Borr Drilling Limited

Overview

A Druckenmiller-style, top-down to bottom-up investment analysis of Borr Drilling (BORR), integrating macro energy cycles, central bank and credit conditions, geopolitical supply dynamics, reflexivity in dayrates/credit spreads/equity, and opportunistic positioning with risk-managed sizing.

Macro Context

Cycle: Late-cycle growth with tighter real rates and mixed global demand. While policy rates have peaked, financing costs remain elevated, keeping credit a binding constraint for leveraged cyclicals. Energy: Offshore capex is in a multi‑year upswing as IOC/NOC budgets normalize after a decade of underinvestment. Mordor Intelligence estimates offshore drilling grows ~5% CAGR 2025–2030, with jack-ups ~43% of spend and Middle East/Africa the fastest region. Utilization has risen and dayrates have advanced materially since 2021. Geopolitics: OPEC+ supply shifts and Saudi program pauses created a 2024/25 air pocket for jack-ups, but tenders in Kuwait/Neutral Zone and broader Middle East plus Mexico’s push to stabilize Pemex underpin a medium-term rebound. Consolidation: Driller M&A (e.g., Noble–Diamond) and backlog concentration support pricing power; newbuild finance remains scarce, constraining supply. Policy/ESG: Operators prioritize low-breakeven, quicker-payback barrels; shallow-water jack-ups fit the bill. Hybridization and digitalization lower fuel and downtime, improving margins and bid competitiveness.

Company Position in Macro Landscape

Borr is a pure-play modern jack-up contractor levered to shallow-water development barrels (low breakevens, faster cash cycles). Macro tailwinds—offshore capex rebound, high utilization for modern units, scarce newbuilds—favor Borr’s young fleet. Company specifics reinforce this: 23/24 rigs active in Q3’25, revenue $277.1m, adj. EBITDA $135.6m (~49% margin). 2025 coverage ~84% at ~$145k/day; 2026 coverage ~62% at ~$140k/day (including priced options). Liquidity was bolstered in mid-2025 via a $102.5m equity raise and expanded RCFs; collections from Mexico restarted post‑Q3. Valuation: as of 2025-12-05, price ~$4.11, P/B ~1.03, forward P/E ~5.1, with shares near 52-week highs but still discounted versus replacement value and peer EV/EBITDA. Headwinds: leverage (D/E ~2x), high coupon debt (10%–10.375%) due 2028/2030, and Mexico/Pemex exposure introducing receivables and operational risk.

Reflexivity Analysis

Positive loop: Rising dayrates/utilization → higher EBITDA/FCF → tighter credit spreads/better liquidity → ability to term/refinance debt and selectively retire bonds → lower financial risk → stronger bid posture and higher win rates → further backlog/dayrate strength. Borr’s July 2025 liquidity package (equity + RCF upsizing) is emblematic: improved liquidity catalyzed operational momentum (22–23 rigs active, backlog additions) and market confidence (Q3 beat). Negative loop risk: Any renewed Saudi-driven oversupply or Pemex payment slippage could hit dayrates and working capital, widening spreads and forcing defensive actions (asset idle time, equity dilution). Sentiment: Sell-off into mid-2025 (downgrades, dividend suspension) washed out optimism; subsequent contract wins, Mexico collections, and Q3 outperformance improved sentiment but skepticism lingers (mixed analyst takes), which can fuel upside if execution continues.

Competitive Position & Disruptive Threats

Moat: Modern, high-spec jack-up fleet with superior utilization and reliability; young average age versus an aging global fleet reduces downtime risk and qualifies Borr for premium, performance-incentivized tenders. Market structure: Consolidation among diversified peers (Noble, Valaris, Seadrill) increases pricing discipline; Borr is focused on jack-ups, avoiding deepwater cyclicality but reliant on NOC demand cycles (Middle East, Mexico, SE Asia, West Africa). Innovation/ESG: Industry adoption of hybrid power systems and digital optimization is accelerating; Borr’s move to performance incentives and hybrid upgrades (where economic) can preserve margins and bid competitiveness. Disruptions: Saudi retendering timing, offshore wind lease competition in certain basins (less relevant for shallow-water oil plays), labor tightness, and regulatory delays (permitting in North Sea, sanctions exposure) are manageable but non-trivial.

Asymmetric Risk/Reward

Upside: If dayrates hold ~$140–150k and 2026 coverage climbs >70%, Borr’s forward earnings power supports re‑rating toward 6–7x 2025/26E EBITDA and >1.2x P/B, implying potential 30–60% equity upside over 12–24 months. Optionality from sector consolidation (asset deals, corporate tie-ups) adds strategic value; selective bond buybacks could compound equity through deleveraging. Downside: Mexico/payment setbacks, dayrate softness from delayed Middle East awards, or elevated downtime could push shares back toward $3–3.25 (prior consolidation range), especially given 200D up ~70% YTD and proximity to 52‑week highs. Entry: Momentum is strong (price >50D/200D), so scale on weakness/add on evidence of Saudi retenders or Mexico multi‑year extensions. Pair trades (long BORR vs. short legacy/older-fleet jack-up exposure) can enhance convexity.

Investment Details