Borr Drilling enters MoU to streamline Mexico operations and improve liquidity

Source: press release, 15 June 2021

Borr Drilling, a drilling contractor that owns and operates jack-up rigs of modern and high-specification designs, provides drilling services to the oil and gas exploration and production industry worldwide
Borr Drilling, a drilling contractor that owns and operates jack-up rigs of modern and high-specification designs, provides drilling services to the oil and gas exploration and production industry worldwide (photo: Borr Drilling)

Borr Drilling Limited has five rigs working for joint ventures which are jointly owned with its Mexican partner providing integrated well services for Pemex. The services commenced in May 2019 and have provided Pemex with an incremental production of approximately 125,000 barrels of oil per day from 21 wells drilled so far. In its most recent meeting with Pemex management, Borr Drilling has received a very favourable review of the performance and the cost efficiency of this operation. The integrated well services joint ventures have received a request for extension of this program, which in turn is expected to employ the five Borr Drilling rigs until the end of 2022.

In connection with this extension, the Borr Drilling and its Mexican partner have entered into a memorandum of understanding (MoU) to make certain changes in the structures of the joint ventures, where its Mexican partner will buy Borr Drilling’s 49% stake of the integrated services JVs Opex and Akal (IWS JVs). The transaction is expected to free up a gross amount of USD 28 million for Borr Drilling, representing historic profits in the IWS JVs and some settlements of other payables, which is incremental to the day-rate earnings resulting from the provision of drilling services.

Simultaneously, Borr Drilling will acquire an incremental 2% stake of the joint ventures performing drilling services (Drilling JVs) from its Mexican partner, and by that hold a 51% majority ownership position. The Drilling JVs will continue to earn day rates from its main customers Opex and Akal through regular drilling contracts. This will streamline the Borr Drilling’s Mexican operation, reduce risk, and over time lead to a more stable cash-flow. Borr Drilling expects to close the transaction within the third quarter of 2021.

As of the end of Q1 2021, Borr Drilling reported a receivable balance of USD 30.3 million from its related parties, mainly representing bareboat revenue and other earnings due from the Drilling JVs. In addition, the Drilling JVs has a positive working capital balance and retained profits attributable to Borr Drilling. The USD 28 million gross settlement for the transaction is in addition to this amount.

The cash generated by the Borr Drilling’s 13 operating rigs is expected to cover the finance, stacking and G&A cash cost for the third quarter 2021. Additionally, with improved regularity in payments from Pemex, continued operation of Borr Drilling’s rigs in Mexico until 2022, the proceeds from the sale of the IWS JVs, and an overall activity for the Company in excess of 13 rigs should provide the Borr Drilling with sufficient liquidity runway until the current debt maturities in 2023. The company is also optimistic about re-activations of additional warm stacked rigs due to improved market conditions.