million used to repay the convertible bonds which were due in May 2023;
•$272.7 million used to repay the shipyard delivery financing arrangement with Offshore Partners Pte. Ltd;
•$175.1 million used to repay the facility with DNB Bank ASA;
•$157.2 million used to repay the facility with Hayfin Services LLP, and
•$150.0 million used to repay the principal amount of Norwegian law senior secured bonds.
Net cash provided by financing activities of $92.6 million for the year ended December 31, 2022 is comprised of:
•$260.4 million proceeds, net of transactions costs from our August 2022 equity offering;
•$28.9 million proceeds, net of transaction costs from our equity offering which closed in January 2022;
•$8.8 million proceeds, net of transaction costs from the sale of shares under our ATM program; and
•$150.0 million proceeds from our DNB Facility.
This was partially offset by the repayment of debt of $355.5 million of which $280.0 million was used to repay in full the senior secured credit facilities with DNB Bank ASA, $30.5 million was used to repay in full the senior secured revolving credit facility with DNB Bank ASA and Danske Bank and $45.0 million was used to make a partial repayment on the facility with Hayfin Services LLP.
Our Existing Indebtedness
As of December 31, 2023, we had total outstanding borrowings, gross of capitalized borrowing costs and debt discounts of $1,790.0 million, most of which is secured by, among other things, all of our rigs.
Our indebtedness as of December 31, 2023 includes our:
•$1,025.0 million principal amount of Notes due in 2028;
•$515.0 million principal amount of Notes due in 2030; and
•$250.0 million principal amount of Convertible Bonds due in 2028
In March 2024, we issued $200.0 million principal amount of additional 10% senior secured notes due in 2028.
The Company also has a $180 million Super Senior Credit Facility, comprised of a $150 million RCF and a $30 million Guarantee Facility, which is also secured by all of our rigs. As of December 31, 2023, $29.0 million were drawn under the Guarantee Facility, and the $150 million under the RCF were undrawn.
In addition, we have agreed to purchase two newbuild rigs from Seatrium, with contractual delivery dates in 2025 and best efforts expedited delivery dates in August and November 2024. The purchase price is approximately $159.9 million per rig, including the payment of $12.5 million in acceleration costs per rig to expedite delivery, and we have secured financing of $130.0 million for each rig of up to 4 years from delivery, which may be reduced to three years at the lender's option.
Senior Secured Note due in 2028 and 2030
In November 2023, the Company's wholly owned subsidiary Borr IHC Limited, and certain other subsidiaries, issued of $1,025.0 million principal amount of senior secured notes due in 2028 at a price equal to 97.750%, bearing a coupon of 10 % per annum (the "2028 Notes") and $515.0 million principal amount of senior secured notes due in 2030 at a price equal to 97.000%, bearing a coupon of 10.375% per annum (the "2030 Notes" and, together with the 2028 Notes, the "Notes"). The 2028 Notes will mature on November 15, 2028 and the 2030 Notes will mature on November 15, 2030, and interest on the Notes is payable on May 15 and November 15 of each year, beginning on May 15, 2024.
The net proceeds from the issuance of the Notes were used to repay all of the Company’s outstanding secured borrowings, being the Company’s facility with DNB Bank ASA, facility with Hayfin Services LLP, shipyard delivery financing arrangements with PPL and Seatrium, the Company’s $150.0 million principal amount of Norwegian law senior secured bonds, and to pay related premiums, fees, accrued interest and expenses.
In March 2024, we completed the issuance of $200.0 million principal amount of additional 10% senior secured notes due in 2028, raising gross proceeds of $211.9 million.
Super Senior Credit Facility
On November 7, 2023, the Company and Borr IHC Limited entered into the Super Senior Credit Facility Agreement in an aggregate principal amount of $180 million, comprised of a $150 million RCF and a $30.0 million Guarantee Facility.
Unsecured Convertible Bonds Due in 2028
In February 2023, we raised $250.0 million gross proceeds through the issuance of Convertible Bonds due 2028. The Convertible Bonds bear interest at 5.00% per annum payable semi-annually and had an initial conversion price of $ 7.3471 per share, convertible into 34,027,031 common shares. Following the declaration and payments of a $0.05 per share cash distribution in January 2024 and a further $0.05 per share cash distribution paid in March 2024, the adjusted conversion price is $7.2384 per share, with the full amount of the convertible bonds convertible into 34,538,019 shares
Various agreements governing our debt restrict and, in some cases may actually prohibit, our ability to move cash within the group.
Management believes that the Company’s liquidity position, cash flows from operations and availability under its Super Senior Credit Facility will be adequate to meet the Company’s working capital requirements, financial commitments and debt obligations, growth, operating and maintenance capital expenditures. Management continues to regularly monitor the Company’s ability to finance the needs of its operating, financing and investing activities.
In March 2024, we repurchased $10.6 million of Convertible Bonds. The Company and its subsidiaries may from time to time further repurchase or otherwise trade in its own debt in open market transactions, privately negotiated or otherwise.
As of December 31, 2023, we were in compliance with all our covenants under our various loan agreements.
See Note 21 - Debt of our Audited Consolidated Financial Statements included herein for additional information on our borrowings as of December 31, 2023.
C.RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Not applicable.
D.TREND INFORMATION
Offshore Drilling Market
Energy commodity prices have decreased since June 2022, when the price for Brent crude oil reached approximately $120 per barrel, and has recently reached approximately $82 per barrel as of February 2024. However, these lower prices coupled with the global turbulent macroeconomic environment have not affected global demand for offshore drilling services, including jack-up rigs, which remains strong.
As a result of increased capital spending by our clients, demand for contract drilling services has continued improving since 2021. Consequently, the offshore drilling industry has seen contracting activity and dayrates increase in 2023 and continue to do so into 2024. Many new contracts have been for longer durations, as customers aim to lock up jack-up rigs for longer term projects. In addition, demand for offshore drilling services appears to continue to be supported by geopolitical events, such as Russia’s military actions across Ukraine and military action in Israel, the related economic sanctions imposed by various governments and a renewed interest in energy security across Europe, the United States and other countries. Despite positive industry trends we have recently experienced, we remain subject to risks relating to the volatility of our industry and the risk that demand and day rates could decline, including as a result of inflation impacting many major economies and global economic uncertainty.
With a global competitive jack-up rig utilization of approximately 94% in February 2024 based on industry reports (such as S&P Global), which represents an increase of approximately 10% from December 31, 2021, we remain optimistic that recent positive trends will continue and that the offshore drilling market will continue to improve in the foreseeable future, predicated on continued strength in the demand for hydrocarbons. As of February 2024, there are 308 modern jack-ups contracted, representing an increase of approximately 71 units as compared to recent lows in late 2020 and during the same period, the number of standard jack-ups contracted has shrunk by approximately seven units, confirming our view of a continued market bifurcation and operators’ preference for modern rigs.
Although demand is expected to continue improving and consequently the number of contracted rigs to increase, growth in rig supply is anticipated to be restrained. Currently, there are approximately 16 newbuild rigs under construction of which one is already contracted, leaving a total of 15 available (including "Vale" and "Var" which we have agreed to acquire). We anticipate that few of these rigs under construction will be able to enter the marketed fleet in the near future due to several being in early stages of completion and due to increasing supply chain pressures which impact construction. The order book of new rigs as a percentage of the current jack-up fleet has reached a 20-year record low and stands at approximately 4%. No new jack-up rigs have been ordered in the last three years, and industry analysts estimate that the newbuild cost for a high specification jack-up rig is currently around $260 million (Clarksons Research).
We also face risks and trends that could adversely affect our industry and business. Energy rebalancing trends have accelerated in recent years as evidenced by promulgated or proposed government policies and commitments by many of our customers to further invest in sustainable energy sources. Our industry could be further challenged as our customers rebalance their capital investments to include alternative energy sources, as well as respond to the normal cycles that have historically existed in our industry. We remain subject to risk of inflation as well as disruptions in supply chains and distribution channels. Nonetheless, the global energy demand may increase over the coming decades, and in this case offshore oil and gas will continue to play an important and sustainable role in meeting this demand for the foreseeable future.
E.CRITICAL ACCOUNTING ESTIMATES
We prepare our Audited Consolidated Financial Statements in accordance with generally accepted accounting principles in the U.S., which require us to make significant judgements and estimates that are important to our financial position and results of operations. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities. Actual results may differ from these estimates.
We consider the following to be our critical accounting estimates. For a summary of our significant accounting policies, see Note 2 - Basis of Preparation and Accounting Policies of our Audited Consolidated Financial Statements included herein.
Impairment of jack-up rigs
We continually monitor events and changes in circumstances that could indicate carrying amounts of our jack-up rigs may not be recoverable. At least annually, and additionally if such events or changes in circumstances are present, we assess the recoverability of our jack-up rigs by determining whether the carrying amount of such assets will be recovered through undiscounted cash flows.
In assessing the recoverability of our jack-up rigs' carrying amounts, we make assumptions regarding estimated cash flows. If the total of the undiscounted cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amounts over their respective fair value. Two critical assumptions, utilization and dayrate revenues, are key assumptions utilized in determining the estimated cash flows and are highly market dependent. Other assumptions include estimates in respect of residual or scrap values, operating and maintenance expenses and capital expenditures.
The sensitivity analysis has been performed based on changes in utilization and dayrate revenue critical assumptions on the consolidated jack-up rig and newbuild fleet:
•5% decrease to both utilization and dayrate revenue critical assumptions would not result in impairment charges.
•10% decrease to both utilization and dayrate revenue critical assumptions would not result in impairment charges.
| | | | | | | | |
| (In $ millions) | Cash Flow Headroom | Impairment Charge |
| 5% decrease to utilization and dayrate revenue | 6,779.1 | | — | |
| 10% decrease to utilization and dayrate revenue | 4,904.1 | | — | |
As of December 31, 2023 and 2022, the carrying amount of our jack-up rigs and newbuildings was $2,583.7 million and $2,592.6 million, respectively. No impairment was recognized for the year ended December 31, 2023, while the Company recognized an impairment charge of $131.7 million in the Consolidated Statements of Operations in the year ended December 31, 2022 related to our jack-up rig "Gyme" and three newbuildings disposed of during the year. No impairment related to
recoverability of our remaining jack-up rigs' carrying amounts was recognized during the years ended December 31, 2023 and 2022.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.DIRECTORS AND SENIOR MANAGEMENT
The following table sets forthprovides information regardingabout each of our directors and executive officers.officers as of the date of this annual report.
| | | | | | | | | | | | | | |
Directors and Executive OfficersName | | Age | | Position/Title |
Pål Kibsgaard | | 53 | | Director and Chairman of the BoardPosition |
| Tor Olav Trøim | 61 | 58 | | Director and Deputy Chairman of theour Board of Directors and Director |
| Kate Blankenship | | 5659 | | Director, Audit Committee Chairperson and Compensation Committee Chairperson |
Georgina SousaJeffrey R. Currie | 57 | 70Director and Nominating and Governance Committee Member |
| Neil Glass | 62 | Director, Audit Committee Member and Chair of Nominating and Governance Committee |
| Dan Rabun | 69 | Director and Compensation Committee Member |
| Mi Hong Yoon | 53 | Director and Company Secretary |
Neil Glass | | 59 | | Director |
| Patrick Schorn | 55 | 52 | | Director and Chief Executive Officer, Borr Drilling Management UK.UK |
| Magnus Vaaler | | 3740 | | Chief Financial Officer, Borr Drilling Management AS.AS |
The business address of the directors and officers is S. E. Pearman Building, 2nd Floor, 9 Par-la-Ville Road, Hamilton HM11, Bermuda.
Biographies
Certain biographical information about each of our directors,Directors and executive officers and key officers is set forth below:
Pål Kibsgaard has served as a Director and Chairman on our Board since October 2019 and serves on our Compensation and Nominating and Governance Committees. Mr. Kibsgaard has held a variety of global senior management positions at Schlumberger Limited, including Chairman and CEO, COO, President of the Reservoir Characterization Group, vice-president of engineering, manufacturing and sustaining and vice-president of human resources. Earlier in his Schlumberger career, Mr. Kibsgaard was a geomarket manager for the Caspian region after holding various field positions in sales, marketing and customer support. Mr. Kibsgaard is currently chief executive officer of Katerra, a US construction technology company. Mr. Kibsgaard holds a Masters degree from the Norwegian Institute of Technology and is a petroleum engineer. Mr. Kibsgaard is a Norwegian citizen and a resident of the United States of America.
Tor Olav Trøim Trøim has served as a Director on our Board since our incorporation and was our founder. He served as the Chairman of the Board from August 2017 until September 2019.2019 and was appointed Chairman of the Board again in February 2022. Mr. Trøim is the founder and sole shareholder of Magni Partners. HePartners and is the senior partner (and an employee) of Magni Partners’ subsidiary, Magni Partners Limited, in the U.K.UK. Mr. Trøim is a beneficiary of the Drew Trust, and the sole shareholder of Drew Holdings Limited. Mr. Trøim has over 30 years of experience in energy related industries serving in various positions. Before founding Magni Partners in 2014, Mr. Trøim was a director of Seatankers Management Co. Ltd. From, from 1995 until September 2014. He2014 and was the Chief Executive Officer of DNO AS from 1992 to 1995 and an Equity Portfolio Manager with Storebrand ASA from 1987 to 1990. Mr. Trøim graduated with an MSc degree in naval architecture from the University of Trondheim, Norway in 1985. Mr. Trøim is a Norwegian citizen and a resident of the United Kingdom. Other directorships and management positions includes,include Magni Partners (Bermuda) Limited (Founding Partner), and Golar LNG Limited (Chairman). During his employment period for Seatankers, Mr. Troim also held executive positions in affiliated companies. This included being CEO for Seadrill Ltd., Frontline Ltd., Golar LNG Partners LP (Chairman) (until April 15, 2021)LNG., Hygo Energy Transition Ltd (Chairman) (until April 15, 2021), Stolt-Nielsen SA. (Director), Magni Sports AS (Director) and Vålerenga Fotball AS (Director).Ship Finance Ltd.
Kate Blankenship has served as a Director on our Board and as Chair of our Audit Committee since February 26, 2019. Mrs. Blankenship also2019 and serves on theas Chair of our Compensation CommitteeCommittee. Mrs. Blankenship is a member of the Institute of Chartered Accountants in England and Wales and graduated from the University of Birmingham with a Bachelor of Commerce in 1986. Mrs. Blankenship joined Frontline Ltd in 1994 and served as its Chief Accounting Officer and Company Secretary until October 2005. Among other positions, she has served on the board of numerous companies, including as director and audit committee chairpersonAudit Committee Chairperson of North Atlantic Drilling Ltd. from 2011 to 2018, Archer Limited from 2007 to 2018, Golden Ocean Group Limited from 2004 to 2018, Frontline Ltd. from August 2003 to 2018, Avance Gas Holding Limited from 2013 to 2018, Ship Finance International Limited from October 2003 to 2018, Seadrill Limited from 2005 to 2018 and Seadrill Partners LLC from 2012 to 2018. MrsMrs. Blankenship also serves as a Directordirector of 2020 Bulkers Ltd, Eagle Bulk Shipping Inc and International Seaways Inc. In addition, Mrs. Blankenship served as a director of Diamond S Shipping Inc from March 2019 to 2021 when the company merged with International Seaways Inc.Mrs Blankenship is a United Kingdom citizen and resident.
Georgina SousaJeffrey R. Currie has served as a Director on our Board and our Company Secretarysince October 16, 2023. Mr. Currie is a Chief Strategy Officer of Energy Pathways at The Carlyle Group since February 2019. Ms. Sousa2024, after his retirement from Goldman Sachs after working there for 27 years. During his last 15 years he was employed by Frontline Ltd. Asa Partner and the Global Head of Corporate Administration from February 2007 until December 2018. She hasCommodities Research where he was tasked with conducting research on commodity market dynamics, investment strategies, and asset allocation. Mr. Currie is the Chairman of the Advisory Board of The University of Chicago’s Energy Policy Institute and serves on the board of Abaxx Technologies since October 2, 2023. He also held roles as the European Co-Head of Economics, Commodities and Strategy Research between 2010 and 2012. Prior to joining Goldman Sachs, Mr. Currie taught undergraduate and graduate level courses in microeconomics and econometrics at The University of Chicago and served as a directorthe associate editor of Resource and company secretary of Golar LNG Limited, Golar LNG Partners LP (until April 15, 2021) and 2020 Bulkers Ltd., since 2019. She previously servedEnergy Economics. Mr. Currie also worked as a director of Frontline from April 2013 until December 2018, Ship Finance International Limited from May 2015 until September 2016, North Atlantic Drilling Ltd. from September 2013 until June 2018, Sevan Drilling Limited from August 2016 until June 2018, Northern Drilling Ltd. from March 2017 until December 2018consulting economist, specializing in energy and FLEX LNG LTD. from June 2017 until December 2018. Ms. Sousa also served as a Director of Seadrill Limited from November 2015 until July 2018. Ms. Sousa served as Secretary for all of the above mentioned companies at various times during the period between 2005other microeconomic issues, and 2018. She served as secretary of Archer Limited from 2011 until December 2018 and Seadrill Partners LLC from 2012 until 2017. Ms. Sousahas advised many government agencies. Mr.
Currie is a U.K. citizengraduate of Pepperdine University, holds a Master of Arts (Economics) and earned a residentPhD in Economics from The University of Bermuda.Chicago in 1996.
Neil Glass has served as a Director on our Board since December 2019 and also serves as an Audit Committee Member and Chairschairs our Nominating and Governance Committee. Mr. Glass worked for Ernst & Young for 11 years: seven years with the Edmonton, Canada office and four years with the Bermuda office. In 1994, he became General Manager and in 1997 the sole owner of WW Management Limited, tasked with overseeing the day-to-day operations of several international companies. Mr. Glass has over 20 years’ experience as both an executive director and as an independent non-executive director of international companies. Mr. Glass is a member of both the Chartered Professional Accountants of Bermuda and of Alberta, Canada, and is a Chartered Director and Fellow of the Institute of Directors. Mr. Glass graduated from the University of Alberta in 1983 with a degree in Business. Mr. Glass also serves as a Directordirector and Audit Committee Chair of Cool Company Ltd., and served as a director and Audit Committee Member of 2020 Bulkers Ltd (until August 10, 2022) and Golar LNG Partners LP (until April 15, 2021).
Daniel Rabun has served as a Director on our Board since April 2023. Mr. GlassRabun joined Ensco plc in March 2006 as President and as a member of the board of directors. Mr. Rabun was appointed to serve as Ensco plc’s Chief Executive Officer from January 1, 2007 and was elected Chairman of the board of directors in May 2007. Mr. Rabun retired from Ensco plc as President and Chief Executive Officer in May 2014 and as Chairman in May 2015. Mr. Rabun serves as a director of Golar LNG Ltd since February 2015 and was appointed Chairman in September 2015. Prior to joining Ensco plc, Mr. Rabun was a partner at the international law firm of Baker & McKenzie LLP where he had practiced law since 1986. In May 2015, Mr. Rabun became a non-executive director and currently serves a member of the Audit Committee and the Corporate Responsibility, Governance and Nominations Committee of APA Corporation (formerly Apache Corp.). In May 2018, Mr. Rabun became Chairman of the Board and a member of the Compensation Committee and is Chairman of the Governance and Nominations Committee of ChampionX Corporation. He has been a US Certified Public Accountant since 1976 and a member of the Texas Bar since 1983. Mr. Rabun holds a Bachelor of Business Administration Degree in Accounting from the University of Houston and a Juris Doctorate Degree from Southern Methodist University.
Mi Hong Yoon joined the Company as a Director on our Board and as our Company Secretary on March 1, 2022. Ms. Yoon is a Canadian citizenManaging Director of Golar Management (Bermuda) Limited since February 2022. Prior to this role, she was employed by Digicel Bermuda as Chief Legal, Regulatory and Compliance Officer from March 2019 until February 2022 and also served as Senior Legal Counsel of Telstra Corporation Limited’s global operations in Hong Kong and London from 2009 to 2019. She has extensive international legal and regulatory experience and is responsible for the corporate governance and compliance of the Company. Ms. Yoon graduated from the University of New South Wales with a residentBachelor of Bermuda.Law degree (LLB) and earned a Master’s degree (LLM) in international economic law from the Chinese University of Hong Kong. She is a member of the Institute of Directors and has held several director positions over the years. Current directorships and management positions include Golar LNG Ltd. (company secretary), 2020 Bulkers Ltd. (company secretary) and Himalaya Shipping Ltd. (director and company secretary).
Patrick Schorn Mr. Schorn became CEOhas served as Director since October 2023 and has been serving as the Chief Executive Officer of Borr Drilling insince September 2020, after serving as a directorDirector since January 2018. Mr. Schorn was previously the Executive Vice President of Wells for Schlumberger Limited. Prior to this role, he held various global management positions including President of Operations for Schlumberger Limited; President Production Group; President of Well Services; President of Completions; and GeoMarket Manager Russia. He began his career with Schlumberger Limited in 1991 as a Stimulation Engineer in Europe and has held various management and engineering positions in France, United States, Russia, US Gulf of Mexico and Latin America. Mr. Schorn holds a Bachelor of Science degree in Oil and Gas Technology from the University “Noorder Haaks” in Den Helder, the Netherlands.
Magnus Vaaler became CFOthe Chief Financial Officer of Borr Drillingthe Company in December 2020, frompreviously serving as the position of VP Investor Relations and Treasury. Mr. Vaaler has been working in the Company’s Finance department since January 2018 with Treasury, Finance and Investor relations. Mr. Vaaler brings many years of finance, oil and offshore industry experience from three years as VP Finance at “OffshoreOffshore Merchant Partners”,Partners, a portfolio company of Hitecvision, and seven years as Treasurer and VP Finance at Frontline Ltd., listed on NYSE and OSE. Mr. Vaaler holds a Bachelor of Commerce degree from University College Dublin.
Management of the Company
Our Board is responsible for determining the strategic vision and ultimate direction of our business, determining the principles of our business strategy and policies and promoting our current, short-term and long-term interests.interests in a sustainable manner, taking into account economic, social and environmental conditions. Our Board possesses and exercises oversight authority overis responsible for overseeing our business and, subject to our governing documents and applicable law, generally delegates day-to-day management of the Company to our senior
management team. Viewed from this perspective, ourOur Board generally oversees risk management and our senior management team generally manage the material risks that we face. The Board must, however, be consulted on all matters of material importance and/and, or, of an unusual nature and, for such matters, will provide specific authorization to personnel in our senior management to act on its behalf.
The senior management team responsible for our day-to-day management has extensive experience in the oil and gas industry in general and in the offshore drilling area in particular. The Board has defined the scope and terms of the services to be provided by our senior management. Management services are provided to the Group by Borr Drilling Management UK, Borr Drilling Management DMCC and Borr Drilling Management AS, all being subsidiaries of the Company and incorporated in England and Wales, the United Arab Emirates and Norway respectively. For more information on management practice and related parties, please see the sections entitled “Item 6.C Directors, Senior Management and Employees—Board Practices” and “Item 7.B Related Party Transactions.”
B.COMPENSATION
During the year ended December 31, 2020,2023, we paid our directorsDirectors and executive officers aggregate compensation (including bonuses) of $4.2$5.7 million. In additionaddition for 20202023 we also recognized an expenseexpense of $0.1$2.4 million relating to stock options, for sharesrestricted stock units (RSUs) and performance stock units granted to certain of our directorsDirectors and executive officers and $0.07 million inimmaterial costs related to the provision of pension, retirement or similar benefits to one executive officer, as our directors andremaining executive officers.officers have chosen to opt out of the Company pension scheme.
OnSome of the Directors elected to receive part of their compensation in the form of shares. The following table sets forth the shares issued to our Directors in lieu of compensation during the financial years ended December 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| March 18, 2021 | July 14. 2021 | October 14. 2022 |
| Name of Director | Number Shares Granted | Transfer Value ($) | Number Shares Granted | Transfer Value ($) | Number Shares Granted | Transfer Value ($) |
| Tor Olav Trøim | 75,041 | 180,097 | 12,967 | 21,370 | 12,367 | 44,521 |
Pål Kibsgaard (1) | 31,250 | 75,000 | 6,250 | 10,300 | 56,051 | 201,784 |
| Kate Blankenship | 93,800 | 225,121 | 16,209 | 26,712 | 15,460 | 55,656 |
| Neil Glass | 75,041 | 180,097 | 12,967 | 21,370 | 6,944 | 24,998 |
| Mi Hong Yoon | — | — | — | — | — | — |
Georgina Sousa (2) | — | — | — | — | — | — |
| Total Directors | 275,132 | 660,316 | 48,393 | 79,752 | 90,822 | 326,959 |
(1) Effective September 30, 2022 Mr. Kibsgaard resigned as Director.
(2) Effective March 1, 2022, Ms. Sousa retired as Director and Company Secretary.
Shares granted on March 18, 2021 were in respect of director compensation for the Company issued 550,263 shares to our Directorsthree months ended December 31, 2019 as part of their 2020 compensation.
No share options were granted towell as the Company’s directors and executive officers during the financial year ended December 31, 2020.
(1)Long-term Incentive Program
We have adopted a long-term incentive plan Shares granted on July 14, 2021 were in respect of director compensation for the three months ended March 31, 2021. Shares granted on October 14, 2022 were in respect of directors compensation for the nine months ended December 31, 2021 and have authorized the issuance of up to 3,494,000 options pursuant to awards under our long-term incentive program, of which 1,724,000 options remain unallocated for further awards and recruitments. Any person who is contracted to work at least 20 hours per week in our service, the members of our Board and any person who is a membernine months ended September 30, 2022. The transfer value of the board of any of our subsidiaries are eligible to participate in our long-term incentive plan. The purpose of our long-term incentive programshares is to align the long-term financial interests of our employees and directors with those of our shareholders, to attract and retain those individuals by providing compensation opportunities that are competitive with other companies, and to provide incentives to those individuals who contribute significantly to our long-term performance and growth. To accomplish this, our long-term incentive plan permits the issuance of our shares.
The long-term incentive plan isdetermined based on the granting of options to subscribe to new securities. Such options are typically granted with a term of five years. The Board has the authority to set the subscriptionclosing price vesting periods and the terms of the options. No consideration is paid byCompany's share on the recipientsOslo Stock Exchange on the respective dates of issuances. All shares issued were from Treasury shares, for further details refer to Note 28 - Stockholders' Equity of our Audited Consolidated Financial Statements included therein.
Certain of our Directors receive part of their aggregate director compensation as RSUs. On November 17, 2023 the options. When an individual ceasesCompany granted 22,556 (112,780 in total) RSUs to be eligiblefive of our Directors, subject to retain options, for example by leaving the group, unvested options lapse. Vested options must, underparticipants continuing to serve as Director from the same circumstances, be exercised within a certain period aftergrant date to the terminationvesting date. On October 8, 2023 the Company issued 29,528 (88,584 in total) shares to three of our Directors in relation to RSUs granted on November 18, 2022. For further details on share optionsthe RSUs issued in 2023 please see refer to Note 2624 - Share based compensationBased Compensation and for details of the treasury shares issued to settle the RSUs granted in November 2022, please refer to Note 28 - Stockholders' Equity of our Audited Consolidated Financial Statements included therein.
We held 1,459,714 treasury shares as of
See "Item 6.E. Share Ownership" for share compensation paid to executive officers during the year ended December 31, 2020, which we may use for issuances under our long-term incentive program and for other purposes including issuance of shares to Directors as part of their annual compensation. On March 18, we issued 550,263 treasury shares to our Directors and have 909,451 available for future issue.2023.
C.BOARD PRACTICES
The Company is subject to Bermudian law regarding corporate governance. Our Board currently consists of five directors.seven Directors. A directorDirector is not required to hold any shares in our companyCompany by way of qualification. A directorDirector who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our companyCompany is required to declare the nature of the interest at a meeting of our directors.Directors. Subject to declaring the interest and any further disclosure required by the Bermuda Companies Acts, a directorDirector may vote in respect of any contract, proposed contract, or arrangement notwithstanding that he or she may be interested therein, and if he or she does so, their vote shall be counted and may be counted in the quorum at any meeting of our directorsDirectors at which any such contract or proposed contract or arrangement is considered. The directorsDirectors may exercise all of our powers to borrow money, mortgage our undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any of our obligations or of any third party.
Our Board is elected annually by a vote of a majority of the common shares represented at the meeting at which at least two shareholders, present in person or by proxy, and entitled to vote (whatever the number of shares held by them) constitutes a quorum. In addition, the maximum and minimum number of directors isDirectors are determined by a resolution of our shareholders, but no less than two directorsDirectors shall serve at any given time. Each directorDirector shall hold office until the next annual general meeting following his or her election or until his or her successor is elected.
The Directors shall, subject to applicable law and the Bye-Laws, hold office until the next annual general meeting following such Director’s election. The Directors may be re-elected. Directors stand for re-election at each annual general meeting but there is no limit on the term of office.
There are no service contracts between usthe Company and any member of our Board providing for the accrual of benefits, compensation or otherwise, upon termination of their employment or service.
Independence of directors
The NYSE requires that a U.S. listed company maintain a majority of independent directors. As a foreign private issuer, we are exempt from certain rules of the NYSE and are permitted to follow home country practice in lieu of the relevant provisions of the NYSE Listed Company Manual, including this NYSE requirement. Nonetheless, a majority of theAs permitted under Bermuda law and our bye-laws, four members of our Board, Mrs. Kate Blankenship, Mr. Neil Glass, Mr. Jeffrey Currie, and Mr. Dan Rabun are independent according to the NYSE’s standards for independence.
Board Committees
We have three board committees, being an audit committee, a nominating and governance committee and a compensation committee.
Audit committee
The NYSE requires, among other things, that a listed U.S. company have an audit committee with a minimum of three members, all of whom must be independent. Additionally, at least one member of the audit committee must have accounting or related financial management expertise. As a foreign private issuer, we are exempt from certain rules of the NYSE and are permitted to follow home country practice in lieu of the relevant provisions of the NYSE Listed Company Manual, including the requirement to have three members ofon the audit committee. Consistent with our status as a foreign private issuer and the jurisdiction of our incorporation, our audit committee currently consists of two members, Mrs. Kate Blankenship and Mr. Neil Glass, who are both independent and who both qualify as an audit committee financial expert ("ACFE") under the NYSE listing standards and U.S. securities laws relating to audit committees. Under our audit committee charter, the audit committee is responsible for overseeing the audits of the Company's financial statements, overseeing the quality and integrity of our Consolidated Financial Statements and our accounting, auditing andexternal financial reporting, practices;appointment, compensation and oversight of our external auditors, reviewing, evaluating and advising the Board concerning the adequacy of our accounting systems, and maintenance of our books and records and our internal controls; ourcontrols, compliance with legal and regulatory requirements; the independent auditor’s qualifications, independencerequirements and performance; and our internal audit function.cybersecurity oversight.
Compensation committee
The NYSE rules requires, among other things, that a listed U.S. company have a compensation committee composed entirely of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee. Although as a foreign private issuer we are exempt from such rules and permitted to follow "homehome country practice",practice, we have established a compensation committee and the members are currently consisting of Mrs. Kate Blankenship and Mr. Kibsgaard, both of whomDan Rabun, who are independent directorsDirectors according to the NYSE's standards for independence. The compensation committee is responsible for establishing general
compensation guidelines and policies for executive employees. The compensation committee determines the compensation and other terms of employment for executive employees (including salary, bonus, equity participation, benefits and severance terms) and reviews, from time to time, our compensation strategy and compensation levels in order to ensure we are able to attract, retain and motivate executives and other employees. The compensation committee is also responsible for approving any equity incentive plans or arrangements and any guidelines or policies for the grant of equity incentives thereunder to our employees. It oversees and periodically reviews all annual bonuses, long-term incentive plans, stock options, incentive-based compensation recoupment policy, employee pension and welfare benefit plans and also reviews and makes recommendations to the Board regarding the compensation of directorsDirectors for their services to the Board.
Nominating and governance committee
The NYSE requires, among other things, that a listed U.S. company have a nominating/nominating and corporate governance committee of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee. Although as a foreign private issuer we are exempt from such rules and permitted to follow "homehome country practice",practice, we have established a nominating and corporate governance committee comprisedconsisting of Mr. Mr. KibsgaardNeil Glass and Mr. GlassJeffrey Currie who are both of whom are independent directorsDirectors according to the NYSE’s standards for independence. The nominating and governance committee is appointed by the Board to assist the Board in (i) identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board, (ii) recommending to the Board the directorDirector nominees to stand for election at the next general meeting of shareholders, (iii) developing and recommending to the Board a set of corporate governance principles applicable to our directorsDirectors and employees, (iv) recommending committee structure, operations and reporting obligations to the Board, (v) recommending committee assignments for directors to the Board and (vi) overseeing an annual review of Board performance.
Executive sessions
The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE also requires that, if such executive sessions include any non-management directorsDirectors who are not independent, all independent directors also meet in an executive session at least once a year. All of our directors are non-management andOur Directors regularly hold executive sessions without management and our independent directors hold executive sessions when deemed appropriate.
D.EMPLOYEES
Employees
As of December 31, 2020, we had 418
The table below presents our employees with 311 working offshore and 107 working onshore compared to December 31, 2019, when we had approximately 694 employees with 543 working offshore and 151 working onshore. In addition, we engaged 927 contractors of which 879 worked offshore and 48 worked onshore in 2020 and 1,242 contractors, of which 1,154 worked offshore and 88 worked onshore in 2019. As of December 31, 2018, we had approximately 593 employees, with 463 working offshore and 130 working onshore. In addition in 2018, we had 664 contractors, of which 606 worked offshore and 58 worked onshore in 2018.by function:
| | | | | | | | | | | |
| As at December 31, |
| 2023 | 2022 | 2021 |
| Rig Based | 2,544 | | 2,236 | | 1,731 | |
| Shore Based | 325 | | 268 | | 195 | |
| Total | 2,869 | | 2,504 | | 1,926 | |
| | | |
| Company Employees | 1,884 | | 1,504 | | 517 | |
| Contractors | 985 | | 1,000 | | 1,409 | |
| Total | 2,869 | | 2,504 | | 1,926 | |
These employees and contractors have extensive technical, operational and management experience in the jack-up segment of the shallow-water offshore drilling industry.
Asindustry. The increase in the number of employees and contractors in the year ended December 31, 2020, Borr Drilling Management UK had fourteen full-time2023 is primarily a result of increased operations in Mexico, Asia and the Middle East regions, which supported the re-activations of warm stacked rigs and the activations of some of our newbuilds. The increase in the split between employees and contractors is due to a shift in our employment strategy to increasingly directly hire employees. In addition, Paragon Offshore (Land Support) Limited and Paragon Offshore (Nederlands) B.V., in Aberdeen and Beverwijk, had 39 and eight full-time employees, respectively and Borr Management AS has four full-time employees. In addition, Borr Drilling Eastern Peninsula had four full-time employees.
Some of our employees and our contracted labor are represented by collective bargaining agreements. As part of the legal obligations in some of these agreements, we are required to contribute certain amounts to retirement funds and pension plans and have restricted ability to dismiss employees.terminate employment. In addition, many of these represented individuals are working under agreements
that are subject to salary negotiation.negotiations. These negotiations could result in higher personnel costs, other increased costs or increased operating restrictions that could adversely affect our financial performance. We consider our relationships with the various unions as stable, productive and professional.
The table below presents our employees and contractors by function as of December 31, 2020:2023:
| | Company
Employees | | Contractors | | Total |
| Company Employees | | | Company Employees | Contractors | Total |
| Rig-based | Rig-based | 311 | | | 879 | | | 1,190 | |
| Shore-based | Shore-based | 107 | | | 48 | | | 155 | |
| Total | Total | 418 | | | 927 | | | 1,345 | |
We seek to employ national employees and contractors wherever possible in the markets in which our rigs operate. This enables us to strengthen customer and governmental relationships, particularly with NOCs, and results in a more competitive cost base as well as relatively lower employee turnover.
E.SHARE OWNERSHIP
The following table sets forth information as of April 13, 2021March 22, 2024 with respect to the beneficial ownership of our common shares, share options and restricted share units ("RSUs") by:
•each of our directorsDirectors and executive officers; and
•all of our directorsDirectors and executive officers as a group
The calculations in the table below are based on 273,526,900252,996,439 common shares outstanding as of April 13, 2021, following the increase in our share capital as a result of the completion of our equity offering, see “Item 5. Operating and Financial Review and Prospects—Recent Developments”. All of our shareholders are entitled to one vote for each Share held.
March 22, 2024. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of Officer or Director | | Common Shares Owned(1) | | % | | Total number
of options | | Options
vested | | Exercise
price $ | | Expiry date |
| Tor Olav Trøim | | 17,557,269 | | | 6.4% | | — | | — | | — | | — |
| Pål Kibsgaard | | 812,500 | | | * | | — | | — | | — | | — |
| Kate Blankenship | | 287,601 | | | * | | 30,000 | | 5,000 | | 17.50 | | March 11, 2024 |
| Georgina Sousa | | — | | | * | | 10,000 | | 2,500 | | 17.50 | | March 11, 2024 |
| Neil Glass | | 175,081 | | | * | | — | | — | | — | | — |
| Patrick Schorn | | 1,500,000 | | | * | | — | | — | | — | | — |
| Magnus Vaaler | | 85,000 | | | * | | 70,000 | | 35,000 | | 24.35 | | June 7, 2023 |
| Directors and Executive Officers | | 20,417,451 | | | 7.5% | | — | | — | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | |
| Name of Director of Officer | Common Shares Owned | Ownership (%) | Number of Options | Exercise Price ($) (1) | Option Expiry Date | Number of RSUs | RSU Vesting Date |
Tor Olav Trøim (2) | 16,222,385 | 6.4% | — | — | — | 22,556 | September 30, 2024 |
| Kate Blankenship | 224,997 | * | — | — | — | 22,556 | September 30, 2024 |
| Neil Glass | 165,124 | * | — | — | — | 22,556 | September 30, 2024 |
| Dan Rabun | — | * | — | — | — | 22,556 | September 30, 2024 |
| Jeffrey Currie | — | * | — | — | — | 22,556 | September 30, 2024 |
| Patrick Schorn | 1,100,000 | * | 1,200,000 | 2.00 | August 12, 2026 | N/A | N/A |
Patrick Schorn (3) | — | * | 333,334 | 4.00 | September 1, 2027 | N/A | N/A |
Patrick Schorn (3) | — | * | 333,333 | 4.75 | September 1, 2027 | N/A | N/A |
Patrick Schorn (3) | — | * | 333,333 | 5.50 | September 1, 2027 | N/A | N/A |
| Magnus Vaaler | 75,000 | * | 550,000 | 2.00 | August 12, 2026 | N/A | N/A |
| Magnus Vaaler | — | * | 133,334 | 4.00 | September 1, 2027 | N/A | N/A |
| Magnus Vaaler | — | * | 133,333 | 4.75 | September 1, 2027 | N/A | N/A |
| Magnus Vaaler | — | * | 133,333 | 5.50 | September 1, 2027 | N/A | N/A |
Magnus Vaaler (4) | — | * | 300,000 | 6.65 | November 17, 2028 | N/A | N/A |
| Total Directors and Officers | 17,787,506 | 7.0% | 3,450,000 | | | 112,780 | |
1.Represents shares beneficially owned by Tor Olav Trøim, including those held by Drew Holdings Ltd., Magni Partners (Bermuda) Ltd and their respective subsidiaries and affiliates, as the context may require.
(*)Represents ownership of less than 1% of our outstanding shares.
(1) Exercise prices are presented gross of dividends declared.
(2) Represents shares beneficially owned by Tor Olav Trøim, through his beneficial ownership of Drew.
(3) In addition to the shares owned and share options granted, Patrick Schorn was awarded 500,000 performance stock units. See also “—B. Compensation”below for information onadditional disclosures.
(4) The following options were granted during the year ended December 31, 2023.
Long-term Incentive Program
We have adopted a long-term incentive plan and have authorized the issuance of up to 12,997,000 options pursuant to awards under our long-term incentive program, of which 1,227,000 options remain unallocated for further awards and recruitments. Any person who is contracted to work at least 20 hours per week in our service, the members of our Board and any person who is a member of the board of any of our subsidiaries are eligible to participate in our long-term incentive plan. The purpose of our long-term incentive program is to align the long-term financial interests of our employees and Directors with those of our shareholders, to attract and retain those individuals by providing compensation opportunities that are competitive with other companies, and to provide incentives to those individuals who contribute significantly to our long-term performance and growth. To accomplish this, our long-term incentive plan permits the issuance of our shares.
The long-term incentive plan is based on the granting of options to subscribe to new securities. Such options are typically granted with a term of five years. The Board has the authority to set the subscription price, vesting periods and the terms of the options. No consideration is paid by the recipients for the options. When an individual ceases to be eligible to retain options, for example by leaving the group, unvested options lapse. Vested options must, under the same circumstances, be exercised within a certain period after the termination date. For further details on share options please refer to Note 24 - Share Based Compensation of our Audited Consolidated Financial Statements included herein.
Performance Stock Units
On August 11, 2022, Patrick Schorn, the Company's Chief Executive Officer was awarded 500,000 performance stock units that will vest in full on September 1, 2025, subject to the Company’s share price reaching $10.00 per share on 75% of the days in the third quarter of 2025, prior to September 1, 2025 and Patrick Schorn's continued service. The Company's share price on the grant date was $3.96.
Restricted Share Units
On November 17, 2023 the Company issued 22,556 (112,780 in total) RSUs to five of our Directors, which will vest in full on September 30, 2024, subject to the participants continuing to serve as Director from the grant date to the vesting date.
Treasury shares
During the year ended December 31, 2023 we issued 88,584 of our treasury shares to various of our Directors (and one former Director) in settlement of RSUs granted in 2022, which vested in September 2023. See above and “Item 6.B. Compensation”. Of the total treasury shares held at December 31, 2023, we held 351,937 treasury shares which may be used for issuances under our long-term incentive program and for other purposes including issuance of shares to Directors as part of their annual compensation.
F.DISCLOSURE OF A REGISTRANT'S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.MAJOR SHAREHOLDERS
Except as specifically noted, the following table sets forth information as of April 13, 2021March 22, 2024 with respect to the beneficial ownership of our common shares by each person known to us to own beneficially more than 5% of our total common shares.
| | | | | | | | |
| Common Shares (1) |
| Owner | Number | Percentage |
Granular Capital Ltd (2) | 47,884,303 | | 18.9 | % |
Allan & Gill Gray Foundation (3) | 23,342,709 | | 9.2 | % |
BlackRock, Inc. (4) | 16,722,695 | | 6.6 | % |
Tor Olav Trøim (5) | 16,222,385 | | 6.4 | % |
Capital International Investors (6) | 15,596,621 | | 6.2 | % |
The Goldman Sachs Group, Inc. (7) | 13,499,674 | | 5.3 | % |
JPMorgan Chase & Co (8) | 13,281,209 | | 5.2 | % |
| | |
(1) The calculations in the table belowabove are based on 273,526,900252,996,439 common shares outstanding as of April 13, 2021, following the increase in our share capital as a result of the completion of our equity offering, see “Item 5. Operating and Financial Review and Prospects—Recent Developments”. All of our shareholders are entitled to one vote for each Share held.
| | | | | | | | | | | | | | |
| Beneficial Owner (Name/Address) | | Common Shares
Owned (1) | | Percentage of
Common Shares |
| | | | |
| Allan & Gill Gray Foundation (2) | | 40,054,453 | | | 14.6 | % |
| Granular Capital Ltd (3) | | 24,985,888 | | | 9.1 | % |
| Tor Olav Trøim (4) | | 17,557,269 | | | 6.4 | % |
| Schlumberger Oilfield Holdings Limited (5) | | 15,131,700 | | | 5.5 | % |
| Kistefos AS (6) | | 14,117,647 | | | 5.2 | % |
(1)(2) Our post-Reverse Share Split shares began to tradeThis information is based solely on the Oslo BørsStock Exchange mandatory notification of trades by Granular Capital Ltd on June 26, 2019. The table above reflects our Reverse Share Split.July 4, 2023.
(2)(3) Based solely on information contained on the Oslo Stock Exchange Mandatory notificationin a Schedule 13G filed on January 22, 2021February 14, 2024 by Orbis Investment Management Limited ("OIML"). To the best of our knowledge, the Managers are ultimately controlled by the Allan & Gill Gray Foundation, through its ownership or control, as applicable, of OIML.
(3)(4) Based solely on the Oslo Stock Exchange mandatory notification of trades by BlackRock, Inc on February 5, 2024.
(5) Based solely on the Oslo Stock Exchange mandatory notification of PDMR transactions on March 12, 2024, by Drew. Mr. Tor Olav Trøim is the beneficiary of Drew Trust that wholly owns Drew.
(6) Based solely on information contained in a Schedule 13G filed on February 7, 2024 by Capital International Investors.
(7)This information is based solely on the Oslo Stock Exchange mandatory notification of trades by Granular Capital LtdThe Goldman Sachs Group, Inc on May 22, 2020.
(4)Represents shares beneficially owned by Tor Olav Trøim, including those held by Drew Holdings Ltd., Magni Partners (Bermuda) Ltd and their respective subsidiaries and affiliates, as the context may require.March 18, 2024.
(5)(8)Based solely on information contained in a Schedule 13G filed on February 12, 2021 by Schlumberger N.V. (Schlumberger Limited).
(6)This information is based solely on the Oslo Stock Exchange mandatory notification of trades by Kistefos ASJPMorgan Chase & Co on March 26, 2021. DNB Banks ASA announced on March 26, 2021 it had acquired and sold the 14,117,647 shares under a forward contract with Kistefos AS with expected delivery under the forward contract on June 28, 2021.January 15, 2024.
AsTo our knowledge, as of April 13, 2021,March 22, 2024, a total of 273,526,900252,996,439 shares are held by 2 record holders in the United States, representing 100% ofincluding Cede & Co., as nominee for the Depository Trust Company, which indirectly holds our total outstanding shares.shares on the NYSE and Oslo Børs.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. See the section entitled “Item 10.B Additional Information—10.B. Our Memorandum of Association and Bye-Laws” for historical changes in our shareholding structure.
B.RELATED PARTY TRANSACTIONS
The relatedRelated party transactions that we were party to between January 1, 2020 andfor the years ended December 31, 20202023, 2022 and 2021 are described in Note 2827 - Related party transactionsParty Transactions of our Audited Consolidated Financial Statements included here in.herein.
Other Relationships
Director Participationparticipation in Equity Offeringequity offering
Some Directors and executive officers of the Company participated in the equity offering that closed on June 5, 2020,January 31, 2022, August 25, 2022 and October 5, 2020 and January 22, 202124, 2023 on the same terms as other participants.
The following directors and executive officers of the CompanyDirectors have received shares as part of their compensation in 2023:
| | | | | |
| Name of Director | October 8, 2023(1) |
| Tor Olav Trøim | 29,528 | |
| Kate Blankenship | 29,528 | |
| Neil Glass | 29,528 | |
| Total | 88,584 | |
(1) Shares received as settlement of RSU's which formed part of compensation for the 2020 year on Marchperiod November 18, 2021
•Mr. Tor Olav Trøim—150,081 shares;2022 to September 30, 2023.
•For further details of our shares issued as compensation to Directors see Mr. Pål Kibsgaard—62,500 shares;
•Kate Blankenship —187,601shares; and
•Mr. Neil Glass—150,081 sharesNote 28 - Stockholders' Equity of our Audited Consolidated Financial Statements included therein.
For more information on shareholdings held by all directorsDirectors and executive officers of the Company please see the section entitled “Item 6E.6.E. Share Ownership”
For more information on the share-lending agreement entered into by the Company and the managers of the equity offering in connection with the equity offering, see “Agreements and Other Arrangements with Magni Partners Limited (“Magni”)” in Note 28 - Related party transactions of our Consolidated Financial Statements included here- in.
C.INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Please see the section entitledSee “Item 18. Financial Statements” for more information on the financial statements filed as a part of this annual report. Please also see the section entitled
See “Item 4.B4.B. Business Overview—Legal Proceedings” for a discussion of legal proceedings. We may, from to time, be involved in legal proceedings and claims that arise in the ordinary course of business. A provision will be recognized in the financial statements when we believe that a liability will be probable for which the amounts are reasonably estimable, based upon the facts known prior to the issuance of the financial statements.
Dividend Policydistribution policy
We have not paid dividends
Our long-term objective is to pay a regular dividend in support of our main objective which is to provide significant returns to our shareholders since incorporation. We aim to distribute a portionshareholders. The level of our futuredividends will be guided by current earnings, from operations, if any, to our shareholders from time to time as determined by our Board. market prospects, capital expenditure requirements and investment opportunities.
Any future dividends declared in the future will be at the sole discretion of our Board of Directors and will depend upon our financial condition, earnings market prospects, currentand other factors, such as any restrictions in our financing arrangements. Our ability to declare dividends is also regulated by Bermuda law, which prohibits us from paying dividends if, at the time of distribution, we will not be able to pay our liabilities as they fall due or the value of our assets is less than the sum of our liabilities, issued share capital expenditure programs and investment opportunities.share premium.
In addition, since we are a holding company with no material assets other than the shares of our subsidiaries and equity method investments through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries and equity method investments distributing to us their earnings and cash flows. Some of our debt instruments, including restrictions in the indenture governing the Notes, limit us from making certain distributions.
B.SIGNIFICANT CHANGES
Please see the section entitled “Item 5. Operating and Financial Review and Prospects” for more information concerning for information concerning anyThere have been no significant changes that may have occurred since the date of our annual financial statements. Audited Consolidated Financial Statements included in this report, other than as described in Note 29 - Subsequent Events of our Audited Consolidated Financial Statements included herein.
ITEM 9. THE OFFER AND LISTING
A.OFFER AND LISTING DETAILS.DETAILS
Our common shares are listed on the Oslo Børs, our principal host market, and on the New York Stock Exchange under the symbol “BORR.”.
Please see the section entitled “Item 10.B Additional Information—10.B. Memorandum and Articles of Association and Bye-Laws”Association” for a description of the rights attaching to our common shares.
B.PLAN OF DISTRIBUTION
Not applicable.
C.MARKETS
Our shares were are listed on the Oslo Børs and New York Stock Exchange under the symbol “BORR”
D.SELLING SHAREHOLDERS
Not applicable.
E.DILUTION.DILUTION
Not applicable.
F.EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A.SHARE CAPITAL
Not applicable.
B.MEMORANDUM AND ARTICLES OF ASSOCIATION AND BYE-LAWS
We are an exempted company limited by shares incorporated in Bermuda and our corporate affairs are governed by our Memorandum and Bye-Laws, the Companies Act and the common law of Bermuda.
Our Memorandum of Association and Bye-Laws
The Memorandum of Association of the Company has previously been filed as Exhibit 3.1 to the Company’s Registration Statement on Form F-1 filed with the Securities and Exchange Commission on July 10, 2019, and is hereby incorporated by reference into this Annual Report.
The Bye-Laws of the Company, have previously been filed as Exhibit 3.2 to the Company’s Registration Statement on Form F-1 filed with the Securities and Exchange Commission on July 10, 2019, andamended, are hereby incorporated by reference intoas Exhibit 1.2 to this Annual Report.annual report.
The following are summaries of material provisions of our Memorandum and Bye-Laws, insofar as they relate to the material terms of our shares.
Objects of Our Company
We were incorporated by registration under the Companies Act. Our business objects, as stated in section Six of our Memorandum, are unrestricted and we have all the powers of a natural person.
Common Shares Ownership
Our Memorandum and Bye-Laws do not impose any limitations on the ownership rights of our shareholders. The Bermuda Monetary Authority has given a general permission for us to issue shares to nonresidents of Bermuda and for the free transferability of our shares among nonresidents of Bermuda, for so long as our shares are listed on an appointed stock exchange. There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our common shares.
Dividends
As a Bermuda exempted company limited by shares, we are subject to Bermuda law relating to the payment of dividends. We may not pay any dividends if, at the time the dividend is declared or at the time the dividend is paid, there are reasonable grounds for believing that, after giving effect to that payment:
•we will not be able to pay our liabilities as they fall due; or
•the realizable value of our assets is less than our liabilities.
In addition, since we are a holding company with no material assets, and conduct our operations through subsidiaries, our ability to pay any dividends to shareholders will depend on our subsidiaries’ distributing to us their earnings and cash flow. Some of our loan agreements currently limit or prohibit our subsidiaries’ ability to make distributions to us and our ability to make distributions to our shareholders.
Voting Rights
Holders of common shares are entitled to one vote per share on all matters submitted to a vote of holders of common shares. Unless a different majority is required by law or by our Bye-Laws, resolutions to be approved by holders of common shares require approval by a simple majority of votes cast at a meeting at which a quorum is present.
Majority shareholders do not generally owe any duties to other shareholders to refrain from exercising all of the votes attached to their shares. There are no deadlines in the Companies Act relating to the time when votes must be exercised. However, our Bye-Laws provide that where a shareholder or a person representing a shareholder as a proxy wishes to attend and vote at a meeting of our shareholders, such shareholder or person must give us not less than 48 hours’ notice in writing of their intention to attend and vote.
The key powers of our shareholders include the power to alter the terms of our Memorandum and to approve and thereby make effective any alterations to our Bye-Laws made by the directors. Dissenting shareholders holding 20% of our shares may apply to the court to annul or vary an alteration to our Memorandum. A majority vote against an alteration to our Bye-Laws made
by the directors will prevent the alteration from becoming effective. Other key powers are to approve the alteration of our capital, including a reduction in share capital, to approve the removal of a director, to resolve that we will be wound up or discontinued from Bermuda to another jurisdiction or to enter into an amalgamation, merger or winding up. Under the Companies Act, all of the foregoing corporate actions require approval by an ordinary resolution (a simple majority of votes cast), except in the case of an amalgamation or merger transaction, which requires approval by 75% of the votes cast, unless our Bye-Laws provide otherwise, which our Bye-Laws do. Our Bye-Laws provide that the Board may, with the sanction of a resolution passed by a simple majority of votes cast at a general meeting with the necessary quorum for such meeting of two persons at least holding or representing 33.33% of our issued shares (or the class of securities, where applicable), amalgamate or merge us with another company. In addition, our Bye-Laws confer express power on the Board to reduce its issued share capital selectively with the authority of an ordinary resolution of the shareholders.
The Companies Act provides that a company shall not be bound to take notice of any trust or other interest in its shares. There is a presumption that all the rights attaching to shares are held by, and are exercisable by, the registered holder, by virtue of being registered as a member of the company. Our relationship is with the registered holder of itsour shares. If the registered holder of the shares holds the shares for someone else (the beneficial owner), then the beneficial owner is entitled to the shares and may give instructions to the registered holder on how to vote the shares. The Companies Act provides that the registered holder may appoint more than one proxy to attend a shareholder meeting, and consequently where rights to shares are held in a chain the registered holder may appoint the beneficial owner as the registered holder’s proxy.
Meetings of Shareholders
The Companies Act provides that a company must have a general meeting of its shareholders in each calendar year unless that requirement is waived by resolution of the shareholders. Under our Bye-Laws, annual shareholder meetings will be held in accordance with the Companies Act at a time and place selected by the Board, provided that no such meetings can be held in Norway or the United Kingdom. Special general meetings may be called at any time at the discretion of the Board, provided that no such meetings can be held in Norway or the United Kingdom.
Annual shareholder meetings and special meetings must be called by not less than seven days’ prior written notice specifying the place, day and time of the meeting. The Board may fix any date as the record date for determining those shareholders eligible to receive notice of and to vote at the meeting.
The quorum at any annual or general meeting is equal to at least two shareholders, present in person or by proxy, and entitled to vote (whatever the number of shares held by them). The Companies Act specifically imposes special quorum requirements where the shareholders are being asked to approve the modification of rights attaching to a particular class of shares (33.33%) or an amalgamation or merger transaction (33.33%) unless in either case the bye-laws provide otherwise.
The Companies Act provides shareholders holding 10% of a Company’s voting shares the ability to request that the Board shall convene a meeting of shareholders to consider any business which the shareholders wish to be discussed by the shareholders including (as noted below) the removal of any director. However, the shareholders are not permitted to pass any resolutions relating to the management of our business affairs unless there is a pre-existing provision in the company’s bye-laws which confers such rights on the shareholders. Subject to compliance with the time limits prescribed by the Companies Act, shareholders holding 5% of the voting shares (or alternatively, 100 shareholders) may also require the directors to circulate a written statement not exceeding 1,000 words relating to any resolution or other matter proposed to be put before, or otherwise considered during, the annual general meeting of the company.
Election, Removal and Remuneration of Directors
The Companies Act provides that the directors shall be elected or appointed by the shareholders. A director may be elected by a simple majority vote of shareholders. A person holding more than 50% of the voting shares of the company will be able to elect all of the directors, and to prevent the election of any person whom such shareholder does not wish to be elected. There are no provisions for cumulative voting in the Companies Act or the Bye-Laws. Further, our Bye-Laws do not contain any super-majority voting requirements relating to the appointment or election of directors. The appointment and removal of directors is covered by Bye-Laws 97, 98 and 99.
There are procedures for the removal of one or more of the directors by the shareholders before the expiration of his term of office. Shareholders holding 10% or more of our voting shares may require the Board to convene a shareholder meeting to consider a resolution for the removal of a director. At least 14 days’ written notice of a resolution to remove a director must be given to the director affected, and that director must be permitted to speak at the shareholder meeting at which the resolution for
his removal is considered by the shareholders. Any vacancy created by such a removal may be filled at the meeting by the election of another person by the shareholders or in the absence of such election, by the Board.
The Companies Act stipulates that an undischarged bankruptcy of a director (in any country) shall prohibit that director from acting as a director, directly or indirectly, and taking part in or being concerned with the management of a company, except with leave of the court. Bye-Law 101100 is more restrictive in that it stipulates that the office of a Director shall be vacated upon the happening of any of the following events:
•If he resigns his office by notice in writing delivered to the registered office or tendered at a meeting of the Board;
•If he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the Board resolves that his office is vacated;
•If he becomes bankrupt or compounds with his creditors;
•If he is prohibited by law from being a Director; or
•If he ceases to be a Director by virtue of the Companies Act or is removed from office pursuant to the company’s bye-laws.
Under our Bye-Laws, the minimum number of directors comprising the Board at any time shall be two. The Board currently consists of fiveseven directors. The minimum and maximum number of directors comprising the Board from time to time shall be determined by way of an ordinary resolution of our shareholders. The shareholders may, at the annual general meeting by ordinary resolution, determine that one or more vacancies in the Board be deemed casual vacancies. The Board, so long as a quorum remains in office, shall have the power to fill such casual vacancies. Our directors are not required to retire because of their age, and the directors are not required to be holders of our shares. Directors serve for one year terms, and shall serve until re-elected or until their successors are appointed at the next annual general meeting. Each director will hold office until the next annual general meeting or until his successor is appointed or elected. There is no requirement for our Directors to hold our shares to qualify for appointment.
Director Transactions
Our Bye-Laws do not prohibit a director from being a party to, or otherwise having an interest in, any transaction or arrangement with our Company or in which our Company is otherwise interested. Our Bye-Laws provide that a director who has an interest in any transaction or arrangement with us and who has complied with the provisions of the Companies Act and with our Bye-Laws with regard to disclosure of such interest shall be taken into account in ascertaining whether a quorum is present, and will be entitled to vote in respect of any transaction or arrangement in which he is so interested.
Bye-Law 111 provides our Board the authority to exercise all of our powers to borrow money and to mortgage or charge all or any part of our property and assets as collateral security for any debt, liability or obligation. However, under the Companies Act, companies may not lend money to a director or to a person connected to a director who is deemed by the Companies Act to be a director (a “Connected Person”), or enter into any guarantee or provide any security in relation to any loan made to a director or a Connected Person without the prior approval of the shareholders of the company holding in aggregate 90% of the total voting rights in the company.
Our Bye-Laws provide that no director, alternate director, officer, person or member of a committee, if any, resident representative, or his heirs, executors or administrators, which we refer to collectively as an indemnitee, is liable for the acts, receipts, neglects or defaults of any other such person or any person involved in our formation, or for any loss or expense incurred by us through the insufficiency or deficiency of title to any property acquired by us, or for the insufficiency ofor deficiency of any security in or upon which any of our monies shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any monies, securities or effects shall be deposited, or for any loss occasioned by any error of judgment, omission, default or oversight on his part, or for any other loss, damage or other misfortune whatever which shall happen in relation to the execution of his duties, or supposed duties, to us or otherwise in relation thereto. Each indemnitee will be indemnified and held harmless out of our funds to the fullest extent permitted by Bermuda law against all liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him as such director, alternate director, officer, person or committee member or resident representative (or in his reasonable belief that he is acting as any of the above). In addition, each indemnitee shall be indemnified against all liabilities incurred in defending any proceedings,
whether civil or criminal, in which judgment is given in such indemnitee’s favor, or in which he is acquitted. We are authorized to purchase insurance to cover any liability it may incur under the indemnification provisions of our Bye-Laws. Each shareholder has agreed in Bye-Law 166 to waive to the fullest extent permitted by Bermuda law any claim or right of action he might have whether individually or derivatively in the name of the company against each indemnitee in respect of any action taken by such indemnitee or the failure by such indemnitee to take any action in the performance of his duties to us.
Liquidation
In the event of our liquidation, dissolution or winding up, the holders of common shares are entitled to share in our assets, if any, remaining after the payment of all of our debts and liabilities, subject to any liquidation preference on any outstanding preference shares.
Redemption, Repurchase and Surrender of Shares
Subject to certain balance sheet restrictions, the Companies Act permits a company to purchase its own shares if it is able to do so without becoming cash flow insolvent as a result. The restrictions are that the par value of the share must be charged against the company’s issued share capital account or a company fund which is available for dividend or distribution or be paid for out of the proceeds of a fresh issue of shares. Any premium paid on the repurchase of shares must be charged to the company’s current share premium account or charged to a company fund which is available for dividend or distribution. The Companies Act does not impose any requirement that the directors shall make a general offer to all shareholders to purchase their shares pro rata to their respective shareholdings. Our Bye-Laws do not contain any specific rules regarding the procedures to be followed by us when purchasing our shares, and consequently the primary source of our obligations to shareholders when we tender for our shares will be the rules of the listing exchanges on which our shares are listed. Our power to purchase our shares is covered by Bye-Laws 7, 8 and 9.
Issuance of Additional Shares
Bye-Law 3 confers on the directors the right to dispose of any number of unissued shares forming part of our authorized share capital without any requirement for shareholder approval.
The Companies Act and our Bye-Laws do not confer any pre-emptive, redemption, conversion or sinking fund rights attached to our common shares. Bye-Law 14 specifically provides that the issuance of more shares ranking pari passu with the shares in issue
shall not constitute a variation of class rights, unless the rights attached to shares in issue state that the issuance of further shares shall constitute a variation of class rights.
Inspection of Books and Records
The Companies Act provides that a shareholder is entitled to inspect the register of shareholders and the register of directors and officers of the company. A shareholder is also entitled to inspect the minutes of the meetings of the shareholders of the company, and the annual financial statements of the company. Our Bye-Laws do not provide shareholders with any additional rights to information, and our Bye-Laws do not confer any general or specific rights on shareholders to inspect our books and records.
Implications of Being a Foreign Private Issuer
We are considered a “foreign private issuer.” As a foreign private issuer, we are exempt from certain rules underFor more information, please see the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.entitled "Item 10.H. Additional Information-Documents on Display".
We may take advantage of these exemptions until the first day after we cease to qualify as a foreign private issuer. We would cease to be a foreign private issuer if, on the last business day of our second fiscal quarter, more than 50.0% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50.0% of our assets are located in the United States or (iii) our business is administered principally in the United States. WeAs a foreign private issuer, we have taken advantage of certain reduced reporting and other
requirements in this annual report.that apply to U.S. "domestic" companies with shares registered with the SEC. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.
Implications of Being an Emerging Growth Company
We are also an “emerging growth company” as defined in the JOBS Act enacted in April 2012. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
•being permitted to present only two years of audited financial statements and only two years of related disclosure in “Item 5. Operating and Financial Review and Prospects” in this annual report; and
•not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
To the extent that we cease to qualify as a foreign private issuer but remain an emerging growth company, we may also take advantage of (i) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements (if any) and registration statements and (ii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We intend to take advantage of the reduced reporting requirements and exemptions to the extent we cease to qualify as a foreign private issuer but remain an emerging growth company. Notwithstanding our status as an emerging growth company, we have not elected to use the extended transition period for complying with any new or revised financial accounting standards and, in accordance with SEC standards applicable to emerging growth companies, such election is irrevocable. For more information, please see the section entitled “Item 3.D Risk Factors—Risk Factors Related to Applicable Laws and Regulations—If we fail to comply with requirements relating to being a public company in the United States when obligated to do so, our business could be harmed and our Share price could decline.”
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities under an effective registration statement under the Securities Act. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our gross revenues for any fiscal year equal or exceed $1.07 billion (as adjusted for inflation under SEC rules from time to time) or we issue more than $1.0 billion of nonconvertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
Certain Bermuda Company Considerations
Our corporate affairs are governed by our Memorandum and Bye-Laws as described above, the Companies Act and the common law of Bermuda. You should be aware that the Companies Act differs in certain material respects from the laws generally applicable to U.S. companies incorporated in the State of Delaware. Accordingly, you may have more difficulty protecting your interests under Bermuda law in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction, such as the State of Delaware. Please see Exhibit 2.1 to this Annual Report on Form 20-F.
C.MATERIAL CONTRACTS
For more information concerning our material contracts, see “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and ProspectsProspects" and “Item 7. Major Shareholders and Related Party Transactions.”19. Exhibits" of this Annual Report.
D.EXCHANGE CONTROLS
Our common shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act of 2003 and the Exchange Control Act 1972, and related regulations of Bermuda which regulate the sale of securities in Bermuda. In addition, specific permission is required from the Bermuda Monetary Authority, or the BMA, pursuant to the provisions of the Exchange Control Act 1972 and related regulations, for all issuances and transfers of securities of Bermuda companies, other than in cases where the BMA has granted a general permission. The BMA in its policy dated June 1, 2005 provides that where any equity securities of a Bermuda company, including our common shares, are listed on an appointed stock exchange, general permission is given for the issue and subsequent transfer of any securities of a company from and/or to a
nonresident, for as long as any equities securities of such company remain so listed. The NYSE is deemed to be an appointed stock exchange under Bermuda law.
Although we are incorporated in Bermuda, we are classified as a non-resident of Bermuda for exchange control purposes by the BMA. Other than transferring Bermuda Dollars out of Bermuda, there are no restrictions on our ability to transfer funds into and out of Bermuda or to pay dividends in currency other than Bermuda Dollars to U.S. residents (or other non-residents of Bermuda) who are holders of our common shares.
In accordance with Bermuda law, share certificates may be issued only in the names of corporations, individuals or legal persons. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, we
are not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust. We will take no notice of any trust applicable to any of our shares or other securities whether or not we had notice of such trust.
E.TAXATION
The following discussion of the Bermuda and U.S. federal income tax consequences of an investment in our common shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our common shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than Bermuda and the United States.
Bermuda Taxation
While we are incorporated in Bermuda, we are not currently subject to taxation under the laws of Bermuda.Bermuda, however, we note that the Bermuda Corporate Income Tax Act 2023 ("Corporate Income Tax Act") was enacted on December 27, 2023 and will apply from January 1, 2025). Distributions we receive from our subsidiaries are also are not subject to any Bermuda tax. There is no Bermuda income, corporation or profits tax, withholding tax, capital gains tax, capital transfer tax or estate duty or inheritance tax payable by nonresidents of Bermuda in respect of capital gains realized on a disposition of our shares or in respect of distributions they receive from us with respect to our shares. This discussion does not, however, apply to the taxation of persons ordinarily resident in Bermuda. Bermuda shareholders should consult their own tax advisors regarding possible Bermuda taxes with respect to dispositions of, and distributions on, our shares. We have received from the Minister of Finance under The Exempted Undertaking Tax Protection Act 1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, the imposition of any such tax shall not be applicable to us or to any of our operations or shares, debentures or other obligations, until March 31, 2035.2035 (we note that this assurance is overridden by the Corporate Income Tax Act, with effect from January 1, 2025). This assurance is subject to the proviso that it is not to be construed to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda or to prevent the application of any tax payable in accordance with the provisions of the Land Tax Act 1967. The assurance does not exempt us from paying import duty on goods imported into Bermuda. In addition, all entities employing individuals in Bermuda are required to pay a payroll tax and there are other sundry taxes payable, directly or indirectly, to the Bermuda government. We and our subsidiaries incorporated in Bermuda pay annual government fees to the Bermuda government. Bermuda currently has no tax treaties in place with other countries in relation to double-taxation or for the withholding of tax for foreign tax authorities.
The assurance granted by the Minister of Finance pursuant to the Tax Protection Act has been made subject to the application of any taxes payable pursuant to the Corporate Income Tax Act. Amendments were made to the Tax Protection Act by the Corporate Income Tax Act, with the consequence that liability for any taxes payable pursuant to the Corporate Income Tax Act will apply notwithstanding any prior assurance given pursuant to the Tax Protection Act.
Following rounds of consultation with the public and industry stakeholders in August, October and November 2023, the Corporate Income Tax Act was passed by the House of Assembly in Bermuda on December 15, 2023 and was also passed by the Senate on December 18, 2023. This legislation is set to become fully operative on January 1, 2025 when corporate income tax will be imposed.
Subject to certain exceptions, Bermuda entities that are part of a multinational group will be in scope of the provisions of the Corporate Income Tax Act if, with respect a fiscal year, such group has annual revenue of EUR 750 million (equivalent) or more in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years immediately prior to such fiscal year (“Bermuda Constituent Entity Group”).
Where corporate income tax is chargeable to a Bermuda Constituent Entity Group, the amount of corporate income tax chargeable to a Bermuda Constituent Entity Group for a fiscal year shall be 15% of the net taxable income of the Bermuda Constituent Entity Group, less tax credits applicable under the Corporate Income Tax Act (foreign tax credits) or as prescribed by regulation by the Minister of Finance (qualified refundable tax credits).
Qualified refundable tax credits, to be developed in 2024, will be incorporated into the new corporate income tax regime to provide incentives for investment by international companies. The Minister of Finance has stated that investments could be encouraged in areas such as infrastructure, education, healthcare, innovation and housing. As Bermuda continues to participate in the global minimum tax initiative, it will closely track the manner in which this is implemented around the world.
U.S. Federal Income Tax Considerations
The following discussion is a summary of the U.S. federal income tax considerations relatinggenerally applicable to the ownership and disposition of our common shares by a U.S. HolderHolders (as defined below) and holding ofthat hold our common shares as “capital assets” (generally, property held for investment) under the Code.for U.S. federal income tax purposes. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated thereunder (“Regulations”), published positions of the IRS, administrative pronouncements, court decisions and other applicable authorities, all as currently in effect as of the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect). No ruling has been sought from the IRS with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the IRS would not take, or a court willwould not takesustain a contrary position.
This discussion does not discuss all aspects of U.S. federal income taxation that may be importantrelevant to particular investors in light of their individual investmentparticular circumstances, includingor investors subject to special tax rules (including, for example, banks or other financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, dealers in securities or foreign currency, traders in securities that elect mark-to-market treatment, tax-exempt organizations (including private foundations), entities or arrangements that are treated as partnerships for U.S. federal income tax purposes (or partners therein), holders who are not U.S. Holders, U.S. expatriates, holders who own (directly, indirectly or constructively) 10% or more of our stock (by
vote or value), holders who acquire their common shares pursuant to any employee share option or otherwise as compensation, investors that will hold their common shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes or investors who have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those discussed below). This discussion, moreover, does not address theany U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, and gift tax or alternative minimum tax consequences of the acquisition or ownership of our common sharesconsiderations, or the Medicare tax on net investment income. Each
U.S. Holder is urged toHolders should consult itstheir tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of an investment in our common shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common shares that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source or (iv) a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S. person under the Code for U.S. federal income tax purposes.
If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our common shares, the U.S. federal income tax treatment of a partner in thesuch partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our common shares and their partners are urged toshould consult their tax advisors regarding an investment in our common shares.
Dividends
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” any cash distributions (including the gross amount of any tax withheld) paiddistributions received by a U.S. Holder on our common shares will generally be subject to tax as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, and will generally be includible in the gross income of asuch U.S. Holder as dividend income on the day actually or constructively received byreceived. Distributions in excess of our current or accumulated earnings and profits will generally be treated as a non-taxable return of capital to the extent of the U.S. Holder.Holder's adjusted tax basis in our common shares and thereafter generally treated as capital gain. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay willis generally expected to be treated as a “dividend” for U.S. federal income tax purposes. A
Individual and other non-corporate U.S. Holder willHolders may be subject to tax on dividend income from a “qualified foreign corporation” at athe lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income;“qualified dividend income,” provided that certain holding period and other requirements are met. A non-U.S. corporation (other than a corporationmet, including that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (i) if it iswe are eligible for the benefits of a comprehensive income tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respect to any dividend it pays on stock which isour common shares are treated as readily tradable on an established securities market in the United States. We haveStates, (ii) we are neither a PFIC nor treated as such
with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year, and (iii) certain holding period requirements are met. Our common shares are listed on the New York Stock Exchange which is an established securities market in the United States, theso our common shares are expected to be readily tradable. Theretradable, although there can be no assurance thatin this regard.
For foreign tax credit purposes, dividends received on our common shares will continue to be considered readily tradable on an established securities market in later years.
Dividends will generally be treated as income from foreign sources for U.S. foreign tax credit purposesoutside the United States and will generally constitute passive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit not in excess of any applicable treaty rate in respect of any foreign withholding taxes imposed on dividends received on our common shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the U.S. foreign tax credit are complex and their outcomeapplication depends in large part on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged toshould consult their tax advisors regarding the availability of the U.S. foreign tax credit under their particular circumstances.
Sale or Other Disposition of our Shares
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of common shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such common shares. Any capital gain or loss will be long-term if the U.S. Holder's holding period in respect of such common shares have been held for more thanexceeds one year at the time of disposition and will generally be U.S. source gain or loss for U.S. foreign tax credit purposes.
Long-term capital gains of individuals and certain non-corporate U.S. Holders are currently eligible for reduced rates of taxation. The deductibility of a capital losslosses may be subject to limitations. U.S. Holders are urged toshould consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our common shares, including the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as the Company, will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as a passive asset and the company’s goodwill and other unbooked intangibles associated with active business activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents, royalties and net gains from the disposition of passive assets.assets that produce such income. However, passive income does not generally include income derived from the performance of services. Passive assets are those which give rise to passive income and include assets held for investment, as well as cash, assets readily convertible into cash, and (subject to certain exceptions) working capital. Our goodwill and other unbooked intangibles are taken into account and may be classified as active or passive depending on the income such assets generate or are held to generate. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly or constructively, at least 25% (by value) of theits stock.
Based upon our current and projected income and assets, including goodwill and projections as to the value of our assets,other unbooked intangibles, we do not believe we were not a PFIC for theour most recent taxable year ended December 31, 2020,2023, and we do not expect to be a PFIC for the current taxable year or in the foreseeable future.future taxable years. In making this determination, we believe that any income we receive from offshore drilling service contracts should not be treated as “services income” as opposed to passive income under the PFIC rules. In addition,rules and that the assets we own and utilize to generate this “services income”income should not be consideredtreated as passive assets for purposes of the PFIC rules.assets. However, because these determinations are based on the nature of our income and assets from time to time, as well as involving the application of complex tax rules, and because our view is not binding on the courts or the IRS, no assurances can be provided that we will not be considered a PFIC for the current, or any past or future tax year.taxable years. While we do not expect to be or become a PFIC in the current or future taxable years, the determination of whether we are or will become a PFIC will depend on our income, assets and activities in each year. No assurance can be given that the composition of our income or assets will not change in a manner that could make us a PFIC in the future. Under circumstances where we determine not to deploy significant amounts of cash for capital expenditures and other general corporate purposes, our risk of becoming classified as a PFIC may substantially increase.
Because the determination of PFIC status is a fact-intensive inquiry made on an annual basis and will depend upon the composition of our assets and income, and the continued existence of our goodwill at that time,and other unbooked intangibles, no assurance can be given that we are not or will not become classified as a PFIC. If we are classified as a PFIC for any year during which a U.S. Holder holds our common shares, we will generally will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds our common shares, regardless of whether we continue to meet either of the PFIC tests described above.
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our common shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules, that have a penalizing effect,
regardless of whether we remain a PFIC, onwith respect to any (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the common shares) and (ii) any gain realized on the sale or other disposition, including an indirect disposition such as a pledge, of common shares. Under the PFIC rules:
•the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the common shares;
•the amountamounts allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;
•the amountamounts allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest marginal tax rate in effect for individuals or corporations, as appropriate, for that year; and
•the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our common shares and any of our non-U.S. subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of theeach lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged toshould consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock. If a U.S. Holder makes a valid mark-to-market election, the U.S. Holder will include in income each year an amount equal to the excess, if any, of the fair market value of the common shares as of the close of such U.S. Holder’s taxable year over such U.S. Holder’s adjusted basis in such shares. The U.S. Holder is allowed a deduction for the excess, if any, of such U.S. Holder’s adjusted basis in the common shares over their fair market value as of the close of the taxable year. Deductions are allowable, however, only to the extent of any net mark-to-market gains on the common shares included in the U.S. Holder’s income for prior taxable years. Amounts included in the U.S. Holder’s income under a mark-to-market election, as well as gain on the actual sale or other disposition of the common shares, will be treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the common shares, as well as to any loss realized on the actual sale or disposition of the common shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included in income with respect to such shares. The U.S. Holder’s basis in the common shares will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes a mark-to-market election, then, in any taxable year for which we are classified as a PFIC, tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by us (except that the lower applicable capital gains rate for qualified dividend income would not apply). If a U.S. Holder makes a valid mark-to-market election and we subsequently cease to be classified as a PFIC, the U.S. Holder will not be required to take into account the mark-to-market income or loss described above during any period that we are not classified as a PFIC.
The mark-to-market election is available only for “marketable stock,” which is stock provided that such stock is traded in other than de minimis quantities on at least 15 days during each calendar quarter ("regularly traded.traded") on a qualified exchange or other market, as defined in the applicable Regulations. For those purposes, our shares are treated as marketable stocklisted on a qualified exchange or other market since their listing on the New York Stock Exchange. We anticipate that our shares should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of shares held at the end of the taxable year over the adjusted tax basis of such shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the shares over the fair market value of such shares held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of our shares and we cease to be classified as a PFIC, such U.S. Holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
Because a mark-to-market election can be made only with respect to marketable stock, such election generally will not be available for any lower-tier PFICs that we may own. Therefore, if we are treated as a PFIC, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.
If a U.S. Holder owns our common shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621 or such other form as is required by the U.S. Treasury Department. Each U.S. Holder is advised toHolders should consult itstheir tax advisoradvisors regarding the potential tax consequences to such holder if we are or become a PFIC, including the possibility of making a mark-to-market election.
Foreign Financial Asset Reporting
A U.S. Holder may be required to report information relating to an interest in our common shares, generally by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with the U.S. Holder’s federal income tax return. A U.S. Holder may also be subject to significant penalties if the U.S. Holder is required to report such information and fails to do so. U.S. Holders should consult their tax advisors regarding information reporting obligations, if any, with respect to ownership and disposition of our common shares.
F.DIVIDENDS AND PAYING AGENTS
Not applicable.
G.STATEMENT BY EXPERTS
Not applicable.
H.DOCUMENTS ON DISPLAY
We will file reports and other information with the Commission. The Commission maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with it.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F and other informationfurnish reports on Form 6-K with the SEC. All information filed and furnished with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov.
Our information filed with or furnished to the SEC is available free of charge through our website (www.borrdrilling.com) or by calling us at +1 (441) 737-0152 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.. The information contained on our website is not a part of this annual report.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements. While we furnish proxy statements to shareholders in accordance with the applicable rules of any stock exchange on which our common shares may be listed in the future, those proxy statements will not conform to Schedule 14A of the proxy rules promulgated under the Exchange Act. Our executive officers, directors and principal shareholders are also exempt from the reporting and short-swing profit recovery provisions contained in section 16 of the Exchange Act. Although we willare not be required under the Exchange Act to file periodic reports and financial statements with the
SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, we will furnish holders of our shares with annual reports containing audited financial statements and a report by our independent registered public accounting firm and intend to make available quarterly reports containing selected unaudited financial data for the first three quarters of each fiscal year. TheIn addition, we are not required to comply with regulation FD, which restricts the selective disclosure of material information. Our audited financial statements will beare prepared in accordance with U.S. GAAP and those reports will include a “Operating and Financial Review and Prospects” section for the relevant periods.
I.SUBSIDIARY INFORMATION
Not applicable.
J.ANNUAL REPORT TO SECURITY HOLDERS
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including liquidity risks, interest rate risks, inflation risks,and foreign currency exchange risks. The following section provides qualitative and quantitative disclosures on the effect that these risks and credit risks.
Liquidity Risk
We managecould have upon us. The below quantitative analysis provides information regarding our liquidity risk by maintaining adequate cash reserves and undrawn facilities at banking facilities, by continuously monitoring our cash forecasts and our actual cash flows and by matching the maturity profiles of financial assets and liabilities.exposure to foreign currency risk.
Interest Rate Risk
As of December 31, 2023, all of our debt obligations are on fixed interest rates, therefore we are currently not exposed to the impact of interest rate changes. Under our RCF, undrawn as of December 31, 2023, we are exposed to the impact of interest rate risk relatedchanges as we are required to floating-rate debt under our Financing Arrangements. Our variable rate debt, where themake interest rate may be adjusted frequently over the life of the debt, exposes us to short-term changespayments based on SOFR plus associated margins. Significant increases in market interest rates. We are exposed to changes in long-term market interest rates ifcould adversely affect our future results of operations and when maturing debt is refinanced with new debt. cash flows should we elect to drawdown on this facility.
Further, weWe may utilize derivative instruments to manage interest rate risk in the future. Wefuture, but we are not engaged in derivative transactions for speculative or trading purposes.
A changeFor disclosure of 100 basis points in interest rates for the year endedfair value of our debt obligations outstanding as of December 31, 2020 would have increased/(decreased)2023, refer to Note 26 – Financial Instruments of our total other income (expenses), net and loss before income taxes by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for the year ended December 31, 2018 and 2019.
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | (in $ millions) |
| Sensitivity Analysis – Financial income (expense), net | | | | | |
| Increase by 100 basis points | $ | (14.7) | | | $ | (10.2) | | | $ | (3.8) | |
| Decrease by 100 basis points | 14.7 | | | 10.2 | | | 3.8 | |
| | | | | |
| Sensitivity Analysis – Loss before income taxes | | | | | |
| Increase by 100 basis points | $ | (14.7) | | | $ | (10.2) | | | $ | (3.8) | |
| Decrease by 100 basis points | 14.7 | | | 10.2 | | | 3.8 | |
Inflation Risk
Inflation has not had significant impact on operating or other expenses; however our contracts do not generally contain inflation-adjustment mechanisms and we are subject to risks related to inflation.
We do not consider inflation to be a significant risk to costs in the current and foreseeable future economic environment. However, should the world economy be affected by inflationary pressures this could result in increased operating and financing costs.
Audited Consolidated Financial Statements included herein.Foreign Currency Risk
Our international operations expose us to currency exchange rate risk, although we believe this risk is low. This risk is primarily associated with compensation costsThe majority of employees, drilling contracts in the North Sea and purchasing costs from non-U.S. suppliers, whichour transactions are denominated in currencies other than the U.S. dollar, includingdollars, our functional currency. Periodically, we may be exposed to foreign currency exchange fluctuations as a result of expenses incurred associated with our international operations. This risk primarily pertains to our rig operating and maintenance expenses and our general and administrative expenses, which includes transactions denominated in primarily British Pounds, Central African CFA Francs, Saudi Riyal, Malaysian Ringgit, Thai Baht, Mexican Pesos, United Arab Emirates Dirham, Euros, PoundsNorwegian Kroner and Nigerian Naira.Singaporean Dollars. We do not have any non-U.S. dollar debt and thus are not exposed to currency risk related to debt.
Our primary currency exchange rate risk management strategy involves structuring certain customer contracts to provide for payment from the customer in a combination of both U.S. dollars and local currency. The payment portion denominated in local currency is based on anticipated local currency requirements over the contract term. Due to various factors, including customer acceptance, local banking laws, other statutory requirements, local currency convertibility and the impact of inflation on local costs, actual local currency needs may vary from those anticipated in the customer contracts, resulting in partial exposure to currency exchange rate risk. The currency exchange effect resulting from our international operations has not historically had a material impact on our operating results.
Further, we may utilize foreign currency forward exchange contracts to manage foreign exchange risk. We are not engaged in derivative transactions for speculative or trading purposes.
Market Risk
From time to time, we have made and held investments in other companiesThe net foreign currency exchange impact resulting from our international operations has not historically had a material impact on our operating results with a foreign exchange loss of $2.8 million for the year ended December 31, 2023 recognized within "Other financial expenses, net" in our industry that own/operate offshore drilling rigs with similar characteristics to our fleetConsolidated Statements of jack-up rigs, subject to compliance withOperations.
For the covenants contained in certain of our Financing Arrangements which restrict such investments. We have also purchased and held debt securities issued by other companiesyear ended December 31, 2023, a hypothetical ten percent adverse change in the offshore drilling industry from time to time. Through these investments, we sought to optimizeexchange rates against the U.S. dollar would result in an increase of $17.9 million in our free-cash flow through strategic investments where cash may otherwise remain idle. In addition,rig operating and maintenance expenses and general and administrative expenses, combined. The sensitivity analysis is based on an average ten percent increase in all foreign exchange currencies applied against the Call Spread Transactions expose us toforeign currency transactions for the risk of fluctuationsperiod thereby assuming foreign exchange rates change in thea parallel manner, and assumes unchanged market value of our shares.conditions other than exchange rates, such as volatility and interest rates. For this reason, it is purely indicative.
As a result of these investments and transactions, we are exposed to the risk of fluctuations in the market values of the available-for-sale financial assets we hold from time to time (other than changes in interest rates and foreign currencies) and our shares. We generally do not use any derivative instruments to manage this risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.DEBT SECURITIES
Not applicable.
B.WARRANTS AND RIGHTS
Not applicable.
C.OTHER SECURITIES
Not applicable.
D.AMERICAN DEPOSITARYDEPOSITORY SHARES
None.
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
NoneNone.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
NoneNone.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e)13(a)-15(i) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”))Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. AnyThere are inherent limitations to the effectiveness of any system of disclosure controls and procedures, no matter how well designedincluding the possibility of human error and operated,the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving the desiredtheir control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020.2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as a result of the material weaknesses in our internal control over financial reporting described below, the design and operation of our disclosure controls and procedures were not effective as of December 31, 2020.2023.
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report does not include a report of management’s assessment regardingOur management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting or an attestation report(as such term is defined by Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the company’s registered public accounting firm, dueconsolidated financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets, that could have a transition periodmaterial effect on the financial statements.
Our management has assessed the effectiveness of internal control over financial reporting as of December 31, 2023 based on the criteria established in "Internal Control—Integrated Framework (2013)" issued by rulesthe Committee of Sponsoring Organizations of the SEC for newly public companies. Additionally,Treadway Commission. Based on such assessment and criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2023.
The Company’s independent registered public accounting firm will not be required to opinehas issued an attestation report on management's assessment of the effectiveness of the Company’s internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting until we are no longeras of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, a United Kingdom entity ("PwC UK"), an emerging growth company.independent registered public accounting firm, as stated in their report which appears on page F-2 of our consolidated financial statements included herein.
Changes in Internal Control over Financial Reporting
Except as described below, there
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the period covered by this Annual Reportannual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness in Internal Control over Financial Reporting
As previously disclosed in our Registration Statement on Form F-1 (File No. 333-232594), which was declared effective by the SEC on July 30, 2019, we identified certain control deficiencies in the design and operation of our internal control over financial reporting in connection with the preparation of our 2018 audited consolidated financial statements that constituted a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements may not be prevented or detected on a timely basis. The control deficiencies resulted from a lack of a sufficient number of competent financial reporting and accounting personnel to prepare and review our consolidated financial statements and related disclosures in accordance with U.S. GAAP.
To remedy our identified material weakness, we disclosed in our Form 20-F for the year ended December 31, 2019 further steps which were taken to strengthen our internal control over financial reporting, which included: (i) engaging external third parties to assist with the implementation of our new internal control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; and (iii) hiring more qualified personnel to strengthen the financial reporting function and to improve the financial and systems control framework, however, the identified material weakness has not been fully remediated.
In 2020, due to the impact of COVID-19 on our operational and financial performance, we were unable to hire additional qualified personnel to strengthen the financial reporting function and improve the financial and systems control framework through increased segregation of duties.
Based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission we have implemented and continue to implement control procedures to strengthen our internal control over financial reporting. Specifically, subsequent to December 31, 2020, Management is in the process of reviewing, and where necessary, modifying controls and procedures throughout the Company
and we plan to address deficiencies identified during 2021, subject to the economic uncertainty at this time, the impact of the COVID-19 pandemic and the constraints on the re-allocation of current resources.
Although we have made enhancements to our control procedures in this area, the material weakness will not be remediated until the necessary controls have been fully implemented and operating effectively. See Item 3. “Key Information – D. Risk Factors — Risks Related to Ownership of our common shares — In connection with the audits of our consolidated financial statements, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
ITEM 16. [RESERVED]
ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT
Based on the qualifications and relevant experience described in "Item 6.A. Directors and Senior Management", our board of directorsDirectors has determined that Kate Blankenship and Neil Glass are “auditeach qualify as an audit committee financial experts” as defined under SEC rule 10A-3 andexpert as defined in Item 16A16A. of Form 20-F under the Exchange Act. Our boardAct and are independent in accordance with SEC rule 10A-3 pursuant to Section 10A of directors has also determined that Kate Blankenshipthe Securities Exchange Act of 1934 and Neil Glass satisfy the NYSE’sNYSE listed company “independence” requirements and independence requirements applicable to audit committee members under US securiites laws. members.
ITEM 16B.CODE OF ETHICS
Our Board has established a code of business conduct and ethics applicable to our employees, directorsDirectors and officers. Any waiver of this code may be made only by our Board and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of the NYSE. Our code of business conduct and ethics is publicly available on our website at www.borrdrilling.com and is under reviewreviewed on an annual basis. We will provide any persons, free of charge, a yearly basis.copy of our code of ethics upon written request to our registered office.
ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES
PricewaterhouseCoopers AS (“PwC Norway”) served as our independent registered public accounting firm for the years ended December 31, 2017Fees and 2018. Atservices
Effective from their appointment at the Annual General Meeting on September 27,17, 2019, the Company’sCompany's shareholders approved the engagement of PricewaterhouseCoopers LLP, a United Kingdom entity (“PwC UK”),UK, as the Company’s newCompany's independent registered public accounting firm to replace PWC Norway effective immediately.
Fees and servicesfirm.
Our audit committee charter requires that all audit and non-audit services provided by our independent registered public accounting firm are pre-approved by our audit committee. In particular, pursuant to our audit committee charter, the chairmanchair of the audit committee shall pre-approve all audit services to be provided to Borr Drilling, whether provided by our independent registered public accounting firm or other firms, and all other services (review, attest and non-audit) to be provided to Borr Drilling by the independent registered public accounting firm.firms. Any decision of the chairmanchair of the audit committee to pre-approve audit or non-audit services shall be presented to the audit committee.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by PwC UK and other member firms within the PwC network for 2020the years ended December 31, 2023 and 2019 .2022:
| | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2020 | | 2019 |
| | (in millions of $) |
Audit Fees1 | $ | 1.0 | | | $ | 1.2 | |
| Audit-Related Fees | 0.1 | | | 1.1 | |
Tax Fees2 | 0.3 | | | 0.3 | |
| All Other Fees | — | | | — | |
| Total | $ | 1.4 | | | $ | 2.6 | |
| | | | | | | | | | | |
| Year ended December 31, |
| (In millions of $) | 2023 | 2022 |
Audit fees(1) | 1.6 | | 1.2 | |
Audit-related fees(2) | 0.7 | | 0.5 | |
Tax fees(3) | 0.2 | | 0.1 | |
| Total | 2.5 | | 1.8 | |
(1)Includes fees billed or accrued for professional services rendered by the principal accountant, and member firms in their respective network, for the audit of our annual financial statements, and those of our consolidated subsidiaries, as well as additional services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, except for those not required by statute or regulation.
(2)Audit-related fees in 2023 principally relate to our debt re-financing and ATM program whereas in 2022 these principally related to our January 2022 and August 2022 equity offerings as well as our ATM program.
(3) Tax fees consist of fees for professional services rendered during the fiscal year by the principal accountant mainly for tax compliance and assistance with tax audits and appeals.
ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
NoneNot applicable.
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
NoneOn December 8, 2023 the Board approved a share repurchase program for the Company’s shares, to be purchased in the open market which was limited to a total amount of $100.0 million.
The timing and amount of any shares repurchased will be determined by the Company based on its evaluation of market conditions and other factors including available liquidity and limits under debt instruments and as permitted by securities laws and other legal requirements. The authorization does not have a fixed expiration and the repurchase program may be suspended or discontinued at any time.
| | | | | | | | | | | | | | |
| Period |
Total number of shares purchased | Average price paid per share |
Total number of shares
purchased as part of publicly announced plans or programs |
Approximate value of shares that may yet be
purchased under the
plans or programs |
| December 1 to December 31, 2023 | 125,000 | | $ | 6.18 | | 125,000 | | $ | 99,227,731 | |
| Total | 125,000 | | $ | 6.18 | | 125,000 | | $ | 99,227,731 | |
ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable
ITEM 16G.CORPORATE GOVERNANCE
Under U.S. federal securities lawsPursuant to Section 303A.11 of the NYSE listing standards, applicable to foreign private issuers, we are a “foreign private issuer.” Under NYSE rules, a foreign private issuer maypermitted to follow our home country corporate governance practices instead of certain of NYSE’s requirements, provided that such foreign private issuer discloses in its annual report filed with the SEC each requirement that it does not follow and describes the home country practice followed in lieu of such requirement. certain NYSE corporate governance requirements. Companies with securities listed at the OSE, are subject to report on the Norwegian Code of Practice for Corporate Governance (the "Norwegian Code").
Other than the matters described below, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under NYSE rules.
•
Audit Committee. NYSE listing standards require, requires, among other things, that a listed U.S. company have an audit committee with a minimum of three members, all of whom are independent. The Norwegian Code requires that most of the members are independent, that the members of the audit committee shall be elected by and among the members of the board of directors, and further that the board members who also are senior employees are not elected as members. Our audit committee consists of two independent members of our Board, Mrs.Directors, Kate Blankenship and Mr. Neil Glass.Glass, respectively, which differs from the NYSE listing standards which require a minimum of three members. Our audit committee complies with Rule 10A-3 under the Securities Exchange Act of 1934.1934, and the Norwegian Code.
• Shareholder Approval Requirements. NYSE listing standards require that a listed U.S. company obtain prior shareholder approval for certain issuances of shares or the approval of, and material revisions to, equity compensation plans. As permitted under the Norwegian Code, Bermuda law and our bye-laws, we do not seek such shareholder approval prior to issuances of authorized stock exceeding 20% of the number of shares of common shares or voting power outstanding, issuances of shares to certain related parties or entities in which a related party has an interest or approval for equity compensation plans and to material revisions thereof.
ITEM 16H.MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
Not applicable.
ITEM 16K. CYBERSECURITY
Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program designed to safeguard the confidentiality, integrity, and availability of systems, data, and applications. Our cybersecurity risk management program includes processes and controls designed to assess, identify, and manage cybersecurity risks, which is integrated in our overall enterprise risk management system and processes.
We have developed our program in accordance with the standards outlined in the International Organization for Standardization and the International Electrotechnical Commission (ISO/IEC) 27001. This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the ISO/IEC standards as guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program includes:
a.Risk Assessment: Defined in the information security management system (ISMS), it is designed to help identify, analyze, and prioritize material cybersecurity risks to our critical systems, information, and our broader enterprise IT environment;
b.External Service Providers: we collaborate with third-party security specialists, where applicable, to enhance the effectiveness of our cybersecurity processes and controls. We have processes to oversee and identify risks associated with third-party service providers embedded as part of our risk management program and following up on due diligence and contractual obligations;
c.Incident Response Plan: a defined plan that include processes and procedures for prevention, detection, mitigation and remediation of our cybersecurity incidents; and
d.Security Awareness Campaigns: Campaigns via various channels (e.g. trainings, direct email, screen savers, etc.) to educate personnel about cybersecurity risks and threat awareness.
Based on the information we have, we do not believe any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition. However, the scope and impact of any future incident cannot be predicted. See “Item 3D – Risk Factors” for more information on cybersecurity risks.
Governance
Cybersecurity is an important part of our risk management processes and an area of focus for our Board and management. The Board has delegated the oversight of cybersecurity risk management program to management through the ISMS Forum. ISMS Forum conducts periodic reviews to assess the performance of our ISMS as part of the ISO/IEC 27001 standards and actively participates in these reviews, where cybersecurity risks and metrics are evaluated amongst other strategic considerations. This approach is intended to ensure that management is actively involved in all matters related to cyber security and is making risk-based decisions.
ISMS Forum provides updates on a quarterly basis to the Board of Directors on key components of our program and our cybersecurity risks and updates the Board, as necessary, regarding any material cybersecurity incidents.
Our IT organization, which is headed by our IT Director and a member of the ISMS Forum, is responsible for assessing and managing material risks from cybersecurity threats. Our IT Director has over 20 years of IT operational, tactical and strategical experience including IT infrastructure library and ISO 27001 with over 10 years' being in the offshore drilling industry. Our IT organization cooperates with third-party cybersecurity partner who provides IT services and support. Our IT organization has primary responsibility for our prevention, detection, mitigation, and remediation of our cybersecurity incidents and our overall cybersecurity risk management program and is supported by a trusted cybersecurity partner. Our IT organization has members with over 15 years of experience in the areas of information security, digital transformation, and enterprise risk management across multiple industries.
PART III
ITEM 17. FINANCIAL STATEMENTS
Please see “Item"Item 18. Financial Statements” below.Statements".
ITEM 18. FINANCIAL STATEMENTS
The following financial statements listed below and set forth on the related notes required byF-pages filed as part of this Item 18 are included in this annual report beginning on page F-1.
ITEM 19. EXHIBITS
Index to Exhibits
| | | | | | | | |
| Exhibit Number | | Description of Document |
| | | |
| 1.1* | | |
| | |
| 1.2* | | |
| | |
2.1** | | |
| | |
4.1#** | | Senior SecuredIndenture, dated November 7, 2023, among Borr IHC Limited, the Company and certain subsidiaries of the Company named therein, BNY Mellon Corporate Trustee Services Limited as trustee, The Bank of New York Mellon, London Branch, as paying agent and Wilmington Trust (London) Limited, as security agent (incorporated by reference from Exhibit 4.13 of the Company’s Form 6-K filed with the SEC on November 16, 2023) |
| |
| 4.2#* | Revolving Credit Facilities Agreement originallyFacility, dated as of June 25, 2019November 7, 2023, among, the Company and amendedBorr IHC Limited (as borrowers and restated as of July 7, 2020 between Borr Drilling Limited,guarantors) and, among others, DNB Bank ASA Danske Bank,and Citibank N.A., Jersey Branch (as original lenders), DNB Bank ASA (as facility agent) and Goldman Sachs Bank USA, among others.Wilmington Trust (London) Limited (as security agent) (incorporated by reference from Exhibit 4.14 of the Company’s Form 6-K filed with the SEC on November 16, 2023) |
| | |
4.2 #** | | |
| | |
| 4.3* | | |
| | |
4.4#* | | |
| | |
4.5 ** | | |
| | |
4.6#** | | |
| | |
4.7#** | | |
| | |
4.8 ** | | |
| | |
4.9 ** | | |
| | |
| | | | | | | | |
Exhibit Number | | Description of Document |
4.10#** | | |
| | |
| 8.1** | | |
| | |
| 12.1** | | |
| | |
| 12.2** | | |
| | |
| 13.1** | | |
| |
|
101.INS*15.1** | | |
| |
| 97.1** | |
| |
| 101.INS** | XBRL Instance Document. |
| |
| 101.SCH** | | |
| | |
| 101.CAL** | | |
| | |
| 101.DEF** | | |
| |
| | | | | |
| Exhibit Number | | Description of Document |
| 101.LAB** | | |
| | |
| 101.PRE** | | |
| |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| | | | | | | | |
| * | Previously filed. |
| ** | Filed herewith. |
| # | Portions of this exhibit have been omitted because such portions are both not material and would be competitively harmful if publicly disclosed.the registrant customarily and actually treats the redacted information as private and confidential. The omissions have been indicated by Asterisks (“[***]”). |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | | | | | | | |
| | |
| Borr Drilling Limited |
| (Registrant) |
| | |
| By: | /s/ Patrick SchornMagnus Vaaler |
| Name: | Name: Patrick SchornMagnus Vaaler |
| | | Title: Chief Executive Officer
| | |
Date: April 29, 2021March 27, 2024 | Title: | Principal Financial Officer |
BORR DRILLING LIMITED
INDEX TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Report of Independent Registered Public Accounting Firm
To the Board of Directors and ShareholdersStockholders of Borr Drilling Limited
Opinion
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated Balance Sheetbalance sheets of Borr Drilling Limited and its subsidiaries (the “Company”) as of December 31, 20202023 and 2019,December 31, 2022, and the related consolidated Statementstatements of Operations, Statementoperations, comprehensive income/(loss), changes in stockholders’ equity and cash flows for each of Comprehensive Loss, Statement of Cash Flows and Statement of Changesthe three years in Shareholders’ Equity for the two yearsperiod ended December 31, 2020,2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019, and the results of its operations and its cash flows for the year ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt over the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred substantial losses since inception and will require additional financing within the next 12 months in order to fund expected future losses, to meet its planned capital expenditure, and to cover the negative cash effects if payments are not received timely from its customers or the Company is unable to secure continued work as a result of the COVID-19 pandemic. This raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Watford, United Kingdom
29 April 2021
We have served as the Company’s auditor since 2019.
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of Borr Drilling Limited
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Borr Drilling Limited and its subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of cash flows and consolidated statements of changes in shareholders’ equity for each of the two years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 20182023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for OpinionOpinions
These
The Company's management is responsible for these consolidated financial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessment of the Company's management.effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express an opinionopinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud.fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
Substantial Doubt About
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the Company’s Abilityreliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to Continuethe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a Going Concern Has Been Removedmaterial effect on the financial statements.
Management
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and we previously concluded there was substantial doubt about the Company’s abilitythat (i) relates to continue as a going concern. As discussed in Note 1 (not included herein)accounts or disclosures that are material to the consolidated financial statements appearingand (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in Amendment No. 2 toany way our opinion on the Company’s filing on Form F-1, management has subsequentlyconsolidated financial statements, taken certain actions, which managementas a whole, and we have concluded remove that substantial doubt.are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
/s/ PricewaterhouseCoopers AS
PricewaterhouseCoopers ASJack-up drilling rigs impairment assessment
Stavanger, Norway
April 29, 2019, except with respect to the matters that alleviate previous substantial doubt about the Company’s ability to continue as a going concernAs described in Notes 2 and the effects of the reverse stock split discussed in Note 1 (not included herein)16 to the consolidated financial statements, appearingthe carrying amount of the Company’s jack-up drilling rigs as of December 31, 2023, was $2,578.3 million. Management uses judgment in Amendment No. 2considering if events or changes in circumstances indicate the carrying amount of jack-up drilling rigs may not be recoverable. Management determines recoverability by comparing the carrying amount of an asset to the Company’s filingestimated undiscounted cash flows of the asset. If the total of the undiscounted cash flows is less than the carrying amount, an impairment loss is recognized as the difference between the carrying amount of the asset and its fair value. In determining estimated cash flows, utilization and dayrate revenues are key assumptions. Management concluded that indicators of impairment existed for seven jack-up rigs and performed a recoverability assessment, however no impairment loss was recognized during the year ended December 31, 2023, as the estimated undiscounted cash flows were higher than the carrying amounts of the associated jack-up rigs.
The principal considerations for our determination that performing procedures relating to the jack-up drilling rigs impairment assessment is a critical audit matter are (i) the significant judgment by management in determining whether any events or circumstances existed which would indicate that the carrying value of the jack-up drilling rigs might not be recoverable and developing the estimated undiscounted cash flows; and (ii) the high degree of auditor judgment, subjectivity and effort in performing audit procedures to evaluate management’s assumptions related to utilization and dayrate revenues.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on Form F-1, asthe consolidated financial statements. These procedures included testing the effectiveness of the controls relating to whichmanagement’s assessment of indicators of impairment and development of recoverability estimates. These procedures also included, among others, (i) evaluating the date is July 10, 2019appropriateness of management’s judgments for determining whether indicators of impairment existed; (ii) testing management’s process for developing the jack-up rigs recoverability assessment; (iii) evaluating the appropriateness of the model used by management; (iv) testing the completeness and accuracy of underlying data; and (v) evaluating the reasonableness of significant assumptions related to expected future utilization and dayrate revenues used in the estimated undiscounted cash flows. Evaluating management’s assumptions related to future utilization and dayrate revenues involved evaluating whether the assumptions used by management were reasonable considering past performance of the jack-up drilling rigs, contracted future revenues, macroeconomic conditions, industry forecasts, and management’s historical forecasting accuracy.
/s/ PricewaterhouseCoopers LLP
Watford, United Kingdom
March 27, 2024
We have served as the Company'sCompany’s auditor from 2016 tosince 2019.
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
for the Years ended December 31, 2020, 2019 and 2018 | | | | | | | | | | | | | | | | |
| (In $ millions, except per share data) | Notes | 2023 | 2022 | 2021 | | |
| Operating revenues | | | | | | |
| Dayrate revenue | 4 | 642.0 | | 358.7 | | 205.8 | | | |
| Related party revenue | 4,27 | 129.6 | | 85.1 | | 39.5 | | | |
| | | | | | |
| Total operating revenues | | 771.6 | | 443.8 | | 245.3 | | | |
| | | | | | |
| | | | | | |
| Gain on disposals | 6 | 0.6 | | 4.2 | | 1.2 | | | |
| | | | | | |
| Operating expenses | | | | | | |
| Rig operating and maintenance expenses | | (359.3) | | (264.9) | | (180.5) | | | |
| Depreciation of non-current assets | 16 | (117.4) | | (116.5) | | (119.6) | | | |
| Impairment of non-current assets | 15,16 | — | | (131.7) | | — | | | |
| | | | | | |
| General and administrative expenses | | (45.1) | | (36.8) | | (34.7) | | | |
| | | | | | |
| | | | | | |
| Total operating expenses | | (521.8) | | (549.9) | | (334.8) | | | |
| | | | | | |
| Operating income / (loss) | | 250.4 | | (101.9) | | (88.3) | | | |
| | | | | | |
| Other non-operating income | 7 | — | | 2.0 | | 3.6 | | | |
| Income from equity method investments | 7 | 4.9 | | 1.2 | | 16.1 | | | |
| | | | | | |
| Financial income (expenses), net | | | | | | |
| Interest income | | 4.9 | | 5.4 | | — | | | |
| Interest expense | 8 | (177.2) | | (139.2) | | (99.4) | | | |
| Other financial expenses, net | 9 | (26.9) | | (41.9) | | (15.3) | | | |
| Total financial expenses, net | | (199.2) | | (175.7) | | (114.7) | | | |
| | | | | | |
| Income / (loss) before income taxes | | 56.1 | | (274.4) | | (183.3) | | | |
| | | | | | |
| Income tax expense | 10 | (34.0) | | (18.4) | | (9.7) | | | |
| | | | | | |
| | | | | | |
| Net income / (loss) attributable to stockholders of Borr Drilling Limited | | 22.1 | | (292.8) | | (193.0) | | | |
| | | | | | |
| Income / (loss) per share | | | | | | |
| Basic and diluted income / (loss) per share | 11 | 0.09 | | (1.64) | | (1.43) | | | |
| | | | | | |
| Weighted-average shares outstanding, basic | 11 | 244,270,405 | | 178,404,637 | | 134,726,336 | | | |
| Weighted-average shares outstanding, diluted | 11 | 248,150,614 | | 178,404,637 | | 134,726,336 | | | |
(In $ millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | |
| Notes | | 2020 | 2019 | | 2018 | | |
| Operating revenues | | | | | | | | |
| Dayrate revenue | 4 | | 265.2 | | 327.6 | | | 164.9 | | | |
| Related party revenue | 28 | | 42.3 | | 6.5 | | | 0 | | | |
| Total operating revenues | | | 307.5 | | 334.1 | | | 164.9 | | | |
| Gain from bargain purchase | 17 | | 0 | | 0 | | | 38.1 | | | |
| Gain on disposals | 6 | | 19.0 | | 6.4 | | | 18.8 | | | |
| Operating expenses | | | | | | | | |
| Rig operating and maintenance expenses | | | (270.4) | | (307.9) | | | (180.1) | | | |
| Depreciation of non-current assets | 13 | | (117.9) | | (101.4) | | | (79.5) | | | |
| Impairment of non-current assets | 13 | | (77.1) | | (11.4) | | | 0 | | | |
| Amortization of acquired contract backlog | | | 0 | | (20.2) | | | (24.2) | | | |
| General and administrative expenses | | | (49.1) | | (50.4) | | | (38.7) | | | |
| Restructuring costs | 17 | | 0 | | 0 | | | (30.7) | | | |
| | | | | | | | |
| Total operating expenses | | | (514.5) | | (491.3) | | | (353.2) | | | |
| Operating loss | | | (188.0) | | (150.8) | | | (131.4) | | | |
| Income/(loss) from equity method investments | 3 | | 9.5 | | (9.0) | | | 0 | | | |
| Financial income (expenses), net | | | | | | | | |
| Interest income | | | 0.2 | | 1.5 | | | 1.2 | | | |
| Interest expenses, net of amounts capitalized | | | (87.4) | | (70.4) | | | (13.7) | | | |
| Other financial expenses, net | 7 | | (35.7) | | (59.2) | | | (44.5) | | | |
| Total financial expenses, net | | | (122.9) | | (128.1) | | | (57.0) | | | |
| Loss before income taxes | | | (301.4) | | (287.9) | | | (188.4) | | | |
| Income tax expense | 8 | | (16.2) | | (11.2) | | | (2.5) | | | |
| Net loss | | | (317.6) | | (299.1) | | | (190.9) | | | |
| Net loss attributable to non-controlling interests | 25 | | 0 | | (1.5) | | | (0.4) | | | |
| Net loss attributable to shareholders of Borr Drilling Limited | | | (317.6) | | (297.6) | | | (190.5) | | | |
| Loss per share | | | | | | | | |
| Basic loss per share | 9 | | (2.11) | | (2.78) | | | (1.85) | | | |
| Diluted loss per share | 9 | | (2.11) | | (2.78) | | | (1.85) | | | |
| Weighted-average shares outstanding | 9 | | 150,354,703 | | 107,478,625 | | | 102,877,501 | | | |
SeeThe accompanying notes that are an integral part of these Audited Consolidated Financial StatementsStatements.
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE LOSSINCOME / (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
for the Years ended December 31, 2020, 2019 and 2018 | | | | | | | | | | | | | | | |
| (In $ millions) | Notes | 2023 | 2022 | 2021 | |
| Net income / (loss) | | 22.1 | | (292.8) | | (193.0) | | |
| | | | | |
| | | | | |
| Other comprehensive income | | — | | — | | — | | |
| Total comprehensive income / (loss) | | 22.1 | | (292.8) | | (193.0) | | |
| | | | | |
| Comprehensive income / (loss) attributable to: | | | | | |
| Stockholders of Borr Drilling Limited | | 22.1 | | (292.8) | | (193.0) | | |
| | | | | |
| Total comprehensive income / (loss) | | 22.1 | | (292.8) | | (193.0) | | |
(In $ millions)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Notes | | 2020 | | 2019 | | 2018 | |
| Net loss | | | (317.6) | | | (299.1) | | | (190.9) | | |
| Unrealized (loss) gain from marketable securities | 18 | | 0 | | | (6.4) | | | 0.6 | | |
| Unrealized gain from marketable securities reclassified to other financial income, net in the Statement of Operations | | | 0 | | | 12.0 | | | 0 | | |
| Other comprehensive income (loss) | | | 0 | | | 5.6 | | | 0.6 | | |
| Total comprehensive loss | | | (317.6) | | | (293.5) | | | (190.3) | | |
| Comprehensive loss attributable to | | | | | | | | |
| Shareholders of Borr Drilling Limited | | | (317.6) | | | (292.0) | | | (189.9) | | |
| Non-controlling interest | | | 0 | | | (1.5) | | | (0.4) | | |
| Total comprehensive loss | | | (317.6) | | | (293.5) | | | (190.3) | | |
SeeThe accompanying notes that are an integral part of these Audited Consolidated Financial StatementsStatements.
BORR DRILLING LIMITED
CONSOLIDATED BALANCE SHEETSHEETS AS OF DECEMBER 31, 2023 AND 2022
as of December 31, 2020 and 2019
(In $ millions, except number of shares)
| | | | | | | | | | | | | | | | | |
| Notes | | 2020 | | 2019 |
| Assets | | | | | |
| Current Assets | | | | | |
| Cash and cash equivalents | | | 19.2 | | 59.1 |
| Restricted cash | 10 | | 0 | | 69.4 |
| Trade receivables | 11 | | 22.9 | | 40.2 |
| Jack-up drilling rigs held for sale | 13 | | 4.5 | | | 3.0 | |
| | | | | |
| Prepaid expenses | | | 6.4 | | | 8.1 | |
| | | | | |
| Deferred mobilization and contract preparation cost | | | 5.7 | | | 19.3 | |
| Accrued revenue | 5 | | 20.3 | | | 31.7 | |
| Tax retentions receivable | | | 10.5 | | 11.6 |
| Due from related parties | 28 | | 34.9 | | 8.6 |
| Other current assets | 12 | | 16.4 | | | 26.9 | |
| Total current assets | | | 140.8 | | | 277.9 | |
| Non-current assets | | | | | |
| Property, plant and equipment | | | 5.6 | | | 7.3 | |
| Jack-up drilling rigs | 13 | | 2,824.6 | | | 2,683.3 | |
| Newbuildings | 14 | | 135.5 | | | 261.4 | |
| Deferred mobilization and contract preparation cost | | | 0 | | | 3.5 | |
| | | | | |
| Equity method investments | 3 | | 62.7 | | | 31.4 | |
| Other long-term assets | 20 | | 1.9 | | | 15.2 | |
| Total non-current assets | | | 3,030.3 | | | 3,002.1 | |
| Total assets | | | 3,171.1 | | | 3,280.0 | |
| LIABILITIES AND EQUITY | | | | | |
| Current liabilities | | | | | |
| Trade payables | | | 20.4 | | 14.1 |
| Amounts due to related parties | 28 | | 0 | | | 0.4 | |
| Unrealized loss on forward contracts | 19 | | 0 | | | 64.3 | |
| Accrued expenses | | | 51.7 | | | 62.1 | |
| Onerous contracts | 23 | | 0 | | | 71.3 | |
| VAT and current taxes payable | | | 9.9 | | | 17.8 | |
| Other current liabilities | 21 | | 14.0 | | | 19.7 | |
| Total current liabilities | | | 96.0 | | | 249.7 | |
| Non-current liabilities | | | | | |
| Long-term debt | 22 | | 1,906.2 | | 1,709.8 |
| Other liabilities | 3,7,14 | | 19.7 | | | 22.7 | |
| Long-term accrued interest | 22 | | 41.1 | | | 0 | |
| Liabilities from equity method investments | 3 | | 0 | | | 3.7 | |
| Onerous contracts | 23 | | 71.3 | | | 0 | |
| Total non-current liabilities | | | 2,038.3 | | | 1,736.2 | |
| Total liabilities | | | 2,134.3 | | | 1,985.9 | |
| Commitments and contingencies | 24 | | 0 | | 0 |
| Stockholders’ Equity | | | | | |
| Common shares of par value $0.05 per share: authorized 238,653,846 (2019: 137,500,000) shares, issued 220,318,704 (2019: 112,278,065) shares and outstanding 218,858,990 (2019: 110,818,351) shares | 30 | | 11.0 | | | 5.6 | |
| Treasury shares | | | (26.2) | | | (26.2) | |
| Additional paid in capital | | | 1,947.2 | | | 1,891.2 | |
| | | | | |
| Accumulated deficit | | | (895.2) | | | (576.7) | |
| Equity attributable to the Company | | | 1,036.8 | | | 1,293.9 | |
| Non-controlling interest | 25 | | 0 | | | 0.2 | |
| Total equity | | | 1,036.8 | | | 1,294.1 | |
| Total liabilities and equity | | | 3,171.1 | | | 3,280.0 | |
| | | | | |
See | | | | | | | | | | | |
| (In $ millions, except per share data) | Notes | 2023 | 2022 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | | 102.5 | 108.0 |
| Restricted cash | 12 | 0.1 | 2.5 |
| Trade receivables, net | 13 | 56.2 | 43.0 |
| | | |
| | | |
| Prepaid expenses | | 11.0 | 9.6 |
| | | |
| Deferred mobilization and contract preparation cost | 5 | 39.4 | 38.4 |
| Accrued revenue | 5 | 73.7 | 57.4 |
| | | |
| Due from related parties | 27 | 95.0 | 65.6 |
| Other current assets | 14 | 32.0 | 25.4 |
| Total current assets | | 409.9 | 349.9 |
| Non-current assets | | | |
| Non-current restricted cash | 12 | — | | 8.0 | |
| Property, plant and equipment | | 3.5 | 3.9 |
| Newbuildings | 15 | 5.4 | 3.5 |
| Jack-up drilling rigs, net | 16 | 2,578.3 | 2,589.1 |
| | | |
| | | |
| Equity method investments | 7 | 15.7 | 20.6 |
| Other non-current assets | 18 | 67.3 | 26.7 |
| Total non-current assets | | 2,670.2 | 2,651.8 |
| Total assets | | 3,080.1 | 3,001.7 |
| Liabilities and equity | | | |
| Current liabilities | | | |
| Trade payables | | 35.5 | 47.7 |
| | | |
| | | |
| Accrued expenses | 19 | 77.0 | 80.8 |
| | | |
| | | |
| Short-term accrued interest and other items | | 42.3 | 77.7 |
| Short-term debt | 21 | 82.9 | 445.9 |
| Short-term deferred mobilization, demobilization and other revenue | 5 | 59.5 | 57.3 |
| Other current liabilities | 20 | 63.2 | 36.2 |
| Total current liabilities | | 360.4 | 745.6 |
| Non-current liabilities | | | |
| Long-term accrued interest and other items | | — | | 29.7 |
| Long-term debt | 21 | 1,618.8 | 1,191.1 |
| Long-term deferred mobilization, demobilization and other revenue | 5 | 56.6 | 68.7 |
| Other non-current liabilities | | 5.8 | 14.3 |
| Onerous contracts | 22 | 54.5 | 54.5 |
| Total non-current liabilities | | 1,735.7 | 1,358.3 |
| Total liabilities | | 2,096.1 | 2,103.9 |
| | | |
| Commitments and contingencies | 23 | | |
| Stockholders’ equity | | | |
| Share Capital - Common shares of par value $0.10 per share: authorized 315,000,000 (2022: 255,000,000), issued 264,080,391 (2022: 229,263,598) and outstanding 252,582,036 (2022: 228,948,087) shares | 28 | 26.5 | 23.0 |
| Treasury shares | | (8.9) | | (9.8) | |
| Additional paid in capital | | 337.2 | 2,265.6 |
| Contributed surplus | | 1,988.1 | — | |
| | | |
| Accumulated deficit | | (1,358.9) | | (1,381.0) | |
| | | |
| Total equity | | 984.0 | 897.8 |
| Total liabilities and equity | | 3,080.1 | 3,001.7 |
| | | |
The accompanying notes that are an integral part of these Audited Consolidated Financial StatementsStatements.
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
for | | | | | | | | | | | | | | |
| (In $ millions) | Notes | 2023 | 2022 | 2021 |
| Cash flows from operating activities | | | | |
| Net income / (loss) | | 22.1 | | (292.8) | | (193.0) | |
| Adjustments to reconcile net income / (loss) to net cash provided by/(used in) operating activities: | | | | |
| Non-cash compensation expense related to stock based and directors' compensation | | 5.6 | | 2.6 | | 0.9 | |
| Depreciation of non-current assets | 16 | 117.4 | | 116.5 | | 119.6 | |
| Impairment of non-current assets | 16 | — | | 131.7 | | — | |
| Amortization of deferred mobilization and contract preparation costs | | 44.6 | | 36.7 | | 12.6 | |
| Amortization of deferred mobilization, demobilization and other revenue | | (61.9) | | (22.1) | | (5.9) | |
| Gain on disposal of assets and other non-operating income | 6,7 | (0.6) | | (4.2) | | (4.8) | |
| Amortization of debt discount | | 1.0 | | — | | — | |
| Amortization of deferred finance charges | | 21.3 | | 7.9 | | 6.5 | |
| Bank commitment, guarantee and other fees | | (2.9) | | 15.7 | | — | |
| Effective interest rate adjustments | | (19.7) | | 2.8 | | 3.7 | |
| | | | |
| Income from equity method investments | 7 | (4.9) | | (1.2) | | (16.1) | |
| Deferred income tax | 10 | (16.5) | | (2.1) | | (0.5) | |
| Change in assets and liabilities | | | | |
| Amounts due to/from related parties | | (29.4) | | (17.0) | | (13.7) | |
| Accrued expenses | | 2.1 | | 89.8 | | 10.3 | |
| Accrued interest | | (66.1) | | (35.8) | | 29.0 | |
| Other current and non-current assets | | (107.7) | | (139.2) | | (24.1) | |
| Other current and non-current liabilities | | 44.9 | | 173.2 | | 16.6 | |
| Net cash (used in) / provided by operating activities | | (50.7) | | 62.5 | | (58.9) | |
| | | | |
| Cash flows from investing activities | | | | |
| Purchase of property, plant and equipment | | (1.5) | | (1.8) | | (0.1) | |
| Proceeds from sale of fixed assets | 6 | — | | 0.7 | | 2.7 | |
| | | | |
| Repayment from / (funding provided to) equity method investments | 7 | 9.8 | | — | | 46.5 | |
| Proceeds from disposal of equity method investments | 7 | — | | — | | 10.6 | |
| | | | |
| Additions to newbuildings | 15 | (1.3) | | — | | — | |
| Additions to jack-up drilling rigs | 16 | (111.2) | | (81.5) | | (18.8) | |
| Net cash (used in) / provided by investing activities | | (104.2) | | (82.6) | | 40.9 | |
| | | | |
| Cash flows from financing activities | | | | |
| Proceeds from share issuance, net of issuance costs | 28 | 58.1 | | 298.1 | | 44.8 | |
| Repayment of debt | 21 | (1,800.6) | | (355.5) | | — | |
| Proceeds from debt, net of discount and issuance costs | 21 | 1,881.5 | | 150.0 | | — | |
| Purchase of treasury shares | | (0.8) | | — | | — | |
| Proceeds from exercise of share options | 28 | 0.8 | | — | | — | |
| Net cash provided by financing activities | | 139.0 | | 92.6 | | 44.8 | |
| | | | |
| Net (decrease) / increase in cash, cash equivalents and restricted cash | | (15.9) | | 72.5 | | 26.8 | |
| Cash, cash equivalents and restricted cash at beginning of the year | | 118.5 | | 46.0 | | 19.2 | |
| Cash, cash equivalents and restricted cash at end of the year | | 102.6 | | 118.5 | | 46.0 | |
Supplementary disclosure of cash flow information
| | | | | | | | | | | |
| (In $ millions) | 2023 | 2022 | 2021 |
| Interest paid | (217.4) | | (83.9) | | (57.2) | |
| Income taxes (paid) refunded, net | (38.2) | | (16.2) | | 0.8 | |
| | | |
| Non-cash offset of debt and jack-up rigs | — | | (87.0) | | — | |
| Non-cash offset of accrued interest and jack-up rigs | — | | (33.0) | | — | |
| Issuance of debt as non-cash settlement of financing fee | — | | 8.2 | | 5.0 | |
| | | |
| | | |
| | | |
Supplemental note to the Years ended December 31, 2020, 2019consolidated statements of cash flows
The following table identifies the balance sheet line-items included in cash, cash equivalents and 2018restricted cash presented in the consolidated statements of cash flows:
(In $ millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| Notes | | 2020 | | 2019 | | 2018 |
| Cash Flows from Operating Activities | | | | | | | |
| Net loss | | | (317.6) | | | (299.1) | | | (190.9) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
| Non-cash compensation expense related to stock options and warrants | 26 | | 0.7 | | | 3.9 | | | 3.7 | |
| Depreciation of non-current assets | 13 | | 117.9 | | | 101.4 | | | 79.5 | |
| Impairment of non-current assets | 13 | | 77.1 | | | 11.4 | | | 0 | |
| Amortization of acquired contract backlog | | | 0 | | | 20.2 | | | 24.2 | |
| | | | | | | |
| Gain on disposals | 6 | | (19.0) | | | (6.4) | | | (18.8) | |
| Unrealized loss on financial instruments | 7 | | 27.4 | | | 45.1 | | | 65.2 | |
| (Income)/loss from equity method investments | 3 | | (9.5) | | | 9.0 | | | 0 | |
| Non-cash loan fees related to settled debt | 7 | | 0 | | | 5.6 | | | 0 | |
| Bargain purchase gain | 17 | | 0 | | | 0 | | | (38.1) | |
| Deferred income tax | 8 | | 1.1 | | | 1.4 | | | (0.5) | |
| Change in other current and non-current assets, net | | | 41.3 | | | (25.8) | | | (24.8) | |
| Change in current and non-current liabilities, net | | | 25.8 | | | 44.3 | | | (34.7) | |
| Net cash used in operating activities | | | (54.8) | | | (89.0) | | | (135.2) | |
| Cash Flows from Investing Activities | | | | | | | |
| Purchase of plant and equipment | | | 0 | | | (1.9) | | | (7.8) | |
| Proceeds from sale of fixed assets | 6 | | 37.7 | | | 7.1 | | | 41.6 | |
| Business acquisition, net of cash acquired | 17 | | 0 | | | 0 | | | (195.1) | |
| Purchase of financial instruments and marketable debt securities | 18,19 | | (92.5) | | | (6.9) | | | (13.0) | |
| Investments in equity method investments | 3 | | (25.5) | | | (30.8) | | | 0 | |
| Proceeds from sale of financial instruments and marketable debt securities | 18,19 | | 3.0 | | | 31.3 | | | 0 | |
| Additions to newbuildings | 14 | | (5.0) | | | (142.6) | | | (362.4) | |
| Additions to jack-up drilling rigs | 13 | | (37.4) | | | (127.3) | | | (23.4) | |
| Net cash used in investing activities | | | (119.7) | | | (271.1) | | | (560.1) | |
| Cash Flows from Financing Activities | | | | | | | |
| Proceeds from share issuance, net of issuance costs and conversion of shareholders' loans | | | 60.2 | | | 49.2 | | | 218.9 | |
| Proceeds from related party shareholder loan | 28 | | 0 | | | 0 | | | 27.7 | |
| Purchase of treasury shares | 30 | | 0 | | | 0 | | | (19.7) | |
| Repayment of long-term debt | 22 | | 0 | | | (390.0) | | | (89.3) | |
| Purchase of financial instruments | | | 0 | | | 0 | | | (28.5) | |
| Proceeds, net of deferred loan costs, from issuance of long-term debt | 22 | | 5.0 | | | 679.6 | | | 474.4 | |
| Proceeds, net of deferred loan costs, from issuance of short-term debt | | | 0 | | | 58.5 | | | 0 | |
| Net cash provided by financing activities | | | 65.2 | | | 397.3 | | | 583.5 | |
| Net increase (decrease) in cash and cash equivalents and restricted cash | | | (109.3) | | | 37.2 | | | (111.8) | |
| Cash and cash equivalents and restricted cash at beginning of the period | | | 128.5 | | | 91.3 | | | 203.1 | |
| Cash and cash equivalents and restricted cash at the end of period | | | 19.2 | | | 128.5 | | | 91.3 | |
| Supplementary disclosure of cash flow information | | | | | | | |
| Interest paid, net of capitalized interest | | | (40.1) | | | (69.0) | | | (8.6) | |
| Income taxes paid | | | (8.6) | | | (1.3) | | | (3.2) | |
| Issuance of long-term debt as non-cash settlement for newbuild delivery instalment | | | 181.8 | | | 177.9 | | | 609.0 | |
| Non-cash settlement of shareholder loan with issuance of shares | | | 0 | | | 0 | | | (27.7) | |
| Non-cash offset in respect of jack-up drilling rigs | | | 0 | | | 26.8 | | | 0 | |
| | | | | | | | | | | | | | |
| (In $ millions) | 2023 | 2022 | 2021 | 2020 |
| Cash and cash equivalents | 102.5 | 108.0 | | 34.9 | | 19.2 | |
| Restricted cash | 0.1 | 2.5 | | 3.3 | | — | |
| Non-current restricted cash | — | | 8.0 | | 7.8 | | — | |
| | | | |
| Total cash and cash equivalents and restricted cash | 102.6 | | 118.5 | | 46.0 | | 19.2 | |
SeeThe accompanying notes that are an integral part of these Audited Consolidated Financial StatementsStatements.
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN SHAREHOLDERS’STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
for the Years ended December 31, 2020, 2019 and 2018
(In $ millions, except share and per share data) | | | | | | | | | | | | | | | | | | | | | | | | |
| (In $ millions, except share numbers) | Number of
outstanding
shares | Share Capital | Treasury
shares | Additional paid in capital | Contributed Surplus | Accumulated
Deficit | | Total
equity |
| Consolidated balance at January 1, 2021 | 109,429,494 | | 11.0 | | (26.2) | | 1,947.2 | | — | | (895.2) | | | 1,036.8 | |
| Issue of common shares | 27,058,823 | | 2.8 | | — | | 43.2 | | — | | — | | | 46.0 | |
| Equity issuance costs | — | | — | | — | | (1.2) | | — | | — | | | (1.2) | |
| Stock based compensation | 323,525 | | — | | 12.5 | | (11.6) | | — | | — | | | 0.9 | |
| Total comprehensive income/(loss) | — | | — | | — | | — | | — | | (193.0) | | | (193.0) | |
| Other, net | — | | — | | — | | 0.4 | | — | | — | | | 0.4 | |
| Consolidated balance at December 31, 2022 | 136,811,842 | | 13.8 | | (13.7) | | 1,978.0 | | — | | (1,088.2) | | | 889.9 | |
| Issue of common shares | 92,046,404 | | 9.2 | | — | | 304.6 | | — | | — | | | 313.8 | |
| Equity issuance costs | — | | — | | — | | (15.7) | | — | | — | | | (15.7) | |
| Stock based compensation | 90,822 | | — | | 3.9 | | (1.3) | | — | | — | | | 2.6 | |
| Shares cancelled | (981.0) | | — | | — | | — | | — | | — | | | — | |
| Total comprehensive loss | — | | — | | — | | — | | — | | (292.8) | | | (292.8) | |
| | | | | | | | |
| Consolidated balance at December 31, 2022 | 228,948,087 | | 23.0 | | (9.8) | | 2,265.6 | | — | | (1,381.0) | | | 897.8 | |
| Issue of common shares | 23,260,063 | | 3.5 | | (1.2) | | 59.0 | | — | | — | | | 61.3 | |
| Equity issuance costs | — | | — | | — | | (1.7) | | — | | — | | | (1.7) | |
| Repurchase of treasury shares | (125,000) | | — | | (0.8) | | — | | — | | — | | | (0.8) | |
Convertible debt issuance cost
| — | | — | | — | | 10.9 | | — | | — | | | 10.9 | |
| | | | | | | | |
| Reduction in share premium / APIC | — | | — | | — | | (2,000.0) | | 2,000.0 | | — | | | — | |
| Stock based compensation | 498,886 | | — | | 2.9 | | 3.4 | | — | | — | | | 6.3 | |
| Distributions to shareholders | — | | — | | — | | — | | (11.9) | | — | | | (11.9) | |
| Total comprehensive income | — | | — | | — | | — | | | 22.1 | | | 22.1 | |
| | | | | | | | |
| Consolidated balance at December 31, 2023 | 252,582,036 | | 26.5 | | (8.9) | | 337.2 | | 1,988.1 | | (1,358.9) | | | 984.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of
outstanding
shares | | Common
shares | | Treasury
shares | | Additional
paid in
capital | | Other
Comprehensive
(Loss)/Income | | Accumulated
Deficit | | Non-
controlling
interest | | Total
equity |
| Consolidated balance at January 1, 2018 | 95,264,500 | | | 4.8 | | | (6.7) | | | 1,587.8 | | | (6.2) | | | (88.8) | | | 2.0 | | | 1,492.9 | |
| Issue of common shares | 10,869,565 | | | 0.5 | | | — | | | 249.5 | | | — | | | — | | | — | | | 250.0 | |
| Equity issuance costs | — | | | — | | | — | | | (3.4) | | | — | | | — | | | — | | | (3.4) | |
| Other transactions: | | | | | — | | | | | | | | | | | |
| Stock based compensation | — | | | — | | | | | 3.7 | | | — | | | — | | | — | | | 3.7 | |
| Settlement of directors’ fees | 14,286 | | | — | | | 0.2 | | | (0.2) | | | | | | | | | 0 | |
| Purchase of treasury shares | (1,080,000) | | | — | | | (19.7) | | | — | | | — | | | — | | | — | | | (19.7) | |
| Total comprehensive income/(loss) | — | | | — | | | — | | | — | | | 0.6 | | | (190.5) | | | (0.4) | | | (190.3) | |
| Non-controlling interest | — | | | — | | | — | | | — | | | — | | | 0.1 | | | 0.1 | | | 0.2 | |
| Other, net | — | | | — | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | |
| Consolidated balance at December 31, 2018 | 105,068,351 | | | 5.3 | | | (26.2) | | | 1,837.5 | | | (5.6) | | | (279.2) | | | 1.7 | | | 1,533.5 | |
| Issue of common shares | 5,750,000 | | | 0.3 | | | — | | | 53.2 | | | — | | | — | | | — | | | 53.5 | |
| Equity issuance costs | — | | | — | | | — | | | (4.3) | | | — | | | — | | | — | | | (4.3) | |
| Other transactions: | | | | | | | | | | | | | | | |
| Stock based compensation | — | | | — | | | — | | | 3.9 | | | — | | | — | | | — | | | 3.9 | |
| Total comprehensive income/(loss) | — | | | — | | | — | | | — | | | 5.6 | | | (297.6) | | | (1.5) | | | (293.5) | |
| Other, net | — | | | — | | | — | | | 0.9 | | | — | | | 0.1 | | | — | | | 1.0 | |
| Consolidated balance at December 31, 2019 | 110,818,351 | | | 5.6 | | | (26.2) | | | 1,891.2 | | | 0 | | | (576.7) | | | 0.2 | | | 1,294.1 | |
| ASU 2016-13 Measurement of credit losses | — | | | — | | | — | | | — | | | — | | | (2.9) | | | — | | | (2.9) | |
| Adjusted balance at January 1, 2020 | 110,818,351 | | | 5.6 | | | (26.2) | | | 1,891.2 | | | 0 | | | (579.6) | | | 0.2 | | | 1,291.2 | |
| Issue of common shares | 108,040,639 | | | 5.4 | | | — | | | 57.4 | | | — | | | — | | | — | | | 62.8 | |
| Equity issuance costs | — | | | — | | | — | | | (2.6) | | | — | | | — | | | — | | | (2.6) | |
| Other transactions: | | | | | | | | | | | | | | | |
| Stock based compensation | — | | | — | | | — | | | 0.7 | | | — | | | — | | | — | | | 0.7 | |
| Total comprehensive loss | — | | | — | | | — | | | — | | | — | | | (317.6) | | | — | | | (317.6) | |
| Other, net | — | | | — | | | — | | | 0.5 | | | 0 | | | 2.0 | | | (0.2) | | | 2.3 | |
| Consolidated balance at December 31, 2020 | 218,858,990 | | | 11.0 | | | (26.2) | | | 1,947.2 | | | 0 | | | (895.2) | | | 0 | | | 1,036.8 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
SeeThe accompanying notes that are an integral part of these Audited Consolidated Financial StatementsStatements.
BORR DRILLING LIMITED
NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General information
Borr Drilling Limited was incorporated in Bermuda on August 8, 2016. We are listed on the Oslo Stock Exchange and since July 31, 2019, on the New York Stock Exchange under the ticker “BORR”. Borr Drilling Limited is an international offshore drilling contractor providing services to the oil and gas industry, withindustry. Our primary business is the ambitionownership, contracting and operation of acquiring and operating modern jack-up drilling rigs.rigs for operations in shallow-water areas (i.e., in water depths of approximately 400 feet), including the provision of related equipment and work crews to conduct drilling of oil and gas wells and workover operations for exploration and production customers. As of December 31, 2020,2023, we had 24 total22 premium jack-up rigs including 12 rigs “warm stacked” and 1 rig “cold stacked,” and had agreed to purchase 5two additional premium jack-up rigs under construction.construction, which are scheduled for delivery in 2024.
As used herein, and unless otherwise required by the context, the term “Borr Drilling” refers to Borr Drilling Limited and the terms “Company,”“Company”, “Borr”, “we,” “Group,”“Group”, “our” and words of similar importnature refer to Borr Drilling Limited and its consolidated companies. The use herein of such terms as “group”, “organization”, “we”, “us”, “our” and “its”, or references to specific entities, is not intended to be a precise description of corporate relationships.
Going concern
The consolidated financial statements have been prepared on a going concern basis.
In our previous reports, except for the period ending September 30, 2023, we had disclosed a substantial doubt over our ability to continue as a going concern due to us incurring significant losses since inception and our potential dependence on additional financing in order to meet our existing capital expenditure commitments, working capital requirements and our debt obligations expected in the next 12 months.
With the execution of our comprehensive refinancing in October and November 2023, which included the issuance of our $1.54 billion Notes, new $180.0 million Super Senior Credit Facility (comprised of a $150 million Revolving Credit Facility ("RCF") and a $30.0 million Guarantee Facility), $50.0 million equity raise, and issuance of additional $200.0 million under the same terms and conditions as the $1.025 billion 2028 Notes in March 2024, we believe that our cash flow from operations, together with the $150 million undrawn under our RCF and our cash and cash equivalents, will meet our anticipated capital expenditure commitments, working capital requirements, our debt obligations and allow us to meet our debt covenants, for the next 12 months following the date of issue of the financial statements.
The financial statements included in this report have been prepared on a going concern basis of accounting, which presumes that we will be able to realize our assets and discharge our liabilities in the normal course of business as they come due. Financial information in this report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that would be necessary if we were unable to realize our assets and settle our liabilities as a going concern in the normal course of operations. Such adjustments could be material.
Note 2 - Basis of presentation Preparation and Accounting Policies
Basis of preparation
The audited consolidated financial statements are presented in accordance with accounting principles generally accepted accounting principles in the United States of America (U.S. GAAP)("U.S. GAAP"). The amountsAmounts are presented in United States Dollars (“U.S. dollar or $”) rounded to the nearest million, unless otherwise stated.
TheOn December 14, 2021 the Board of Directors approved a 2-to-1 reverse share split of the Company’s shares. Upon effectiveness of the Reverse Split, every two shares of the Company’s issued and outstanding common shares, par value $0.05 per share was combined into one issued and outstanding common share, par value $0.10 per share. Unless otherwise indicated, all share and per share data in these Consolidated Audited Financial Statements have been adjusted as necessary to give effect of our Reverse Share Split and is approximate due to rounding.
Certain prior period amounts in the consolidated financial statements presentand accompanying notes have been reclassified to conform to the financial position of Borr Drilling Limited and its subsidiaries. Investments in companies in which the Company controls, or directly or indirectly holds more than 50% of the voting rights are consolidated in the financial statements.current period's presentation.
Principles of consolidation
The consolidated financial statements include the assets and liabilities of the Company. All intercompany balances, transactions and internal sales have been eliminated on consolidation. Unrealized gains and losses arising from transactions with associates are eliminated to the extent of the Company’s interest in the entity. The non-controlling interests of subsidiaries were included in the Consolidated Balance Sheet and Statement of Operations as “Non-controlling interest”. Profit or loss and each component of other comprehensive income are attributed to the shareholders of the Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
A variable interest entity (“VIE”) is defined by U.S. GAAPthe accounting standard as a legal entity where either (a) equity interest holders, as a group, lack the characteristics of a controlling financial interest, including decision making ability and an interest in the entity’s residual risks and rewards, or (b) the equity holders have not provided sufficient equity investment to permit the entity to finance its activities without additional subordinated financial support, or (c) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, their obligations to absorb the expected losses of the entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, orrights. A party that is a variable interest holder is required to consolidate a VIE if the holder has both (a) the power to direct the activities that most significantly impact the entity’s economic performance, and (b) the equity holders have not provided sufficient equity investmentobligation to permitabsorb losses that could potentially be significant to the entityVIE or the right to finance its activities without additional subordinated financial support,receive benefits from the VIE that could potentially be significant to the VIE.
Investments in entities in which we directly or (c) equity interest holders asindirectly hold more than 50% of the voting control and meeting criteria (a) and (b) above in regards to requirements to consolidate a group lack the characteristics of a controlling financial interest, including decision making ability and an interestVIE are consolidated in the entity’s residual risksfinancial statements. All intercompany balances and rewards.transactions are eliminated. The guidance requires a VIE to benon-controlling interests of subsidiaries are included in the consolidated if anybalance sheets and consolidated statements of its interest holders are entitled to a majority ofoperations as “Non-controlling interests".
Foreign currencies
The Company and the entity’s residual returns or are exposed to a majority of its expected losses.subsidiaries use the U.S. dollar as their functional currency as the majority of their revenues and expenses are denominated in U.S. dollars. Accordingly, the Company’s reporting currency is also U.S. dollars. For subsidiaries that maintain their accounts in currencies other than U.S. dollars, the Company uses the current method of translation whereby the statement of operations is translated using the average exchange rate for the period and the assets and liabilities are translated using the period end exchange rate.
Going concern
The Company has incurred significantTransactions in foreign currencies are translated into U.S. dollars at the rates of exchange in effect at the date of the transaction. Gains and losses since inception and may be dependent on additional financingforeign currency transactions are included in order to fund future losses that may arise"Other financial (expenses) income, net" in the next 12 months if the Company's rigs are unable to secure continued work or if payments from its customers, particularly in Mexico, does not improve or deteriorates, and to meet capital expenditure commitments mainly for activationsConsolidated Statements of newbuild rigs. In addition to this we are experiencing the impact of current unprecedented market conditions as a result of the global market reaction to the COVID-19 pandemic, together with uncertainty around the extent and timing for an economic recovery. Our customers have reacted to this crisis by significantly reducing their spending, which resulted in a weakened demand combined with pricing pressure for our services. At this stage we cannot predict with reasonable accuracy the impact of these extreme market conditions on the Company. During the first half of 2020, we received early terminations for three ongoing contracts and one cancellation of an upcoming contract which we believe pertained to the pandemic, and we have also experienced incremental costs as a result to safely conduct our operations and to proactively manage our available liquidity. While our recent renegotiation of credit facilities and newbuild deliveries in January 2021, and concurrent equity raise, have stabilized our liquidity situation in a base case scenario through 2022, we have limited ability to respond to negative incidents or multiple
downside scenarios, without additional financing or by raising further capital. Therefore, we have concluded that there exists substantial doubt over our ability to continue as a Going Concern.
To help manage our downside scenario risk, on September 30, 2020, we announced certain amendments to the Syndicated Facility and Hayfin Facility, subject to certain conditions including the shipyards agreeing the same. The key announced amendments were: (i) extend the maturity on the Syndicated Facility and the Hayfin Facility to January 2023, (ii) no bank debt amortization before maturity, (iii) amending the level of the minimum cash covenant until expiry of the Syndicated Facility and the Hayfin Facility, (iv) extend the maturity of interest payments due September 30, 2020 and December 31, 2020 with the banks 12 months, and (v) defer requirement to replenish the minimum restricted liquidity account with Hayfin until September 30, 2021. On September 30, 2020, we announced pricing of an equity offering which closed on October 5, 2020, raising gross proceeds of $27.5 million. On November 13, 2020, we announced launch of a subsequent offering which settled on November 27, 2020, raising gross proceeds of $5.3 million. The sale of "Atla" and "Eir" closed in the fourth quarter of 2020, and the sale of "Balder" closed in February 2021, raising gross proceeds of $17.5 million.
In addition, in January 2021, we amended certain of our shipyard financing agreements, whereby we pay $12 million in 2021 and $24 million in 2022, to our shipyards, in order to defer debt amortisation, interest payments and maturity payments (including deposits for five newbuild rigs) into 2023. As a condition of these agreements, we raised a gross amount of $46 million in new equity in January 2021. The shipyard agreements, and new equity, satisfied the conditions precedent to the Syndicated Facility and the Hayfin Facility in September 2020 discussed above. All of these amendments were effective on January 30, 2021.
We will continue to explore additional financing opportunities and strategic sale of a limited number of modern jack-ups in order to further strengthen the liquidity of the Company. While we have confidence that these actions will enable us to better manage our liquidity position, and we have a track record of delivering additional financing and selling rigs, there is no guarantee that any additional financing or sale measures will be concluded successfully.
Reverse Share Split
On June 21, 2019 the Company’s Board of Directors approved a 5-to-1 reverse share split of the Company’s shares (the “Reverse Split”). Upon effectiveness of the Reverse Split on June 26, 2019, every five shares of the Company’s issued and outstanding ordinary shares, par value $0.01 per share was combined into one issued and outstanding ordinary share, par value $0.05 per share. Unless otherwise indicated, all Share and per Share data in these financial statements is adjusted to give effect to our Reverse Share Split and is approximate due to rounding.Operations.
Use of estimates
PreparationThe preparation of financial statements in accordance with U.S. GAAP requires that management to make estimates and assumptions that affectaffecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 2 - Accounting policiesIn assessing the recoverability of our jack-up rigs' carrying amounts, we make assumptions regarding estimated future cash flows, estimates in respect of residual or scrap values, utilization, dayrates, operating and maintenance expenses and capital expenditures.
Fair value measurements
We account for fair value measurement in accordance with the accounting standards guidance using fair value to measure assets and liabilities. The guidance provides a single definition for fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities.
Revenue
The Company performs services that represent a single performance obligation under its drilling contracts. This performance obligation is satisfied over time. The Company earns revenues primarily by performing the following activities: (i) providing the drilling rig, work crews, related equipment and services necessary to operate the rig (ii) delivering the drilling rig by mobilizing to and demobilizing from the drilldrilling location, and (iii) performing certain pre-operating activities, including rig preparation activities or equipment modifications required for the contract.
The Company recognizes revenues earned under drilling contracts based on variable dayrates, which range from a full operating dayrate to lower rates or zero rates for periods when drilling operations are interrupted or restricted, based on the specific activities performed during the contract. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the firm term of the contract and may include the blending of rates when a contract has operating dayrates that change over the firm term of the contract. Such dayrate consideration is attributed to the distinct time period to which it relates within the contract term, and therefore is recognized as the Company performs the services. The Company recognizes reimbursement revenues and the corresponding costs, gross, at a point in time, as the Company provides the customer-requested goods and services, when such reimbursable costs are incurred while performing drilling operations.
Prior to performing drilling operations, the Company may receive pre-operating revenues, on either a fixed lump-sum or variable dayrate basis, for mobilization, contract preparation, customer-requested goods and services or capital upgrades or other upfront payments, which the Company recognizes over time in line with the satisfaction of the performance obligation. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall performance obligation and recognized ratably over the expected term of the related drilling contract. We record a contract liability for mobilization fees received, which is amortized ratably to dayrate revenue as services are rendered over the initial term of the related drilling contract.
We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the demobilization of our rigs. Demobilization revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception and recognized over the term of the contract. In most of our contracts, there is uncertainty as to the likelihood and amount of expected demobilization revenue to be received. For example,received as the amount may vary dependent upon whether or not the rig has additional contracted work following the contract. Therefore, the estimate for such revenue may be constrained, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions.
Contract costs
The Company incurs costs to prepare a rigrigs for contract and deliver or mobilize a rigrigs to the drilling location.locations. The Company defers pre-operating costs, such as contract preparation and mobilization costs, and recognizes such costs on a straight-line basis, consistent with the general level of activity, in "Rig operating and maintenance costsexpenses" in the Consolidated Statements of Operations, over the estimated firm period of drilling.the drilling contract. Contract preparation and mobilization costs can include costs relating to equipment, labor and rig transportation costs (tugs, heavy lift vessel costs), that are directly attributable to our future performance obligation under each respective drilling contract. Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process.
Related parties
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence.
Related party revenue
a.Management and services revenue: We provide corporate support services, secondment of personnel and management services to our equity method investments under management and service agreements. The revenue for these services areis based on costs incurred in the period, withinclusive of an appropriate marginsmargin and havehas been recognized under related party revenuesrevenue in our Consolidated Statement of Operations, withOperations. The associated costs are included within Operating Expenses.total operating expenses in our Consolidated Statements of Operations.
Related party bareboat revenue
b.Bareboat revenue: We lease rigs on bareboat charters to our Equity Method Investment,Investments, Perforaciones Estratégicas e Integrales Mexicana, S.A. de C.V. (“Perfomex”) and Perforaciones Estrategicas e Integrales Mexicana II, SA de CV (“Perfomex II”). We expect lease revenue earned under the bareboat charters to be variable over the lease term, as a result of the contractual arrangement which assigns the bareboat a value over the lease term equivalent to residual cashearnings after payments of operating expenses and other fees. We, as a lessor, do not recognize a lease asset or liability on our balance sheet at the time of the formation of the entities nor as a result of the lease. Revenue is recognized within Relatedunder "Related party bareboat revenuerevenue" in our StatementConsolidated Statements of Operations when management are able to reasonably predict the expected underlying bareboat rate over the contract term.Operations.
Rig operating and maintenance expenses
Rig operating and maintenance expenses are costs associated with operating a rigrigs that isare either in operation or stacked, and include the remuneration of offshore crews and related costs, rig supplies, inventory, insurance costs, expenses for repairs and maintenance as well as costs related to onshore personnel in various locations where we operate the jack-up rigs and are expensed as incurred. Stacking costs for rigs are expensed as incurred.
Impairment of long-lived assets
We continually monitor events and changes in circumstances that could indicate carrying amounts of our long-lived assets may not be recoverable. At least annually, and if such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amounts over the respective fair values, based on the undiscounted cash flows. In this assessment of recoverability, we apply a variety of valuation methods, incorporating income, market and cost approaches. We may weight the approaches under certain circumstances. Our estimate of fair value generally requires us to use significant unobservable inputs, representative of Level 3 fair value measurements, including assumptions regarding long-term future performance of our asset groups, such as projected revenues and costs, dayrates, utilization and residual values. These projections involve uncertainties that rely on assumptions about demand for our services and future market conditions.
Equity method investments
We account for our ownership interestsinterest in certain Mexican companies, Opex, Akal, Perfomex and Perfomex IIof our investments as equity method investments in accordance with ASC 323, Investments — Equity Method and Joint Ventures and record the investment in equity method investments in the Consolidated Balance Sheets.investments. The equity method of accounting is applied when we generally have between 20% and 50% of the investor has an ownership interest of less than 50% and/voting rights, or doesover which we have significant influence, but over which we do not exercise control or have the power to control the entity,financial and operational policies. This also extends to entities in which we hold a majority interest, but nonetheless has significant influence overwe do not have control. Under this method, we record our investment at cost and adjust the operatingcarrying amount for our share of earnings or financial decisionslosses of the investee. Under the equity method investments are stated at initial cost,investment in addition, guarantees"Income/(loss) from equity method investments" in the Consolidated Statements of Operations. When our share of losses equals or exceeds our interest, we do not recognize further losses, unless we have incurred obligations or made payments on behalf of the equity method investment. Guarantees issued to the equity method investments and in-substance capital contributions and capital contributions are allocated
added to the investment. Our proportionate share of the investees net income (loss) is reflected as a single-line item in the Consolidated Statement of Operations and as increases or decreases, as applicable, in the carrying value of ourthe equity method investment in the Consolidated Balance Sheet. In addition, the proportionateSheets. Our share of net income (loss) isearnings or losses are reflected as a non-cash activity in operating activities in the Consolidated Statement of Cash Flows. Contributions increase the carrying value of the investment and are reflected as an investing activity in the Consolidated StatementStatements of Cash Flows.
Investments in equity method investments are assessed for other-than-temporary impairment whenever changes in the facts and circumstances indicate an other-than-temporary loss in carrying value has occurred.
Business combinations
The Company applies the acquisition method of accounting for business combinations in accordance with ASC 805. The acquisition method requires the total of the purchase price of acquired businesses and any non-controlling interest recognized to be allocated to the identifiable tangible and intangible assets and liabilities acquired at fair value, with any residual amount being recorded as goodwill as of the acquisition date. Costs associated with the acquisition are expensed as incurred. The Company allocates the purchase price of acquired businesses to the identifiable tangible and intangible assets and liabilities acquired, with any remaining amount being recorded as goodwill.
The estimated fair value of the jack-up rigs in a business combination is derived by using a market and income-based approach with market participant-based assumptions. When we acquire jack-up rigs there may exist unfavorable contracts which are recorded at fair value at the date of acquisition. An unfavorable contract is a contract where the dayrate is less than prevailing market rates at the time of acquisition. Such contracts are recorded as an onerous contract at the purchase date.
In a business combination, contract backlog is recognized when it meets the contractual-legal criterion for identification as an intangible asset when an entity has a practice of establishing contracts with its customers. We record an intangible asset equal to its fair value on the date of acquisition. Fair value is determined by using Multi-Period Excess Earnings Method. The Multi-Period Excess Earnings Method is a specific application of the discounted cash flow method. The principle behind the method is that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible asset after deducting contributory asset charges. The asset is then amortized over its estimated remaining contract term.
Onerous contracts
a.Newbuildings: When we acquire rigs there may exist unfavorable contracts which are recorded at fair value at the date of acquisition. An unfavorable contract is a contract where the fair value ofmay be below the rig being constructed is less than the presentcarrying value of the remaining contractual commitments for the rig. Such contracts are recorded as a liability at the purchase date.
b.Office leases: For the year ended December 31, 2019, onerous contracts were recognized for costs that will continueour investment. Where determined to be incurred under a contract for its remaining term without economic benefit to the Company. The net present value of such contracts is recorded as a liability at the cease-use date. Subsequent to adoption of ASU No 2016-02, Topic 842, Leases, onerous leases related to office leases are classified as lease liabilitiesother-than-temporary impairment, we will recognize an impairment loss in accordance with the new standard.
Foreign currencies
The Company and the majority of its subsidiaries use the U.S. dollar as their functional currency because the majority of their revenues and expenses are denominated in U.S. dollars. Accordingly, the Company’s reporting currency is also U.S. dollars. For subsidiaries that maintain their accounts in currencies other than U.S. dollars, the Company uses the current method of translation whereby the statement of operations is translated using the average exchange rate for the period and the assets and liabilities are translated using the period end exchange rate.
Transactions in foreign currencies are translated into U.S. dollars at the rates of exchange in effect at the date of the transaction. Gains and losses on foreign currency transactions are included"Income from equity method investments" in the Consolidated StatementStatements of Operations.
Income taxes
Borr Drilling Limited is a Bermuda company that has a number of subsidiaries, affiliates and branches in various jurisdictions. Whilstjurisdictions, a number of which have evolving tax laws. On December 27, 2023, Bermuda enacted the CompanyCorporate Income Tax Act 2023 ("Corporate Income Tax Act") which introduces a 15% income tax from January 1, 2025. This is residentconsistent with the Global Anti-Base Erosion Model Rules (Pillar 2) published by the Organization for Economic Co-operation and Development (“OECD”) and it overrides previous assurances of tax exemption in Bermuda it is not subject to taxation under the laws of Bermuda, so currently, the Company is not required to pay taxes in Bermuda on ordinary income or capital gains.until 2035. The Company and eachits Bermuda subsidiaries will not be subject to Bermuda income tax until such time as Borr achieves consolidated global revenues of its subsidiaries and affiliates that areUSD equivalent of EUR 750 million or more in two of the preceding four fiscal years. This means Bermuda companies have received written assurance from the Minister of Finance in Bermuda that in the event that Bermuda enacts legislation imposing taxes on ordinary income or capital gains, any such tax shall notwill be applicable to the Company or such subsidiaries and affiliates until March 31, 2035.at the same time Pillar 2 becomes applicable to Borr globally. This is expected to be from January 1, 2026. Certain subsidiaries, affiliates and branches operate in other jurisdictions where withholding taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions when appropriate. Our income tax expense is based on our income and statutory tax rates in the various jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which operations are conducted and income is earned.
The determination and evaluation of our annual group income tax provision involves interpretation of tax laws in various jurisdictions in which we operate and requires significant judgment and use of estimates and assumptions regarding significant future events, such as amounts, timing and character of income, deductions and tax credits. There are certain transactions for which the ultimate tax determination is unclear due to uncertainty in the ordinary course of business. We recognize tax liabilities on uncertain tax positions as per US GAAP, including penalties and interest, if applicable, based on our assessment of whether
our tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant taxing authority’s widely understood administrative practices and precedence. Changes in tax laws, regulations, agreements, treaties, foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability in any given year. While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined. Current income tax expense reflects an estimate of our income tax liability for the current period, withholding taxes, changes in prior year tax estimates as tax returns are filed, or from tax audit adjustments.
Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules.
Deferred tax assets and liabilities are based on temporary differences that arise between carrying values used for financial reporting purposes and amounts used for taxation purposes of assets and liabilities and the future tax benefits of tax loss carry forwards.
Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected in the Consolidated Balance Sheet.Sheets. Valuation allowances are determined to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To determine the amount of deferred tax assets and liabilities, as well as of the valuation allowances, we must make estimates and certain assumptions regarding future taxable income, including assumptions regarding where our jack-up rigs are expected to be deployed, as well as other assumptions related to our future tax position. A change in such estimates and assumptions, along with any changes in tax laws, could require us to adjust the deferred tax assets, liabilities, or valuation allowances. The amount of deferred tax provided is based upon the expected manner of settlement of the carrying amount of assets and liabilities, using tax rates enacted at the Consolidated Balance Sheetbalance sheet date. The impact of tax law changes is recognized in periods when the change is enacted.
Earnings/(loss)Earnings per share
Basic earningsearnings/(loss) per share (“EPS”) is calculated based on the lossincome/(loss) for the period available to common shareholders divided by the weighted average number of shares outstanding for basic EPS for the period.outstanding. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments which for the Company includes share options, performance stock units, restricted stock units and warrants.convertible bonds. The determination of dilutive earnings per share requires the CompanyEPS may require us to potentially make certain adjustments to net incomeincome/(loss) and the weighted average shares outstanding used to compute basic earnings per shareEPS unless anti-dilutive.
Current and non-current classificationOnerous contracts
Assets and liabilities (excluding deferred taxes) are classified as current assets and liabilities respectively, if their maturity is within 1 yearWhen we acquire newbuild jack-up drilling rigs there may exist instances whereby the fair value of the balance sheet date. Otherwise, theyrig being constructed is less than the present value of the remaining contractual commitments for the rig. Such contracts are classifiedrecorded as non-current assets and liabilities.
a liability when the difference is identified.Cash and cash equivalents
Cash and cash equivalents consist of cash, bank deposits and highly liquid financial instruments with original maturities of three months or less.
Restricted cash
Restricted cash consists of margin accounts which have been pledged as collateral in relation to forward contracts and bank deposits which have been pledged as collateral for guarantees issued by a bankbanks in relation to rig operating contracts or minimum deposits which must be maintained in accordance with contractual arrangements.credit agreements. Restricted cash amounts with maturities longer than one year are classified as non-current assets.
Allowance for credit losses
Financial assets recorded at amortized cost reflect an allowance for current expected credit losses ("credit losses") over the lifetime of the instrument. The allowance for credit losses reflects a deduction to the net amount expected to be collected on the financial asset. Amounts are written off against the allowance when management believes the balance is uncollectible. Expected recoveries will not exceed amounts previously written-off or current credit loss allowances by financial asset category. We estimate expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Specific calculation of
our credit allowances is included in the respective accounting policies included herein; all other financial assets are assessed on an individual basis calculated using the method we consider most appropriate for each asset.
Trade receivables
Trade receivables are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Trade receivables are presented net of allowances for expected credit losses.
Allowance for losses on certain financial assets
The Company has established an allowanceallowances for expected credit losses on financial receivables, namely trade accounts receivable, inare calculated using a loss rate applied against an amount equal to current expected losses. Our accounts receivable represent consideration earned for performing services in various countries for our customers, including integrated oil companies, government-owned or government-controlled oil companiesaging matrix and other independent oil companies, the majority of which currently have corporate family investment grade credit ratings. We established procedures to apply the requirements of the accounting standards update using the loss-rate method by reviewing our historical credit losses and evaluating future expectations, and we recorded the initial estimated allowance with a corresponding entry to retained earnings.
The expense associated with the allowance for expected credit losses and recoveries of previous provisions areis recorded in rig"Rig operating and maintenance expensesexpenses" in the Consolidated Statements of Operations, as and when they occur in the Consolidated Statement of Operations.occur.
Contract assets and contract liabilities
ContractContract asset balances consist primarily of unbilledaccrued revenue which has been recognized duringrelating to work performed in the period, buthowever which is contingentyet to be invoiced. When the right to consideration becomes unconditional based on management approvalthe contractual billing schedule, accrued revenue is recognized. At the point that accrued revenue is billed, trade accounts receivables are recognized. Contract asset balances also include amounts recognized in advance of work. amounts invoiced due to the blending of rates when a contract has operating dayrates that increase over the firm term of the contract.
Contract liabilities include payments received for mobilization as well as rig preparation and upgrade activities which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract.
Marketable securities
Marketable debt securities held by us which do not give us the ability to exercise significant influence are considered to be available-for-sale. These are re-measured at fair value each reporting period with resulting unrealized gains and losses recorded as a separate component of accumulated other comprehensive incomecontract in shareholders’ equity. Gains and losses are not realized until the securities are sold or subject to temporary impairment. Gains and losses on forward contracts to purchase marketable equity securities that do not meet the definition of a derivative are accounted for as available-for-sale securities. We analyze our available-for-sale securities for impairment at each reporting period to evaluate whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the value of the securities. We record an impairment charge for other-than-temporary declines in value when the value is not anticipated to recover above the cost within a reasonable period after the measurement date, unless there are mitigating factors that indicate impairment may not be required. If an impairment charge is recorded, subsequent recoveries in value are not reflected in earnings until sale of the securities held as available for sale occurs.
Where there are indicators that fair value is below the carrying value of our investments, we will evaluate these for other-than-temporary impairment. Consideration will be given to (i) the length of time and the extent to which fair value of the investments is below carrying value, (ii) the financial condition and near-term prospects of the investee, and (iii) our intent and ability to hold the investment until any anticipated recovery. Where we determine that there is other-than-temporary impairment, we will recognize an impairment loss"Total operating revenues" in the period.
Marketable equity securities with readily determinable fair value are re-measured at fair value each reporting period with unrealized gains and losses recognized under total financial income (expenses), net.Consolidated Statements of Operations.
Jack-up drilling rigs
The carrying amount of our jack-up rigs is subject to various estimates, assumptions, and judgments related to capitalized costs, useful lives and residual values and impairments. Jack-up rigs and related equipment are recorded at historical cost less accumulated depreciation.depreciation and impairment. Jack-up rigs and related equipment acquired as part of asset acquisitions are stated at fair market value as of the date of the acquisition. The cost of these assets, less estimated residual value, is depreciated on a straight-line basis over their estimated remaining economic useful lives. The estimated economic useful life of our jack-up rigs when new, is 30 years.
We determine the carrying values of our jack-up rigs and related equipment based on policies that incorporate estimates, assumptions and judgments relative to the carrying values, remaining useful lives and residual values. These assumptions and judgments reflect both historical experience and expectations regarding future operations, utilization and performance. The use of different estimates, assumptions and judgments in establishing estimated useful lives and residual values could result in significantly different carrying values for our jack-up rig which could materially affect our balance sheet and results of operations.
The useful lives of our jack-up rigs and related equipment are difficultdepreciated on a straight-line basis, after deducting salvage values, over their estimated remaining economic useful lives. Depreciation commences when an asset is placed into service, and available for its intended use.
Useful lives applied in depreciation are as follows:
Jack-up rigs 30 years
Jack-up rig equipment and machinery 3 to estimate due20 years
All costs incurred in connection with the acquisition, construction, major enhancement and improvement of assets are capitalized, including allocations of interest incurred during periods that our jack-up rigs are under construction or undergoing major enhancements or improvements. Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a variety of factors, including technological advancesnewbuild jack-up rig. Expenditures that impactdo not improve the methodsoperating efficiency or cost of oil and gas exploration and development, changes in market or economic conditions and changes in laws or regulations affectingextend the drilling industry. We re-evaluate the remaining useful lives of our jack-up rigs as of and when events occur that may directly impact our assessment of their remaining useful lives. This includes changes to the operating condition or functional capability of our rigs as well as market and economic factors.
The carrying values of our jack-up rigs and related equipment are reviewed for impairment when certain triggeringexpensed as incurred.
We use judgement in considering if events or changes in circumstances indicate that the carrying amount of an assetsuch jack-up rigs may no longernot be recoverable. We assessThis assessment is done on a quarterly basis. When indicators are present, recoverability ofis determined by comparing the carrying valueamount of an asset by estimatingto the estimated undiscounted cash flows of the asset. If the total of the undiscounted future net cash flows expected to result from the asset, including eventual disposition. If the undiscounted future net cash flows areis less than the carrying value of the asset,amount, an impairment loss is recorded equal torecognized as the difference between the asset’s carrying value and fair value. In general, impairment analyses are based on expected costs, utilization and dayrates for the estimated remaining useful livesamount of the asset or group of assets being assessed. An impairment loss is recorded in the period in which it is determined that the aggregate carrying amount is not recoverable. Asset impairment evaluations are, by nature, highly subjective. They involve expectations about future cash flows generated by our assets, and reflect management’s assumptions and judgments regarding future industry conditions and their effect on future utilization levels, dayrates and costs. The use of different estimates and assumptions could result in significantly different carrying values of our assets and could materially affect our balance sheets and results of operations.
In 2020, management identified certain indicators, among others, that the carrying value of our jack-upits fair value. Jack-up rigs and related equipment may not be recoverable and our market capitalization washeld-for-sale are recorded at the lower than theof net book value of our equity. These market indicators include the reduction in new contract opportunities, decrease in market dayrates and contract terminations. We assessed recoverability of the carrying value of our jack-up rigs by first evaluating the estimated undiscounted future net cash flows based on projected dayrates and utilization of the rigs. The estimated undiscounted future net cash flows were found to be greater than the carrying value of our jack-up rigs with sufficient headroom for our core jack-up rigs. As a result, we did not need to assess the discounted cashflows of our rigs, and no impairment was recorded.
With regard to non-core jack-up rigs impaired throughout 2020,or fair value of these assets were derived by applying a combination of an income approach, using projected undiscounted cash flows and estimated sale or scrap value. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.
Newbuildings
Jack-up rigs under construction are capitalized, classified as newbuildings and presented as non-current assets. The capitalized costs are reclassified from newbuildings to jack-up rigs when the asset is available for its intended use.
Interest cost capitalized
Interest costs are capitalized on all qualifying assets that require a period of time to get them ready for their intended use. Qualifying assets consist of newbuilding rigs under construction. The interest costs capitalized are calculated using the weighted average cost of borrowings, from commencement of the asset development until substantially all the activities necessary to
prepare the assetsasset for its intended use are complete. We do not capitalize amounts beyond the actual interest expense incurred in the period.
Newbuildings
Jack-up rigs under construction are capitalized, classified as newbuildings and presented as non-current assets. All costs directly incurred in connection with the construction of newbuildings are capitalized, including allocations of interest incurred during
periods that our newbuildings are under construction. Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a newbuild jack-up rig.
Capitalized costs are reclassified from newbuildings to jack-up rigs when the assets are available for their intended use.
Leases
ASU 842, was adopted on January 1, 2019. We have elected the package of practical expedients that permits us to not reassess (1) whether previously expired or existing contracts are or contain leases, (2)The following sets out the lease classificationaccounting policy for any expired or existingall leases and (3) any initial direct costswith the exception of short-term leases (less than 12 months) for any existing leases as of the effective date. In addition,which we have elected the hindsight practical expedient in connection with our adoption of the new lease standard. As lessee, we have made the accounting policy election to not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less. We recognizethe lease payments in theour Consolidated StatementStatements of Operations on a straight-line basis over the lease term. We have also elected the practical expedient to not separate lease and non-lease components.
Many of our leases contain variable non-lease components such as maintenance, taxes, insurance, and similar costs for the spaces we occupy. For new and amended leases beginning in 2019 and after, we have elected the practical expedient not to separate these non-lease components of leases for classes of all underlying assets and instead account for them as a single lease component for all leases. We straight-line the net fixed payments of operating leases over the lease term and expense the variable lease payments in the period in which we incur the obligation for those payments is incurred.
Lessee: When we enter into a new contract, or modify an existing contract, we evaluate whether that contract has a finance or operating lease component. We do not have, nor expect to pay such variable amounts. These variablehave any leases classified as finance leases. We determine the lease commencement date by reference to the date the leased asset is available for use and transfer of control has occurred from the lessor. At the lease commencement date, we measure and recognize a lease liability and a right of use ("ROU") asset in the Consolidated Balance Sheets. The lease liability is measured at the present value of the lease payments are not includedyet paid, discounted using the estimated incremental borrowing rate ("IBR") at lease commencement. The ROU asset is measured at the initial measurement of the lease liability, plus any lease payments made to the lessor at or before the commencement date, minus any lease incentives received, plus any initial direct costs incurred by us.
After the commencement date, we adjust the carrying amount of the lease liability by the amount of payments made in the period as well as the unwinding of the discount over the lease term using the straight-line interest method. After commencement date, we amortize the ROU asset by the amount required to keep total lease expense including interest constant (straight-line over the lease term).
Absent an impairment of the ROU asset, the single lease cost is calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis. The Company assesses a ROU asset for impairment and recognizes any impairment loss in accordance with the accounting policy on impairment of long-lived assets.
We applied the following significant assumptions and judgments in accounting for our calculation of our right-of-use (“ROU”) assetsleases.
•We apply judgment in determining whether a contract contains a lease or a lease liabilities.component as defined by Topic 842.
•We have elected to combine leases and non-lease components. As most of our leasesa result, we do not provide an implicitallocate our consideration between leases and non-lease components.
•The discount rate we useapplied to our operating leases is our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain
•Within the terms and conditions of some of our lease agreements includeoperating leases we have options to extend or terminate the lease. In instances where we are reasonably certain to exercise available options to extend or terminate, then the option is included in determining the appropriate lease which we do not include interm to apply. Options to renew our minimum lease terms unless managementare included in determining the ROU asset and lease liability when it is reasonably certain that we will exercise that option.
Lessor: When we enter into a new contract, or modify an existing contract, we identify whether that contract has a sales-type, direct financing or operating lease. We do not have, nor expect to exercise.
Our third party drilling contracts contain ahave any leases classified as sales-type or direct financing. For our operating lease, component related to the underlying drilling equipment, in addition to the service component provided byasset remains on our crewsConsolidated Balance Sheets and our expertise to operate such drilling equipment. We have concluded the non-lease service of operating our equipmentwe record periodic depreciation expense and providing expertise in the drilling of the client’s well is predominant in our drilling contracts. We have applied the practical expedient to account for the lease and associated non-lease components as a single component. With the election of the practical expedient, we will continue to present a single performance obligation under the revenue guidance in Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.”revenue.
Interest-bearing debt
Interest-bearing debt is recognized initially at fair value less directly attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings relatedrelated to Deliverydelivery financing are stated at amortized cost.
Accounting for debt modifications
We account for debt modifications in accordance with ASC 470, Debt. A debt modification can be an amendmentPremiums and discounts related to the terms or cash flowsissuance of term debt are deferred and amortized over the term of the relevant debt using the straight-line method as this approximates the effective interest method. Amortization of premiums and discounts is included in "Interest expense" in the Consolidated Statements of Operations. Premiums and discounts are presented as an existing debt instrument, exchanging existing debt for new debt with the same lender, repaying an existing debt obligation and contemporaneously issuing new debtadjustment to the same lender. Although this may be a legal extinguishment,corresponding liability in the transaction may need to be accounted for as a debt modification.
Modification of debt is assessed as either a troubled debt restructuring ("TDR") or as modification or exchange of a term loan or debt security. A modification is a TDR if (1) the borrower is experiencing financial difficulty, and (2) the lender grants the borrower a concession. A lender is deemed to grant a concession when the effective borrowing rate on the restructured debt is less than the effective borrowing rate on the original debt.
An exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a non-troubled debt situation is deemed to have been accomplished if the exchanged debt instruments are substantially different if the present value of the cash flows under the terms of the new debt instrument are at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the cash flow effect on a present value basis is less than 10 percent the change is considered a modification to the debt. If a debt instrument is restructured more than once in a twelve-month period, the debt terms (e.g., interest rate, prepayment penalties) thatConsolidated Balance Sheets.
existed just prior to the earliest restructuring in that twelve-month period should be used to apply the 10% test, provided the restructuring was (or restructurings were) accounted for as a modification.
The effective borrowing rate of the restructured debt is calculated by determining the discount rate that equates to the present value of the cash flows under the terms of the restructured debt to the current carrying value of the original debt.
Cost associated with debt modifications accounted for as amendments are charged to the income statement. For debt extinguishments the cost is charged to the balance sheet and any unamortized amount remaining upon the extinguishment is charge to the income statement.
Our debt modifications throughout 2020 have been assessed as non-troubled debt modifications.
Deferred charges
Loan costs,Costs associated with long-term financing, including debt arrangement fees, are capitalizeddeferred and amortized on a straight-line basis over the term of the relevant loan. The straight line basis of amortizationloan using the straight-line method as this approximates the effective interest method. Amortization of loan costs is included in other financial (expenses) income, net."Interest expense" in the Consolidated Statements of Operations. If a loan is repaid early, any unamortized portion of the related deferred chargescharge is charged against income in the period in which the loan is repaid. The Company has recorded debt issuance costs (i.e. deferred charges)Deferred charges are presented as either a gross asset or as a direct deduction from the corresponding liability in the Consolidated Balance Sheets.
Debt extinguishments and modifications
Costs associated with debt extinguishments are included in determining the debt extinguishment gain or loss which is included in "Interest expense" in the Consolidated Statements of Operations. Costs associated with debt modifications are accounted for as deferred charges. See Deferred charges accounting policy.
Convertible bonds
We account for debt instruments with convertible features in accordance with the details and substance of the instruments at the time of their issuance. For convertible debt instruments issued at a substantial premium to equivalent instruments without conversion features, or those that may be settled in cash upon conversion, it is presumed that the premium or cash conversion option represents an equity component.
Accordingly, we determine the carrying amounts of the liability and equity components of such convertible debt instruments by first determining the carrying amount of the related debt.liability component by measuring the fair value of a similar liability that does not have an equity component. The carrying amount of the equity component representing the embedded conversion option is then determined by deducting the fair value of the liability component from the total proceeds from the issue. The resulting equity component is recorded, with a corresponding offset to debt discount which is subsequently amortized to interest cost using the effective interest method over the period the debt is expected to be outstanding as an additional non-cash interest expense. Transaction costs associated with the instrument are allocated pro-rata between the debt and equity components.
Other intangible assetsFor conventional convertible bonds which do not have a cash conversion option or where no substantial premium is received on issuance, it may not be appropriate to separate the bond into the liability and liabilitiesequity components.
Other intangible assets and liabilitiesDerivatives
We use derivatives to reduce market risks. All derivative financial instruments are initially recorded at fair value on the date of acquisition less accumulated amortization. The amounts of theseas either assets andor liabilities less the estimated residual value, if any, is generally amortized on a straight-line basis over the estimated remaining economic useful life or contractual period.
Derivatives
We had a Call Spread (as defined in note 19) derivative to mitigate the economic exposure from a potential exercise of conversion rights embedded in the convertible bonds. Call options boughtaccompanying Consolidated Balance Sheets and sold are cash settled European options exercisable only at maturity. The Call Spread derivative is fair value adjusted at each reporting period using a valuation technique that is consistent with generally accepted valuation methodologies for pricing financial instruments, and that incorporates all factors and assumptions that knowledgeable, willing market participants would consider in determiningsubsequently remeasured to fair value. The changes in fair value adjustmentsof derivative financial instruments are recognized under othereach period in "Other financial (expenses) income, net with a corresponding increase or decrease in other long-term assets over the duration of the bonds.
Forward contracts that meet the definition of derivative instruments are recognized at fair value. Changesnet" in the fair value of these derivatives are recorded in other financial (expenses) income, net in our Consolidated StatementStatements of Operations. Cash outflows and inflows resulting from economic derivative contracts are presented as cash flows from operations in the Consolidated StatementStatements of Cash Flows. We do not apply hedge accounting.
Fair Value
The Company accounts for fair value in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a three-tier hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1.Quoted prices in active markets for identical assets or liabilities.
Level 2.Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3.Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. The Company’s cash and cash equivalents and restricted cash, which are held in operating bank accounts, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The carrying value of accounts receivable and payables approximates fair value due to the short time to expected receipt or payment of cash.
Our assessment for impairment includes various inputs, including forecast revenue, forecast operating profits, terminal growth rates, and weighted-average costs of capital. The projected cash flows used in calculating the fair value, using the income approach, considered historical and estimated future results and general economic and market conditions, as well as the impact of planned business and operational strategies. In 2020, the Company recorded impairments on 3 rigs, of which 2 were sold during 2020 and one the "Balder" was held for sale and measured at fair value on a nonrecurring basis at December 31, within Level 3 of the fair value hierarchy.
Debt and equityEquity issuance costs
IssuanceEquity issuance costs are allocated to the debt and equity components in proportion to the allocation of proceeds to those components. Allocated costs are accounted for as debt issuance costs (capitalized and amortized to interest expense using the interest method) and equity issuance costs (charged to shareholders’ equity) recorded as a reduction of additional paid-in capital, respectively.paid-in-capital and charged to shareholders' equity.
Pensions
Defined benefit pension costs, assets and liabilities requires significant actuarial assumptions to be adjusted annually to reflect current market and economic conditions. Full recognition of the funded status of defined benefit pension plans are included within our Consolidated Balance Sheets. We fair value, using level 3 inputs, our plan assets and projected benefit obligation.
Defined contribution pension costs represent the contributions payable to the scheme in respect of the accounting period and are recorded in the Consolidated Statements of Operations.
Treasury shares
Treasury shares are recognized at cost as a component of shareholders’ equity. When we re-issue treasury stock at an amount greater/ (less) than the current price of the share (based on a first in first out policy), we realize a gain/ (loss) on the re-issuance of the shares. A gain on re-issuance of treasury shares is credited to additional paid-in-capital whereas a loss on re-issuance of
treasury shares may be debited to additional paid-in-capital to the extent that previous net gains from sales or retirements of the same class of stock are included in additional paid-in-capital. Any losses in excess of that amount are charged to retained earnings.
Share-based compensation
We have an employee share ownership plan under which our employees, directorsOur stock-based compensation includes stock options, performance stock units ("PSUs") and officers may be allocated options to subscribe for new shares in the Company as a form of remuneration. The cost of equity settled transactions is measured by reference to the fair value at the date on which the share options are granted. restricted stock-units ("RSUs").
The fair value of stock options is estimated using the share options issued underBlack-Scholes Option pricing method, the Company’s employee share option plans are determined at the grant date taking into account the terms and conditions upon which the options are granted, and using a valuation technique that is consistent with generally accepted valuation methodologies for pricing financial instruments, and that incorporates all factors and assumptions that knowledgeable, willing market participants would consider in determining fair value. The fair value of the sharePSUs is estimated using the Monte Carlo option pricing model and the fair value of RSUs is estimated using the fair value of the Company's common stock at grant date.
We expense the fair value of stock-based compensation over the period the stock options, is recognized under general and administrative expense in the Consolidated Statement of Operations withPSUs or RSUs vest. We amortize stock-based compensation awards on a corresponding increase in equitystraight-line basis over the period during which the employees become unconditionally entitledindividuals are required to provide service in exchange for the options. Compensationreward - the requisite service (vesting) period. No compensation cost is initially recognized based upon options expectedfor stock-based compensation for which the individuals do not render the requisite service. We account for forfeitures as they occur.
Contingencies
We assess our contingencies on an ongoing basis to vest, excluding forfeitures, with appropriate adjustments to reflect actual forfeitures.
Legal proceedings
evaluate the appropriateness of our liabilities and disclosures for such contingencies. We may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. A provision will be recognized in the financial statements only whererecognize a liability when we believe that a liability will beloss is probable and for which the amountsamount of loss can be reasonably be estimated, based upon the facts known prior toinformation available before the issuance of the financial statements.
ProvisionsSegment reporting
A provisionsegment is recognizeda distinguishable component of the business that is engaged in business activities from which we earn revenues and incur expenses whose operating results are regularly reviewed by the chief operating decision maker ("CODM") (our Board of Directors), and which are subject to risks and rewards that are different from those of other segments. We have identified two reportable segments: Dayrate and Integrated Well Services ("IWS"). Effective August 4, 2021, we have one reportable segment, Dayrate, following the sale of the Company's 49% interest in each Opex and Akal, representing the Company's disposal of the IWS operating segment (see Note 7 - Equity Method Investments).
Note 3 - Recently Issued Accounting Standards
Adoption of new accounting standards
In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments in this Update improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of, and after, a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. These amendments are effective for the Company from January 1, 2023. There was no impact resulting from these amendments on our Audited Consolidated Financial Statements or related disclosures.
In March 2022, the FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. The amendments clarify the accounting for, and promote consistency in, the Consolidated Balance Sheetsreporting of hedge basis adjustments applicable to both a single hedged layer and multiple hedged layers as follows: 1) An entity is required to maintain basis adjustments in an existing hedge on a closed portfolio basis (that is, not allocated to individual assets). 2) An entity is required to immediately recognize and present the basis adjustment associated with the amount of the de-designated layer that was breached in interest income. In addition, an entity is required to disclose that amount and the circumstances that led to the breach. 3) An entity is required to disclose the total amount of the basis adjustments in existing hedges as a reconciling amount if other areas of GAAP require the disaggregated disclosure of the amortized cost basis of assets included in the closed portfolio. 4) An entity is prohibited from considering basis adjustments in an existing hedge when determining credit losses. These amendments are effective for the Company has a present legalfrom January 1, 2023. There was no impact resulting from these amendments on our Audited Consolidated Financial Statements or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Contingencies
We disclose contingencies where we have a present legal or constructive obligation as a result of a past event, and it is not probable that an outflow of economic benefits will be required to settle the obligation and/or a reliable estimate of the amount cannot be made. If, and only when the timing of related cash flows is fixed or reliably determinable, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.disclosures.
Warrants (Equity-based payments to non-employees)
All non-employee stock-based transactions, in which goods or services are the consideration received in exchange for equity instruments are required to be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Adoption of new accounting standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The Company adopted this standard effective January 1, 2020 using the modified retrospective approach whereby a cumulative effect adjustment was made to retained earnings on January 1, 2020 without any retrospective application to prior periods. On adoption, the Company recognized a cumulative adjustment of $2.9 million to its retained earnings with corresponding decreases in the carrying value of trade receivables. See note 11 Expected credit losses.
In August 2018,March 2022, the FASB issued ASU No. 2018-13 – Fair Value Measurement2022-02 Financial Instruments—Credit Losses (Topic 820): Disclosure Framework –Changes to326). The amendments eliminate the Disclosure Requirementsaccounting guidance for Fair Value Measurement. This ASU modifiestroubled debt restructurings by creditors that have adopted the Current Expected Credit Losses (CECL) model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write offs for financing receivables and net investment in Topic 820leases by identifying a narrower setyear of disclosures about that topic to be required onorigination in the basis of, amongst other considerations, an evaluation of whether the expected benefits of entities providing the information justify the expected costs. Thevintage disclosures. These amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The guidance was effective onthe Company from January 1, 2020. Our adoption of this standard did not have a material effect2023. There was no impact resulting from these amendments on our Consolidated Financial Statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), to provide clarity on when transactions between entities in a collaborative arrangement should be accounted for under the new revenue standard, ASC 606. In determining whether transactions in collaborative arrangements should be accounted under the revenue standard, the ASU specifies that entities shall apply unit of account guidance to identify distinct goods or services and whether such goods and services are separately identifiable from other promises in the contract. The accounting update also precludes entities from presenting transactions with a collaborative partner which are not in scope of the new revenue standard together with revenue from contracts with customers. The accounting update is effective January 1, 2020 and the Company adopted this standard on this date. Our adoption of the accounting standard did not have a material effect on our Consolidated Financial Statements.
Issued not effective accounting standards
In August 2018, the FASB issued ASU No. 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans –General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. This amendment modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The main objective of this ASU is to remove disclosures that are no longer considered cost beneficial, clarify specific requirements of disclosures and to add disclosure requirements that are identified as relevant. The amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company believes that the adoption of this standard will not have a material effect on the Consolidated Financial Statements and related disclosures.
In December 2019 FASB issued ASU No. 2019-12 Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The amendments removes certain exceptions previously available and provides some additional calculation rules to help simplify the accounting for income taxes. The amendments are effective for fiscal years ending after December 15, 2020, with early adoption permitted. This amendment will have no material impact on ourAudited Consolidated Financial Statements or related disclosures, including retained earnings.disclosures.
In March 2020 and January 2021,September 2022, the FASB issued ASU No. 2020-04 and ASU 2021-01 in relation to Reference Rate Reform (Topic 848)2022-04 Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The amendments provide temporary optional expedientsrequire that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and exceptionspotential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs. These amendments are effective for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The applicable expedients for us are in relation to modifications of contracts within the scope of Topics 310, Receivables 470, Debt, and 842,Leases. This optional guidance may be applied prospectivelyCompany from any date beginning March 12, 2020 and cannot be applied to contract modifications that occur after December 31, 2022. We are in the process of evaluating theJanuary 1, 2023. There was no impact of this standard updateresulting from these amendments on our Audited Consolidated Financial Statements andor related disclosures.
Accounting pronouncements that have been issued but not yet adopted
| | | | | | | | | | | |
| Standard | Description | Date of Adoption | Effect on our Consolidated Financial Statements or Other Significant Matters |
| ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions | The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and require the following disclosures for equity securities subject to contractual sale restrictions:
1. The fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet
2. The nature and remaining duration of the restriction(s)
3. The circumstances that could cause a lapse in the restriction(s). | January 1, 2024 | No material impact expected |
| ASU 2023-01 Leases (Topic 842): Common Control Arrangements | The amendments provide a practical expedient for private companies and not-for-profit entities that are not conduit bond obligors to use the written terms and conditions of a common control arrangement to determine whether a lease exists and, if so, the classification of and accounting for that lease. If no written terms and conditions exist (including in situations in which an entity does not document existing unwritten terms and conditions in writing upon transition to the practical expedient), an entity is prohibited from applying the practical expedient and must evaluate the enforceable terms and conditions to apply Topic 842.
Also, the amendments require that leasehold improvements associated with common control leases be:
1. Amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease. However, if the lessor obtained the right to control the use of the underlying asset through a lease with another entity not within the same common control group, the amortization period may not exceed the amortization period of the common control group.
2. Accounted for as a transfer between entities under common control through an adjustment to equity (or net assets for not-for-profit entities) if, and when, the lessee no longer controls the use of the underlying asset.
Additionally, those leasehold improvements are subject to the impairment guidance in Topic 360, Property, Plant, and Equipment. | January 1, 2024 | No material impact expected |
| ASU 2023-02 Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force) | The amendments permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). | January 1, 2024 | No material impact expected |
| | | | | | | | | | | |
| ASU 2023-05 Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement | The amendments in this Update address the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The objectives of the amendments are to:
(1) provide decision-useful information to investors and other allocators of capital (collectively, investors) in a joint venture’s financial statements; and
(2) reduce diversity in practice.
To reduce diversity in practice and provide decision-useful information to a joint venture’s investors, the Board decided to require that a joint venture apply a new basis of accounting upon formation, resulting in a joint venture, upon formation, being required to recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). | January 1, 2025 | Under evaluation |
| ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | The amendments in this Update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this Update:
1. Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.
2. Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition.
3. Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods.
4. Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.
5. Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
6. Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this Update and all existing segment disclosures in Topic 280.
| January 1, 2024 | No material impact expected |
| ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures | The amendments in this Update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate). A public business entity is required to provide an explanation, if not otherwise evident, of the individual reconciling items disclosed, such as the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items.
The other amendments in this Update improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that no longer are considered cost beneficial or relevant.
| January 1, 2025 | Under evaluation |
The FASB have issued several further updates not included above. We do not currently expect any of these updates to affecthave a material impact on our Audited Consolidated Financial StatementsStatements and related disclosures either on transition or in future periods.
Note 4 - Segments
During the years ended December 31, 2023 and December 31, 2022, we had a single reportable segment: our operations performed under our dayrate model (which includes rig charters and ancillary services). During the year ended December 31, 2021, we had two operating segments: operations performed under our dayrate model (which includes rig charters and ancillary services) and operations performed under the Integrated Well Services ("IWS") model. IWS operations were performed by our joint venture entities Opex and Akal.
On August 4, 2021, the Company executed a Stock Purchase Agreement for the sale of the Company's 49% interest in each of Opex and Akal, representing the Company's disposal of the IWS operating segment (see Note 7 - Equity Method Investments).
Our Chief Operating Decision Maker (our Board of Directors) reviews financial information provided as an aggregate sum of assets, liabilities and activities that exist to generate cash flows, by our operating segments.
The following presents information by segment for the year ended December 31, 2023:
| | | | | | | | | | | |
| (In $ millions) | Dayrate | Reconciling items(2) | Consolidated total |
| Dayrate revenue | 954.2 | (312.2) | 642.0 |
| Related party revenue | — | 129.6 | 129.6 |
| Gain on disposals | — | 0.6 | 0.6 |
| Rig operating and maintenance expenses | (665.2) | 305.9 | (359.3) |
| Depreciation of non-current assets | (115.5) | (1.9) | (117.4) |
| | | |
| General and administrative expenses | — | (45.1) | (45.1) |
| Income from equity method investments | — | 4.9 | 4.9 |
| Operating income including equity method investment | 173.5 | 81.8 | 255.3 |
| | | |
| Total assets | 3,401.0 | (320.9) | 3,080.1 |
The following presents information by segment for the year ended December 31, 2022:
| | | | | | | | | | | |
| (In $ millions) | Dayrate | Reconciling items(2) | Consolidated total |
| Dayrate revenue | 600.0 | (241.3) | 358.7 |
| Related party revenue | — | 85.1 | 85.1 |
| Gain on disposals | — | 4.2 | 4.2 |
| Rig operating and maintenance expenses | (501.2) | 236.3 | (264.9) |
| Depreciation of non-current assets | (114.9) | (1.6) | (116.5) |
| Impairment of non-current assets | (131.7) | — | (131.7) |
| General and administrative expenses | — | (36.8) | (36.8) |
| Income from equity method investments | — | 1.2 | 1.2 |
| Operating (loss)/income including equity method investment | (147.8) | 47.1 | (100.7) |
| | | |
| Total assets | 3,287.9 | (286.2) | 3,001.7 |
The following presents information by segment for the year ended December 31, 2021:
| | | | | | | | | | | | | | |
| (In $ millions) | Dayrate | IWS (1) | Reconciling items(2) | Consolidated total |
| Dayrate revenue | 205.8 | 301.6 | (301.6) | 205.8 |
| Related party revenue | 39.5 | — | — | 39.5 |
| Intersegment revenue | 88.5 | — | (88.5) | — |
| Gain on disposals | — | — | 1.2 | 1.2 |
| Rig operating and maintenance expenses | (339.7) | (186.3) | 345.5 | (180.5) |
| Intersegment expenses | — | (88.5) | 88.5 | — |
| Depreciation of non-current assets | (117.6) | — | (2.0) | (119.6) |
| | | | |
| General and administrative expenses | — | — | (34.7) | (34.7) |
| Income from equity method investments | — | — | 16.1 | 16.1 |
| Operating (loss)/income including equity method investment | (123.5) | 26.8 | 24.5 | (72.2) |
| | | | |
| Total assets | 3,277.6 | — | (197.3) | 3,080.3 |
(1) Financial information presented for the IWS operating segment covers the period up to disposal, on August 4, 2021.
(2) General and administrative expenses and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income/(loss) and are included in "Reconciling items". The full operating results included above for our equity method investments are not included within our consolidated results and thus are deducted under "Reconciling items" and replaced with our Income/(loss) from equity method investments (see Note 7 - Equity Method Investments).
Geographic data
Revenues are attributed to geographical location based on the country of operations for drilling activities, and thus the country where the revenues are generated.
The following presents our revenues by geographic area:
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| South East Asia | 233.0 | | 154.5 | | 99.5 | |
| Mexico | 191.2 | | 95.9 | | 39.5 | |
| West Africa | 168.6 | | 106.9 | | 30.7 | |
| Middle East | 147.8 | | 37.7 | | — | |
| Europe | 31.0 | | 48.8 | | 75.6 | |
| Total | 771.6 | | 443.8 | | 245.3 | |
The following presents the net book value of our jack-up rigs by geographic area(1):
| | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Mexico | 815.4 | | 675.5 | |
| South East Asia | 673.4 | | 832.5 | |
| Middle East | 553.0 | | 481.2 | |
| West Africa | 444.8 | | 507.0 | |
| Europe | 91.7 | | 92.9 | |
| Total | 2,578.3 | | 2,589.1 | |
(1) The fixed assets referred to in the table above exclude assets under construction. Asset locations at the end of a period are not necessarily indicative of the geographical distribution of the revenue or operating profits generated by such assets during the associated periods.
Major customers
The following customers accounted for more than 10% of our dayrate revenues:
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In % of operating revenues) | 2023 | 2022 | 2021 |
| Perfomex | 17 | % | 14 | % | 11 | % |
| Saudi Arabian Oil Company | 14 | % | 4 | % | — | % |
| Eni Congo S.A. | 14 | % | 10 | % | — | % |
| PTT Exploration and Production Public Company Limited | 5 | % | 11 | % | 24 | % |
| CNOOC Petroleum Europe Limited | — | % | — | % | 16 | % |
| Total | 50 | % | 39 | % | 51 | % |
Note 3 - Equity method investments
During 2019 we entered into a joint venture ("JV") with Proyectos Globales de Energia y Servicos CME, S.A. DE C.V. (“CME”) to provide integrated well services to Petróleos Mexicanos (“PEMEX”). This involved Borr Mexico Ventures Limited (“BMV”) subscribing for 49% of the equity of Opex and Akal. CME’s wholly owned subsidiary, Operadora Productora y Exploradora Mexicana, S.A. de C.V. (“Operadora”) owns 51% of each of Opex and Akal.
We provide 5 jack-up rigs on bareboat charters to 2 other joint venture companies, Perfomex and Perfomex II, which are owned in the same proportion as Opex and Akal. Perfomex and Perfomex II provide the jack-up rigs under traditional dayrate drilling and technical service agreements to Opex and Akal. Opex and Akal also contract technical support services from BMV, management services from Operadora and well services from specialist well service contractors (including an affiliate of one of our former principal shareholders Schlumberger Limited) and logistics and administration services from Logística y Operaciones OTM, S.A. de C.V, an affiliate of CME. This structure enables Opex and Akal to provide bundled integrated well services to PEMEX. The potential revenue earned is fixed under each of the PEMEX contracts, while Opex and Akal manage the drilling services and related costs on a per well basis. We are also obligated, as a 49% shareholder, to fund any capital shortfall in Opex or Akal where the Board of Opex or Akal make a cash call to the shareholders under the provisions of the Shareholder Agreements.
The below tables sets forth the results from these entities, on a 100% basis, for the year ended December 31, 2020 and for the period from date of incorporation to December 31, 2019, and their financial position as at December 31, 2020 and December 31, 2019. Opex and Perfomex were incorporated on June 28, 2019, while Akal and Perfomex II were incorporated in the fourth quarter of 2019.
| | | | | | | | | | | | | | |
| Year ended 31 December 2020 |
| In $ millions | Perfomex | Opex | Akal | Perfomex II |
| | | | |
| Revenue | 134.4 | 263.8 | 122.4 | 45.2 |
| Operating expenses | (121.4) | (223.9) | (123.6) | (45.6) |
| Net income (loss) | 11.8 | 10.7 | (3.4) | 0.2 |
| | | | | | | | | | | | | | |
| 5 months Period ended 31 December 2019 |
| In $ millions | Perfomex | Opex | Akal | Perfomex II |
| | | | |
| Revenue | 49.8 | 68.1 | 0 | 0 |
| Operating expenses | 47.4 | 85.7 | 0 | 0 |
| Net income (loss) | 1.5 | (19.8) | 0 | 0 |
Revenue in Opex and Akal is recognized on a percentage of completion basis under the cost input method. The services Opex and Akal deliver are to a single customer, PEMEX, and involves delivering integrated well services with payment upon the completion of each well in the contract. Revenue in Perfomex and Perfomex II is recognized on a day rate basis on a contract with Opex and Akal, consistent with our historical revenue recognition policies, with day rate accruing each day as the service is performed. We provide rigs and services to Perfomex and Perfomex II for use in their contracts with Opex and Akal, respectively. As of December 31, 2020, $58.3 million of the receivables from PEMEX were overdue of a total of $97.6 million billed and $172.0 million of receivables were unbilled. Although management believe the amount currently outstanding is recoverable, the receipt of these funds are critical to the financial performance of the joint ventures and the cash flow of the Company.
One of our Mexican JVs has agreed terms for a factoring agreement with an international financing entity which allows for $50 million to $150 million of receivables in the JVs to be factored, with a variable rate of interest on balances outstanding until collection. At the balance sheet date, no amounts had been factored under this facility. Factoring proceeds will be used in part to
repay suppliers of the joint venture, including Borr Drilling. The joint venture recognized a provision of $6.3 million in 2020 to reflect the potential effect of the factoring, representing the midpoint of the cost of the factoring and an amount of $50 million being factored.
Summarized balance sheets, on a 100% basis of the Company's equity method investees are shown below.
| | | | | | | | | | | | | | |
| As at December 31, 2020 |
| Perfomex | OPEX | Akal | Perfomex II |
| In $ millions | | | | |
| Cash | 0.8 | 0.2 | 3.7 | 0.4 |
| Total current assets | 152.6 | 220.0 | 116.5 | 41.1 |
| Total non-current assets | 1.8 | 0 | 0 | 1.7 |
| Total assets | 154.4 | 220.0 | 116.5 | 42.8 |
| Total current liabilities | 140.4 | 207.8 | 117.6 | 42.8 |
| Total non-current liabilities | 0.7 | 21.3 | 2.3 | 0 |
| Equity | 13.3 | (9.1) | (3.4) | 0 |
| Total liabilities and equity | 154.4 | 220.0 | 116.5 | 42.8 |
| | | | | | | | | | | | | | |
| As at December 31, 2019 |
| In $ millions | Perfomex | OPEX | Akal | Perfomex II |
| Cash | 0.3 | 0 | 0 | 0 |
| Total current assets | 77.1 | 81.3 | 0 | 0 |
| Total non-current assets | 0.9 | 0 | 0 | 0 |
| Total assets | 78.0 | 81.3 | 0 | 0 |
| Total current liabilities | 76.5 | 101.1 | 0 | 0 |
| Total non-current liabilities | 0 | 0 | 0 | 0 |
| Equity | 1.5 | (19.8) | 0 | 0 |
| Total liabilities and equity | 78.0 | 81.3 | 0 | 0 |
We have issued a performance guarantee to Opex for the duration of its contract with PEMEX. We have performed a valuation exercise to fair value the guarantee given, utilizing the inferred debt market method and subsequently mapping to an alpha category credit score, adjusting for country risk and default probability. We have subsequently recognized a liability for $5.9 million within other long-term liabilities and added the $5.9 million to the investment in the Opex joint venture in the Consolidated Balance Sheet.
The following present our investments in equity method investments as at December 31, 2020 and December 31, 2019:
| | | | | | | | | | | | | | | | | | | | |
| In $ millions | Perfomex | Opex | Akal | Perfomex II | | Total |
| Balance at 1 January 2019 | 0.0 | 0.0 | 0.0 | 0.0 | | 0.0 |
| Funding provided by shareholder loan | 30.7 | 0.1 | 0.0 | 0.0 | | 30.8 |
| Net gain (loss) 49% basis | 0.7 | (9.7) | 0.0 | 0.0 | | (9.0) |
| Guarantee provided | 0.0 | 5.9 | 0.0 | 0.0 | | 5.9 |
| Balance at 31 December 2019 | 31.4 | (3.7) | 0.0 | 0.0 | | 27.7 |
| Funding provided by shareholder loan | 10.8 | 3.6 | 1.7 | 9.4 | | 25.5 |
| Net gain (loss) 49% basis | 5.8 | 5.3 | (1.7) | 0.1 | | 9.5 |
| Balance at 31 December 2020 | 48.0 | 5.2 | 0.0 | 9.5 | | 62.7 |
All line items in the table above are included within our investments in Perfomex, Opex, Perfomex II and Akal respectively.
Note 4 - Segments
On January 1, 2020, the Company identified Integrated Well Services (IWS) operations performed by our joint venture entities Opex and Akal (see note 3) as a new reportable segment as the conditions in ASU 280 were achieved, namely that our Chief Operating Decision Maker (“CODM”), which is our board of directors (the “Board”), began receiving regular operating reports for the combined entities and the other requirements for identifying a reportable segment were met. The year ended December 31, 2019 has been presented on the same basis.
A change in reportable segments requires retroactive application; however the year ended December 31, 2018, are not presented in tabular format as the formation of our joint venture entities were in 2019 and all operating loss pertains to the only segment at the time, the dayrate segment.
We have 2 operating segments: operations performed under our dayrate model (which includes rig charters and ancillary services) and operations performed under the IWS model, that are reviewed by the CODM, as an aggregated sum of assets, liabilities and activities that exist to generate cash flows.
The following presents information for the year ended December 31, 2020:
| | | | | | | | | | | | | | |
| (In $ millions) | Dayrate | IWS | Reconciling items | Consolidated total |
| Revenue | 265.2 | 386.2 | (386.2) | 265.2 |
| Related Party Revenue | 42.3 | 0 | 0 | 42.3 |
| Intersegment revenue | 179.6 | 0 | (179.6) | 0 |
| Gain on disposal | 0 | 0 | 19.0 | 19.0 |
| Rig operating and maintenance expenses | (437.4) | (167.9) | 334.9 | (270.4) |
| Intersegment expenses | 0 | (179.6) | 179.6 | 0 |
| Depreciation of non-current assets | (116.0) | 0 | (1.9) | (117.9) |
| Impairment of non-current assets | (77.1) | 0 | 0 | (77.1) |
| General and administrative expenses | 0 | 0 | (49.1) | (49.1) |
| Operating (loss)/income | (143.4) | 38.7 | (83.3) | (188.0) |
| Income from equity method investments | 0 | 0 | 9.5 | 9.5 |
| Income taxes | (18.0) | (23.6) | 25.4 | (16.2) |
| Total | (161.4) | 15.1 | (48.4) | (194.6) |
| | | | |
| Total assets | 3,368.3 | 336.5 | (533.7) | 3,171.1 |
The following presents information for the year ended December 31, 2019:
| | | | | | | | | | | | | | |
| (In $ millions) | Dayrate | IWS | Reconciling items | Consolidated total |
| Revenue | 327.6 | 68.1 | (68.1) | 327.6 |
| Related Party Revenue | 6.5 | 0 | 0 | 6.5 |
| Intersegment revenue | 49.8 | 0 | (49.8) | 0 |
| Gain on disposal | 0 | 0 | 6.4 | 6.4 |
| Rig operating and maintenance expenses | (355.3) | (35.9) | 83.3 | (307.9) |
| Intersegment expenses | 0 | (49.8) | 49.8 | 0 |
| Depreciation of non-current assets | (100.1) | 0 | (1.3) | (101.4) |
| Impairment of non-current assets | (11.4) | 0 | 0 | (11.4) |
| Amortization of acquired contract backlog | (20.2) | 0 | 0 | (20.2) |
| General and administrative expenses | 0 | 0 | (50.4) | (50.4) |
| Operating (loss)/income | (103.1) | (17.6) | (30.1) | (150.8) |
| Income from equity method investments | 0 | 0 | (9.0) | (9.0) |
| Income taxes | (11.9) | 0 | 0.7 | (11.2) |
| Total | (115.0) | (17.6) | (38.4) | (171.0) |
| | | | |
| Total assets | 3,358.0 | 81.3 | (159.3) | 3,280.0 |
General and administrative expense, depreciation expense incurred by our corporate office, interest expenses and other financial expenses, net are not allocated to our operating segments for purposes of measuring segment operating loss (income) and are included in "Reconciling Items." The full operating results included in note 3 above for our Equity Method Investments are not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our Income/(Loss) from Equity Method Investments. See "Note 3 - Equity Method Investments” for additional information on our Equity Method Investments.
The majority of the accounting policies of the segments are the same as those described in the summary of significant accounting policies with revenue and tax being the main exceptions. The Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices.
Geographic data
Revenues are attributed to geographical location based on the country or region of operations for drilling activities, i.e. the country or region where the revenues are generated. The following presents our revenues by geographic area:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Middle East | 33.0 | | | 43.2 | | | 41.1 | |
| Europe | 52.6 | | | 114.7 | | | 75.1 | |
| West Africa | 108.1 | | | 102.4 | | | 44.4 | |
| Mexico | 43.2 | | | 50.0 | | | 0 | |
| South East Asia | 70.6 | | | 23.8 | | | 4.3 | |
| Total | 307.5 | | | 334.1 | | | 164.9 | |
For the years ended December 31, 2020, 2019 and 2018, 100% of our total consolidated operating revenues was attributable to the Dayrate segment.
The following presents the net book value of our jack-up rigs, all of which are in the Dayrate segment by geographic area as of December 31, 2020 and 2019:
| | | | | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Middle East | 0 | | | 40.7 | |
| Europe | 266.4 | | | 297.3 | |
| West Africa | 587.3 | | | 646.1 | |
| South East Asia | 1,277.4 | | | 978.1 | |
| Mexico | 693.5 | | | 721.1 | |
| Total | 2,824.6 | | | 2,683.3 | |
For the years ended December 31, 2020 and 2019, all our jack-up rigs was attributable to the Dayrate segment.
Major customers
In the years ended December 31, 2020, 2019 and 2018, the following customers accounted for more than 10% of our contract revenues:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In % of operating revenues) | 2020 | | 2019 | | 2018 |
| ExxonMobil | 18 | % | | 15 | % | | 0 | % |
| National Drilling Company (ADOC) | 11 | % | | 13 | % | | 21 | % |
| Centrica North Sea Limited (Spirit Energy) | 10 | % | | 10 | % | | 10 | % |
| BW Energy Gabon S.A. | 3 | % | | 4 | % | | 13 | % |
| Total S.A | 3 | % | | 0 | % | | 13 | % |
| TAQA Bratani Limited | 1 | % | | 11 | % | | 17 | % |
| Pan American Energy | 0 | % | | 13 | % | | 0 | % |
| Total | 46 | % | | 66 | % | | 74 | % |
Note 5 - Contracts with customersCustomers
Presentation of Contract balancesAssets and Liabilities
All Contract assets are classified as current assets. Accounts receivable are recognized when
When the right to consideration becomes unconditional based uponon the contractual billing schedules.schedule, accrued revenue is recognized. At the point that accrued revenue is billed, trade accounts receivable are recognized. Payment terms on invoicedinvoice amounts are typically 30 days.
Significant changes
Deferred mobilization, demobilization and contract preparation revenue includes revenues received for rig mobilization as well as preparation and upgrade activities, in addition to demobilization revenues expected to be received upon contract commencement and other lump-sum revenues relating to the remainingfirm periods of our contracts. These revenues are allocated to the overall performance obligation contract assets balances forand recognized on a straight-line basis over the years ended December 31, 2020 and 2019 are as follows:initial term of the contracts.
| | | | | | | | | | | |
| Contract assets | As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Net balance at January 1, | 31.7 | | | 39.1 | |
| Additions to accrued revenue | 80.7 | | | 100.4 | |
| Amortization of acquired contract backlog and billing of accrued revenue | (92.1) | | | (107.8) | |
| Total contract assets | 20.3 | | | 31.7 | |
The following presents our contract assets and liabilities from our contracts with customers:
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| | |
Accrued revenue (1) | 73.7 | | 57.4 | |
| Current contract assets | 73.7 | | 57.4 | |
| | |
Non-current accrued revenue (2) | 2.3 | | 3.8 | |
| Non-current contract assets | 2.3 | | 3.8 | |
| Total contract assets | 76.0 | | 61.2 | |
| | |
| Current deferred mobilization, demobilization and contract preparation revenue | (59.5) | | (57.3) | |
| Current contract liability | (59.5) | | (57.3) | |
| | |
| Non-current deferred mobilization, demobilization and contract preparation revenue | (56.6) | | (68.7) | |
| Non-current contract liability | (56.6) | | (68.7) | |
| Total contract liability | (116.1) | | (126.0) | |
(1) Accrued revenue includes $7.3 million ($0.5 million as of December 31, 2022) related to the current portion of deferred variable rate revenue, $1.2 million ($0.9 million as of December 31, 2022) related to the current portion of liquidated damages associated with a known delay in the operational start date of two of our contracts and $1.1 million ($0.7 million as of December 31, 2022) pertaining to the current portion of deferred demobilization revenue.
(2) Non-current accrued revenue includes $1.5 million ($1.5 million as of December 31, 2022) pertaining to the non-current portion of deferred demobilization revenue and $0.8 million ($2.3 million as of December 31, 2022) related to non-current portion of liquidated damages associated with a known delay in the operational start date of two of our contracts. Non-current accrued revenue is included in "Other non-current assets" in our Consolidated Balance Sheets (see Note 18 - Other Non-Current Assets).
Total movement in our contract assets and contract liabilities balances during the years ended December 31, 2023 and 2022 are as follows:
| | | | | | | | |
| (In $ millions) | Contract assets | Contract liabilities |
| Balance as of December 31, 2021 | 20.2 | | 6.4 | |
| Performance obligations satisfied during the reporting period | 55.1 | | — | |
| Amortization of revenue | — | | (22.1) | |
| Unbilled demobilization revenue | 2.2 | | — | |
| Unbilled variable rate revenue | 3.9 | | — | |
| Performance obligations to be satisfied over time | — | | 2.2 | |
| Cash received, excluding amounts recognized as revenue | — | | 139.5 | |
| Cash received against the contract asset balance | (20.2) | | — | |
| Balance as of December 31, 2022 | 61.2 | | 126.0 | |
| Performance obligations satisfied during the reporting period | 62.6 | | — | |
| Amortization of revenue | — | | (61.9) | |
| Unbilled demobilization revenue | 0.4 | | — | |
| | |
| Unbilled variable rate revenue | 11.9 | | — | |
| Performance obligations to be satisfied over time | — | | 0.4 | |
| Cash received, excluding amounts recognized as revenue | — | | 51.6 | |
| Cash received against the contract asset balance | (60.1) | | — | |
| Balance as of December 31, 2023 | 76.0 | 116.1 |
Timing of revenue
The Company derives its revenue from contracts with customers for the transfer of goods and services, from various activities performed both at a point in time and over time. The split is disclosed intime, under the table below, which is consistent with the revenue information that is disclosed for each reportable segment in note 4 above.output method.
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Over time | 246.5 | | | 307.7 | | | 157.4 | |
| Point in time | 18.7 | | | 19.9 | | | 7.5 | |
| Total | 265.2 | | | 327.6 | | | 164.9 | |
| | | | | | | | | | | |
| For the years ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Over time | 743.0 | | 418.6 | | 234.7 | |
| Point in time | 28.6 | | 25.2 | | 10.6 | |
| Total | 771.6 | | 443.8 | | 245.3 | |
Revenue on existing contract,contracts, where performance obligations are unsatisfied or partially unsatisfied at the balance sheet date, is expected to be recognized as follows:follows as at December 31, 2023:
As at December 31, 2020
| | | | | | | | | | | | | | | | | |
| For the years ending December 31, |
| (In $ millions) | 2021 | | 2022 | | 2023 onwards |
| Dayrate revenue | 209.9 | | | 17.1 | | | 0 | |
| Other revenue | 0 | | | 0 | | | 0 | |
| Total | 209.9 | | | 17.1 | | | 0 | |
As at December 31, 2019
| | For the years ending December 31, |
| For the years ending December 31, | | | For the years ending December 31, |
| (In $ millions) | (In $ millions) | 2020 | | 2021 | | 2022 onwards | (In $ millions) | 2024 | 2025 | 2026 | 2027 onwards |
| Dayrate revenue | Dayrate revenue | 230.1 | | | 87.4 | | | 18.9 | |
| Other revenue | 0 | | | 0 | | | 0 | |
Other revenue (1) | |
| Total | Total | 230.1 | | | 87.4 | | | 18.9 | |
The following table provides information about receivables,Other revenue represents lump sum revenue associated with contract assetspreparation and mobilization and is recognized ratably over the firm term of the associated contract liabilities from our contracts with customers:
| | | | | | | | | | | |
| (In $ millions) | 2020 | | 2019 |
| Current contract assets | | | |
| Accrued revenue | 20.3 | | 31.7 |
| Current contract assets | 20.3 | | 31.7 |
| Non-current contract assets | 0 | | 0 |
| Total contract assets | 20.3 | | 31.7 |
| | | |
| Current contract liability | | | |
| Current deferred mobilization and contract preparation revenue* | (2.6) | | (5.6) |
| Current contract liability | (2.6) | | (5.6) |
| Non-current contract liability | | | |
| Non-current deferred mobilization and contract preparation revenue | 0 | | 0 |
| Non-current contract liability | 0 | | 0 |
| Total contract liability | (2.6) | | (5.6) |
*Current liabilities balances are included in "Other current liabilities" in our consolidated balance sheets.
Significant changes"Dayrate revenue" in the contract assets and the contract liabilities balances during the years ended December 31, 2020 and 2019 are as follows:
| | | | | | | | |
| (In $ millions) | Contract assets | Contract liability |
| Beginning balance January 1, 2019 | 39.1 | 0.8 |
| Performance obligations satisfied during the reporting period | 31.7 | — |
| Amortization of revenue that was included in the beginning contract liability balance | — | (7.4) |
| Cash received, excluding amounts recognized as revenue | — | 12.2 |
| Cash received against the contract asset balance | (39.1) | — |
| Balance as at December 31, 2019 and January 1, 2020 | 31.7 | 5.6 |
| Performance obligations satisfied during the reporting period | 20.3 | — |
| Amortization of revenue that was included int he beginning contract liability balance | — | (15.9) |
| Cash received, excluding amounts recognized as revenue | — | 12.9 |
| Cash received against the contract asset balance | (31.7) | — |
| Balance as at December 31, 2020 | 20.3 | 2.6 |
Contract Costs
To obtain contracts with our customers, we incurDeferred mobilization and contract preparation costs relate to costs incurred to prepare a rig for contract and deliverdelivery or to mobilize a rig to the drilling location. We defer pre‑operating costs, such as contract preparation and mobilization costs, and recognize such costs on a
straight‑line basis, consistent with the general pace of activity, in rig operating and maintenance costs over the estimated firm
period of drilling.the drilling contract. Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the
demobilization process. We had $5.7 million and $19.3 million of deferred mobilization and contract preparation costs on our Consolidated Balance Sheets as at December 31, 2020 and 2019, respectively. $28.9 million of mobilization and contract preparation costs was amortized in 2020 compared with $22.6 million in 2019.
Practical expedient
We have applied the disclosure practical expedient in ASC 606-10-50-14A(b) and have not included estimated variable
consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts,period.
including dayrate revenue. The duration of our performance obligations varies by contract.
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Current deferred mobilization and contract preparation costs | 39.4 | | 38.4 | |
Non-current deferred mobilization and contract preparation costs (1) | 42.6 | | 17.1 | |
| Total deferred mobilization and contract preparation asset | 82.0 | | 55.5 | |
(1)Non-current deferred mobilization and contract preparation costs are included in "Other non-current assets" in our Consolidated Balance Sheets (see Note 18 - Other Non-Current Assets).
For the year ended December 31, 2023, total deferred mobilization and contract preparation costs increased by $26.5 million, as a result of additional deferred costs of $71.1 million primarily relating to the contract preparation and mobilization costs of the rigs "Arabia III", "Hild", "Gerd", "Ran", "Arabia I", "Arabia II" and "Saga", offset by amortization of $44.6 million.
For the year ended December 31, 2022, total deferred mobilization and contract preparation costs increased by $33.9 million, as a result of additional deferred costs of $70.6 million primarily relating to the contract preparation and mobilization costs of the rigs "Arabia I", "Arabia II", "Prospector 5", "Ran", "Saga", "Idun", "Mist, "Natt", "Gerd" and "Groa", offset by amortization of $36.7 million.
Note 6 - Gain on disposalsDisposals
We have recognized the following gains and lossesgain on disposal for the year ended December 31, 2020:2023:
| | | | | | | | | | | |
| Year Ended December 31, 2023 |
| (in $ millions) | Net proceeds | Book value on disposal | Gain on disposal |
| Rig Related Equipment | 0.6 | | — | | 0.6 | |
| Total | 0.6 | 0.0 | 0.6 |
| | | | | | | | | | | | | | | | | | | | | | | |
| (In $ millions) | Number of Rigs Sold | | Net proceeds /
recoverable
amount | | Book value
on disposals | | Gain |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total | 6 | | 33.5 | | | 14.5 | | | 19.0 | |
In first quarter of 2020 we sold | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| (in $ millions) | Net proceeds | Book value on disposal | (Loss)/gain on disposal |
Gyme (1) | 119.5 | | 119.7 | | (0.2) | |
Newbuildings (2) | 11.3 | | 7.6 | | 3.7 | |
| Rig Related Equipment | 0.7 | | — | | 0.7 | |
| Total | 131.5 | 127.3 | 4.2 |
(1) Of the “B391” resulting in a loss of $0.4 million and in the second quarter of 2020 we completed the sale “B152” and “Dhabi II” resulting in a combined gain of $12.8 million. During the third quarter we sold the MSS1 and recorded 0 gain or loss on sale, as the rig had previously been impaired to its sale value (see note 13). During the fourth quarter we sold the Atla for a recorded gain of $5.0 million after the rig had previously been written down to its fair value in the prior quarter. In addition, in the fourth quarter, we sold the Eir which had been held for sale at December 31, 2019 and recorded 0 gain or loss on sale. In 2020, a gain of $1.6 million related toproceeds from the sale of rig related equipment.
During the third quarter, we entered into a sale agreement"Gyme", $87.0 million was used to selldirectly repay the Balder for $4.5outstanding debt and back-end fee with PPL pertaining to the Gyme, and $33.0 million and received proceeds of $3.0 million in November 2020,was used to directly repay accrued interest associated with the vessel was held for sale at December 31, 2020"Gyme" and the sale was completed in February 2021 (see note 32).eight other rigs financed by PPL.
We have recognized the following gainsloss and gain on disposaldisposals for the year ended December 31, 2019:2021:
| | (In $ millions) | Number of Rigs Sold | | Net proceeds /
recoverable
amount | | Book value
on disposals | | Gain |
| | Year Ended December 31, 2021 | | | Year Ended December 31, 2021 |
| (in $ millions) | | (in $ millions) | Net proceeds | Book value on disposal | (Loss)/gain on disposal |
Balder (3) | |
| Rig Related Equipment | |
| Total | Total | 2 | | | 8.5 | | | 2.1 | | | 6.4 | | Total | 5.7 | 4.5 | 1.2 |
In May 2019 we entered into a sale agreement for(3) Of the “Baug”, “C20051” and “Eir” in May 2019. Thenet proceeds received from the sale of “Baug” and “C20051” closed in May 2019 and we recorded a gain of $3.9 million in connection with the transaction.
An impairment loss of $11.4"Balder", $3.0 million was recognized for the “Eir” in the May 2019 transaction as a result of entering into a sale agreement, which resulted in us reducing the book value to the expected sale value. As of December 31, 2019, we consider that the consideration for held for sale presentation continues to be achieved and the “Eir” is classified within jack-up drilling rigs held for sale. Included in the 2019 gain is a gain of $2.5 million related to sale of rig related equipment.
We have recognized the following gains and losses on disposal forreceived during the year ended December 31, 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In $ millions) | Number of Rigs sold | | Net proceeds /
recoverable
amount | | Book value
on disposals | | Gain |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total | 18 | | | 37.6 | | | 18.8 | | | 18.8 | |
All disposals for the years ended December 31, 2020, 2019 and 2018 are within our dayrate segment and part of our strategy to dispose of older assets.
2020.
Note 7 - Other financial expenses, netEquity Method Investments
Other financial (expenses) income, net is comprisedDuring 2019 we entered into a joint venture with Proyectos Globales de Energia y Servicos CME, S.A. DE C.V. (“CME”) to provide integrated well services to Petróleos Mexicanos (“Pemex”). This involved Borr Mexico Ventures Limited (“BMV”) subscribing to 49% of the following:equity of Opex Perforadora S.A. de C.V. (“Opex”) and Perforadora Profesional AKAL I, SA de CV (“Akal”). CME’s wholly owned subsidiary, Operadora Productora y Exploradora Mexicana, S.A. de C.V. (“Operadora”) owned 51% of each of Opex and Akal. In addition, we provided five jack-up rigs on bareboat charters to two other joint venture companies, Perfomex and Perfomex II, in which we previously held a 49% interest. Perfomex and Perfomex II provide the jack-up rigs under traditional dayrate drilling and technical services agreements to Opex and Akal.
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Foreign exchange gain (loss) | 1.5 | | | 0.7 | | | (1.1) | |
| Other financial expenses | (9.8) | | | (9.2) | | | (3.5) | |
| Expensed loan fees related to settled debt | 0 | | | (5.6) | | | 0 | |
| Loss on forward contracts (note 19) | (26.6) | | | (29.2) | | | (14.2) | |
| Realized loss on marketable debt securities (note 18) | 0 | | | (15.4) | | | 0 | |
| Realized gain on financial instruments (note 19) | 1.5 | | | 0 | | | 0 | |
| Change in fair value of Call Spread (note 19) | (2.3) | | | (0.5) | | | (25.7) | |
| Total | (35.7) | | | (59.2) | | | (44.5) | |
Note 8 - Taxation
Borr Drilling Limited isOn August 4, 2021, the Company executed a Bermuda company not required to pay taxesStock Purchase Agreement with BMV and Operadora for the sale of the Company's 49% interest in Bermuda on ordinary income or capital gains under a tax exemption granted by the Ministereach of Finance in Bermuda until March 31, 2035. We operate through various subsidiaries, affiliatesOpex and branches in numerous countries throughout the world and are subject to tax laws, policies, treaties and regulations,Akal joint ventures, as well as the interpretation or enforcement thereof,acquisition of a 2% incremental interest in jurisdictionseach of Perfomex and Perfomex II joint ventures. The acquisition was completed on the same date. The Company recognized a $3.6 million gain on disposal of Opex and Akal in which we or any"Other non-operating income" in the Consolidated Statements of our subsidiaries, affiliates and branches operate, were incorporated, or otherwise considered to have a tax presence. Our income tax expense is based upon our interpretation of the tax lawsOperations in effect in various countries at the time that the expense was incurred. For the year ended December 31, 2020, our pre-tax loss in 2020 is all attributable to foreign jurisdictions except for $76.42021, as the difference between the cash consideration received of $10.6 million loss associated with Bermuda. Forand the year ended December 31, 2019, our pre-tax loss in 2019 is all attributable to foreign jurisdictions except for $390.7 million loss associated with Bermuda. For the year ended December 31, 2018, our pre-tax loss in 2018 is all attributable to foreign jurisdictions except for$4.0 million associated with Bermuda.
Income tax expense is comprisedcarrying value of the following:equity method investments on the date of disposal of $7.0 million.
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Current tax | 15.1 | | | 9.9 | | | 2.0 | |
| Change in deferred tax | 1.1 | | | 1.3 | | | 0.5 | |
| Total | 16.2 | | | 11.2 | | | 2.5 | |
Our annual effective tax rate forEffective August 4, 2021, as we hold a 51% equity ownership in Perfomex and Perfomex II, we have assessed whether the year ended December 31, 2020 was approximately (5.37%), on a pre-tax loss of $301.4 million. Changesincreased investments in our effective tax rate from period to period are primarily attributable to changesPerfomex and Perfomex II joint ventures results in the profitability or loss mix of our operations in various jurisdictions. As our operations continually change among numerous jurisdictions,need to consolidate these entities under US GAAP. The significant judgements are whether the joint ventures are variable interest entities (VIEs) and, methods of taxation in these jurisdictions vary greatly, thereif so, whether Borr is littlethe primary beneficiary. We concluded that the joint ventures are VIEs; however, we do not have the power to direct correlation between the income tax provision/benefit and income/loss before taxes. A reconciliationdecisions which most significantly impact the economic performance of the Bermuda statutory tax ratejoint ventures. As such, we are not considered to our effective rate is shown below:
Reconciliationbe the primary beneficiary of the Bermuda statutory tax ratevariable interest entities and we continue to account for our effective rate:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Bermuda statutory income tax rate | 0 | % | | 0 | % | | 0 | % |
| Tax rates which are different from the statutory rate | (6.49 | %) | | (2.30 | %) | | (1.95) | % |
| Adjustment attributable to prior years | 0.00 | % | | 0.00 | % | | 1.17 | % |
| Change in valuation allowance | 1.57 | % | | (1.29 | %) | | (0.26) | % |
| Adjustments to uncertain tax positions | (0.45 | %) | | (0.30 | %) | | (0.28) | % |
| Total | (5.37 | %) | | (3.89 | %) | | (1.32) | % |
The components ofinterests in Perfomex and Perfomex II as equity method investments in accordance with ASC 323, Investment - Equity Method and Joint Ventures and record the net deferred taxes are as follows:
| | | | | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Deferred tax assets | | | |
| Net operating losses | 44.8 | | | 18.6 | |
| Excess of tax basis over book basis of Property, plant and equipment | 29.7 | | | 66.9 | |
| Other | 10.7 | | | 5.4 | |
| Deferred tax asset | 85.2 | | | 90.9 | |
| Less: Valuation allowance | (85.0) | | | (89.7) | |
| Net deferred tax assets | 0.2 | | | 1.3 | |
| Deferred tax liabilities | | | |
| Deferred tax liabilities | 0 | | | 0 | |
| Net deferred tax asset (liabilities) | 0.2 | | | 1.3 | |
The deferred tax assets related to our net operating losses were primarily generatedinvestments in the United Kingdom and will not expire. We recognize a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if estimates of future taxable income change.
We conduct business globally and, as a result, we file income tax returns, or are subject to withholding taxes, in various jurisdictions. In the normal course of business we are generally subject to examination by taxing authorities throughout the world, including major jurisdictions in which we operate or used to operate, such as Denmark, Egypt, Gabon, India, Israel, the Netherlands, Nigeria, Norway, Oman, Saudi Arabia, the United Kingdom, the United States, and Tanzania. We are no longer subject to examinations of tax matters for Paragon Offshore Limited (“Paragon”) legacy companies prior to 1999.
The following is a reconciliation of the liabilities related to our uncertain tax positions:
| | | | | | | | | | | |
| (In $ millions) | 2020 | | 2019 |
| Unrecognized tax benefits, excluding interest and penalties, at January 1, | 5.3 | | | 4.8 | |
| Additions as a result of Paragon acquisition | 0 | | | 0 | |
| Additions for tax positions of prior year | 0.9 | | | 1.3 | |
| Reduction for tax positions of prior years | 0 | | | (0.8) | |
| Unrecognized tax benefits, excluding interest and penalties, at December 31, | 6.2 | | | 5.3 | |
| Interest and penalties | 4.2 | | | 3.7 | |
| Unrecognized tax benefits, including interest and penalties, at December 31, | 10.4 | | | 9.0 | |
The liabilities summarized in the table above are presented within other liabilities under non-current liabilities"Equity method investments" in the Consolidated Balance Sheets.
We include, asEffective October 20, 2022, all five jack-up rigs were provided to Perfomex on bareboat charters, thereby consolidating activities into Perfomex, for Perfomex's provision of traditional dayrate drilling and technical services to Opex. Effective from this date, Perfomex II continued to provide technical services to Opex, in addition to rig management services to external parties.
The below tables set forth the summarized results from these entities on a component of our income tax provision, potential interest and penalties related to liabilities for our unrecognized tax benefits within our global operations. Interest and penalties resulted in an income tax expense of $0.5 million, $0.3 million and $0.5 million100% basis for the years ended December 31, 2020, 20192023, 2022 and 2018, respectively.2021:
As of December 31, 2020, the liabilities related to our unrecognized tax benefits, including estimated accrued interest and penalties, totaled $10.4 million, and if recognized, would reduce our income tax provision by $10.4 million. As of December 31, 2019, the liabilities related to our unrecognized tax benefits, including estimated accrued interest and penalties, totaled $9.0 million, and if recognized, would reduce our income tax provision by $9.0 million. It is reasonably possible that our existing liabilities related to our unrecognized tax benefits may increase or decrease in the next twelve months primarily due to the progression of open audits or the expiration of statutes of limitation. Whilst the amounts provided are an estimate and subject to revision, we are not aware of any circumstances currently that would result in a material increase to the amounts provided for the risks identified at this time. | | | | | | | | |
| Year ended December 31, 2023 |
| In $ millions | Perfomex | Perfomex II |
| Revenue | 290.9 | 21.3 |
| Operating expenses | (284.9) | (21.0) |
| Net income | 3.8 | 5.7 |
| | | | | | | | | | |
| Year ended December 31, 2022 | |
| In $ millions | Perfomex | Perfomex II | | |
| Revenue | 157.9 | 83.4 | | |
| Operating expenses | (154.6) | (81.7) | | |
| Net income | — | 2.4 | | |
Note 9 - Loss per share | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | Period from January 1, 2021 to August 4, 2021 |
| In $ millions | Perfomex | Perfomex II | Opex | Akal |
| Revenue | 110.1 | 61.9 | 199.4 | 102.2 |
| Operating expenses | (105.0) | (54.2) | (167.7) | (107.1) |
| Net income (loss) | 1.0 | 5.1 | 30.9 | (1.7) |
The computation of basic EPS is based on the weighted average number of shares outstanding during the period.
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Basic loss per share | (2.11) | | | (2.78) | | | (1.85) | |
| Diluted loss per share | (2.11) | | | (2.78) | | | (1.85) | |
| Issued ordinary shares at the end of the year | 220,318,704 | | | 112,278,065 | | | 106,528,065 | |
| Weighted average number of shares outstanding during the year | 150,354,703 | | | 107,478,625 | | | 102,877,501 | |
| | | | | |
| Diluted EPS exclude the effect of the assumed conversion of potentially dilutive instruments, which are: | | |
| | | | | |
| 2020 | | 2019 | | 2018 |
| Convertible bonds | 10,679,099 | | | 10,453,534 | | | 10,453,534 | |
| Share options | 1,770,000 | | | 2,357,500 | | | 2,615,000 | |
| The number of share options that would be considered dilutive under the "if converted" method | 0 | | | 0 | | | 153,457 | |
Due to the current loss-making position dilutive instruments are deemed to have an anti-dilutive effect on the EPS of the Company. As of December 31, 2020, the conversion price2023, Perfomex and Perfomex II had $164.9 million of our convertible bondsreceivables from Opex and Akal, of which $131.7 million was $32.7743.outstanding and $33.2 million was unbilled. As of December 31, 2022, Perfomex and Perfomex II had $113.9 million of receivables from Opex and Akal, of which $105.1 million was outstanding and $8.8 million was unbilled.
All periods presented have been adjusted for our 5 for 1 reverse share splitAs of August 4, 2021, Opex and Akal had $237.1 million in June 2019.receivables from Pemex, of which $113.7 million were outstanding and $123.4 million were unbilled.
Note 10 - Restricted cash
Restricted cash is comprisedSummarized balance sheets, on a 100% basis of the following:
| | | | | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Opening balance | 69.4 | | | 63.4 | |
| Transfers to/(from) restricted cash | (69.4) | | | 6.0 | |
| Total restricted cash | 0 | | | 69.4 | |
Restricted cash is classifiedCompany's equity method investees are as a current asset and consists of margin accounts which have been pledged as collateral in relation to forward contracts and bank deposits which have been pledged as collateral for issued guarantees. During 2020, all restricted cash was utilized to take delivery of our forward contracts (note 19).follows:
| | | | | | | | |
| As at December 31, 2023 |
| In $ millions | Perfomex | Perfomex II |
| Cash | 11.4 | 0.5 |
| Total current assets | 271.4 | 35.1 |
| Total non-current assets | 12.3 | 2.1 |
| Total assets | 283.7 | 37.2 |
| Total current liabilities | 257.2 | 23.8 |
| Total non-current liabilities | 8.3 | 0.2 |
| Equity | 18.2 | 13.2 |
| Total liabilities and equity | 283.7 | 37.2 |
| | | | | | | | |
| As at December 31, 2022 |
| In $ millions | Perfomex | Perfomex II |
| Cash | 13.2 | 6.6 |
| Total current assets | 198.0 | 54.8 |
| Total non-current assets | 28.6 | 4.8 |
| Total assets | 226.6 | 59.6 |
| Total current liabilities | 191.6 | 51.6 |
| Total non-current liabilities | 20.6 | 0.5 |
| Equity | 14.4 | 7.5 |
| Total liabilities and equity | 226.6 | 59.6 |
The following presents our investments in equity method investments as at December 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| In $ millions | Perfomex | Perfomex II | Total |
| | | |
| | | |
| | | |
| | | |
| Balance as of January 1, 2022 | 16.9 | 2.5 | 19.4 |
| | | |
| Income / (loss) on a percentage basis | — | 1.2 | 1.2 |
| | | |
| | | |
| Balance as of December 31, 2022 | 16.9 | 3.7 | 20.6 |
Funding received from shareholder loan (1) | (9.8) | — | (9.8) |
| Income on a percentage basis | 2.0 | 2.9 | 4.9 |
| Balance as of December 31, 2023 | 9.1 | 6.6 | 15.7 |
(1) During the year ended December 31, 2023, $9.8 millionfunding provided by shareholders loans was repaid by Perfomex, settling the outstanding balance.
Note 8 - Interest expense
Interest expense is comprised of the following:
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Debt interest expense | (157.4) | | (125.4) | | (92.9) | |
Loss on debt extinguishment (1) | (19.4) | | (7.8) | | — | |
| Amortization of deferred finance charges | (10.3) | | (7.9) | | (6.5) | |
| Amortization of debt discount | (1.0) | | — | | — | |
Gain on debt extinguishment (2) | 10.9 | | 1.9 | | — | |
| Total | (177.2) | | (139.2) | | (99.4) | |
(1) Loss on debt extinguishment for the year ended December 31, 2023 relates to the $15.5 million loss associated with the repayment of the $150m Secured Bonds and the $3.9 million loss associated with the repayment of the Hayfin Debt Facility. Loss on debt extinguishment for the year ended December 31, 2022 relates to the $2.9 million loss associated with the refinancing of the Hayfin Debt Facility and the $4.9 million loss on the repayment of the Syndicated Senior Secured Credit Facilities and New Bridge Facility, of which DNB Bank was one of the lenders of the syndicate.
(2) Gain on debt extinguishment for the year ended December 31, 2023 relates to the $7.2 million gain associated with the repayment of the Seatrium Delivery Financing Facility, the $2.8 million gain associated with the repayment of the New DNB Facility and the $0.9 million gain associated with the repayment of the PPL Delivery Financing Facility. Gain on debt extinguishment for the year ended December 31, 2022 relates to the gain on extinguishment of the debt associated with the jack-up rig "Gyme". Upon sale of the rig, part of the proceeds were used to repay the outstanding amount under its facility, which was financed by PPL.
Note 11 - Expected credit losses
Set forth below is the allowance for expected credit losses as at December 31, 2020:
| | | | | | | | | | | | | | | | | |
| Trade Receivables | | Other Current Assets | | Total |
| (In $ millions) | | | | | |
| Adoption of ASU 2016-13 - Measurement of credit losses | | | | | |
| Expected credit losses at the start of the period | 1.0 | | | 1.9 | | | 2.9 | |
| Current-period provision for expected credit losses | 1.2 | | | 0 | | | 1.2 | |
| Recoveries collected | (1.0) | | | 0 | | | (1.0) | |
| Total | 1.2 | | | 1.9 | | | 3.1 | |
Upon adoption of ASU 2016-30, Current Expected Credit Losses, we recorded $2.9 million to retained earnings relating to an initial estimated allowance for contract losses, encompassing two customers. New provisions and recoveries of previous provisions are recorded in rig operating and maintenance expenses as and when they occur.
Note 129 - Other current assetsFinancial Expenses, net
Other current assets arefinancial expenses, net is comprised of the following:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Client rechargeable | 4.2 | | | 5.6 | |
| VAT and other tax receivables | 3.7 | | | 12.2 | |
| Deferred financing fee | 1.5 | | | 2.4 | |
| Right-of-use lease asset | 0.3 | | | 0.5 | |
| Other receivables | 6.7 | | | 6.2 | |
| Total other current assets | 16.4 | | | 26.9 | |
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Yard cost cover expense | (22.1) | | (28.2) | | (12.8) | |
| Foreign exchange loss | (2.8) | | (0.9) | | (2.8) | |
Bank commitment, guarantee and other fees (1) | (2.3) | | (12.7) | | (4.2) | |
| Other financial income / (expenses) | 0.3 | | (0.1) | | 4.5 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | (26.9) | | (41.9) | | (15.3) | |
Note 13 - Jack-up rigs
Set forth below is the carrying value of our jack-up rigs:
| | | | | | | | | | | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Opening balance | 2,683.3 | | | 2,278.1 | | | 783.3 | |
| Additions | 37.4 | | | 100.5 | | | 307.5 | |
| Transfers from newbuildings (note 14) | 312.7 | | | 420.9 | | | 1,275.7 | |
| Depreciation | (116.0) | | | (99.7) | | | (69.6) | |
| Disposals (note 6) | (6.5) | | | (2.1) | | | (18.8) | |
| Reclassification to asset held for sale | (9.2) | | | (3.0) | | | 0 | |
| Impairment | (77.1) | | | (11.4) | | | 0 | |
| Total jack-up rigs | 2,824.6 | | | 2,683.3 | | | 2,278.1 | |
In addition, the Company recorded a depreciation charge of $1.9 Bank commitment, guarantee and other fees include $10.7 million in financing fees for the full year ended December 31, 2020 related to property, plant2022 (nil for the years ended December 31, 2023 and equipment ($1.7 million in 2019 and $9.9 million in 2018)December 31, 2021).
Disposals
For detailsAmortization of disposals see note 6. All disposals are within our dayrate segment and part of our strategy to dispose of older assets.
Impairment assessment of jack-up rigs
Jack-up drilling rigs are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Management identified indications of impairmentdeferred finance charges for the years ended December 31, 2020, 20192022 and 2018December 31, 2021, of $7.9 million and tested recoverable amounts$6.5 million, respectively, have been presented in Interest expense in the Consolidated Statements of jack-up drilling rigs.Operations, to conform to the current period's presentation. See Note 8 - Interest expense.
Note 10 - Taxation
Borr Drilling Limited is a Bermuda company not currently required to pay taxes in Bermuda on ordinary income or capital gains under a tax exemption granted by the Minister of Finance in Bermuda until March 31, 2035. However, the Bermuda Corporate Income Tax Act was enacted on December 27, 2023 and will apply from January 1, 2025, as discussed below. We assess recoverabilityoperate through various subsidiaries, affiliates and branches in numerous countries throughout the world and are subject to tax laws, policies, treaties and regulations, as well as the interpretation or enforcement thereof, in jurisdictions in which we or any of our subsidiaries, affiliates and branches operate, were incorporated, or otherwise considered to have a tax presence. Our income tax expense is based upon our interpretation of the carrying value of an asset by estimatingtax laws in effect in various countries at the undiscounted future net cash flows expected to result fromtime that the asset, including eventual disposal. If the undiscounted future net cash flows are less than the carrying valueexpense was incurred.
Total pre-tax income / (loss) is comprised of the asset, an impairment lossfollowing by jurisdiction:
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Bermuda | (92.2) | | (44.1) | | (68.1) | |
| Foreign | 148.3 | | (230.3) | | (115.2) | |
| Total | 56.1 | | (274.4) | | (183.3) | |
All income tax expense is recorded equalattributable to the difference between the asset’s carrying valueforeign jurisdictions and fair value. Estimating future cash flows requires management to make judgments regarding long-term forecasts of future revenues and costs. Significant changes to these assumptions could materially alter our calculations and may lead to impairment.
In estimating future cash flowsis comprised of the jack-up rigs, management has assumed that revenue levels and utilization will be at lower levels in 2021 and thereafter start to increase, ultimately reaching revenue levels and utilization in the lower quartile observed in the jack-up market in the last 10 years.following:
The Company recognized impairment losses | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Current tax expense | 50.5 | | 20.5 | | 10.2 | |
| Change in deferred tax | (16.5) | | (2.1) | | (0.5) | |
| Total | 34.0 | | 18.4 | | 9.7 | |
Our annual effective tax rate for the yearsyear ended December 31, 2020, 2019 and 2018, as follows:
| | | | | | | | | | | | | | | | | | |
| (In $ millions) | 2020 | | 2019 | | 2018 | |
| MSS1 | 18.4 | | | 0 | | | 0 | | |
| Atla and Balder | 58.7 | | | 0 | | | 0 | | |
| Eir | 0 | | | 11.4 | | | 0 | | |
| Total | 77.1 | | | 11.4 | | | 0 | | |
MSS1
The impairment loss2023 was recognizedapproximately 60.61%, on a pre-tax income of $56.1 million. Changes in our effective tax rate from period to period are primarily attributable to changes in the first quarterprofitability or loss mix of 2020 asour operations in various jurisdictions. As our operations continually change among numerous jurisdictions, and methods of taxation in these jurisdictions vary greatly, there is minimal direct correlation between the income tax provision / benefit and income / (loss) before taxes. The year ended December 31, 2023 was also impacted by the release of a result of entering intovaluation allowance against certain deferred tax assets in the U.K., and a sale agreement, which resulteddecrease in us reducing the book value to the expected sale value.
Atla and Balder
During the first half of 2020, the coronavirus global pandemic and the response thereto negatively impacted the macro-economic environment and global economy. Global oil demand has fallen sharply at the same time global oil supply has increased as a result of certain oil producers competingliability for market share, leading to a supply glut. As a consequence, Brent fell from around $68 per barrel at year-end 2019 to a low point of $19 on April 21, 2020. In response to significantly reduced oil price expectationsunrecognized tax positions for the near term, oil and gas companies reviewed and in most cases lowered significantly, their capital expenditure plans in lightexpiration of revised pricing expectations. As a result, we concluded that a triggering event had occurred as at June 30, 2020 and we performed a fleet-wide impairment assessment. We determined thatstatute of limitations.
A reconciliation of the Bermuda statutory tax rate to our estimated undiscounted cash flows were insufficient to recover the carrying value for two of our cold stacked rigs, "Atla" and "Balder". We measured the fair value of these assets to be $10.0 million as of June 30, 2020 by applying a combination of an income approach, using projected undiscounted cash flows and estimated sale or scrap value. These valuations were based on unobservable inputs that require significant judgments for which thereeffective rate is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements. resulting in an impairment loss of $57.9 million which was recorded in the second quarter of 2020.shown below:
In the third quarter of 2020, a further impairment loss of $0.8 million was recognized for the "Balder", when the rig was reclassified to held for sale. This impairment charge was a result of an estimated net sale price below carrying value at September 30, 2020. No other impairment indicators were identified during the fourth quarter. | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2023 | 2022 | 2021 |
| Bermuda statutory income tax rate | — | % | — | % | — | % |
| Tax rates which are different from the statutory rate | 101.25 | % | (7.20) | % | (6.64) | % |
| Adjustment attributable to prior years | 3.39 | % | 0.67 | % | 1.60 | % |
| Change in valuation allowance | (29.41) | % | — | % | — | % |
| Adjustments to uncertain tax positions | (14.62) | % | (0.18) | % | (0.26) | % |
| Total | 60.61 | % | (6.71) | % | (5.30) | % |
The 2019 impairmentcomponents of the net deferred taxes are as follows:
| | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Deferred tax assets | | |
| Net operating losses | 17.6 | | 17.7 | |
| Excess of tax basis over book basis of property, plant and equipment | 14.7 | | 45.0 | |
| Other | 20.6 | | 17.9 | |
| Deferred tax asset | 52.9 | | 80.6 | |
| Less: valuation allowance | (33.6) | | (77.1) | |
Net deferred tax assets (1) | 19.3 | | 3.5 | |
| Deferred tax liabilities | | |
| Deferred tax liabilities | — | | (0.7) | |
| Net deferred tax asset | 19.3 | | 2.8 | |
(1) Net deferred tax assets are recognized in "Other non-current assets" in the Consolidated Balance Sheets (see Note 18 - Other Non-Current Assets).
The deferred tax assets related to our net operating losses were primarily generated in the “Eir” which was impairedUnited Kingdom ($64.0 million net operating losses at December 31, 2023) and will not expire. We recognize a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if estimates of future taxable income change. In 2023, we reduced our valuation allowance previously recorded against the gross deferred tax assets primarily attributable to the net operating losses in the United Kingdom. Due to existing contracts as of December 31, 2023, we determined that these net operating losses would likely be utilized. The release of this valuation allowance reduced our income tax provision by $16.5 million.
We conduct business globally and, as a result, we file income tax returns, or are subject to withholding taxes, in various jurisdictions. In the normal course of entering intobusiness we are generally subject to examination by taxation authorities throughout the world, including major jurisdictions in which we operate or used to operate.
The following is a sale agreement, which resulted in us reducing the book value to the expected sale value less cost of sale.
A scenario with a 10% decrease in day rates used when estimating undiscounted cash flows would not result in a shortfall between the undiscounted cash flow and carrying amount for our jack-up drilling rigs.
Jack-up drilling rigs held for sale
| | | | | | | | | | | | | | | |
| (In $ millions) | | | 2020 | | 2019 |
| Jack-up drilling rigs held for sale | | | 4.5 | | | 3.0 | |
During the third q uarter of 2020, the "Atla" and "Balder" were reclassified as held for sale. During the fourth quarter of 2020 the salereconciliation of the Atla was completed (see note 6). The sale of the 'Balder was completed in February 2021.
As of December 31, 2019, the sale of the “Eir” was yetliabilities related to be concluded and was classified as 'Jack-up drilling rigs held for sale' within current assets. The sale of the "Eir' was completed in October 2020 (see note 6).
our uncertain tax positions:
Note 14 - Newbuildings | | | | | | | | |
| (In $ millions) | 2023 | 2022 |
| Unrecognized tax benefits, including interest and penalties, at January 1, | 11.3 | | 6.2 | |
| Additions for tax positions of prior year | 0.3 | | — | |
| Reduction in tax positions of prior years | (9.5) | | — | |
| Unrecognized tax benefits, excluding interest and penalties, at December 31, | 2.1 | | 6.2 | |
| Interest and penalties | 1.1 | | 5.1 | |
| Unrecognized tax benefits, including interest and penalties, at December 31, | 3.2 | | 11.3 | |
The liabilities summarized in the table below sets forthabove are presented within "Other non-current liabilities" in the carrying value of our newbuildings:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Balance at January 1 | 261.4 | | | 361.8 | | | 642.7 | |
| Additions | 181.8 | | | 302.0 | | | 971.4 | |
| Capitalized interest | 5.0 | | | 18.5 | | | 23.4 | |
| Transfers to jack-up rigs (note 13) | (312.7) | | | (420.9) | | | (1,275.7) | |
| Total newbuildings | 135.5 | | | 261.4 | | | 361.8 | |
The table below sets forth information regardingWe include, as a component of our rigs that were delivered during 2020, 2019income tax provision, potential interest and 2018, together with their final installmentpenalties related to liabilities for our unrecognized tax benefits within our global operations. Interest and related financing where applicable
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rig | | Delivery date | | Delivery
financing
($ million) | | Shipyard | | First
instalment
($ million) | | Onerous
contract
allocated | | Final
instalment
($ million) | | Capitalized
cost | | Transferred to
jack-up rigs |
| 2020 | | | | | | | | | | | | | | | | |
| Heimdal | | January 20 | | $ | 90.9 | | | Keppel | | $ | 57.6 | | | 0 | | | $ | 90.9 | | | $ | 8.4 | | | $ | 156.9 | |
| Hild | | April 20 | | $ | 90.9 | | | Keppel | | $ | 57.6 | | | 0 | | | $ | 90.9 | | | $ | 7.3 | | | $ | 155.8 | |
| Total | | | | | | | | 115.2 | | | 0 | | | 181.8 | | | 15.7 | | | 312.7 | |
| 2019 | | | | | | | | | | | | | | | | |
| Njord | | January -19 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 2.7 | | | 145.5 | |
| Thor | | May - 19 | | 120.0 | | | Keppel | | 0 | | | 0 | | | 122.1 | | | 0 | | | 122.1 | |
| Hermod | | December - 19 | | 90.9 | | | Keppel | | 57.6 | | | 0 | | | 90.9 | | | 4.8 | | | 153.3 | |
| Total | | | | | | | | 113.4 | | | 0 | | | 300.0 | | | 7.5 | | | 420.9 | |
| | | | | | | | | | | | | | | | |
| 2018 | | | | | | | | | | | | | | | | |
| Saga* | | January – 18 | | 0 | | | Keppel | | 100.1 | | | (38.0) | | | 72.5 | | | 0.3 | | | 134.9 | |
| Gerd | | January – 18 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 0.3 | | | 143.1 | |
| Gersemi | | February – 18 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 0.4 | | | 143.2 | |
| Grid | | April – 18 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 0.4 | | | 143.2 | |
| Gunnlod | | June – 18 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 1.5 | | | 144.3 | |
| Skald | | June – 18 | | 0 | | | Keppel | | 100.1 | | | (39.2) | | | 72.5 | | | 0.7 | | | 134.1 | |
| Groa | | July – 18 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 1.3 | | | 144.1 | |
| Gyme | | September – 18 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 1.4 | | | 144.2 | |
| Natt | | October – 18 | | 87.0 | | | PPL | | 55.8 | | | 0 | | | 87.0 | | | 1.8 | | | 144.6 | |
| Total | | | | | | | | 590.8 | | | (77.2) | | | 754.0 | | | 8.1 | | | 1,275.7 | |
*The final installmentpenalties resulted in an income tax expense of $72.5$1.1 million, $0.5 million and $0.4 million for “Saga” was paid inthe years ended December 2017, before taking delivery of31, 2023, 2022 and 2021, respectively.
For the rig in January 2018.
In June 2017, the Company paid $275.0year ended December 31, 2023, we reduced our liability for uncertain tax positions, and our income tax provision, by $9.5 million to Keppel asreflect the expiration of a second installmentstatute of the contract value for the construction of 5 new-build jack-up drilling rigs. The payment of $275.0 million made by the Company was allocated first against the relevant part of the onerous contract directly attributable to each hull (newbuild). An adjustment of $38.0 million and $39.2 million was made towards the onerous contract for Hull B364 (TBN “Saga”) and Hull B365 (TBN “Skald”), respectively. A further adjustment of $62.0 million and $60.8 million was capitalized as newbuildings milestone payments for Hull B364 (TBN “Saga”) and Hull B365 (TBN “Skald”), respectively. Of the remaining $75.0 million, $25.0 million was adjusted each towards the onerous contracts for Hull B366 (TBN “Tivar”), Hull B367 (TBN “Vale”) and Hull B368 (TBN “Var”). The remaining contracted installments aslimitations.
As of December 31, 2020, payable on delivery, for2023, the Keppel newbuilds acquired in 2017 are approximately $448.2liabilities related to our unrecognized tax benefits, including estimated accrued interest and penalties, totaled $3.2 million, (approximately $448.2and if recognized, would reduce our income tax provision by $3.2 million as. As of December 31, 2019).2022, the liabilities related to our unrecognized tax benefits, including estimated accrued interest and penalties, totaled $11.3 million, and if recognized, would reduce our income tax provision by $11.3 million. It is reasonably possible that our existing liabilities related to our unrecognized tax benefits may increase or decrease in the next twelve months primarily due to the progression of open audits or the expiration of statutes of limitation. While the amounts provided are an estimate and subject to revision, we are not aware of any circumstances currently that would result in a material increase to the amounts provided for the risks identified at this time.
In response to the Organization for Economic Co-Operation and Development (OECD) Base Erosion and Profit Shifting initiative, a 15% worldwide minimum tax implemented on a country-by-country basis has been introduced with many jurisdictions committed to a January 1, 2024, effective date. There remains a number of uncertainties around the final Pillar 2 model rules, and we are closely monitoring developments on this initiative.
Additionally, on December 27, 2023, Bermuda enacted the Corporate Income Tax Act which imposes a 15% tax on Bermuda businesses that are part of multinational enterprise (MNE) groups. The effective date of the income tax is for tax years beginning on or after January 1, 2025. We are actively monitoring the evolving developments of these regulations and evaluating their potential impact on future periods. At present, we expect that they will not have a substantial impact on our financial results in the short term.
Note 1511 - LeasesEarnings per Share
WeThe computation of basic income/(loss) per share ("EPS") is based on the weighted average number of shares outstanding during the period.
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2023 | 2022 | 2021 |
| Basic income/ (loss) per share | 0.09 | | (1.64) | | (1.43) | |
| Diluted income/ (loss) per share | 0.09 | | (1.64) | | (1.43) | |
| | | |
| Issued ordinary shares at the end of the year | 264,080,391 | | 229,263,598 | | 137,218,175 | |
| Weighted average number of shares outstanding during the year, basic | 244,270,405 | | 178,404,637 | | 134,726,336 | |
Dilutive effect of share options and RSU (1) | 3,880,209 | | — | | — | |
| Weighted average number of shares outstanding during the year, diluted | 248,150,614 | | 178,404,637 | | 134,726,336 | |
(1) Includes the impact of 8,559,698 share options and 112,780 restricted stock units using the treasury stock method.
The following potential share issuances effects of convertible bonds, share options, RSUs and performance units have operating leases expiring at various dates, principallybeen excluded from the calculation of diluted EPS for real estate, office space, storage facilities and operating equipment. For our Houston and Beverwijk office space, we have previously deemedeach of the leases as onerous leases in 2018 as a result of change in our operating strategy; it is expected that the leases will expire on March 1,years ended December 31, 2023, 2022 and February 28, 2021 respectively. For these operating leases, upon adoption (see note 2) ofbecause the new standard, we offset the right-of-use asset of the lease by the existing carrying amount of the onerous lease liability previously recorded on the date of adoption.effects were anti-dilutive.
| | | | | | | | | | | |
| 2023 | 2022 | 2021 |
| Convertible bonds | 34,260,413 | | 5,540,079 | | 5,540,079 | |
| Share options | 2,160,000 | | 9,445,006 | | 5,670,000 | |
| Performance stock units | 500,000 | | 500,000 | | — | |
| Restricted share units | — | | 88,584 | | — | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
| | As of December 31, 2020 |
| (In $ millions) | 2020 | | 2019 |
| Operating leases right-of-use assets | 1.6 | | | 2.7 | |
| Current operating lease liabilities | 3.1 | | | 3.4 | |
| Long-term operating lease liabilities | 2.9 | | | 6.5 | |
The current portionDiluted EPS for the years ended December 31, 2022 and 2021 do not include the effect of the rightassumed conversion of use assetpotentially dilutive instruments listed above, due to losses sustained in these years as this is recognized within other current assets (see note 12) and the non-current portion is recognized within other long-term assets (see note 20). The current lease liabilities are recognized within other current liabilities (see note 21) and the non-current lease liabilities are recognized within other liabilities.
| | | | | | | | | | | |
| Components of lease cost is comprised of the following: | For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 |
| Operating lease cost | 8.7 | | | 21.2 | |
| Short-term lease cost | 0 | | | 0.5 | |
| Total lease cost | 8.7 | | | 21.7 | |
| Sublease income | 1.8 | | | 0.7 | |
Note 1612 - Asset acquisitionsRestricted Cash
AcquisitionRestricted cash is comprised of Keppel’s Hull B378the following:
| | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Restricted cash relating to the issuance of guarantees | — | | 10.1 | |
| | |
| Restricted cash relating to others | 0.1 | | 0.4 | |
| Total restricted cash | 0.1 | | 10.5 | |
| Less: amounts included in current restricted cash | (0.1) | | (2.5) | |
| Non-current restricted cash | — | | 8.0 | |
In March 2019,April 2023, the Company entered into an assignment agreementa facility with DNB Bank ASA to provide guarantees and letters of credit of up to $25.0 million collateralized by the original owner, BOTL Lease Co. Ltd, forrigs that secure the assignment of$175.0 million facility, thereby releasing previously restricted cash. In August 2023, we amended our $25.0 million guarantee facility provided by DNB Bank ASA temporarily increasing the rights and obligations under a construction contractfacility to take delivery of one KFELS Super B Bigfoot premium jack-up rig identified as Keppel’s Hull No. B378, subsequently renamed to “Thor”, from Keppel for a purchase price of $122.1 million. The company took delivery of$40.0 million until December 31, 2023. In November 2023, the “Thor” on May 9, 2019 from Keppel Shipyard. The acquisition was partly funded byCompany entered into a new bridge financing facility from Danskewith DNB Bank A/SASA to provide guarantees and partlyletters of credit of up to $30.0 million collateralized by drawing down on the $160 million Senior secured revolving loan facility entered into insame security that secures the first quarter of 2019.
Acquisition of Keppel Rigs
In May 2018, the Company signed a master agreement to acquire 5 premium newbuild jack-up drilling rigs from Keppel FELS Limited. Total consideration for the transaction will be approximately $742.5 million. In the second quarter of 2018, the Company paid a pre-delivery installment of $288 million. The pre-delivery installment is secured by a parent guarantee from Keppel Offshore & Marine Ltd. The Company has secured financing of the delivery payment for each Keppel Rig from Offshore Partners Pte. Ltd (formerly Caspian Rigbuilders Pte. Ltd). Each loan is non-amortizing and matures five years after the respective delivery dates. The delivery financing will be secured by a first priority mortgage, an assignment of earnings, an assignment of insurance and a charge over shares and parent guarantee from the Company. We took delivery of the new jack-up rigs “Hermod”, "Heimdal" and "Hild" in October 2019, January 2020 and April 2020, respectively, and we were due to take delivery of the 2 remaining rigs, the "Heidrun" and "Huldra" in 2022. Delivery of these rigs was deferred in January 2021, to the fourth quarter of 2023. The remaining contracted installments, payable on delivery, for the Keppel newbuilds acquired in 2018 are approximately $172.8 million as of December 31, 2020 ($345.6 million as of December 31, 2019).
Note 1713 - Business combinations
Paragon TransactionExpected Credit Losses
The Company announced a binding tender offer agreement (the “Tender Offer Agreement”) on February 21, 2018 to offer (“table below sets forth the Offer”) to purchase all outstanding shares in Paragon Offshore Limited (“Paragon”). The total acquisition price to purchase all outstanding shares was $241.3 million. The transaction was subject to the satisfaction of the offer conditions, customary closing conditions, including, among other customary conditions, that (a) at least 67% of the outstanding Paragon shares were validly tendered and not withdrawn before the expiration date, (b) no material adverse change shall have occurred prior to closing, and (c) Paragon shall have completed all actions necessary to acquire ownership of certain Prospector drilling rigs and legal entities currently subject to chapter 11 proceedings in the United States Bankruptcy Court in the District of Delaware. On March 29, 2018, all of the conditions to the Offer were satisfied and the transaction closed. Shareholders holding 99.41% of the shares accepted the offerallowance for a total payment of approximately $240.0 million.expected credit losses:
Recognized amounts of identifiable assets acquired, and liabilities assumed at fair value:
| | | | | |
| (In $ millions) | March 29, 2018Trade Receivables |
Cash and cash equivalentsBalance as at December 31, 2021 | 41.7 | |
Restricted cash | 4.2 | |
Trade receivables | 31.0 | |
Other current assets (including contract backlog of $31.6 million) | 53.4 | |
Jack-up drilling rigs | 246.0 | |
Assets held for sale | 15.0 | |
Property, plant and equipment | 16.1 | |
Other long-term assets (including contract backlog of $12.8 million) | 24.8 | |
Trade payables | (10.5) | |
Accruals and other current liabilities | (40.9) | |
Long term debt | (87.7) | |
Other non-current liabilities | (13.7) | |
Total | 279.40.8 | |
Fair value of consideration satisfied by cash:Provision for expected credit losses | 0.2 | |
| |
Payment upon completion by the CompanyWrite-off charged against allowance | 240.0 (0.7) | |
Payment to non-controlling interestBalance as at December 31, 2022 | 1.3 | |
Total | 241.30.3 | |
Total fair value of purchase considerationProvision for expected credit losses | 241.30.6 | |
| |
Fair value of net assets acquiredWrite-off charged against allowance | 279.4 (0.9) | |
Bargain GainBalance as at December 31, 2023 | (38.1)— | |
At the timeNew provisions and recoveries of the acquisition, Paragon was an international driller with a fleet of 23 drilling units. This fleet included 2 modern units, the Prospector 1previous provisions are recorded in "Rig operating and Prospector 5 built in 2013 and 2014, respectively. The fleet also included a semi-submersible drilling rig, MSS1, with a long-term contract for TAQA in the North Sea which commenced on March 6, 2018. We disposed of 16 jack-up rigs acquired in the Paragon transaction during 2018.
The Paragon transaction is accounted for as a business combination. The estimated fair value of the individual rigs was derived by using a market and income-based approach with market participant-based assumptions. A bargain purchase gain of $38.1 million was recognizedmaintenance expenses" in the Consolidated StatementStatements of Operations. A bargain purchase gain arisesOperations, as and when the fair value of the net assets acquired is higher than the total fair value of purchase consideration.
Immediately following the closing of the Paragon transaction, the Company settled the long-term debt of $87.7 million plus $1.6 million of accrued interest and brokerage fees.
During 2018, the Company purchased the remaining outstanding shares in Paragon Offshore limited for $1.0 million.
Restructuring
The table below sets forth the movements in restructuring provisions as a result of the Paragon transaction:
| | | | | | | | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Non-current | | | | | |
| Opening balance | 0 | | | 7.0 | | | 0 | |
| Reclassification of onerous lease to lease liability (ASU 842 adoption) | 0 | | | (7.0) | | | 0 | |
| Onerous office lease (ii) | 0 | | | 0 | | | 7.0 | |
| Non-current restructuring provision (a) | 0 | | | 0 | | | 7.0 | |
| Current | | | | | |
| Opening balance | 0.4 | | | 4.9 | | | 0 | |
| Severance (i) | 0 | | | 1.7 | | | 22.8 | |
| Severance payments (i) | (0.4) | | | (1.3) | | | (21.1) | |
| Onerous office lease (ii) | 0 | | | 0 | | | 5.2 | |
| Reclassification of onerous lease to lease liability (ASU 842 adoption) | 0 | | | (3.2) | | | 0 | |
| Lease payments | 0 | | | 0 | | | (2.0) | |
| Current restructuring provision (b) | 0 | | | 0.4 | | | 4.9 | |
| Total (a+b) | 0 | | | 0.4 | | | 11.9 | |
| | | | | |
(i)Severance payment
As part of the Tender Offer Agreement signed February 21, 2018, the Company initiated a workforce reduction program at closing of the transaction to align the size and composition of the Paragon workforce to the Company’s expected future operations and strategy. An agreement was reached with relevant employees of Paragon that specifies the amounts payable to those made redundant. The Company recognized $22.8 million in restructuring expense for the year ended December 31, 2018 related to those employees.
(ii)Office lease
During the year ended December 31, 2018, the Company recognized $7.7 million as restructuring cost for vacating excess Paragon offices as part of the workforce reduction program. The restructuring expense of $7.7 million relates to future lease obligations still present after the cease of use date. The Company’s future lease obligation of $10.2 million is recognized under onerous contracts, whereof $4.5 million was recognized by Paragon before the acquisition as part of Paragon’s own restructuring plan as of December 31, 2018. All future payments will be recognized against onerous contracts until February 2022 when the lease obligation is settled. The Company expects 0 additional lease costs to be recognized related to the Paragon restructuring after the year ended December 31, 2018.
We adopted, topic 842 “Leases”, on a modified retrospective basis, on January 1, 2019. Subsequent to adoption, onerous lease commitments of $10.2 million were reclassified to lease liability. We have not restated comparative periods (see note 15).
Paragon pro forma information (unaudited)
Basis of preparation
The unaudited pro forma financial information is based on Borr Drilling’s and Paragon’s historical consolidated financial statements as adjusted to give effect to the acquisition of Paragon. The unaudited revenue and net income (loss) for the period ended December 31, 2018 give effect to the Paragon acquisition as if it had occurred on January 1, 2017.
| | | | | | | | |
| |
(In $ millions) | | 2018
(unaudited) |
Revenue | | 192.1 | |
Net income (loss) | | (297.5) | |
Certain one-time adjustments were included in the pro forma financial information.
For the period from March 29, 2018 until December 31, 2018, Paragon contributed $116.3 million in revenue resulting in loss before income taxes of $42.7 million, excluding bargain purchase gain of $38.1 million.
Note 18 - Marketable debt securities
Marketable debt securities are marked to market, with other than temporary changes in fair value recognized within “Other comprehensive income” (“OCI”).
| | | | | | | | | | | | | | |
| | December 31, |
| (In $ millions) | | 2020 | | 2019 |
| Opening balance | | 0 | | | 35.2 | |
| Purchase of marketable securities | | 0 | | | 5.9 | |
| Sale of marketable securities | | 0 | | | (31.3) | |
| Unrealized gain on marketable securities | | 0 | | | 5.6 | |
| Realized loss on marketable securities | | 0 | | | (15.4) | |
| Total marketable securities | | 0 | | | 0 | |
All marketable debt securities were sold in 2019. An accumulated unrealized loss of $5.6 million recognized in other comprehensive income for the year ended December 31, 2018 was recycled to the statement of operations during 2019.
Note 1914 - Financial instrumentsOther Current Assets
Forward contractsOther current assets are comprised of the following:
Table | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| VAT receivable | 16.5 | | 9.4 | |
| Client rechargeables | 5.3 | | 4.6 | |
| Other tax receivables | 4.7 | | 5.2 | |
| Deferred financing fee | 0.5 | | — | |
Right-of-use lease asset (1) | 0.5 | | 0.5 | |
| Corporate income taxes receivables | — | | 1.1 | |
| Other receivables | 4.5 | | 4.6 | |
| Total | 32.0 | | 25.4 | |
(1) The right-of-use lease asset pertains to our office and yard leases (see Note 17 - Leases).
Note 15 - Newbuildings
The table below sets forth movements in forward contracts:the carrying value of our newbuildings:
| | | | | | | | | | | |
| December 31, |
| (In $ millions) | 2020 | 2019 | 2018 |
| Opening balance | (64.3) | (35.1) | 4.4 |
| Unrealized loss on forward contracts | (26.6) | (29.2) | (14.2) |
| Realized loss/(gain) on forward contracts | 90.9 | 0 | (25.3) |
| Unrealized loss | 0 | (64.3) | (35.1) |
| | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 |
| Balance as of January 1, | 3.5 | | 135.5 | |
| Additions | 1.9 | | — | |
| | |
| Disposals | — | | (7.6) | |
| Impairment | — | | (124.4) | |
| | |
| Total newbuildings | 5.4 | | 3.5 | |
On April
In September 2023, we entered into an agreement with Seatrium to amend the Construction Contracts for the rigs "Vale" and "Var" and to expedite their delivery dates, on a best efforts basis, to August 15, 2024 and November 15, 2024, respectively, in consideration for an additional payment of $12.5 million (acceleration costs) per rig on each respective delivery date. The remaining contracted installments as of December 31, 2023, payable on delivery, for the Seatrium newbuilds acquired in 2017 are approximately $319.8 million in the aggregate (approximately $294.8 million as of December 31, 2022). See Note 23 - Commitments and Contingencies.
No rigs were delivered to the Company in either of the years ended December 31, 2023 or 2022.
Impairment
During the year ended December 31, 2023, we considered whether indicators of impairment existed that could suggest that the carrying amounts of our newbuildings may not be recoverable as of December 31, 2023. We concluded that impairment indicators existed for two newbuildings and performed a recoverability assessment. As the estimated undiscounted net cash flows were higher than the carrying amounts of our newbuildings, no impairment was recognized.
Disposals
During the year ended December 31, 2022 the Company entered into a letter of intent ("LOI") for the sale of three newbuilding jack-up rigs for $320.0 million, subject to various conditions, including entering into an agreement to give effect to the LOI. As a result of the potential sale of the three newbuilding rigs, we performed an impairment assessment in June 2022 and concluded that, based on management's best estimate of the most likely outcome, an impairment charge of $124.4 million was required to reflect the difference between the best estimate of the sales amount less costs to sell and the sum of the current capitalized cost and the expected cost to complete (level 3 fair value). In the quarter ended September 30, 2020,2022, we purchasedentered into a sales agreement, giving effect to the previously executed LOI. The sales agreement was conditional upon various closing conditions, and upon closing, the final proceeds from the sale would be used to pay the delivery installments of the three newbuilding jack-up rigs. During the quarter ended December 31, 2022, the sale of the three rigs was agreed and the Company recognized a gain on sale of $3.7 million (see Note 6 - Gain on Disposals).
The calculation of the impairment charge recognized during the year ended December 31, 2022 is as follows:
| | | | | |
| (In $ millions) | |
| Three newbuildings considered in the LOI carrying value | 132.0 | |
| Estimated cost to complete and respective onerous provision, net | 312.4 | |
| Total | 444.4 | |
| Potential sale price | 320.0 | |
| Impairment charge | (124.4) | |
| Carrying Value | 7.6 | |
Note 16 - Jack-Up Drilling Rigs, net
Set forth below is the carrying value of our forward contract assets and settled in full our forward contract liability position and took delivery ofjack-up rigs:
| | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Opening balance as of January 1, | 2,589.1 | | 2,730.8 | |
| Additions | 104.7 | | 100.2 | |
| Depreciation | (115.5) | | (114.9) | |
| | |
| Disposals | — | | (119.7) | |
| | |
| Impairment | — | | (7.3) | |
| Ending balance as of December 31, | 2,578.3 | | 2,589.1 | |
Accumulated depreciation related to jack-up rigs as at December 31, 2023 is 4.2$598.1 million shares(as at December 31, 2022 is $482.6 million).
Depreciation of property, plant and equipment
In addition to the depreciation in Valaris plc. Totalthe above table, the Company recognized depreciation of $1.9 million for the year ended December 31, 2023 related to property, plant and equipment ($1.6 million in 2022 and $2.0 million in 2021). Accumulated depreciation related to property, plant and equipment as at December 31, 2023 is $7.1 million (as at December 31, 2022 is $5.2 million).
Disposals
During the year ended 2022, the Company concluded that the jack-up rig "Gyme"met the criteria for assets held for sale as at September 30, 2022. During October 2022, the Company entered into an agreement to sell the "Gyme" for $120.0 million, pursuant to an undertaking by the Company under its most recent refinancing with PPL Shipyard which was completed in October 2022. The sale of the "Gyme" was completed during the quarter ended December 31, 2022 and the Company recognized a loss on sale of $0.2 million (see Note 6 - Gain on Disposals). The proceeds from the sale were applied to all outstanding amounts owed on the rig, and excess amounts were applied to accrued interest for the eight other rigs financed by PPL. This disposal was within our dayrate segment.
Impairment
During the years ended December 31, 2023 and December 31, 2021 no impairment was recognized. During the year ended December 31, 2022, we recognized an impairment loss of $7.3 million for the jack-up rig "Gyme" as the rig was written down to its expected sales value.
During the year ended December 31, 2023, we considered whether indicators of impairment existed that could suggest that the carrying amounts of our jack-up rigs may not be recoverable as of December 31, 2023. We concluded that impairment indicators existed for seven rigs and performed a recoverability assessment, however no impairment loss was recognized during the year ended December 31, 2023 as the estimated undiscounted net cash requiredflows were higher than the carrying amounts of our jack-up rigs. In making this determination, day rate revenues and utilization were key assumptions in determining the estimated future cash flows. We concluded that a severe, yet plausible scenario, with a 10% decrease in day rates and utilization used when estimating undiscounted cash flows would not result in a shortfall between the undiscounted cash flow and carrying amount for our jack-up drilling rigs.
We will continue to settlemonitor developments in the forward liability was $92.5 million,markets in which we operate for indications that the carrying amounts of our long-lived assets may not be recoverable.
Note 17 - Leases
We have various operating leases, principally for office space, storage facilities and operating equipment, which expire at various dates. In 2018, we deemed two of our leases as onerous leases as a result of change in our operating strategy, one of which $91.2 million was held as restricted cash atexpired during the timeyear ended December 31, 2021 (our Beverwijk office lease) and one of settlement. Total realized losswhich expired on expirationMarch 1, 2022 (our Houston office lease). Upon adoption of the contracts was $90.9 million.leasing standard, for these operating leases, we offset the right-of-use asset of the lease by the existing carrying amount of the onerous lease liability previously recorded on the date of adoption.
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Operating leases right-of-use assets | 1.6 | | 2.2 | |
| Current operating lease liabilities | 0.5 | | 0.5 | |
| Non-current operating lease liabilities | 1.1 | | 1.7 | |
The current portion of the right-of-use assets of $0.5 million are recognized within "Other current assets" (see Note 14 - Other Current Assets) and the non-current portion of the right-of-use assets of $1.1 million are recognized within "Other non-current assets" (see Note 18 - Other Non-Current Assets) in the Consolidated Balance Sheets. The current operating lease liabilities are recognized within "Other current liabilities" (see Note 20 - Other Current Liabilities) and the non-current operating lease liabilities are recognized within "Other liabilities" in the Consolidated Balance Sheets. Our weighted average remaining lease term for our operating leases is 4.2 years. Our weighted-average discount rate applied for the majority of our operating leases is 6.6%.
Subsequently all $4.2 million shares were sold for total proceeds of $3.0 million, resulting in a gain of $1.5 million.
The forward contracts
Components of lease expenses are presented net within current liabilities and consist of:comprised of the following:
| | | | | | | | | | | | | | |
| | December 31, |
| (In $ millions) | | 2020 | | 2019 |
| Forward contract assets | | 0 | | | 27.9 | |
| Forward contract liabilities | | 0 | | | (92.2) | |
| Unrealized Loss | | 0 | | | (64.3) | |
| | | | | | | | |
| For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 |
| Operating lease expense | 12.5 | | 7.9 | |
| Short-term operating lease expense | — | | — | |
| Total operating lease expense | 12.5 | | 7.9 | |
| Sublease income | — | | 0.3 | |
Call Spread
On May 16, 2018Our sublease income relates to our Houston Office lease which ended on March 1, 2022. Of the Company issued $350.0sublease income recognized during the year ended December 31, 2022, $0.1 million was recognized as the amortization against our onerous lease liability and $0.2 million derived from subcontracting our Houston office space is recognized in convertible bonds due"General and administrative expenses" in our Consolidated Statements of Operations. For the years ended December 31, 2023 (the “convertible bonds”) (see note 22). The Company has purchased from Goldman Sachs International call options over 10,453,612 Borr shares with an exercise price of $33.4815 per share to mitigate the economic exposure from a potential exerciseand 2022, of the conversion rights embedded in the convertible bonds. In addition, the Company sold to Goldman Sachs International call options for the same number of shares with an exercise price of $42.6125 per share. The transactions are referred tototal operating lease expense, $10.7 million and $6.2 million is recognized as the “Call Spread”. The purpose of the Call Spread"Rig operating and maintenance expenses", respectively and $1.8 million and $1.7 million is to improve the effective conversion premium for the Company in relation to the convertible bonds to 75% over $24.35. The average maturity of the call options purchasedrecognized as "General and sold is May 14, 2023, with maturities starting on May 16, 2022 and ending on May 16, 2024. The call options bought and sold are European options exercisable only at maturity and are cash settled. The Call Spread is recorded within other long-term assets (see note 20) and with subsequent fair value adjustments recognized within other financial expenses, net. Fair value is determined by using the Black and Scholes model for option pricing. Subsequent fair value adjustments are recognizedadministrative expenses" in the Consolidated StatementStatements of Operations, respectively.
The future minimum leases payments under Other financial income (expenses), net.the Company's non-cancellable operating leases as at December 31, 2023 are as follows:
We have recognized fair value adjustments in the Consolidated Statement of Operations under Other financial expenses, net as follows: | | | | | |
| (In $ millions) | |
| 2024 | 0.6 | |
| 2025 | 0.6 | |
| 2026 | 0.3 | |
| 2027 | 0.3 | |
| 2028 | 0.3 | |
| Thereafter | — | |
| Total Minimum Lease Payments | 2.1 | |
| Less: Imputed interest | (0.5) | |
| Present value of operating liabilities | 1.6 | |
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Change in Fair value of call spread (See note 7) | (2.3) | | | (0.5) | | | (25.7) | |
Note 2018 - Other long-term assetsNon-Current Assets
Other long-termnon-current assets are comprised of the following:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| | | |
| Deferred tax asset | 0.2 | | | 1.3 | |
| Call Spread (see note 19) | 0 | | | 2.3 | |
| Tax refunds | 0.4 | | | 0.2 | |
| Right-of-use lease asset, non-current | 1.3 | | | 2.2 | |
| Prepaid fees | 0 | | | 9.2 | |
| Total other long-term assets | 1.9 | | | 15.2 | |
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
Deferred mobilization and contract preparation costs (1) | 42.6 | | 17.1 | |
| Deferred tax asset | 19.3 | | 3.5 | |
| Deferred financing fee | 1.7 | | — | |
Deferred demobilization revenue (2) | 1.5 | | 1.5 | |
Right-of-use lease asset, non-current (3) | 1.1 | | 1.7 | |
Liquidated damages (4) | 0.8 | | 2.3 | |
| Prepayments | 0.3 | | 0.2 | |
| VAT receivable | — | | 0.4 | |
| Total | 67.3 | | 26.7 | |
(1) Non-current deferred mobilization and contract preparation costs relates to the non-current portion of contract mobilization and preparation costs for the jack-up rigs "Idun", "Saga", "Hild", "Arabia I", "Arabia II" and "Arabia III", which entered into long-term contracts during the year (see Note 5 - Contracts with Customers).
(2) Non-current deferred demobilization revenue relates to demobilization revenue for two of our jack-up rigs, which will be billed upon contract completion.
(3) The right-of-use lease asset pertains to our office leases (see Note 17 - Leases).
(4) Relates to the non-current portion of liquidated damages associated with a known delay in the operational start date of two of our contracts, which is amortized over the firm contract terms and recognized as reduction of "Dayrate revenue" in the Consolidated Statements of Operations.
Note 19 - Accrued Expenses
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Accrued goods and services received, not invoiced | 19.7 | | 22.2 | |
| Accrued payroll and bonus | 12.3 | | 8.6 | |
Other accrued expenses (1) | 45.0 | | 50.0 | |
| Total | 77.0 | | 80.8 | |
(1) Other accrued expenses includes holding costs, professional fees, management fees and other accrued expenses related to rig operations.
Note 2120 - Other current liabilitiesCurrent Liabilities
Other current liabilities are comprised of the following:
| | As of December 31, |
| As of December 31, | | | As of December 31, |
| (In $ millions) | (In $ millions) | 2020 | | 2019 | (In $ millions) | 2023 | 2022 |
Other current taxes payable (1) | |
| VAT payable | |
Dividends payable (2) | |
| Corporate income taxes payable | |
| Accrued payroll and severance | Accrued payroll and severance | 2.1 | | | 6.2 | |
| Operating lease liability, current | Operating lease liability, current | 3.1 | | | 3.4 | |
| Deferred mobilisation revenue | 2.6 | | | 5.6 | |
| Other current liabilities | Other current liabilities | 6.2 | | | 4.5 | |
| Total accruals and other current liabilities | 14.0 | | | 19.7 | |
| Total other current liabilities | |
(1) Other current taxes payable includes withholding tax, payroll tax and other indirect tax related liabilities.
(2) On December 22, 2023, the Company declared a cash distribution of $0.05 per share, corresponding to a total of $11.9 million, which was paid to our shareholders on January 22, 2024.
Note 2221 - Long-term debtDebt
Short-term debt is comprised of the following:
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| 2028 Notes | 75.0 | | — | |
| 2030 Notes | 25.0 | | — | |
| $350m Convertible bonds | — | | 350.0 | |
| PPL Delivery Financing | — | | 60.0 | |
| Hayfin Facility | — | | 20.0 | |
| New DNB Facility | — | | 20.0 | |
| Principal Outstanding | 100.0 | | 450.0 | |
Deferred finance charges (1) | (10.3) | | (4.9) | |
| Debt discount | (6.8) | | — | |
| Hayfin Facility Back-End Fee | — | | 0.4 | |
| New DNB Facility Back-End Fee | — | | 0.4 | |
Carrying Value Short-Term Debt (2) | 82.9 | | 445.9 | |
Long-term debt is comprised of the following:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Hayfin Loan Facility | 195.0 | | | 195.0 | |
| Syndicated Senior Secured Credit Facilities | 270.0 | | | 270.0 | |
| New Bridge Revolving Credit Facility | 30.0 | | | 25.0 | |
| $350 million Convertible bonds | 350.0 | | | 350.0 | |
| PPL Delivery Financing | 753.3 | | | 753.3 | |
| Keppel Delivery Financing | 259.2 | | | 86.4 | |
| Principal Outstanding | 1,857.5 | | | 1,679.7 | |
| Back end fees due to PPL and Keppel on Delivery of vessels. | 42.8 | | | 33.8 | |
| Effective Interest rate adjustments on PPL and Keppel Delivery Financing | 13.4 | | | 8.4 | |
| Deferred finance charges | (7.5) | | | (12.1) | |
| Carrying Value | 1,906.2 | | | 1,709.8 | |
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| 2028 Notes | 950.0 | | — | |
| 2030 Notes | 490.0 | | — | |
| $250m Convertible Bonds | 250.0 | | — | |
| PPL Delivery Financing | — | | 609.6 | |
| Seatrium Delivery Financing | — | | 259.2 | |
| Hayfin Facility | — | | 134.0 | |
| New DNB Facility | — | | 130.0 | |
| Principal Outstanding | 1,690.0 | | 1,132.8 | |
Deferred finance charges(1) | (40.5) | | (6.4) | |
| Debt discount | (30.7) | | — | |
| PPL Delivery Financing Back-End Fee | — | | 26.0 | |
| Seatrium Delivery Financing Back-End Fee | — | | 13.5 | |
| Hayfin Facility Back-End Fee | — | | 2.8 | |
| New DNB Facility Back-End Fee | — | | 2.6 | |
| Effective Interest Rate adjustments on PPL and Seatrium Delivery Financing Facilities | — | | 19.8 | |
Carrying Value Long-Term Debt (2) | 1,618.8 | | 1,191.1 | |
The scheduled maturitiesAs at December 31, 2020 of our principal2023, deferred finance charges include the unamortized legal and bank fees associated with the 2028 Notes, 2030 Notes, $250 million Convertible Bonds, undrawn $150 million RCF as well as the unamortized debt are as follows:
| | | | | |
| (In $ millions) | December 31, 2020 |
| 2021 | 0 | |
| 2022 | 578.7 | |
| 2023 | 935.9 | |
| 2024 | 170.1 | |
| 2025 | 172.8 | |
| Total | 1,857.5 | |
Our Revolving and Term Loan Credit Facilities
Hayfin Loan Facility
On June 25, 2019, we entered into a $195 million senior secured term loan facility agreementissuance cost associated with funds managed by Hayfin Capital Management LLP, as lenders, among others. Our wholly-owned subsidiary, Borr Midgard Assets Ltd., is the borrower under the Hayfin Facility, which is guaranteed by Borr Drilling Limited and secured by mortgages over 3 of our jack-up rigs, pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs and general assignments of rig insurances, certain rig earnings, charters, intra-group loans and management agreements from our related rig-owning subsidiaries. Our Hayfin Facility originally matured in June 2022 and bears interest at a rate of LIBOR plus a specified margin. The Hayfin Facility agreement includes a make-whole obligation if repaid during the first twelve months and, thereafter, a fee for early prepayment and final repayment. As of December 31, 2020 our Hayfin Facility was fully drawn. Following amendments to the loan agreements with conditions which were fulfilled in January 2021 the lenders agreed to defer the maturity date to January 2023.
Our Hayfin Facility agreement contains various financial covenants, including requirements that we maintain minimum liquidity equal to three months interest on the facility when the jack-up rigs providing security are not actively operating under an approved drilling contract (as defined in the Hayfin Facility agreement). In June 2020, Hayfin agreed to make certain amendments to the facility, including relaxing some restrictions related to transfer of cash within the ring fenced structure, and allowing the Company to utilize minimum liquidity equal to three months interest ($2.4 million at the time) in the Ring Fenced Entities to pay interest under the facility. The restricted cash was required to be replenished on January 1, 2021. Our Hayfin Facility agreement also contains a loan to value linked to minimum security value clause requiring that the market value of our rigs shall at all times cover at least 175% of the aggregate outstanding facility amount. The facility also contains various covenants which restrict
distributions of cash from Borr Midgard Holding Ltd., Borr Midgard Assets Ltd. and our related rig-owning subsidiaries to us or our other subsidiaries and the management fees payable to Borr Midgard Assets Ltd.’s directly-owned subsidiaries. Our Hayfin Facility agreement also contains customary events of default which include any change of control, non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the Hayfin Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders under our Hayfin Facility may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional security as a condition of not doing so. The lenders under our Hayfin Facility may also require replacement or additional security if the marketfair value of the jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant. On December 30, 2020, the Company received waivers for certain covenants which were applicable bothShare Lending Agreement (see Note 28 - Stockholders' Equity). As at December 31, 20202022, deferred finance charges included the unamortized legal and up to finalization of the 2021 Amendments (see note 32). As part of the amendments agreed in January 2021, the threshold of the minimum value to loan covenant was lowered from 175% to 140% in the Hayfin facility. Following these amendments being formalized in January 2021, the Company was in compliancebank fees associated with the requirements of theNew DNB Facility, amended value to loan covenant.
As of December 31, 2020, “Saga”, “Skald” and “Thor” were pledged as collateral for the $195 million Hayfin loan facility. Total book value of the encumbered rigs was $379.1 million as of December 31, 2020. The terms of the HayfinTerm Loan Facility were subsequently amended, see note 32.
Syndicated Senior Secured Credit Facilities
On June 25, 2019, we entered into a $450 million senior secured credit facilities agreement with DNB Bank ASA, Danske Bank, Citibank N.A., Jersey Branch and Goldman Sachs Bank USA, as lenders, among others. The senior credit facilities (comprised a $230 million credit facility, $50 million newbuild facility (which was cancelled in 2020), $70 million for the issuance of guarantees and other trade finance instruments as required in the ordinary course of business and, a $100 million incremental facility), subject to transferring both secured rigs by the New Bridge Revolving Credit Facility (outlined below),(in total $450 million of commitments, or $400 million following the cancellation of the newbuild facility). This agreement was amended on September 12, 2019, when Clifford Capital Pte. Ltd. became a new lender with a commitment of $25 million and 1 rig as security was transferred from the New Bridge Revolving Credit Facility utilizing $50 million of the incremental facility. On December 23, 2019 certain financial covenants were amended and again in June 2020 when certain amortization payments due in 2021 were deferred and financial covenants amended as outlined below. Our obligations under our Syndicated facility is secured by mortgages over 7 of our jack-up rigs and pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs and general assignments of rig insurances, certain rig earnings, charters, intra-group loans and management agreements from our related rig-owning subsidiaries. The terms of the facility allow for an additional jack-up rig, Odin, currently secured under the New Bridge Facility, to be transferred to our Syndicated Facility if there are incremental commitments from other financiers in the Syndicated Facility (in which case the New Bridge Facility would be repaid at that time). Our Syndicated Facility matures in June 2022 and bears interest at a rate of LIBOR plus a specified margin.
As of December 31, 2020, we had $270.0 million outstanding under our Syndicated Facility; in addition we have a $70 million guarantee line under the Syndicated Facility, of which $43.3 million has been utilized. As of December 31, 2020, there was $10 million undrawn under the facility which may only be drawn at the discretion of all lenders.
In June 2020, the lenders agreed to amend the terms of some of the covenants, and the dates of certain amortization payments which otherwise would have occurred in 2021 to occur on maturity in the second quarter of 2022. The agreements included requirements that we maintain a minimum book equity ratio until and including December 31, 2021, equal to or higher than 25%; and thereafter equal to or higher than 40%, a positive working capital balance, a debt service cover ratio in excess of 1.25 of our interest and related expenses from the start of 2022. Furthermore, the Company was given a requirement to maintain minimum liquidity equal to the greater of $5 million in cash until December 31, 2020; $10 million in cash from and including January 1, 2021, to and including June 30, 2021; $15 million in cash from and including July 1, 2021 to and including September 30, 2021; $20 million in cash from and including October, 1 2021, to and including December 31, 2021; and free liquidity including cash and undrawn revolving credit facilities of the higher of (i) $30 million and (ii) 3% of the aggregate of net interest bearing debt and certain funds in blocked accounts on or after January 1, 2022.
The Syndicated Facility agreement also contains various covenants, including, among others, restrictions on incurring additional indebtedness and entering into joint ventures; covenants subjecting dividends to certain conditions which, if not met, would require the approval of our lenders prior to the distribution of any dividend; restrictions on the repurchase of our shares and restrictions on changing the general nature of our business. Furthermore, a change of control event occurs if Mr. Tor Olav Trøim ceases to serve on our board, or Mr. Tor Olav Trøim ceases to maintain ownership of at least 6 million shares (subject to
adjustment for certain transactions). Our Syndicated Facility agreement also contains customary events of default which include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the Syndicated Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional security as a condition of not doing so. The lenders may also require replacement or additional security if the market value of the jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant. In addition, our Syndicated Facility contains a “Most Favored Nation” clause giving the lenders a right to amend the financial covenants to reflect any more lender-favourable covenants in any other agreement pursuant to which loan or guarantee facilities are provided to us, including amendments to our Financing Arrangements. On December 30, 2020, the Company received waivers for certain covenants which were applicable both as at December 31, 2020 and up to the finalization of the 2021 Amendments (see note 32). As part of the amendments agreed in January 2021, the threshold of the minimum value to loan covenant was lowered from 175% to 140% in the Syndicated Loan Facility. Following these amendments being formalized in January 2021, the Company was in compliance with the requirements of the amended value to loan covenant.
As of December 31, 2020, “Frigg”, “Idun”, “Norve”, “Prospector 1”, “Prospector 5”, “Mist” and “Ran” were pledged as collateral for the Syndicated Senior Secured Credit Facilities. Total book value of the encumbered rigs was $602.8 million as of December 31, 2020. The terms of the Syndicated Senior Secured Credit Facility were subsequently amended, see note 32.
New Bridge Revolving Credit Facility
On June 25, 2019, we entered into a $100 million senior secured revolving loan facility agreement with DNB Bank ASA and Danske Bank, as lenders, secured by mortgages over 2 of our jack-up rigs, assignments of intra-group loans, rig insurances and certain rig earnings and pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs. In connection with our utilization of the first incremental tranche under our Syndicated Facility in September 2019, the security over one of the rigs, “Ran”, was released and the facility amount was reduced to $50 million and $50 million was repaid and transferred into the Syndicated Senior Secured Credit Facilities. Our New Bridge Facility agreement was amended on October 30, 2019, when certain changes were made to the margin. On December 23, 2019 when certain financial covenants were amended, and some changes were made to the security documents in connection with an internal sale of the shares in a rig owner and again in June 2020 when certain amortization payments due in 2021 were deferred and financial covenants were further amended as outlined below.
Our New Bridge Facility originally matured in June 2022 and bears interest at a rate of LIBOR plus a variable margin. Following amendments to the loan agreement and conditions which were fulfilled in January 2021 the lenders agreed to defer the maturity date to January 2023. In the third quarter of 2019, the security over one of the rigs, “Ran”, was released and its loan of $50 million was repaid and transferred into the Syndicated Senior Secured Credit Facility as utilization of the “first incremental tranche” in the facility. As of December 31, 2020, $20 million remained undrawn under our New Bridge Facility, which may only be drawn with the consent of all of the lenders.
In June, 2020, the lenders agreed to change the dates of certain facility reductions which otherwise would have occurred in 2021 to occur on maturity and to amend the minimum liquidity covenant levels to: $5 million in cash until December 31, 2020; $10 million in cash from and including January 1, 2021, to and including June 30, 2021; $15 million in cash from and including July 1, 2021, to and including September 30, 2021; $20 million in cash from and including October 1, 2021 to and including December 31, 2021; and free liquidity including cash and undrawn revolving credit facilities of the higher of (i) $30 million and (ii) 3% of the aggregate of net interest bearing debt and ring fenced liquidity on or after January 1, 2022.
Our New Bridge Facility agreement also contains a loan to value clause requiring that the market value of our rigs shall at all times cover at least 175% of the aggregate outstanding facility amount and any undrawn and uncancelled part of the facility. The agreement also contains various covenants, including, among others, restrictions on incurring additional indebtedness and entering into joint ventures; covenants requiring the approval of our lenders prior to the distribution of any dividends; and restrictions on the repurchase of our shares and restrictions on changing the general nature of our business. Furthermore, a change of control event occurs if Mr. Tor Olav Trøim is ceases to serve on our Board or Mr. Tor Olav Trøim ceases to maintain ownership of at least 6 million shares (subject to adjustment for certain transactions). Our New Bridge Facility agreement also contains customary events of default which include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the New Bridge Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional security as a condition of not doing so. The lenders may also require replacement or additional security if the market value of the
Facility, $350 million Convertible Bond and the unamortized extension fee associated with the amended PPL Delivery Financing Facility.
jack-up rigs over which security is provided is insufficient
(2) Carrying amounts in the table above include, where applicable, deferred financing fees, debt discounts and certain interest adjustments to meetallow for variations in interest payments to be straight lined.
The scheduled maturities as of December 31, 2023 of our market value-to-loan covenant. In addition,principal debt are as follows:
| | | | | |
| (In $ millions) | December 31, 2023 |
| 2024 | 100.0 | |
| 2025 | 100.0 | |
| 2026 | 100.0 | |
| 2027 | 100.0 | |
| Thereafter | 1,390.0 | |
| Total | 1,790.0 | |
Our Long Term Debt
We have relied on long term secured loans and bonds and unsecured convertible notes to finance our business, including our shipyard financing facilities with Seatrium and PPL, our secured loan with Hayfin, our Syndicated facility and our New Bridge Facility and our Convertible bonds due 2023.
In the second half of 2022, we refinanced our senior secured credit facilities, maturing in 2023 to 2025. Following the successful equity raise of $274.9 million of gross proceeds in August 2022 and the signing and full drawdown of our $150.0 million New DNB Facility, we repaid in full the Syndicated Facility and the New Bridge Facility. Concurrently, we extended our shipyard delivery financing arrangement with PPL and our Hayfin Facility to mature in 2025; deferred the delivery dates for our remaining two newbuild jack-up rigs to 2025 and agreed to sell to a third party three newbuild jack-up rigs which the Company had previously agreed to purchase from Seatrium.
In February 2023, we issued $250.0 million principal amount of Convertible Bonds due in February 2028 and $150.0 million principal amount of Senior Secured Bonds due in February 2026, the proceeds of which were used to repay our $350 million of Convertible bonds due in May 2023.
In November 2023, we issued $1.54 billion of senior secured notes due in 2028 and 2030 and used the proceeds, together with the proceeds of a $50 million equity raise, to repay all of our then outstanding secured debt, consisting of the amounts outstanding under our (i) Hayfin Facility, (ii) Seatrium Facility, (iii) PPL Facility (iv) Syndicated Facility with DNB and (v) Senior Secured Notes due 2026.
As a result, as of December 31, 2023, our indebtedness consists of our $1.54 billion principal amount of senior secured notes due 2028 and 2030, which are secured by all of our currently owned rigs and our $250 million of unsecured Convertible Bonds due 2028. We also have a $180 million Super Senior Credit Facility, comprised of a $150 million RCF and a $30 million Guarantee Facility, which is also secured by all of the rigs we currently own. As of December 31, 2023, $29 million were drawn under the Guarantee Facility, and the $150 million under the RCF were undrawn (See Note 23 - Commitments and Contingencies).
Set forth below is a description of our outstanding bonds and our existing credit facility.
Senior Secured Notes
On November 7, 2023, the Company's wholly owned subsidiary Borr IHC Limited, and certain other subsidiaries, issued $1,540.0 million in aggregate principal amount of senior secured notes, consisting of $1,025.0 million principal amount of senior secured notes due 2028 issued at a price of 97.750%, raising proceeds of $1,001.9 million, bearing a coupon of 10% per annum (the "2028 Notes") and $515.0 million principal amount of senior secured notes due 2030 issued at a price of 97.000%, raising proceeds of $499.5 million, bearing a coupon of 10.375% per annum (the "2030 Notes" and, together with the 2028 Notes, the "Notes"). The 2028 Notes mature on November 15, 2028 and the 2030 Notes mature on November 15, 2030, and interest on the Notes is payable on May 15 and November 15 of each year, beginning on May 15, 2024.
The net proceeds from the issuance of the Notes, together with the proceeds of a $50 million private placement of the Company’s shares in Norway, were used to repay all of the Company’s outstanding secured borrowings, being the Company’s DNB Facility,
Hayfin Facility, the PPL Delivery Financing and the Seatrium Delivery Financing, the Company’s existing $150.0 million principal amount of Senior Secured Bonds, and to pay related premiums, fees, accrued interest and expenses, in connection with the foregoing.
The Notes were issued pursuant to an Indenture, dated November 7, 2023 (the "Indenture"), among Borr IHC Limited, the Company and certain subsidiaries of the Company named therein, and the trustee and security agent thereunder.
The Notes are guaranteed by the Company and by certain of our subsidiaries (the "Subsidiary Guarantors") and secured by substantially all of the assets of the Company and Subsidiary Guarantors, including our 22 delivered jack-up rigs. The Super Senior Credit Facility (see below) is secured on a super senior basis by the same collateral that secures the Notes.
The Indenture for the Notes requires amortization payments of $100 million per year at a price of 105% of principal amount, plus accrued interest. The Indenture also contains a “Most Favored Nation” clausecash sweep provision, applicable after the publication of the Company’s annual report, starting with the 2024 annual report to be published in 2025, requiring a mandatory offer to purchase the Notes with Excess Cash Flow (as defined in the Indenture) at 105% of principal amount plus accrued interest, of: (a) if the Consolidated Total Leverage Ratio (as defined in the Indenture) exceeds 3.0 to 1.0, a principal amount of Notes equal to 75% of the Excess Cash Flow for such fiscal year, (b) if the Consolidated Total Leverage Ratio exceeds 2.0 to 1.0 but is less than 3.0 to 1.0, a principal amount of Notes equal to 50% of the Excess Cash Flow for such fiscal year and (c) if the Consolidated Total Leverage Ratio exceeds 1.5 to 1.0 but is less than 2.0 to 1.0, a principal amount of Notes equal to 25% of the Excess Cash Flow for such fiscal year.
Optional Redemption
2028 Notes
Except as for the amortization described above, the 2028 Notes are not redeemable prior to November 15, 2025, except by paying a make-whole premium. From November 15, 2025, the Issuers may redeem all or a portion of the 2028 Notes at the redemption prices set forth below, plus accrued and unpaid interest, if any, to, but excluding, the redemption date:
| | | | | |
| 12-month period commencing on November 15, 2025 | Price (% of principal amount) |
| 2025 | 105.000 | % |
| 2026 | 102.500 | % |
| 2027 and thereafter | 100.000 | % |
Prior to November 15, 2025, the Issuers may redeem up to 40% of the original aggregate principal amount of the 2028 Notes issued under the Indenture (including any additional 2028 Notes) up to an amount equal to the net cash proceeds of one or more equity offerings, at a redemption price equal to 110.000% of the principal amount thereof, plus accrued and unpaid interest thereon, provided, that immediately after giving effect to any such redemption, at least 60% of the lendersoriginal aggregate principal amount of 2028 Notes (including any additional 2028 Notes) remains outstanding. In addition, at any time prior to November 15, 2025, the Issuers may redeem up to 10% of the original aggregate principal amount of the 2028 Notes issued under the Indenture (including any additional 2028 Notes) during any twelve-month period at a redemption price equal to 103.000% of the aggregate principal amount thereof, plus accrued and unpaid interest.
2030 Notes
Except as for the amortization described above, the 2030 Notes are not redeemable prior to November 15, 2026, except by paying a make-whole premium. From November 15, 2026, the Issuers may redeem all or a portion of the 2030 Notes at the redemption prices set forth below, plus accrued and unpaid interest:
| | | | | |
| 12-month period commencing on November 15, 2026 | Price (% of principal amount) |
| 2026 | 105.188 | % |
| 2027 | 102.594 | % |
| 2028 and thereafter | 100.000 | % |
Prior to November 15, 2026, the Issuers may redeem up to 40% of the original aggregate principal amount of the 2030 Notes issued under the Indenture (including any additional 2030 Notes) up to an amount equal to the net cash proceeds of one or more equity offerings, at a redemption price equal to 110.375% of the principal amount thereof, plus accrued and unpaid interest thereon, provided, that immediately after giving effect to any such redemption, at least 60% of the original aggregate principal amount of 2030 Notes (including any additional 2030 Notes) remains outstanding. In addition, at any time prior to November 15, 2026, the Issuers may redeem up to 10% of the original aggregate principal amount of the 2030 Notes issued under the Indenture (including any additional 2030 Notes) during any twelve-month period at a redemption price equal to 103.000% of the aggregate principal amount thereof, plus accrued and unpaid interest.
The Indenture contains covenants that, among other things, restrict the ability of the Company and its “restricted subsidiaries” (currently consisting of all of the Company’s subsidiaries other than the entities which are party to the contracts to acquire Vale and Var (and the owner of such entity and our Mexican JVs)) to: (i) incur additional debt and issue certain preferred stock; (ii) incur or create liens securing debt; (iii) pay or make certain dividends, distributions, investments and other restricted payments; (iv) sell or otherwise dispose of certain assets; (v) engage in certain transactions with affiliates; and (vi) merge, consolidate, amalgamate or sell, transfer, lease or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to important exceptions and qualifications. In addition, many of these covenants will be suspended with respect to the Notes during any time that the Notes have investment grade ratings from at least two rating agencies and no default with respect to the Notes has occurred and is continuing.
Upon the occurrence of certain Change of Control Triggering Event (as defined in the Indenture), the Issuers must offer to purchase all of the Notes then outstanding at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of the purchase.
The foregoing description of the Indenture is qualified in its entirety by reference to the full text of the Indenture, a copy of which is filed as Exhibit 4.13 to the Q3 2023 Form 6-K and is incorporated herein by reference.
Super Senior Credit Facility
On November 7, 2023, the Company and Borr IHC Limited (as borrowers and guarantors) entered into the Super Senior Credit Facility Agreement with DNB Bank ASA and Citibank N.A., Jersey Branch (as original lenders), DNB Bank ASA (as facility agent) (the “RCF Facility Agent”) and Wilmington Trust (London) Limited (as security agent). This facility is comprised of a $150 million RCF and a $30 million Guarantee Facility.
Borrowings will be available to be used for general corporate and/or working capital purposes, provided that any amounts borrowed may not be used to fund any dividend or other distribution.
The Super Senior Credit Facility is secured on a super-senior basis by the same security that secures the Notes.
The interest rate on loans under the RCF is the applicable margin plus Term SOFR, subject to a zero floor. The initial margin is 3.25% per annum. Subject to certain conditions, the margin will be adjusted in accordance with a margin ratchet.
The Super Senior Credit Facility Agreement contains certain incurrence covenants which are substantially the same as those that are contained in the Indenture for the Notes, customary affirmative and negative covenants, as well as financial covenants which require the Company to comply subject (where applicable) to the satisfaction of certain conditions, with a maximum consolidated net leverage ratio, a minimum liquidity ratio, a minimum equity ratio, a minimum collateral ratio (based on the market value of certain of our Rigs) and a minimum interest cover ratio on particular test dates and during particular periods. The agreement contains customary cure rights for certain of the financial covenants.
A commitment fee is payable on the aggregate undrawn and uncancelled amount of the RCF from November 7, 2023 until the last day of the availability period for the facility at the rate of 40% of the then applicable margin.
The termination date for the Super Senior Credit Facility will be the earlier of the date falling (i) 54 months after the Closing Date (as defined in the Super Senior Credit Facility Agreement); and (ii) six months prior to the final maturity of the Notes.
The foregoing description of the Super Senior Credit Facility is qualified in its entirety by reference to the full text of the Super Senior Credit Facility Agreement, a copy of which is filed as Exhibit 4.14 to the Q3 2023 Form 6-K and is incorporated herein by reference.
Undelivered Seatrium Newbuild Financing
We have agreements to purchase two undelivered rigs from Seatrium, “Vale” and “Var”. These rigs are presently under construction by Seatrium and the best efforts expedited delivery date for "Vale" is scheduled for August 2024, and best efforts expedited delivery date for "Var" is scheduled for November 2024.
In October 2023, we reached an agreement in principle with Seatrium to amend and restate the terms of these future and contingent obligations which include: (i) the payment of the final installments on each rig, of $147,406,000 per rig, payable on delivery; (ii) “holding costs” and “cost cover”, accruing until delivery of the rigs, which are payable quarterly in arrears; (iii) acceleration costs of $12.5 million per rig, payable on delivery; and (iv) the ability to draw on committed delivery financing from OPPL, of $130.0 million for each rig, with a four-year maturity, subject to a right for the lender to amendcall the financial covenants to reflect any more lender-favorable covenantsloan after three years, with repayments of principal at the rate of $15.0 million per year per rig in any other agreement pursuant to which loan or guarantee facilities are provided to us, including amendments to our Financing Arrangements. On December 30, 2020,years 1 and 2 with the Company received waivers for certain covenants which were applicable both as at December 31, 2020 and up to the finalizationbalance of the 2021 Amendments (see note 32. principal amortizing in years 3 and 4.
As part of the amendments agreedagreement with Seatrium, the Company will grant a limited guarantee to Seatrium in January 2021 (see note 32),respect of construction and related costs related to "Vale" and "Var" (less the thresholdamount of the minimum valuecommitted financing) up to loan covenant was lowered from 175%delivery. If the committed financing facilities are drawn, then the lender, OPPL, will not have recourse to 140%% in the New Bridge Facility. Following these amendments being formalized in January 2021, the Company wasand will not have a guarantee from the Company in compliance with the requirementsrespect of the amended value to loan covenant.
As of December 31, 2020, “Odin” was pledged as collateral forfinancing but the New Bridge Revolving Credit Facility. Total book valuefacilities will be secured by a separate security package, consisting of: (i) rig mortgages over "Vale" and "Var", (ii) pledges over receivables in respect of the encumbered rig was $92.7 million asrigs from each the owners of December 31, 2020. The terms"Vale" and "Var" and (on a limited recourse basis) any intra-group charterers, (iii) pledge over insurances, (iv) share pledges over the share capital of the New Bridge Revolving Credit Facility were subsequently amended (see note 32).owners of "Vale" and "Var" (v) a fixed charge over a blocked debt reserve bank account, (vi) a floating charge over the earnings account of each owner of "Vale" and "Var" and (vii) an intercompany debt subordination deed.
Unsecured Convertible Bonds due 2028
In May 2018February 2023, we raised $350.0$250.0 million through the issuance of ournew unsecured convertible bonds, which mature in February 2028, the proceeds of which were used to refinance our Convertible Bonds due in May 2023. The initial conversion price (which is subject to adjustment) is $33.4815was $ 7.3471 per share, forconvertible into 34,027,031 common shares. Following the declaration and payment of a total$0.05 per share cash distribution in January 2024 and a further $0.05 per share cash distribution paid in March 2024, the adjusted conversion price is $7.2384 per share, with the full amount of 10,453,612the convertible bonds convertible into 34,538,019 shares. The convertible bonds have a coupon of 3.875%5% per annum payable semi-annually in arrears in equal installments. The terms and conditions governing our convertible bonds contain customary events of default, including failure to pay any amount due on the bonds when due, and certain restrictions, including, among others, restrictions on disposal of assets and our ability and the ability of our subsidiaries to incur secured capital markets indebtedness. The Company has entered into Call Spreads to mitigate potential effects of a conversion (see note 19).
As of December 31, 2020, we were in compliance with the covenants and our obligations under our convertible bonds.
Our Delivery Financing Arrangements
PPL Newbuild Financing
In October 2017, we agreed to acquire 9 premium “Pacific Class 400” jack-up rigs from PPL (the “PPL Rigs”). We accepted delivery of all 9 of the PPL Rigs as of December 31, 2020. In connection with delivery of the PPL Rigs, our rig-owning subsidiaries as buyers of the PPL Rigs agreed to accept delivery financing for a portion of the purchase price equal to $87.0 million per jack-up rig (the “PPL Financing”).
The PPL Financing for each PPL Rig is an interest-bearing secured seller's credit, with the borrower being either a rig owner in which case its obligations are guaranteed by the Company,carry out any merger or the borrower being the Company, with the rig owner as guarantor and provider of security in its assets. Each seller’s credit originally matured on the date falling 60 months from the delivery date of the respective PPL Rig (later amended in the January 2021 amendments). The PPL Financing bears interest at 3-month USD LIBOR plus a variable marginal rate. Interest accrues and is payable quarterly in arrears.
The PPL Financing is cross-collateralized and secured by a mortgage on such PPL Rig and an assignment of the insurances in respect of such PPL Rig. The PPL Financing also contains various covenants and the events of default include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the PPL Financing agreements or security documents, or jeopardize the security. In addition, each rig-owning subsidiary iscorporate reorganization, subject to covenants which management considered to be customary in a transaction of this nature. In June 2020, a substantial amount of cash payments of interest was suspended in relation to these rigs for the period from the first quarter of 2020 to the fourth quarter of 2021, and accrued interest becomes payable in the first quarter of 2022, except for $1 million payable per quarter starting in the first quarter of 2020. Accrued, unpaid interest will be guaranteed by Borr IHC Limited, an intermediate holding company which was incorporated on June 29, 2020. Borr IHC Limited is a subsidiary of the Company and has acquired the shares in the Company’s other subsidiaries with the exception of Borr Jack-Up XVI. The security for the PPL Financing also includes share security over the owners of the rigs which were delivered by PPL with finance under the PPL Financing agreements.exceptions.
As of December 31, 2020, we had $753.3 million of principal debt (2019: $753.3 million) of PPL Financing outstanding and were in compliance with the covenants and our obligations under the PPL Financing agreements.
As of December 31, 2020, Galar, Gerd, Gersemi, Grid, Gunnlod, Groa, Gyme, Natt and Njord were pledged as collateral for the PPL financing. Total book value for the encumbered rigs was $1,296.3 million as of December 31, 2020. The terms of the PPL Newbuild Financing were subsequently amended (see note 32).
Keppel Newbuild Financing
In May 2018, we agreed to acquire 5 premium KFELS B class jack-up rigs, 3 completed and 2 under construction from Keppel (the “Keppel H-Rigs”). AsFor a description of our outstanding debt facilities as at December 31, 2020, 2 Keppel H-Rigs ("Huldra" and "Heidrun") remain to be delivered. In connection with delivery of the Keppel H-Rigs, Keppel has agreed to extend delivery financing for a portion of the purchase price equal to $90.9 million for the 3 delivered jack-up rigs and $77.7 million each for the 2 undelivered rigs "Huldra" and "Heidrun" (together to be referred to as the "H-Rig Financing"). Separately from the H-Rigs Financing described below, we may exercise an option to accept delivery financing from Keppel with respect to 2 ("Vale" and "Var") of the 3 additional newbuild jack-up rigs, acquired2022, see Note 21 - Debt, in connection with the Transocean Transaction (see note 32). We will, prior to delivery of each jack-up rig from Keppel, consider available alternatives to such financing.
In June 2020, we agreed to defer the delivery of 2 of the Keppel Rigs to the third quarter of 2022 and 3 of the newbuild jack-up rigs acquired in connection with the Transocean Transaction to 30 June 2022 (“Tivar”) and the third quarter of 2022 (“Vale” and “Var”). We have agreed to pay certain holding and other costs for each of the 5 rigs in respect of the period from the original delivery dates to the revised delivery date.
Payments of such costs fall due in quarterly installments from the first quarter of 2021 until delivery. In January 2021, we have agreed with Keppel to further postpone the deliveries to May ("Tivar"), July ("Vale"), and September ("Var"), October ("Huldra") and December ("Heidrun) 2023.
The H-Rig Keppel Financing for each Keppel Rig is an interest-bearing secured facility from the lender thereunder (an affiliate of Keppel), guaranteed by the Company which will be made availableour annual report on delivery of each rig and matures on the date falling 60 months from the delivery date of each respective Keppel Rig (later amended in the January 2021 amendments).
The H-Rig Financing for each respective Keppel Rig will be secured by a mortgage on such Keppel Rig, assignments of earnings and insurances and a charge over the shares of the rig-owning subsidiary which holds each such Keppel Rig. The H-Rig Financing agreements also contain a loan to value clause requiring that the market value of our rigs shall at all times be at least 130% of the loan and also contains various covenants, including, among others, restrictions on incurring additional indebtedness. Each Keppel Financing agreement also contains events of default which include non-payment, cross default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the Keppel Financing agreements or security documents, or jeopardize the security.
As of December 31, 2020, we had $259.2 million (2019: $86.4 million) in Keppel principal Financing outstanding and were in compliance with our covenants and obligations under the Keppel Financing agreements.
As of December 31, 2020, Hermod, Hild and Heimdal were pledged as collateral for the Keppel financing. Total book value for the encumbered rigs was $451.4 million as of December 31, 2020. The terms of the Keppel Newbuild Financing were subsequently amended, see note 32.
Interest
The average interest rate for all our interest-bearing debt was 4.93%Form 20-F for the year ended December 31, 2020 (2019: 6.17%). As of December 31, 2020, payment of $41.1 million of interest expenses and cost cover are extended and will fall due after 12 months as a result of modifications made to our debt agreements throughout 2020.2022 filed with the SEC on March 30, 2023.
Interest
The weighted average interest rate for our interest-bearing debt (excluding our convertible bonds) was 10.62% for the year ended December 31, 2023 (2022: 7.32%).
Note 2322 - Onerous contractsContracts
Onerous contracts are comprised of the following:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| | | |
| Onerous rig contract Hull B366 (TBN "Tivar") | 16.8 | | | 16.8 | |
| Onerous rig contract Hull B367 (TBN "Vale") | 26.9 | | | 26.9 | |
| Onerous rig contract Hull B368 (TBN "Var") | 27.6 | | | 27.6 | |
| Total onerous contracts | 71.3 | | | 71.3 | |
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| | |
| Onerous rig contract "Vale" | 26.9 | | 26.9 | |
| Onerous rig contract "Var" | 27.6 | | 27.6 | |
| Total | 54.5 | | 54.5 | |
Onerous contracts for Hull relate to the estimated excess of remaining shipyard installments to be made to Keppel FELSSeatrium over the fair value in use estimate at the time of acquisition of the newbuild contracts for the jack-up drilling rigs to be delivered.
As a result of amended agreements with Keppel FELS in June 2020, $71.3 million of the onerous rig contract balances classified as short term as of December 31, 2019 are now reclassified to non-current. "Tivar" was expected to be delivered in the second quarter of 2022 and "Vale" and "Var in the third quarter of 2022. In January 2021, we amended the delivery contracts with Keppel FELS, deferring delivery of "Tivar" to the second quarter of 2023 and "Vale" and "Var" in 2017.
During the quarter ended December 31, 2022, the Company entered into a sales agreement relating to three newbuild jack-up rigs, of which one was the thirdjack-up rig "Tivar". Upon sale of the "Tivar" in the fourth quarter of 2023 (see note 32).2022, the corresponding onerous liability was de-recognized.
Note 2423 - Commitments and contingenciesContingencies
Transocean Transaction
On March 15, 2017, the Company entered into an agreement and a signed letter of intent to acquire fifteen high specification jack-up drilling rigs from Transocean Inc ("Transocean"). The transaction consisted of Transocean's entire jack-up fleet, comprising eight rig owning companies in Transocean's fleet and five newbuildings under construction at Seatrium, Singapore.
Of the five newbuildings acquired in connection with the Transocean Transaction, as of December 31, 2023 two rigs were delivered ("Saga", "Skald") in 2018, one was sold ("Tivar") in 2022 and two remain under construction ("Vale" and "Var"). We have an option to accept delivery financing from Seatrium with respect to “Vale” and “Var”. In June 2020, we agreed to defer the delivery of these two rigs to the third quarter of 2022, in January 2021, we agreed to defer delivery dates to the third quarter of 2023 and in October 2022, we agreed to further defer delivery dates to the second and third quarter of 2025. In September 2023, we entered into an executed agreement with Seatrium to amend the Construction Contract for the two rigs and give notice to expedite their delivery dates, on a best efforts basis only, to August 2024 and November 2024, respectively, in consideration for an additional payment of $12.5 million (acceleration costs) per rig on each respective delivery date. The remaining contracted installments for these two rigs under construction, payable on delivery are approximately $319.8 million as of December 31, 2023 ($294.8 million as of December 31, 2022).
Acquisition of Seatrium Rigs
In May 2018, the Company signed a master agreement to acquire five premium newbuild jack-up drilling rigs from Seatrium. In October 2019, January 2020 and April 2020 we took delivery of the new jack-up rigs “Hermod”, "Heimdal" and "Hild", respectively. In 2022 the delivery dates of the two remaining rigs were amended to 2023 and subsequently, the rigs "Huldra" and "Heidrun" were sold. The remaining contracted installments for these two rigs under construction, payable on delivery are nil as of December 31, 2023 and 2022.
The Company has the following delivery installment commitments:
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2020 | | As at December 31, 2019 |
| (in $ millions) | Delivery instalment | | Back-end fee | | Delivery
instalment | | Back-end
fee |
| Delivery installments for jack-up drilling rigs | 621.0 | | | 9.0 | | | 793.8 | | | 18.0 | |
The back-end fee is only payable and will be included as part of the cost price if we choose to accept delivery financing from Keppel as described above in note 22. In addition, under the PPL Financing, PPL is entitled to certain fees payable in connection with the increase in the market value of the relevant PPL Rig from October 31, 2017 until the repayment date, less the relevant rig owner’s equity cost of ownership of each rig and any interest paid on the delivery financing (see note 22). | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Delivery installments for jack-up drilling rigs | 319.8 | | 294.8 | |
| | |
| Total | 319.8 | | 294.8 | |
The following table sets for maturity offorth when our delivery installment commitments fall due as of December 31, 20202023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In $ millions) | Less than 1 year | | 1–3 years | | 3–5 years | | More than 5 years | | Total |
| Delivery instalments for jack-up rigs | 0 | | | 621.0 | | | 0 | | | 0 | | | 621.0 | |
Back-end fee is excluded from the maturity table above as it is only payable if we chose to accept the available delivery financing from Keppel | | | | | | | | | | | |
| (In $ millions) | Less than 1 year | 1-3 years | Total |
| Delivery installments for jack-up rigs | 319.8 | | — | | 319.8 | |
Other commercial commitments
We have other commercial commitments which contractually obligate us to settle with cash under certain circumstances. Surety bondsBank and parent company guarantees entered into between certain customers and governmental bodies guarantee our performance regarding certain drilling contracts, customs import duties and other obligations in various jurisdictions.
The Company has the following guarantee commitments:
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
Bank guarantees and performance bonds(1) | 29.0 | | 9.7 | |
| Total | 29.0 | | 9.7 | |
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Surety bonds, bank guarantees and performance bonds | 43.3 | | | 70.1 | |
| Performance guarantee to Opex (note 3) | 5.9 | | | 5.9 | |
| Total | 49.2 | | | 76.0 | |
As of December 31, 2020,2023, the expected expiration dates of these obligations stated in $ equivalent and their expiry dates are as follows:
| | | | | | | | | | | | | | | | | |
| (In $ millions) | 2021 | | 2022 | | Total |
| Surety bonds, bank guarantees and performance bonds | 21.8 | | | 21.5 | | | 43.3 | |
| Performance guarantee to OPEX (note 3) | 5.9 | | | 0 | | | 5.9 | |
| Total | 27.7 | | | 21.5 | | | 49.2 | |
| | | | | | | | | | | | | | |
| (In $ millions) | Less than 1 year | 1-3 years | Thereafter | Total |
| Bank guarantees and performance bonds | 12.1 | | 11.3 | | 5.6 | | 29.0 | |
Assets pledged as collateral
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Book value of jackup rigs pledged as collateral for long-term debt facilities | 2,822.3 | | | 2,586.5 | |
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Book value of jack-up rigs pledged as collateral for debt facilities | 2,578.3 | | 2,396.2 | |
Note 25 - Non-controlling interest
Non-controlling interest consisted of a 10% ownership interest in Borr Jack-Up XVI Inc. acquired in late 2017 by Valiant Offshore Contractors Limited. The Company reacquired the ownership interest of 10% for NaN consideration in 2020.
Note 2624 - Share based compensationBased Compensation
Share-based payment charges for the year ended:Share Options
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| Share-based payment charge | 0.7 | | | 3.9 | | | 3.7 | |
| Total shared based compensation | 0.7 | | | 3.9 | | | 3.7 | |
We have adopted a long-term Share Option Scheme ("Borr Scheme"). The Borr Scheme permits the board of directors, at its discretion, to grant options and to acquire shares in the Company, to employees non-employees and directors of the Company or its subsidiaries. Options granted under the schemeBorr Scheme will vest at a date determined by the board at the date of the grant. The options granted under the plan to date have five yearfive-year terms and vest equallyhave various vesting profiles, which range over a period of threeone year to four years.year periods. The total number of shares authorized by the Board to be issued under the schemeBorr Scheme is 3,494,000.12,997,000.
Share-based payment charges for the years ended December 31, 2023, 2022 and 2021 were as follows:
On June 21, 2019
| | | | | | | | | | | |
| For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Share-based payment charge | 4.6 | 2.1 | 0.1 |
Details regarding share option issuances for the Board of Directors approved a 5-to-1 reverse share splityear ended December 31, 2023, 2022 and 2021 are as follows:
| | | | | | | | | | | |
| Grant Date | Number of Share Options Issued | Exercise Price | Share Price Grant Date |
| November 2023 | 2,100,000 | | 6.65 | 6.19 |
| September 2022 | 1,333,334 | | 4.00 | 3.96 |
| September 2022 | 1,333,333 | | 4.75 | 3.96 |
| September 2022 | 1,333,333 | | 5.50 | 3.96 |
| August 2021 | 5,150,000 | | 2.00 | 1.40 |
The fair values of the Company’s shares. Upon effectivenessoptions issued in 2023, 2022 and 2021 were calculated at $5.5 million, $8.0 million and $2.6 million respectively, and are recognized as "General and administrative expenses" or "Rig operating and maintenance expenses" over the vesting period, based on the employee's profit center, in the Consolidated Statements of Operations.
The table below sets forth the Reverse Split, every five shares of the Company’s issued and outstanding ordinary shares, par value $0.01 per share was combined into one issued and outstanding ordinary share, par value $0.05 per share. All grants and strike prices below are adjusted to reflect the Reverse Split.
Month, number strike price and share price at date of grant of share options issued during 2019 is as follows:and weighted average fair value price for the years ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| Month of grant | | No of share options issued | | Exercise price | | Share price on date of grant |
| March | | 460,000 | | | $17.50 | | $14.20 |
Month, number, strike price and share price at date of grant of share options issued during 2018is as follows:
| | | | | | | | | | | | | | | | | | | | |
| Month of grant | | No of share options issued | | Exercise price | | Share price on date of grant |
| January | | 10,000 | | | $20.00 | | $21.75 |
| April | | 30,000 | | | $21.00 | | $22.85 |
| July | | 1,564,000 | | | $24.35 | | $22.95 |
| September | | 20,000 | | | $22.95 | | $22.80 |
| October | | 40,000 | | | $22.75 | | $22.85 |
The fair values of the consolidated options issued in 2019 and 2018 were calculated at $1.7 million and $9.9 million, respectively, and will be charged to the Consolidated Statement of Operations as general and administrative expenses over the vesting period. No options were granted in 2020. | | | | | | | | | | | | | | | | | | | | |
| 2023 | 2022 | 2021 |
| Number | Weighted Avg. Fair Value Price (in $) | Number | Weighted Avg. Fair Value Price (in $) | Number | Weighted Avg. Fair Value Price (in $) |
| Outstanding at January 1 | 9,445,006 | | 1.19 | | 5,670,000 | | 0.64 | | 885,000 | | 1.91 | |
| Granted during the year | 2,100,000 | | 2.63 | | 4,000,000 | | 2.00 | | 5,150,000 | | 0.51 | |
| Exercised during the year | (410,302) | | 0.47 | | — | | — | | — | | — | |
| Forfeited during the year | (217,506) | | 0.88 | | (11,250) | | 2.68 | | (105,500) | | 1.24 | |
| Expired during the year | (227,500) | | 2.29 | | (213,744) | | 1.78 | | (259,500) | | 3.19 | |
| Outstanding at December 31 | 10,689,698 | | 1.48 | | 9,445,006 | | 1.19 | | 5,670,000 | | 0.64 | |
The fair value of equity settled options are measured at grant date using the Black Scholes option pricing model using the following input:inputs:
| | 2019 | | 2018 |
| 2023 | | | 2023 | 2022 | 2021 |
| Expected future volatility | Expected future volatility | | 32 | % | | 30 | % | Expected future volatility | 59 | % | 76 | % | 57 | % |
| Expected dividend rate | Expected dividend rate | | 0 | % | | 0 | % | Expected dividend rate | — | % | — | % | — | % |
| Risk-free rate | Risk-free rate | | 2 | % | | 2.1% to 2.9% | Risk-free rate | 4.3% to 4.8% | 3.4% to 3.5% | 0.5% to 0.8% |
| Expected life after vesting | Expected life after vesting | | 2 years | | 2 years | Expected life after vesting | 3.3 years | 3.5 years | 2 years |
The volatility was derived by using an average of the (i) Historichistoric volatility of the Company’s shares since listing on the Oslo Stock Exchange, (ii) Deleveraged peer group volatility and (iii) Oslo Energy sector index volatility.
The table below sets forth the number of share options granted and weighted average exercise price during the years ended December 31, 2020, 20192023, 2022 and 2018:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | | 2019 | | | 2018 | |
| | Number | | Weighted
Average
Exercise Price
(in $) | | | Number | | Weighted
Average
Exercise Price
(in $) | | | Number | | Weighted
Average
Exercise
Price
(in $) | |
| Outstanding at January 1 | | 2,357,500 | | | 20.92 | | | | 2,615,000 | | | 22.00 | | | | 1,711,000 | | | 18.00 | | |
| Granted during the year | | 0 | | | 0 | | | | 460,000 | | | 17.50 | | | | 1,664,000 | | | 24.00 | | |
| Forfeited during the year | | (587,500) | | | 20.89 | | | | (717,500) | | | 22.34 | | | | (760,000) | | | 18.00 | | |
| Outstanding at December 31 | | 1,770,000 | | | 20.93 | | | | 2,357,500 | | | 20.92 | | | | 2,615,000 | | | 22.00 | | |
| Exercisable at December 31 | | 1,144,000 | | | 20.27 | | | | 810,999 | | | 20.04 | | | | 333,666 | | | 18.00 | | |
| | | | | | | | | | | | | | | | | | | | |
| 2023 | 2022 | 2021 |
| Number | Weighted Avg. Exercise Price (in $) | Number | Weighted Avg. Exercise Price (in $) | Number | Weighted Avg. Exercise Price (in $) |
| Outstanding at January 1 | 9,445,006 | | 4.48 | | 5,670,000 | | 5.66 | | 885,000 | | 41.86 | |
| Granted during the year | 2,100,000 | | 6.65 | | 4,000,000 | | 4.75 | | 5,150,000 | | 2.00 | |
| Exercised during the year | (410,302) | | 2.00 | | — | | — | | — | | — | |
| Forfeited during the year | (217,506) | | 3.77 | | (11,250) | | 48.70 | | (105,500) | | 46.42 | |
| Expired during the year | (227,500) | | 46.92 | | (213,744) | | 38.47 | | (259,500) | | 40.64 | |
| Outstanding at December 31 | 10,689,698 | | 4.11 | | 9,445,006 | | 4.48 | | 5,670,000 | | 5.66 | |
| Exercisable at December 31 | 1,313,036 | | 3.51 | | 271,250 | | 45.00 | | 411,244 | | 41.75 | |
The aggregate intrinsic value for the outstanding share options as of December 31, 2023 and 2022 is $36.3 million and $16.9 million, respectively. The aggregate intrinsic value for the exercisable share options as of December 31, 2023 and 2022 is $6.7 million and nil, respectively. The total intrinsic value for the share options exercised during the year ended December 31, 2023 was $2.2 million. No share options were exercised during the year ended December 31, 2022
Weighted average remaining life for the vested options as at December 31, 2020, 20192023, 2022 and 20182021 were 2.012.54 years, 2.860.71 years and 3.501.19 years respectively.
Note 27 - Fair values of financial instruments
The carrying value and estimated fair value of the Company’s cash and financial instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | | As of December 31, 2019 |
| (In $ millions) | Hierarchy | | Fair value | | Carrying
value | | Fair value | | Carrying value |
| Assets | | | | | | | | | |
| Cash and cash equivalents | 1 | | | 19.2 | | | 19.2 | | 59.1 | | | 59.1 |
| Restricted cash | 1 | | | 0 | | | 0 | | 69.4 | | | 69.4 |
| | | | | | | | | |
| | | | | | | | | |
| Trade receivables | 1 | | | 22.9 | | | 22.9 | | 40.2 | | | 40.2 |
| Tax retentions receivable | 1 | | | 10.5 | | | 10.5 | | | 11.6 | | | 11.6 |
| Other current assets (excluding deferred costs) | 1 | | | 14.9 | | | 14.9 | | | 22.7 | | | 22.7 | |
| Due from related parties | 1 | | | 34.9 | | | 34.9 | | 8.6 | | | 8.6 |
| Forward contracts (note 19) | 2 | | | 0 | | | 0 | | | 27.9 | | | 27.9 | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Long-term debt | 2 | | | 1,609.8 | | | 1,906.2 | | 1,624.0 | | | 1,709.8 |
| Trade payables | 1 | | | 20.4 | | | 20.4 | | 14.1 | | | 14.1 |
| Accruals and other current liabilities | 1 | | | 75.6 | | | 75.6 | | 99.6 | | | 99.6 |
| Forward contracts (see note 19) | 2 | | | 0 | | | 0 | | | 92.2 | | | 92.2 | |
| Guarantees issued to equity method investments (see note 3) | 3 | | | 5.9 | | | 5.9 | | | 5.9 | | | 5.9 | |
Financial instruments included in the table above are included within ‘Level 1 and 2’ of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The forward contracts are presented net in the consolidated balance sheets as of December 31, 2020 and December 31, 2019. Included in “Level 1” are cash and cash equivalents, restricted cash, trade receivables, other current assets (excluding prepayments and deferred costs), trade payables, accruals and other current liabilities. The carrying value of any accounts receivable and payables approximates fair value duePursuant to the short timeLong Term Incentive Plan ("LTIP"), we granted 500,000 Performance Stock Units ("PSUs") to expected payment or receipt of cash.
Included in “Level 3” is guarantees issued to equity method investments. The guarantee has been valued utilizing the inferred debt market method and subsequently mapped to an alpha category credit score, adjusting for country risk and default probability (see note 3).
Assets Measured at Fair Value on a Non-Recurring Basis
At June 30, 2020, the Company measured two of their cold stacked rigs "Atla" and "Balder" at fair value of $5.0 million each, which was determined using level 3 inputs based on a combination of an income approach, using projected discounted cash flows an estimated sale or scrap value which require significant judgements. The "Atla" was sold in November 2020 and the "Balder" was classified as held for sale at the year end (see note 13) and sold in February 2021 (see note 32).
Note 28 - Related party transactions
a) Transactions with entities over which we have significant influence
Since 2019, we have provided 3 rigs on a bareboat basis for Perfomex to service its contract with Opex and 2 rigs on a bareboat basis for Perfomex II to service its contract with Akal. All the companies are 49% owned joint venture companies. Perfomex and Perfomex II provide the jack-up rigs under traditional dayrate drilling and technical service agreements to Opex and Akal. This structure enables Opex and Akal to provide bundled integrated well services to PEMEX. The potential revenue earned is fixed under each of the PEMEX contracts, while Opex and Akal manage the drilling services and related costs on a per well basis. The revenue from these contracts can be found within the Related party revenue line in our Consolidated Statement of Operations. We are also obligated, as a 49% shareholder, to fund any capital shortfall in Opex or Akal where the Board of Opex or Akal make a cash call to the shareholders under the provisions of the Shareholder Agreements. See Note 3 'Equity Method Investments'.
A summary of leasing revenues earned and management services agreement revenues reported as 'related party revenue' earned forChief Executive Officer during the year ended December 31, 2020 and for2022. The PSUs will vest in full on September 1, 2025 depending on certain performance criteria linked to the five month period from the date of incorporation to December 31, 2019 is as follows:
| | | | | | | | | | | |
| (In $ millions) | 2020 | | 2019 |
| Management Services Agreement | | | |
| Perfomex | 10.9 | | | 2.6 | |
| Perfomex II | 7.5 | | | 0.2 | |
| Opex | 1.1 | | | 1.3 | |
| Akal | 0 | | | 0 | |
| | | |
| Bareboat Revenue | | | |
| Perfomex | 17.5 | | | 2.4 | |
| Perfomex II | 5.3 | | | 0 | |
| Total | 42.3 | | | 6.5 | |
Funding provided to Mexican Joint Ventures for the year ended December 31, 2020 and for the five month period from the date of incorporation to December 31, 2019:
| | | | | | | | | | | |
| (In $ millions) | 2020 | | 2019 |
| Funding provided | | | |
| Perfomex | 10.8 | | | 30.7 | |
| Perfomex II | 9.4 | | | 0 | |
| Opex | 3.6 | | | 0.1 | |
| Akal | 1.7 | | | 0 | |
| | | |
| Total | 25.5 | | | 30.8 | |
Receivables: The balances with the Mexican Joint Ventures as of December 31, 2020 and 2019 consistedclosing share price. Pay out of the following:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Receivables | | | |
| Perfomex | 25.9 | | | 6.5 | |
| Perfomex II | 7.1 | | | 0.2 | |
| Opex | 1.9 | | | 1.9 | |
| Akal | 0 | | | 0 | |
| Total | 34.9 | | | 8.6 | |
In addition, we have provided a guarantee valued at $5.9 millionaward is subject to support Opex’s operations underreaching $10.00 per share on 75% of the contracts with PEMEX.
b) Transactions with former Chief Executive OfficerPSUs expense for the year ended December 31, 2023 and Chief Financial Officer2022 was $0.3 million and $0.1 million, respectively.
In May, June | | | | | | | | |
| Number | Weighted Avg. Fair Value Price (in $) |
| Non-vested at January 1, 2022 | — | | — | |
| Granted during the year | 500,000 | | 2.02 | |
| Forfeited during the year | — | | — | |
| Expired during the year | — | | — | |
| Non-vested at December 31, 2022 | 500,000 | | 2.02 | |
No PSUs were granted during the years ended December 31, 2023 and August 2019,2021.
The fair value of the PSUs issued in 2022 was calculated at $1.0 million and is recognized in "General and administrative expenses" in the Consolidated Statements of Operations over the vesting period.
The fair value of PSUs is measured at grant date using the Monte Carlo simulation model using the following inputs:
| | | | | |
| 2022 |
| Expected future volatility | 81 | % |
| Share price at valuation date | $3.96 |
| Expected dividend rate | — | % |
| Risk-free rate | 3.54 | % |
The volatility was derived by using an average of the (i) historic volatility of the Company’s shares since listing on the New York Stock Exchange, (ii) peer group volatility and (iii) Oslo Energy sector index volatility.
Restricted Stock Units
We granted 112,780 Restricted Stock Units ("RSUs") to our chief executive officerdirectors during the year ended December 31, 2023. The RSUs will vest in full on September 30, 2024 and chief financial officerare conditional on recipients continuing to serve as a director at the time received advance payments in aggregate amountdate of approximately $500,000 each to be offset against future bonuses. Such advances were not approved by our compensation committee or board of directors. Section 13(k) of the U.S. Exchange Act of 1934 (the “Exchange Act”), which applies to the Company since its initial public offering in the United States in July 2019, prohibits personal loans to a director or executive officer of a company with shares registered under the Exchange Act. Following disclosure of such advancesvesting. We granted 88,584 RSUs to our board of directors and determination that such advances constituted an inadvertent violation of Section 13(k) ofduring the Exchange Act, the advances were repaidyear ended December 31, 2022. These RSUs vested in full and/or deemed repaid with the advances offset against amounts otherwise payable to them.on September 30, 2023.
b) Transactions with Other related parties
Net Expenses: The transactions with other related partiesRSUs expense for the years ended December 31, 2020, 20192023 and 2018 are as follows:2022 was $0.5 million and $0.1 million, respectively.
| | | | | | | | | | | | | | | | | |
| (In $ millions) | 2020 | | 2019 | | 2018 |
| General and administrative expenses | | | | | |
| Magni Partners Limited (ii) | 1.0 | | | 1.0 | | | 0 | |
| | | | | |
| Rig operating and maintenance expenses | | | | | |
| Schlumberger Limited (iii) | 6.9 | | | 14.6 | | | 8.5 | |
| Total | 7.9 | | | 15.6 | | | 8.5 | |
Payables: The balances with other related parties astable below sets forth the number of December 31,2020RSUs and 2019
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Schlumberger Limited (iii) | 0 | | | 0.4 | |
| Total | 0 | | | 0.4 | |
(i) Agreements and other Arrangements with Drew Holdings Limited (“Drew”)
Drew is a trust establishedweighted average fair value price for the benefit of Tor Olav Trøim, Deputy Chairman of our Board. Drew is, following its merger with Taran Holdings Limited (“Taran”) in 2017, a large shareholder in us.years ended December 31, 2023 and 2022:
On March 22, 2018, it was announced that we would raise up to $250 million in an equity offering divided in 2 tranches. Tranche 2 of the equity offering was subject to approval by the extraordinary general meeting to be held on April 5, 2018 and subsequent share issue. In connection with the settlement of tranche 2, $27.7 million was recorded as a liability to shareholders, including $20.0 million to Drew as of March 31, 2018. On May 30, 2018, the 1,528,065 new shares allocated in tranche 2 of the equity offering were validly issued and fully paid and the related liabilities settled.
(ii) Agreements and other Arrangements with Magni Partners Limited (“Magni”)
Mr. Tor Olav Trøim is the Deputy Chairman of our Board and is the sole owner of Magni.
Corporate Support Agreement
Magni is party to a Corporate Support Agreement with the Company pursuant to which it is providing strategic advice and assistance in sourcing investment opportunities, financing and other such services as the Company wishes to engage, at the Company's option. There is both a fixed and variable element to the agreement, with the fixed cost element representing the | | | | | | | | | | | | | | |
| 2023 | 2022 |
| Number | Weighted Avg. Fair Value Price (in $) | Number | Weighted Avg. Fair Value Price (in $) |
| Non-vested at January 1 | 88,584 | | 5.08 | | — | | — | |
| Granted during the year | 112,780 | | 6.19 | | 88,584 | | 5.08 | |
| Vested during the year | (88,584) | | 5.08 | | — | | — | |
| Forfeited during the year | — | | — | | — | | — | |
| Expired during the year | — | | — | | — | | — | |
| Non-vested at December 31 | 112,780 | | 6.19 | | 88,584 | | 5.08 | |
reimbursementThe aggregate intrinsic value for the non-vested RSUs as of Magni’s fixed costs,December 31, 2023 and any variable element being2022 is $0.8 million and $0.4 million, respectively. The total intrinsic value for the RSUs vested during the year ended December 31, 2023 was $0.6 million.
No RSUs were granted during the year ended December 31, 2021.
The fair value of the RSUs issued in 2023 and 2022 is calculated at $0.7 million and $0.5 million and is recognized in "General and administrative expenses" in the Company’s discretion. This agreement was originally formalizedConsolidated Statements of Operations over the vesting period.
The fair value of the RSUs is estimated using the closing market price of our stock at grant date.
Note 25 - Pensions
Defined Benefit Plans
As part of the Paragon acquisition, on March 15,29, 2018, the Company acquired two defined benefit pension plans.
As of December 31, 2023, the Company sponsored two non-U.S. noncontributory defined benefit pension plans, the Paragon Offshore Enterprise Ltd and the Paragon Offshore Nederland B.V. pension plans, which cover certain Europe-based salaried employees. As of January 1, 2017, all active employees under the defined benefit pension plans were transferred to a defined contribution pension plan related to their future service. The accrued benefits under the defined benefit plans were frozen and all employees became deferred members.
As of December 31, 2023, assets of the Paragon Offshore Enterprise Ltd and Paragon Offshore Nederland B.V. pension plans were invested in instruments that are similar in form to a guaranteed insurance contract. The plan assets are based on surrender values, and represent the present value of the insured benefits. Surrender values are calculated based on the Dutch Central Bank interest curve. This yield curve is based on inter-bank swap rates. There are no observable market values for the assets (Level 3); however, the amounts listed as plan assets were materially similar to the anticipated benefit obligations under the plans.
As of December 31, 2023, our pension obligations represented an aggregate liability of $114.3 million and an aggregate asset of $114.3 million, representing the fully funded status of the plans. In the year ended December 31, 2023, aggregate periodic benefit costs showed an interest cost of $2.7 million and an expected return on plan assets of $2.7 million. Our defined benefit pension plans are recorded at fair value.
A reconciliation of the changes in projected benefit obligations (“PBO”) for our pension plans are as follows:
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Benefit obligation at beginning of period | 106.9 | | 172.9 | |
| | |
| Interest cost | 2.7 | | 0.7 | |
| Actuarial loss / (gain) | 2.6 | | (54.3) | |
| Benefits paid | (2.1) | | (1.8) | |
| Foreign exchange rate changes | 4.2 | | (10.6) | |
| Benefit obligation at end of period | 114.3 | | 106.9 | |
A reconciliation of the changes in fair value of plan assets is as follows: | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Fair value of plan assets at beginning of period | 106.9 | | 172.9 | |
| Actual return on plan assets | 5.3 | | (53.6) | |
| Benefits paid | (2.1) | | (1.8) | |
| Foreign exchange rate changes | 4.2 | | (10.6) | |
| Fair value of plan assets at end of period | 114.3 | | 106.9 | |
Both plans were fully funded as of December 31, 2023 and December 31, 2022 and as such, no amounts are recognized in our Consolidated Statements of Operations as of December 31, 2023 and December 31, 2022.
Benefit cost includes the following components:
| | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 |
| Interest cost | 2.7 | | 0.7 | |
| Expected return on plan assets | (2.7) | | (0.7) | |
| Net benefit cost | — | | — | |
No benefit cost was supersededrecognized in our Consolidated Statement of Operations during 2023 and 2022.
Defined Benefit Plans – Key Assumptions
The key assumptions for the plans are summarized below:
| | | | | | | | |
| As of December 31, |
| Weighted Average Assumptions Used to Determine Benefit Obligations | 2023 | 2022 |
| Discount rate | 2.33% to 2.47% | 2.54% to 2.93% |
| | | | | | | | |
| For the Years Ended December 31, |
| Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost | 2023 | 2022 |
| Discount rate | 2.54% to 2.93% | 2.54% to 2.93% |
| Expected long-term return on plan assets | 2.54% to 2.93% | 2.54% to 2.93% |
The discount rates used to calculate the net present value of future benefit obligations are determined by using a revised agreementyield curve of high-quality bond portfolios with an average maturity approximating that of the liabilities.
The assets are based on the surrender value of vested benefits within the Nationale Nederlanden contract. This value is based on the projected future cash flows discounted with a (contractually specified) interest rate term structure (spot rates by term). The single interest equivalent of this interest rate term structure has been set as the expected return on plan assets.
Defined Benefit Plans – Cash Flows
No contributions were made to the plans in August 2020.2023 or 2022. The Company does not expect to make contributions to the plan in the next year.
(iii) Agreements and other Arrangements with Schlumberger Limited (“Schlumberger”)
Schlumberger is one of our larger shareholders, holding 6.9%The following table summarizes the benefit payments at December 31, 2020. Until his appointment as our Chief Executive Officer, Patrick Schorn, formerly Executive Vice President of Wells at Schlumberger Limited, was a Director on our Board. Following the resignation of Patrick Schorn from Schlumberger on August 31, 2020, Schlumberger ceased2023 estimated to be paid within the next ten years by the issuer of the guaranteed insurance contract:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Payments by Period |
| Total | 2024 | 2025 | 2026 | 2027 | 2028 | Five Years Thereafter |
| Estimated benefit payments | 36.5 | | 2.5 | | 2.8 | | 3.0 | | 3.3 | | 3.5 | | 21.4 | |
Defined Contribution Plans
The Company operates a related party. Purchases from Schlumberger were $6.9 millionnumber of defined contribution plans, allowing employees to make tax-deferred contributions to the plans. Under these plans the Company matches contributions up to Augustcertain defined percentages, depending on the plan. Matching contributions totaled $2.2 million,$2.4 million and $1.3 million for the years ended December 31, 20202023, 2022 and $14.6 million during 2019.2021 respectively.
Collaboration Agreement
On October 6, 2017, we signed an enhanced collaboration agreement with Schlumberger with the intentionNote 26 - Financial Instruments
Concentration of offering performance-based drilling contracts to our clients whereby the required drilling services along with the rig equipment were integrated under a single contract. We believe that this provides us with a competitive advantage while tendering for such work.
Commercial Arrangements
We have obtained certain rig and other operating supplies from Schlumberger and may continue to obtain such supplies in the future.credit risk
Other
We have entered into arrangements with companies which are related to our former Chief Financial Officer, Rune Magnus Lundetræ. Charges during 2019 were $0.03 million, of which $NaN was outstanding at the end of 2020 and 2019.
Note 29 - Risk management and financial instruments
Financial instruments that potentially subject the Company toThere is a concentration of credit risk consist principallywith respect to cash and cash equivalents and restricted cash to the extent that substantially all of cash deposits. Accounts held at Norwegian finance institutionsthe amounts are insured by Norgescarried with DNB Bank (BankASA, Saudi Awwal Bank and Citibank, however we believe this risk is remote, as they are established and reputable establishments with no prior history of Norway) up to NOK 2.0 million. default.
Interest rate risk
As of December 31, 2020,2023, all of our debt obligations are on fixed interest rates, therefore we are currently not exposed to the impact of interest rate changes. Under our RCF, undrawn as of December 31, 2023, we are exposed to the impact of interest rate changes as we are required to make interest payments based on SOFR plus associated margins. Significant increases in interest rates could adversely affect our future results of operations and cash flows should we elect to drawdown on this facility. The Company is exposed to changes in long-term market interest rates if and when maturing debt is refinanced with new debt.
In certain situations, the Company had $8.1 million (December 31, 2019: $117.6 million)may enter into financial instruments to reduce the risk associated with fluctuations in excessinterest rates. The Company is not engaged in derivative transactions for speculative or trading purposes and has not entered into derivative agreements to mitigate the risk of the Norges Bank insured limit.these fluctuations.
Foreign exchange risk management
The majority of the Company’sCompany's gross earnings are receivable in U.S dollars. The majority of our transactions, assets and liabilities are denominated in U.S. dollars, theour functional currency, of the Company. However, the Company has operations and assets in other countries and incurshowever, we incur certain expenditures in other currencies, causing its results from operations to be affected bycurrencies. There is a risk that currency fluctuations, in currency exchange rates, primarily relative to the U.S. dollar. There is thus a risk that currency fluctuationsdollar will have a positive or negative effect on the value of the Company’sour cash flows. The Company has not entered into derivative agreements to mitigate the risk of these fluctuations.
Supplier risk
A supplier risk exists in relation to our vesselsrigs undergoing construction with Keppel and PPL. However,Seatrium, however, we believe this risk is remote as Keppel and PPLSeatrium are global leaders in the rig and shipbuilding sectors. Failure to complete the construction of any newbuilding on time may result in the delay, renegotiation or cancellation of employment contracts secured for the newbuildings. Further, significant delays in the delivery of the newbuildings could have a negative impact on the Company’s reputation and customer relationships. The Company could also be exposed to contractual penalties for failure to commence operations in a timely manner or experience a loss due to non-payment under refund guarantees issued by Keppel’s and PPL’s respective parent, all of which wouldcould adversely affect the Company’s business, financial condition and results of operations.
ConcentrationFair values of financing risk
There is a concentration of financing risk with respect to our long-term debt to the extent that a substantial amount of our long-term debt is carried or will be carried by Keppel and PPL in the form of shipyard financing. We believe the counterparties to be sound financial institutions. Therefore, we believe this risk is remote.
Note 30 - Common shares
On June 21, 2019 the Board of Directors approved a 5-to-1 reverse share split of the Company’s shares. Upon effectiveness of the Reverse Split, every five shares of the Company’s issued and outstanding ordinary shares, par value $0.01 per share was combined into one issued and outstanding ordinary share, par value $0.05 per share.
Authorized share capital
| | | | | | | | | | | |
| |
| (number of shares of $0.05 each) | 2020 | | 2019 |
| Authorized shares: Balance at the start of the year | 137,500,000 | | | 125,000,000 | |
| Increases: | | | |
| September 27, 2019 | — | | | 12,500,000 | |
| June 4, 2020 | 46,153,846 | | | — | |
| August 10, 2020 | 40,000,000 | | | — | |
| November 11, 2020 | 15,000,000 | | | — | |
| Authorized shares: Balance at the end of the year | 238,653,846 | | | 137,500,000 | |
Issued and Outstanding Share Capital
| | | | | | | | | | | |
| (number of shares of $0.05 each) | 2020 | | 2019 |
| Issued : Balance at the start of the year | 112,278,065 | | | 106,528,065 | |
| Shares issued: | | | |
| August 2, 2019 | — | | | 5,000,000 | |
| August 2, 2019 | — | | | 750,000 | |
| June 5, 2020 | 46,153,846 | | | — | |
| October 5, 2020 | 51,886,793 | | | — | |
| November 30, 2020 | 10,000,000 | | | — | |
| Issued shares: Balance at the end of the year | 220,318,704 | | | 112,278,065 | |
| Treasury Shares | 1,459,714 | | | 1,459,714 | |
| Outstanding shares: Balance at the end of the year | 218,858,990 | | | 110,818,351 | |
As at December 31, 2020, our shares were listed on the Oslo Stock Exchange and the New York Stock Exchange. Details of shares issued for the years ended December 31, 2020 and December 31, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Date of Issue | | Type of Listing | | Exchange | | Shares issued | | Price per share $ | | Gross Proceeds ($ millions) |
| August 2, 2019 | | Public Offering | | New York | | 5,000,000 | | | $ | 9.30 | | | 46.5 |
| August 2, 2019 | | Public Offering | | New York | | 750,000 | | | $ | 9.30 | | | 7.0 |
| Totals for 2019 | | | | | | 5,750,000 | | | | | 53.5 | |
| | | | | | | | | | |
| June 5, 2020 | | Private placement | | Oslo | | 46,153,846 | | | $ | 0.65 | | | 30.0 |
| October 5, 2020 | | Private placement | | Oslo | | 51,886,793 | | | $ | 0.53 | | | 27.5 |
| November 30, 2020 | | Private placement | | Oslo | | 10,000,000 | | | $ | 0.53 | | | 5.3 |
| Totals for 2020 | | | | | | 108,040,639 | | | | | 62.8 | |
Note 31 - Pension
Defined Benefit Plans
As part of the Paragon acquisition on March 29, 2018, the Company acquired two defined benefit pension plans.
As of December 31, 2020, the Company sponsored 2 non-U.S. noncontributory defined benefit pension plans, the Paragon Offshore Enterprise Ltd and the Paragon Offshore Nederland B.V. pension plans, which cover certain Europe-based salaried employees. As of January 1, 2017, all active employees under the defined benefit pension plans were transferred to a defined contribution pension plan as related to their future service. The accrued benefits under the defined benefit plans were frozen and all employees became deferred members. The transfer to a defined contribution pension plan was accounted for as a curtailment during the year ended December 31, 2016.
At December 31, 2020, assets of Paragon Offshore Enterprise Ltd and Paragon Offshore Nederland B.V. pension plans were invested in instruments that are similar in form to a guaranteed insurance contract. The plan assets are based on surrender values. Surrender values are calculated based on the Dutch Central Bank interest curve. This yield curve is based on inter-bank swap rates. There are no observable market values for the assets (Level 3); however, the amounts listed as plan assets were materially similar to the anticipated benefit obligations under the plans.
As of December 31, 2020, our pension obligations represented an aggregate liability of $184.0 million and an aggregate asset of $184.0 million, representing the funded status of the plans. In the year ended December 31, 2020, aggregate periodic benefit costs showed interest cost of $0.9 million and an expected return on plan assets of $0.9 million. Our defined benefit pension plans are recorded at fair value. (see note 2).
A reconciliation of the changes in projected benefit obligations (“PBO”) for our pension plans is as follows:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Benefit obligation at beginning of period | 169.0 | | | 140.7 | |
| | | |
| Interest cost | 0.9 | | | 1.9 | |
| Actuarial loss | 21.8 | | | 30.4 | |
| Benefits paid | (1.6) | | | (1.5) | |
| Foreign exchange rate changes | (6.1) | | | (2.5) | |
| Benefit obligation at end of period | 184.0 | | | 169.0 | |
A reconciliation of the changes inThe carrying value and estimated fair value of plan assets isthe Company’s cash and financial instruments were as follows:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Fair value of plan assets at beginning of period | 169.3 | | | 141.0 | |
| Actual return on plan assets | 22.7 | | | 32.3 | |
| Employer contribution | (0.3) | | | 0 | |
| Benefits paid | (1.6) | | | (1.5) | |
| Foreign exchange rate changes | (6.1) | | | (2.5) | |
| Fair value of plan assets at end of period | 184.0 | | | 169.3 | |
F-54 | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 | As of December 31, 2022 |
| (In $ millions) | Hierarchy | Fair Value | Carrying Value | Fair Value | Carrying Value |
| Assets | | | | | |
Cash and cash equivalents(1) | 1 | 102.5 | | 102.5 | 108.0 | | 108.0 |
Restricted cash(1) | 1 | 0.1 | | 0.1 | 2.5 | | 2.5 | |
Trade receivables(1) | 1 | 56.2 | | 56.2 | 43.0 | | 43.0 |
Other current assets (excluding deferred costs)(1) | 1 | 31.5 | | 31.5 | | 25.4 | | 25.4 | |
Due from related parties(1) | 1 | 95.0 | | 95.0 | 65.6 | | 65.6 |
Non-current restricted cash(1) | 1 | — | | — | | 8.0 | | 8.0 | |
| | | | | |
| Liabilities | | | | | |
Trade payables(1) | 1 | 35.5 | | 35.5 | 47.7 | | 47.7 |
Accrued expenses(1) | 1 | 77.0 | | 77.0 | 80.8 | | 80.8 |
Short-term accrued interest and other items (1) | 1 | 42.3 | | 42.3 | 77.7 | | 77.7 |
Other current liabilities(1) | 1 | 63.2 | | 63.2 | 36.2 | | 36.2 |
Short-term debt (2) | 1 | — | | — | | 100.8 | | 100.8 | |
Short-term debt (2) (3) | 2 | 104.4 | | 100.0 | 330.8 | | 350.0 | |
Long-term debt (2) | 1 | — | | — | | 1,177.7 | | 1,177.7 |
Long-term debt (2) (4) | 2 | 1,818.0 | | 1,690.0 | | — | | — | |
(1) The carrying values approximate the fair values due to their near term expected receipt of cash.
The funded status
(2) Short term and long term debt excludes debt discounts, deferred finance charges and effective interest rate adjustments.
(3) As at December 31, 2023, this relates to our 10% Notes due in 2028 and 10.375% Notes due in 2030 and as at December 31, 2022, this relates to our 3.875% Convertible Bond due in 2023. These are fair valued using observable market-based inputs.
(4) As at December 31, 2023 this relates to our 10% Notes due in 2028 and 10.375% Notes due in 2030 and our $250 million Convertible Bond due in 2028 and as at December 31, 2022, this relates to our 3.875% Convertible Bond due in 2023. These are fair valued using observable market-based inputs.
Share Lending Agreement
In addition, during the year ended December 31, 2023, the Company recognized a deferred finance charge in the amount of $12.4 million in relation to our Share Lending Framework Agreement ("SLFA"), which was fair valued using observable market-based inputs and is amortized over the term of the plans is$250.0 million Convertible Bonds. During the year ended December 31, 2023 $2.3 million was amortized and recognized in "Interest Expense" in the Consolidated Statements of Operations. As at December 31, 2023, the current element of the unamortized deferred finance charge of $2.5 million and the non-current element of the unamortized deferred finance charge of $7.6 million are presented as follows:
| | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Funded status | 0 | | | 0.3 | |
Amounts recognizeda reduction to short-term and long-term debt, respectively, in the Consolidated Balance Sheet consist of:
| | | | | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Other assets – noncurrent | 0 | | | 0.3 | |
| Net pension asset | 0 | | | 0.3 | |
| Net amount recognized | 0 | | | 0.3 | |
Pension cost includes the following components:
| | | | | | | | | | | |
| | For the Years Ended December 31, |
| (In $ millions) | 2020 | | 2019 |
| Interest cost | 0.9 | | | 1.9 | |
| Expected return on plan assets | (0.9) | | | (1.9) | |
| Net pension expense | 0 | | | 0 | |
Defined Benefit PlansSheets (see Note 21 - Disaggregated Plan Information
Disaggregated information regarding our pension plans is summarized below:
| | | | | | | | | | | |
| | As of December 31, |
| (In $ millions) | 2020 | | 2019 |
| Projected benefit obligation | 184.0 | | | 169.0 | |
| Accumulated benefit obligation | 184.0 | | | 169.0 | |
| Fair value of plan assets | 184.0 | | | 169.3 | |
Defined Benefit Plans – Key Assumptions
The key assumptions for the plans are summarized below:
| | | | | | | | | | | |
| As of December 31, |
| Weighted Average Assumptions Used to Determine Benefit Obligations | 2020 | | 2019 |
| Discount rate | (0.09)% to (0.14)% | | 0.54% to 0.42% |
| Rate of compensation increase | Not applicable | | Not applicable |
| | | | | | | | | | | |
| For the Years Ended December 31, |
| Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost | 2020 | | 2019 |
| Discount rate | (0.09)% to (0.14)% | | 0.54% to 0.42% |
| Expected long-term return on plan assets | (0.09)% to (0.14)% | | 0.54% to 0.42% |
| Rate of compensation increase | Not applicable | | Not applicable |
The discount rates used to calculate the net present value of future benefit obligations are determined by using a yield curve of high-quality bond portfolios with an average maturity approximating that of the liabilities.
The assets are based on the surrender value of vested benefits within the National Netherlander contract. This value is based on the projected future cash flows discounted with a (contractually specified) interest rate term structure (spot rates by term)Common Shares). The single interest equivalent of this interest rate term structure has been set as the expected return on plan assets.
Defined Benefit Plans – Cash Flows
No contributions were made to the plan in 2020 or 2019.
The following table summarizes the benefit payments at December 31, 2020 estimated to be paid within the next ten years by the issuer of the guaranteed insurance contract:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments by Period |
| Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Five Years Thereafter |
| Estimated benefit payments | 26.8 | | | 1.6 | | | 1.8 | | | 2.0 | | | 2.3 | | | 2.6 | | | 16.5 | |
Note 3227 - Subsequent eventsRelated Party Transactions
Ata) Transactions with entities over which we have significant influence
We provided three rigs on a Special General Meetingbareboat basis to Perfomex to service its contract with Opex and two rigs on January 11, 2021, shareholders approveda bareboat basis to Perfomex II to service its contract with Akal. Perfomex and Perfomex II provided the increase of the Company’s authorized share capital from $11.9 million divided into 238,653,846 common shares of $0.05 par value eachjack-up rigs under traditional dayrate and technical service agreements to $14.5 million divided into 290,000,000 common shares of $0.05 par value each by authorizing an additional 51,346,154 common shares of $0.05 par value each.
On January 22, 2021,Opex and Akal, respectively. This structure enabled Opex and Akal to provide bundled integrated well services to Pemex. Effective October 20, 2022, we conductedprovide all five rigs on a private placement of $46 million by issuing 54,117,647 new depository receipts at a subscription price of $0.85 per depository receipt. On January 26, 2021, the January equity offering was settled and the Company's issued share capital was increased by $2.7 millionbareboat basis to $13.7 million, divided into 274,436,351 common shares with a nominal value of $0.05 per common share.
On January 30, 2021 the Company finalized agreements with Keppel, PPL and the lenders under the Hayfin Facility, the New Bridge Facility and the Syndicated FacilityPerfomex, to amend the terms of the PPL Facilities, the Existing Keppel Facilities and the terms for delivery of the undelivered rigs from Keppel, the Hayfin facility, the New Bridge Facility and the Syndicated Facility. The amendments are described in (A)-(E) below and will become effective in 2021.
(A) Keppel
(i) Delivery dates for the 5 undelivered rigs are extended to the following: for the "Tivar", June 2023, for the "Vale", July 2023, for the "Var", September 2023, for the "Huldra", October 2023, and for the "Heidrun", December 2023. (ii) All purchase price installments, holding costs and cost cover payments in respect of the 5 undelivered rigs are deferred until 2023, other than interim payments totaling $6 million in 2021, and $12 million in 2022. (iii) Maturity dates for the loans of the 3 delivered rigs are extended by one year. (iv) Interest payment date in respect of the delivered vessels deferred by one year to the fourth anniversary of each loan. (v) Limitations on certain payments to other creditors other than certain permitted payments. (vi) Rights to Keppel to terminate newbuildingservice its contracts with no refund or other compensation to the rig owner(s) if it receives an offer form a thirdOpex. The bareboat revenue from these contracts is recognized as "Related party unless Borr purchases the rigs at the contract price within a certain time period.
(B) PPL
(i) Date for repayment of Seller's Credit on the rigs are amended to May 2023. (ii) All interest on the Seller's Credit for the rigs is deferred until March 2023 and capitalized other than $6 million of interim payments due in 2021 and $12 million of interim payments due in 2022. (iii) Capitalized interest guaranteed by Borr IHC Limited. (iv) Requirement to provide additional security if value of any rig falls below $70 million in 2021, $75 million in 2022 or $80 million thereafter. (v) Minimum liquidity covenants to match the levelsrevenue" in the $450 million Syndicated Senior Secured Credit Facilities. (vi) Purchase option in respectConsolidated Statements of the “Gyme” in order to repay the secured debt on the relevant rig, with the right for the company to repay/refinance loan and retain rig within a certain time period. (vii) Limitations on certain payments to other creditors other than certain permitted payments. (viii) Certain other undertakings and covenants amended.
(C) HayfinThe potential revenue earned by Opex and Akal was fixed under each of the Pemex contracts, while Opex and Akal managed the drilling services and related costs on a per well basis. The revenue from these contracts was also recognized as "Related party revenue" in the Consolidated Statements of Operations.
(i) The maturity dateOn August 4, 2021, the Company executed a Stock Purchase Agreement between BMV and Operadora for the loans is extendedsale of the Company's 49% interest in each of the Opex and Akal joint ventures, as well as the acquisition of a 2% incremental interest in each of Perfomex and Perfomex II joint ventures. The sale was completed on the same date and on this date Opex and Akal ceased to be our related parties. Until their sale, as a 49% shareholder we were required to fund any capital shortfall in Opex or Akal should the Board of Opex or Akal make cash calls to the first quartershareholders under the provisions of 2023. (ii) The requirement to replenish the restricted cash in the minimum liquidity accounts is extended until 1 October 2021. (iii) The value to loan covenant ratio is reducedShareholders Agreement (see Note 7 - Equity Method Investments).
Bareboat revenues and management services revenue from 175% to 140%. (iv) Limitations on certain payments to other creditors other than certain permitted payments. (v) Purchase optionour related parties for the benefit of Hayfin in respectyears ended December 31, 2023, 2022 and 2021 consisted of the “Thor” and “Skald” unless the rigs are activated, in order to repay the secured debt on the relevant rig, with the rightfollowing:
| | | | | | | | | | | |
| For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Bareboat Revenue - Perfomex | 129.6 | | 60.2 | | 22.2 | |
| Bareboat Revenue - Perfomex II | — | | 24.9 | | 9.3 | |
| Management Services Revenue - Perfomex | — | | — | | 5.0 | |
| Management Services Revenue - Perfomex II | — | | — | | 3.0 | |
| | | |
| Total | 129.6 | | 85.1 | | 39.5 | |
Repayment of loans from our equity method investments for the company to repay/refinance loanyears ended December 31, 2023, 2022 and retain rig within a certain time period. (vi) Certain other undertakings and covenants amended.2021 consisted of the following (1):
(D) Syndicated | | | | | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
| Perfomex | (9.8) | | — | | (31.6) | |
| Perfomex II | — | | — | | (9.5) | |
| Opex | — | | — | | (3.7) | |
| Akal | — | | — | | (1.7) | |
| Total | (9.8) | | — | | (46.5) | |
(1) Repayment of loans from our equity method investments is included in "Equity method investments" in the Consolidated Balance Sheets (see Note 7 - Equity Method Investments).
Receivables: The balances with the joint ventures as of December 31, 2023 and 2022 consisted of the following:
| | | | | | | | |
| As of December 31, |
| (In $ millions) | 2023 | 2022 |
| Perfomex | 92.4 | | 62.9 | |
| Perfomex II | 2.6 | | 2.7 | |
| Total | 95.0 | | 65.6 | |
b) Transactions with Other Related Parties
Additional paid in capital: The transactions with other related parties for years ended December 31, 2023, 2022 and 2021 consisted of the following:
| | | | | | | | | | | |
| For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
Magni Partners Limited (1) | 0.6 | | 1.6 | | — | |
| Total | 0.6 | | 1.6 | | — | |
(1) The above relates to fees directly attributable to the Company's Equity Offerings in October 2023 and August 2022 and have been recognized in "Additional paid in capital" in our Consolidated Balance Sheets.
Expenses: The transactions with other related parties for the years ended December 31, 2023, 2022 and 2021 consisted of the following:
| | | | | | | | | | | |
| For the Years Ended December 31, |
| (In $ millions) | 2023 | 2022 | 2021 |
Front End Limited Company (1) | 2.7 | | — | | — | |
Drew Holdings Limited (2) | 1.0 | | — | | — | |
Magni Partners Limited (3) | 0.6 | | 0.5 | | 0.9 | |
| | | |
| Total | 4.3 | | 0.5 | | 0.9 | |
(1) Front End Limited Company ("Front End") owns 3% of Borr Arabia Well Drilling LLC, an entity that is consolidated by Borr Drilling Limited and incorporated in the Kingdom of Saudi Arabia (the "KSA"). Front End is a party to a Management Agreement with Borr Arabia Well Drilling LLC to provide management services in the KSA, for which it receives a management fee.
(2) Mr. Tor Olav Trøim, the Chairman of our Board, is the sole owner of Drew Holdings Limited ("Drew"). In January 2023 Drew entered into a SLFA with the Company and DNB Markets for the purposes of facilitating investors’ hedging activities in connection with the $250.0 million Senior Secured Credit Facilities
(i) All amortizations and facility reductions including final maturity pushed out to January 2023. (ii) Certain interest paymentsUnsecured Convertible bonds due in 2020 deferred2028. In order to make the Company's shares available for lending, and only until a certain number of new shares were issued by one year into 2021. (iii) Minimum liquidity requirements reducedthe Company in connection with such lending arrangement, Drew made up to 15 million shares available to DNB Markets under the SLFA to facilitate such lending to the following:convertible bond investors requiring such hedging activities. Under the terms of the SLFA, the Company incurred fees payable to maintain minimum liquidity ofDrew for the shares available for lending. As at least $5 million in cash during 2021,December 31, 2023, Drew is no longer a party to be increased to $10 million from year end 2021 and further to $15 million from end of second quarter of 2022. (iv) Minimum book equity ratio level reduced, and to be equal to at least 25% in 2021, 30% in 2022 and 35% from 2023. (v) Debt service cover ratio covenant to be waived until final maturity. (vi) Minimum value to loan covenant level reduced from 175% to 140%the SLA (see Note 28 - Stockholders' Equity). (vii) Certain other covenants amended.
(E) New Bridge Revolving Credit Facility
(i) All principal maturities(3) Magni Partners Limited ("Magni") is a party to a Corporate Services Agreement with the Company, pursuant to which it provides strategic advice and facility reductions including final maturity pushed outassists in sourcing investment opportunities, financing and other such services as the Company wishes to engage, at the Company's option. There is both a fixed and variable element of the agreement, with the fixed cost element representing Magni's fixed costs and any variable element being at the Company's discretion. Mr. Tor Olav Trøim, the Chairman of our Board, is the sole owner of Magni. Effective January 2023. (ii) Certain interest payments due1, 2024, the fixed element of the agreement is terminated, while the remaining terms of the agreement continue to remain in 2020 deferred by one year into 2021. (iii) Minimum liquidity requirements reducedforce.
In January 2023, the Company recognized $1.3 million payable to Magni under a Call-off Contract to cover direct costs related to assistance in relation to the following:Unsecured Convertible Bonds and Secured Bonds completed in February 2023 and in November 2023, the Company recognized $1.0 million payable to maintain minimum liquidityMagni under a Call-off Contract to cover direct costs related to assistance in relation to 2028 and 2030 Notes completed in November 2023. As these costs are directly attributable to the issuance of at least $5 millionthese bonds, these amounts were recognized as deferred finance charges, presented as a reduction to the carrying value of the associated facilities and are amortized over the term of the facilities as "Interest Expense" in cash during 2021, to be stepped up to $10 million from year end 2021 and further to $15 million from endthe Consolidated Statements of second quarter 2022. (iv) Minimum book equity ratio level reduced, and to be at all times equal to at least 25%. (v) Debt service cover ratio covenant to be waived until final maturity. (vi) Minimum value to loan covenant level reduced from 175% to 140%. (vii) Certain other covenants amended.Operations.
Note 28 - Stockholders' Equity
Following our equity offering which closedAuthorized share capital
| | | | | | | | |
| (number of shares of $0.10 each) | 2023 | 2022 |
| Authorized shares: Balance at the start of the year | 255,000,000 | | 180,000,000 | |
| Increases: | | |
| | |
| | |
| August 16, 2022 | — | | 40,000,000 | |
| August 25, 2022 | — | | 35,000,000 | |
| February 23,2023 | 60,000,000 | | — | |
| | |
| Authorized shares: Balance at the end of the year | 315,000,000 | | 255,000,000 | |
Issued Share Capital
| | | | | | | | |
| (number of shares of $0.10 each) | 2023 | 2022 |
| Issued : Balance at the start of the year | 229,263,598 | | 137,218,175 | |
| | |
| | |
| | |
| | |
Shares issued (1) | 8,816,793 | | 92,046,404 | |
Share issued and subsequently repurchased (2) | 26,000,000 | | — | |
Shares cancelled(3) | — | | (981) | |
| | |
Issued shares: Balance at the end of the year(3) | 264,080,391 | | 229,263,598 | |
Outstanding Share Capital
| | | | | | | | |
(number of shares of $0.10 each) | 2023 | 2022 |
| Issued shares | 264,080,391 | | 229,263,598 | |
| Treasury shares | 11,498,355 | | 315,511 | |
| Outstanding shares | 252,582,036 | | 228,948,087 | |
(1) Details of shares issued for the years ended December 31, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | |
| Date of Issue | Type of Listing | Exchange | Shares Issued | Price per Share ($) | Gross Proceeds ($ millions) |
| | | | | |
| October 24, 2023 | Private placement | Oslo | 7,522,838 | | 6.65 | | 50.1 |
Various (ATM Sales) (5) | US public offering | NYSE | 1,293,955 | | 7.53 | | 9.7 |
| | | 8,816,793 | | | 59.8 |
| | | | | |
| Date of Issue | Type of Listing | Exchange | Shares Issued | Price per Share ($) | Gross Proceeds ($ millions) |
| January 31, 2022 | Private placement | Oslo | 13,333,333 | | 2.25 | | 30.0 |
| August 17, 2022 | US public offering | NYSE | 41,666,667 | | 3.60 | | 150.0 |
| August 26, 2022 | US public offering | NYSE | 34,696,404 | | 3.60 | | 124.9 |
Various (ATM Sales) (5) | US public offering | NYSE | 2,350,000 | | 3.78 | | 8.9 |
| | | 92,046,404 | | | 313.8 | |
(2) During the year ended December 31, 2023, the Company issued 15.0 million shares, 10.0 million shares and 1.0 million of shares, of par value $0.10 each on January 31, 2023, February 24, 2023 and August 16, 2023 respectively, which were subsequently repurchased into treasury.
(3) Effective August 26, 2021 and in accordance with2022 the loan agreement forcompany recorded the Company's $350 million 3.875% Senior Unsecured convertible bonds, an adjustmentcancellation of 981 shares which related to the conversion price from $32.7743 to $31.7946 per depository receiptfractional shares.
(4) As of December 31, 2023, our shares were listed on the Oslo Stock Exchange was triggered.and the New York Stock Exchange.
(5) In July 2021, the Company entered into an agreementEquity Distribution Agreement with Clarksons for the offer and sale of up to sell its cold stacked jack-up rig "Balder" to BW Energy. The completion$40.0 million of common shares of the sale took place in February 2021, andCompany through an ATM program. During the year ended December 31, 2023, the Company has received a totalissued 1,293,955 shares raising gross proceeds of $4.5$9.7 million in sale proceeds.
On March 18, 2021,and net proceeds of $9.6 million, with compensation paid by the Company to Clarksons of $0.1 million. During the year ended December 31, 2022, the Company issued 2,350,000 shares raising gross proceeds of $8.9 million and net proceeds of $8.8 million, with compensation paid by the Company to Clarksons of $0.1 million.
Treasury Shares
| | | | | | | | |
(number of shares of $0.10 each) | 2023 | 2022 |
| Treasury shares : Balance at the start of the year | 315,511 | | 406,333 | |
| Share issued and subsequently repurchased | 26,000,000 | | — | |
Shares bought back (1) | 125,000 | | — | |
Shares lent under the Share Lending Agreement (2) | (14,443,270) | | — | |
Shares issued on exercise of share options(3) | (410,302) | | — | |
Shares issued as compensation (4) | (88,584) | | (90,822) | |
| Treasury shares : Balance at the end of the year | 11,498,355 | | 315,511 | |
(1) On December 8, 2023 the board approved a share repurchase program for the Company’s shares, to be purchased in the open market and limited to a total amount of 550,263$100 million. In December 2023, we acquired an aggregate of 125,000 shares on the NYSE at an aggregate purchase price of $0.8 million. The Company did not acquire any of its own shares in 2022.
(2) As of December 31, 2023, the Company had loaned 14,443,270 shares to DNB for the purposes of allowing the holders of the New Convertible Bonds to perform hedging activities on the OSE (see "Share Lending Agreement").
(3) The Company issued 1.0 million shares of par value $0.10 each on August 16, 2023, which were subsequently repurchased into treasury to be used solely for issuance in connection with the exercise of share options vesting under the Company’s existing share option program. The Company has issued 410,302 of these treasury shares in connection with our Borr Scheme (see Note 24 - Share Based Compensation) following the exercise of 410,302 share options.
(4)During the years ended December 31, 2023 and December 31, 2022, the Company issued 88,584 and 90,822 common shares in relation to Directors relating to 2020Director compensation. AfterThe value on the date of issuance of $0.45 million and $0.3 million, respectively, has been recognized in "General and Administrative expenses" in the Consolidated Statements of Operations (see Note 24 - Share Based Compensation as it relates to the 2023 issuance of common shares in settlement of RSUs). The book value of the treasury shares issued was $2.8 million and $3.9 million respectively, as these shares had been bought back in 2018. The loss on issuance of the treasury shares of $2.4 million and $3.6 million, respectively, has been recognized as a reduction in "Additional Paid in Capital" in the Consolidated Balance Sheets as at December 31, 2023 and December 31, 2022.
Share Lending Agreement
In connection with the $250.0 million Convertible Bonds (see Note 21 - Debt), the Company entered into a SLFA with DNB Markets ("DNB") and Drew Holdings Limited ("Drew") with the intention of making up to 25.0 million common shares ("Issuer Lending Shares") available to lend to DNB for the purposes of allowing the holders of the New Convertible Bonds to perform hedging activities on the OSE. The SLFA contains a provision that the Issuer Lending Shares be available only for trading on the OSE. At the date of the execution of the SLFA, the Company did not have a sufficient number of common shares available for trading on the OSE and therefore began the process of issuing new shares and making them available for trading on the OSE by way of a listing prospectus (the “Prospectus Event”).
The Company and Drew, a shareholder of the Company, separately entered into a Share Loan Agreement (“SLA”) in which Drew would make up to 15.0 million of its shares available to DNB (“Drew Shares”) until the Prospectus Event. During this period, the Company would lend to Drew 15.0 million of its shares that were not yet available for trading on the OSE. The Prospectus Event occurred on April 19, 2023, at which time Drew returned such shares back to Borr. In addition, DNB borrowed an equivalent amount of Drew Shares from Borr to redeliver these shares back to Drew (the “Settlement”). Upon the Settlement, Drew ceased to be a party to the SLA.
The "Loan Period" of the SLFA is defined as the earlier of (a) the date the SLFA is terminated (b) any date the convertible bonds are either redeemed or converted into the Company’s shares in full and (c) the maturity date of the convertible bond in 2028. At the expiration of the Loan Period, DNB must return all of the Issuer Lending Shares back to Borr. During the Loan Period, if an investor returns any lending share to DNB, DNB shall return such lending shares back to the Company immediately. The Company receives no proceeds from lending out the Issuer Lending Shares to DNB. DNB must charge each investor a lending fee of a maximum of 0.5% per annum in which for the first six months from the date of the SLFA, the Company agrees to Compensate DNB so that the lending fee DNB receives in total will be 1.0% per annum. There is no compensation that the Company pays DNB for returning the Issuer Lending Shares to the Company. There is no unilateral mechanism given to either party in choosing to settle in cash except for a very limited scenario involving default. DNB is not required to provide collateral for borrowing the shares. There are no dividends paid to DNB as a result of lending out the Issuer Lending Shares.
At issuance, the share lending agreement was accounted for under ASC 470-20 as a "Deferred Finance Charge" of the $250.0 million Convertible Bonds, with an offset to "Additional Paid in Capital" in the Consolidated Balance Sheets. The share lending agreement was measured at a fair value in accordance with ASC 820 at inception and the Company recognized $12.4 million accordingly.
Under the terms of the SLA, the Company incurs fees payable to Drew which are calculated based on the market-based value of the borrowed shares by DNB from Drew at the interest rate of the New Convertible Bonds. During the year ended December 31, 2023 fees of $1.0 million were incurred (see Note 27 - Related Party Transactions).
Further, as part of the SLA, the Company also guaranteed to reimburse Drew in the event DNB does not return the Drew Shares at a price equal to the higher of the Company’s share price and NOK56.36. As DNB returned in full the shares borrowed from Drew on April 19, 2023, the Company was not required to fulfil the guarantee. The fair value of the guarantee was concluded to be immaterial as at March 31, 2023.
As of March 31, 2023, 14,232,778 shares had been drawn by DNB from Drew which were repaid upon Settlement on April 19, 2023, by DNB drawing this same number of shares from the Company. As of December 31, 2023, the Company had loaned 14,443,270 shares to DNB for the purposes of allowing the holders of the New Convertible Bonds to perform hedging activities on the OSE.
As of December 31, 2023, the unamortized amount of the issuance costs associated with the SLFA was $10.1 million.
Contributed Surplus
On December 22, 2023, at a Special General Meeting, pursuant to the Bermuda Companies Act, the Company's issued share capital was 274,436,351 common shares,shareholders approved a reduction of the Share Premium (Additional Paid in Capital "APIC") account of the Company owned 909,451 treasury shares andfrom $2,290,578,712 to $290,578,712 by the Company's outstanding share capital was 273,526,900 sharestransfer of nominal value$2,000,000,000 of the Share Premium (APIC) to the Company’s Contributed Surplus account, with effect from December 22, 2023. The Contributed Surplus account, as defined by Bermuda law, consists of amounts previously recorded as Share Premium (APIC).
Dividends
On December 22, 2023, the Company declared a cash distribution of $0.05 per common share.share, corresponding to a total of $11.9 million, which was paid to our shareholders on January 22, 2024.
Note 29 - Subsequent Events
On December 22, 2023, the Company declared a cash distribution of $0.05 per share, corresponding to a total of $11.9 million, which was paid to our shareholders on January 22, 2024.
In January 2024 and March 2024, the Company has issued 108,000 and 303,336 treasury shares, respectively, in connection with the Borr Scheme (see Note 24 - Share Based Compensation) following the exercise of 108,000 and 303,336 share options, respectively.
In February 2024, the Company announced that its Board of Directors approved a cash distribution of $0.05 per share for the fourth quarter of 2023 which was paid on March 18, 2024 to shareholders of record at close of business on March 4, 2024.
In March 2024, Borr IHC Limited and certain other subsidiaries issued an additional $200 million in aggregate principal amount of 10% senior secured note due 2028 ("the Additional Notes") at a price of 102.5% of par, raising gross proceeds of $211.9 million. The Additional Notes have the same terms and conditions as the $1,025,000,000 principal amount notes issued in November 2023 and will mature on November 15, 2028 (see Note 21 - Debt). The net proceeds from the issuance are intended to be used for general corporate purposes, which may include capital expenditures, activation costs, optimization of shipyard newbuild financing and select asset additions or funding of working capital.
In March 2024, the Company repurchased $10.6 million of our $250.0 million unsecured convertible bonds due 2028. The remaining principal outstanding is $239.4 million.
