Hello, everyone, and welcome to the Borr Drilling Limited webcast presentation. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. If you have joined online, please use the Q&A chat box provided. I will now hand over to your host, Patrick Schorn, CEO of Borr Drilling to begin. Patrick, please go ahead.
Thank you. Welcome to this Borr Drilling Q&A session. It's not often that we get to talk to you twice in one week. As we have recently released our Q2 earnings, we trust you are familiar with that information. Prior to this Q&A session, we will refer to only some of the highlights out of that report. Next slide, please. Covering the basics, I would like to remind all participants that some of the statements will be forward-looking. These matters involve risks and uncertainties that could cause actual results to differ materially from those projected in these statements. I therefore refer you to our latest public filings. Next slide, please. The key takeaways that we had from the meeting are really centered around the market, and I'll just highlight some of the key points in that.
Modern rig utilization is 92%, and it's moving towards a 95% after the award of some of the larger contracts in the Middle East. At that utilization number, there is significant day rate expansion. As there are limited available rigs still stranded at yards, currently only 20 or so that can come into the market, it means that this utilization number will remain high. It will take day rates in excess of approximately $175,000, coupled with a long-term contract before any new builds could actually be considered. Now, if you combine that with limited yard capacity going forward, it is very clear that all these points are leading to a sustained, very tight supply. As a result, this type of a tight supply is leading to higher day rates.
Let me remind you that the peak rate in the previous cycle was around $240,000 per day, and that the average rate between 2006 and 2014 was around $175,000 a day. I'll leave this as the discussion of some of the day rates. I'll come back to that later. Before that, Magnus will make a few comments on our refinance, after which I will make some closing points.
Thank you, Patrick. In our Q2 report and presentation, we provided you with details and plans on the refinancing, and you can go into this more detailed overview of that through those reports. Since the report, we also announced the pricing of a $250 million equity raise on tenth of August, which is still subject to closing conditions. On this call today, we'd like to summarize the agreement in principle that we have reached with most of our secured debt maturities to be extended to at least 2025, and our remaining new build rig repurchase obligations to be extended to 2025.
For the Hayfin facility, we have an agreement in principle to extend the loans to January 2025 in return for $30 million down payment of principal before the extension. The PPL loans, we have an agreement in principle to extend to May 2025. We have entered into an LOI to sell three new builds from Keppel, and the delivery date for the two remaining new builds from Keppel will be postponed from 2023 to 2025. The existing Keppel loan facilities for three rigs that have been delivered remains with maturities in 2025 and 2026. We furthermore expect to repay the current senior secured credit facility of $311 million, currently secured by eight rigs, and replace it with a new facility of $150 million secured by five.
This will give us three rigs unencumbered, increasing the company's financial flexibility going forward, and can be used as a tool to address the refinancing of our $350 million convertible bonds due in May 2022. We have also been shown indications on a term sheet for a new convertible bond in the amount of $250 million, which can play a part of the refinancing, in addition to potential sale of certain assets. These agreements, in principle, are subject to conditions including completion of our recently announced equity raise and entering into binding and long-term documentation with creditors. Once we have met these conditions and agreed documentation, these agreements will improve the company's financial position by reducing debts and capital commitments by approximately $520 million and extend most maturities to 2025.
I'll send the word back to Patrick, please.
Thank you, Magnus. As mentioned before, jackup supply is very tight, and the peak rate previous cycle being $240,000 per day, average rate between 2006, 2014, $175,000 per day. That obviously leads to the question, well, what is happening in the market right now? The leading day rates stand today are in the $130,000-$150,000 per day, with our last announced awarded contract in Africa also being in that range.
Clearly, that leads to a cash generating ability, that we have going forward, based on the current contract and day rate outlook, that if we were to take a day rate of $130,000 per day over our full fleet, it would generate around $600 million in Adjusted EBITDA. At $175,000, this would be just short of $1 billion. These clearly are large numbers, and it will take some time until we have moved all our contracts in those rates.
However, we have previously reported that for 2023, we expect to generate $290 million-$330 million of adjusted EBITDA, and that we intend to double that in 2024, where at that time, we generate cash at rates that would also enable us to return cash to shareholders. With this, we just try to show you what is the current utilization, what have historic rates been, where is the market today, and what kind of a cash generation could we expect if we were to take today's rates going forward and what we then would be able to do with that. That clearly leads us to a very positive and bullish view on this market. We wanted to take the opportunity to give you a chance to ask some questions.
We will open up for that now. As you know, there is a variety of ways to do this. Maybe operator, you can go one more time through this to make sure it's clear to everybody how we can get the questions to us.
Of course. If you would like to ask a question today, please press Star followed by one on your telephone keypads. If you have joined online, please use the Q&A chat box provided. If you choose to withdraw your question, please press Star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question on the phone line comes from Saeed Omar Ahmed of Arctic Securities. Saeed, please go ahead. Your line is open.
Hi, thank you very much. Thank you for a great summary, Patrick and Magnus. I have a few questions actually. Let's start off on day rates. You mentioned that the leading day rates are at $130,000-$150,000 a day. What do you think the day rates will be immediately after the Saudi tender is fulfilled, please?
Saeed, it's a good question. I think maybe it is easier to answer that in line with the utilization. I think that with the utilization now reaching 95%+, clearly our forecasted day rates have been continuously being adjusted. At this moment, if you were to think about exit rates in this year, I think you would have to think in the $150,000-$175,000. We have been moving up faster than what we anticipated. We see that markets are tight, and we see that the discussion with our customers have been changing significantly. Of course, the economics of day rates are always going to be important to our customers.
What equally has become important and maybe more important at this moment is the access to equipment and the insurance that equipment is there when they require it. I think that, based on that, and therefore based on the immediate tenders coming out, I would expect that we are solidly in the $150+ range, for the second half of this year, particularly with our view that there is very few rigs that are readily available to come into the market or pick up any additional work. That would be my answer to that. I understood you had another question, possibly.
Thank you very much. Yes, sure. I have a few more, if I may, please. What is on yard capacity, what is the status of yards globally? If you think that the market is undersupplied already, how will the market be able to build anywhere between 30, 40 or 50 units, given that we are reaching close to 100% utilization already? How much time do you think that will take? That's the first follow-up question. The second one is a completely different topic, but I think it's quite relevant because one sees that ADNOC Drilling is listed and the implied jackup value for ADNOC Drilling is above $300 million per jackup. Do you think a Middle Eastern listing is possible for drilling?
Let me first go back to the question regarding the new builds. I think it is clear that with many of the national oil companies going to develop quite significantly the resources that are currently in shallow water and the cost attractiveness of that resource, I expect that we are going to see a sustained activity increase in the shallow water. With the rig count that we have there now and some of the players increasing as much as they do, I think it is very difficult that we have sufficient rigs for all opportunities, which basically means that we have to prioritize. At a certain moment in time that will likely lead to people still, and even in our industry, considering again to start looking at new builds.
I think, and we have said that before, I think before anybody would be able to do that, you would have to have a significantly long-term type of contract at rates of about $175,000 per day before you could justify that type of an investment. I think that that is what it's going to take. Now, coming to the point of if the market environment is such that that is justified, then you get to the point of trying to find a yard, which will be quite difficult. I think that for smaller amounts of jackups, you could probably find something. You'd be paying $200 million. You'd probably be looking at significantly larger down payments than what we have ever seen in our industry before you actually start.
It'd probably be maybe two years for the first few, maybe longer for the rigs coming after that. It means three year plus. I think that it is a very tight supply. It is not the easiest equipment around. I think that this is a problem we have to deal with for quite a long period of time, which therefore will mean increased day rates, I think, for quite a bit of time. That would be my answer to new builds and how long we think that it would take. You were mentioning listing in the Middle East. I think that in general it is fair to say that the gravity of our business and the activity increases are very, very concentrated in the Middle East.
Therefore, it is likely to think that people would look at how many more ties you can have into the Middle East, increasing footprints, closer partnerships, and as such, also a closer relation to possibly some of the investors in the region. I wouldn't rule it out. I think it is certainly possible and based on the concentration of the work going forward and the activity today in the Middle East, you could make many reasons why this would make sense. It is certainly something that our board is going to look at as time progresses. Saeed, I will leave it at this to give some other people also an opportunity to ask some questions. Thank you.
Okay. Thank you very much.
Thank you. As a reminder, if you would like to ask a question today, please press star followed by one on your telephone keypads. If you have joined online, please use the Q&A chat box provided. Our next question on the phone line comes from Fredrik Steen of Clarksons Securities. Frederick, please go ahead. Your line is open.
Hey, Patrick and Magnus, and congratulations on the deal. I think you're right that it's a transformative one for the capital structure. I have a few questions as well, just one briefly on the market to begin with. You seem to be, you know, quite optimistic on day rates going forward. I think listening to literally every driller out there is definitely very optimistic outlook both for floaters and jackup. You know, when you come into these levels $150, $175, do you think at that point there will be or you'll get some pushback in terms of willingness to pay among these operators?
Are we at the point in time where the lack of supply to fulfill all demand will just have people pay up just to make sure that they are securing the capacity that they need? I guess that ties a bit to your comments about equipment, as well, Patrick.
Yeah, Frederick. I think it's a good question, but I think there is two sides to that story. On one side, clearly, if you come from the low day rates that we have seen over the last few years, you might think that we go to exceptionally high levels, but we're actually not, right? I think that we are starting to approach average type of levels that the industry requires. The second thing that I think is important is when you think about what something is worth, you always have to look at what kind of investments are made in these types of equipment.
If you're looking at a $200 million piece of equipment, I don't think that day rates in the $150-$175 are high, as we have seen previously as well in the industry. I mean, I mentioned earlier the peak rate that was actually at an oil price of $60-$80, right? It was significantly lower than what we have today. When looking at the economics for our customers, and clearly there will always be a desire to keep their supply chain as cost efficient as they can. I think that, there is no problem from economic point of view, coping with the day rates that we are charging today.
You could come to those levels, but from the cost effectiveness of the barrel in the places where we drill today, I don't foresee that to become any problem at all. Let's face it, we are still a long way from what was previously peak rate. I don't see it to be a problem, even though I fully understand where the question comes from, but not an issue. We're far from that. I think that there is actually it makes a lot of sense for many of our customers to continue to build production capacity and the ability to produce more. It's good economics for them.
Thank you. That's very helpful. Second question, which would be in relation just to untangle a bit about your comment around the CB, since that is not addressed directly in what you've done now with the secured creditors. You mentioned that you're going to have, to my understanding, 3 rigs that are not collateralized. I was wondering if you had any initial thoughts around there or whatever you can share on how you're going to use that to address that CB. Would it mean that you're planning to potentially use those rigs as collateral for the CB? Or do you think you'll be more inclined to sell them now that they're uncollateralized and then pay down the CB?
Do you think it needs to be a CB going forward, or could it be more of a kind of vanilla bond type of structure potentially then collateralized if you're not selling? You know, anything that relates to that would be helpful. Also as a general question around your comments on dividends from 2024, is there any or what governs how much you can pay out from that point in time?
Yeah. Okay. I will ask Magnus to kinda go into some of the details around the CB. I think by the way you end, you ask the question, it's already clear that we indeed have many options on how to deal with it, and that is part of our desire. Apart from that, the reason of not dealing with the CB right now is because obviously we also look at what is the most cost-effective way of dealing with our capital. The CB at this moment is a very attractive piece of capital that we have at our disposal. Magnus, maybe you can talk a little bit more about what our plans are and what optionality that we have.
Okay. Frederick, thanks for many good suggestions. Everything you mentioned there is actually something that could be alternatives to address this. What Patrick is saying is that the coupon on this debt is currently at 3.875. A very low coupon on the debt. We have freed up three rigs now, which are available to either take up more secure loans. You could, if the price is right, consider a sale to free up the liquidity and thereby addressing the CB. I also think there will be a market there the next 6 months to also have a more secured, sorry, unsecured, debt to replace this unsecured debt with new one.
We have also, as we mentioned, received terms for a potential $250 million CB. But I think currently those terms, while it's so obviously comforting to see that there is a market there today that we could do something, we don't think it's optimal for the company to actually use that offer at the moment. We think that these terms are going to improve over the next couple of months when we see more data points on higher day rates, potential higher asset values as a result of that, and therefore also an improved debt market for us.
Thank you, Magnus. Frederick, you were asking a little bit as well about dividend. I think what the key thing in all of this is that we want to make sure that there is a proper understanding of what the current day rates actually do when it comes to cash generation and clearly getting to the levels of 130-150. I mean, we've given you that at 130 across the fleet, we would generate $600 million in adjusted EBITDA. This goes to about $1 billion if you look at 175. I've also said that that's the kind of level that I'd be expecting to be tendering it towards the end of the year. When you get to 2024, these kind of levels become numbers that we anticipate to be able to generate.
Clearly at that time, apart from our financing cost and our overall cash required to run the company, we will have access. Now, there are certain things that we will need to take care of at that time, prior to getting into a real dividend situation. Obviously, there is certain debts that need to be worked on, but the key in all of it is that when we get to the generation of these levels of cash, there are many financing options that would allow us to also start returning cash to the shareholder, which at the end of the day, is clearly our desire. Maybe as a side in that, I think that we are very clearly of the opinion that we are trying not to grow into this cycle and be ever-expanding.
We'd like to be disciplined in what we do going forward, and therefore get to a situation that we actually can start to return cash to the shareholder within this cycle and do this at the amounts of previously indicated. That is a little bit our idea around that, and I hope that gives you sufficient view on what our intentions are here over the next two years or so.
Thank you very much.
Thanks.
Thank you.
Thank you. I'll hand over to Andreas to go through chat questions.
Thank you, Nadia. We have two online questions here. Number 1, do you think the day rates will peak higher than previous peaks, given that this cycle already started at a much faster pace than in previous cycles in history?
I think that the key is that we are seeing day rates increase significantly faster than what we anticipated. I think that there is certainly possibilities that the day rates that we are going to see going forward will set new records. That has a lot to do with how tight the market is. That has a lot to do with where the production is coming from. A lot of the things that we're doing today are none of them short-term projects. A lot of it is longer term investment that needs a sustained project to actually make this work. I would say it's absolutely possible. This coupled with the previous question, even at rates over $200,000 per day for a jackup, the economics make a lot of sense.
As long as we have an oil price that supports what we're doing, and currently even at rates of $90-$100 per barrel is sufficient to actually achieve that, I can see rates that are actually going higher. The rate at which this has to happen, we'll have to see, but there is nothing that would prevent it from an economics in the system type of situation. Absolutely possible.
Thank you. Second question, when do you expect the Saudi tender to come? You implied in the release that large Middle East contracts are being awarded as we speak.
Yeah. Maybe let me talk generally about some of the Middle East contracts. There is a variety of contracts that we are bidding on in the Middle East. Some of them could be as early awarded as in the next weeks. Some of them will take a little bit longer. I also think that we have to keep into consideration that starting off 30, 40, 50 extra rigs in a particular region, regardless of customer, regardless of service company, it is a tremendous amount of work. For the industry to do this, we are fully in it and fully going at it. It will take a bit of time, but we'll have continuous awards, going from a few weeks from now to quite a few months to come.
Basically, on the stuff that we have already seen tendered out, but really the customers now have to make a decision.
Okay. Thank you. We have two more questions from Sebastian Gyllenhammar, from Arctic Securities. Number one, in your refinancing updates, you mentioned joint ventures as a possible solution. Could you allude a bit more about what such JV could look like, and also if you're already in discussions around JVs?
Yeah, I guess if we're in discussions, we probably won't say too much about it, but maybe a bit more about the general view about how we think about it. I think that we see that in certain areas in the world, in order to get a significant fast penetration or increase the footprint at a rate faster than we would be able to do ourselves, and faster in this respect could mean financial means, it could be technical capabilities, it could be infrastructure, it could be a variety of things. So there are places that we can do this better with a partner and faster than if we were to do this alone. As an example, I can give how we entered into Mexico. In Mexico, clearly, we used the benefit of working with a strong partner.
There is other places in the world where this also would be true. We are always looking to associate ourselves and work with the right partners to make sure that we are creating something that together is stronger. I certainly see that there is, for instance, in the Middle East, there are always opportunities to do something along these lines. I would say we keep our options open, and we're very keen on penetrating in places as fast as we can to the largest extent possible. If that is benefiting from a partner, then we're very happy to take partners on board.
Thank you. The second question, since the day rates are moving quite quickly, could you remind us whether the options on your rigs are priced or if you expect them to be adjusted to the market rates?
Yeah, that's a good question. When it comes to the day rates moving quickly, options that you have are always a question of whether they are going to be beneficial going forward. In our case, we have both priced options, and we have unpriced options. Basically, having a discussion on, mutual consent to whatever the price needs to be going forward. It is a mix, and clearly, the ones that are priced are ones that in certain cases, people are looking to early adjust and possibly extend in time. There's a lot of discussions around options going on, and we have a bit of a mixed bag. There's priced options, there is not priced options, and obviously we are trying to optimize that as much as we can, making it a win-win for the customer and ourselves.
That is going quite well at the moment. Good question.
Thank you. I think that's it for now. Nadia?
Thank you. As a final reminder, if you would like to ask a question today, please press star followed by one on your telephone keypads now. If you have joined online, please use the Q&A chat box provided. That's star followed by one on your telephone keypads, if you have joined online, please use the Q&A chat box provided.
I can see we have a question online, Nadia, so I'll take this one now. What do you think about the Mexico renewals? Should we think about these rigs as being most likely staying in the region?
I think that Mexico business is something that we started from scratch and is dear to our heart. Obviously we are quite keen on staying in the region. At the end of the day, this always comes down to what is the best commercial decision that we can reach. We'll have to see on how the discussions go forward. There is, in my opinion, sufficient work available that would make this a place that we could and would be willing to stay for the long term. We would have to see how this could be happening on a commercial level.
From the requirements in the region and how we have been performing with our partner for Pemex, I would say that quality of performance certainly is something that would have a very good opportunity of staying in Mexico. After that, it purely becomes commercial, and it'd be a bit premature to make any comments around that. It's a piece of work that we're very happy with. Nadia, if this is it, then I would like to thank everybody participating. It's been great to have an opportunity to come back to the Q&A. As you know, we are very bullish on the space. We are quite happy that the reasons why we started Borr Drilling are coming together and that the day rates start to justify where we go when it comes to returns.
I think that this is going to be a very significant and long bull market. Look forward talking to you soon. For now, thank you for your attention and thanks for participating.
Thank you. This will conclude today's call. Thank you all for joining. You may now disconnect your lines.