Good day. Thank you for standing by. Welcome to the Borr Drilling Limited Q4 2022 results presentation webcast and conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, you can please press star one and one again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time during the conference. Please be advised that today's conference is being recorded. I would now like to hand over to your first speaker today, Mr. Patrick Schorn, CEO. Please go ahead, sir.
Good afternoon and thank you for participating in the Borr Drilling fourth quarter 2022 earnings call. I'm Patrick Schorn, talking to you from London, and with me here today is Magnus Vaaler, our CFO. Next slide, please. First, covering the required disclaimers. 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. During the fourth quarter, we have successfully started operation with two rigs, namely the Arabia I and II in Saudi. Almost a full quarter of operation with the Ran in Mexico and the Thor fully operational for the quarter in Malaysia.
These efficiently executed activity increases with economic utilization levels over 98.5%, resulted in our top line increasing 38% sequentially. With Frigg currently being prepared for our operation in the Middle East, where she will start operation as the Arabia III in Q3 of this year, we're also activating our last rig, the Hild, to be ready to commence operations in a similar time frame. This would result in all 22 delivered rigs in our fleet to be contracted and active. The earlier mentioned 38% top line increase resulted in an adjusted EBITDA of $55.1 million for the quarter, which means that for the full year 2022, our revenue was $447 million with $157 million of adjusted EBITDA.
A result that I'm particularly pleased with and one that confirms the revenue and earnings trajectory that we have been signaling to the market earlier, which is an adjusted EBITDA of $360 million-$400 million for 2023, and a $580 million-$600 million adjusted EBITDA level for 2024. Magnus will now step you through the details of the fourth quarter. Magnus, go ahead.
Thanks, Patrick. We're now on the slide, key financials Q4 2022. Q4 2022 revenues were $148.6 million in the quarter, an increase of $40.7 million or 38% compared to Q3 2022. This was split between $117.2 million of day rate revenues for our rigs on regular contracts, and $31.4 million of related party revenues, which was bareboat earnings from our Mexico joint ventures. Rig operating and maintenance expenses for Q4 were $83.4 million, an increase of $23 million from Q3. The increase was mainly due to an increase in activity and operating days, and a $7.3 million increase in amortization of deferred mobilization and contract preparation costs.
Total financial expenses net were $49.4 million for the fourth quarter, a decrease of $4.7 million, mainly as a result of a $4.3 million decrease in financing fees, a $3.4 million decrease in foreign exchange losses, and a $2.3 million decrease in yard cost cover as a result of the sale of Tivar. This was offset by a $5.9 million loss on extinguishment of debt. Net loss for the quarter was $21.3 million, a decrease in loss of $33.6 million from Q3. Adjusted EBITDA for the fourth quarter was $55.1 million, an increase of $11.2 million or 26% compared to the third quarter.
Our free cash position at the end of Q4 was $108 million, and our restricted cash was $10.5 million. Our cash movements in the quarter were primarily driven by cash generated from operating activities of $77.5 million. Cash used on fixed asset additions such as CapEx and activations of $38.7 million. This was mainly driven by the activation of the Arabia I and II, starting their operations in Saudi and the Norve. Finally, cash used to repay debt of $355.5 million, offset by cash proceeds of $150 million from the new DNB bank loan facility. Also, total cash received from Mexico in the quarter were $76.3 million. Turning to the next slide.
These graphs show the significant quarterly progression in both revenue and adjusted EBITDA we have made since the beginning of 2021. Revenue in Q4 2022 is triple that seen in the first quarter of 2021. Full year revenue has increased by 80% from 2021. EBITDA by approximately 300%. As Patrick mentioned, we have updated our guiding for 2023, where we expect revenues to be in the region of $740 million-$780 million, and adjusted EBITDA between $360 million and $400 million. Turning to the next slide. We are also pleased to report that in January, we completed the final step of our refinancing of our 2023 debt maturities by raising $400 million through two bond issuances in order to repay our convertible bonds due in May 2023.
This was done through a $150 million senior secured bond with maturity in 2026 and a coupon of 9.5%, and a $250 million convertible bond with a 5% coupon due in 2028. Turning to the next slide. Our current delivered fleet consists of 22 modern jack-up rigs, all built after 2010, of which 21 rigs or 95% are contracted. We have additional two rigs under construction at Keppel FELS with contractual delivery in 2025. In 2022, the company was awarded 24 new contracts, extensions, exercised options, LOAs, and LOIs, representing more than 13,000 days or 36 years and $1.67 billion of potential revenue backlog.
During the same period, our operating rigs have consumed approximately 15.7 years of backlog, resulting in a backlog replenishment ratio in 2022 at a multiple of two. These calculations include contracts for our Mexico joint ventures on a 100% basis, in addition to any mobilization compensation in the contracts. It is also worth noting that we have secured contracts for more than 90% of our available operating days in 2023. We have around 50% available days in 2024, which has set the company nicely up to benefit from new contracts in the increasing day rate environment that we are currently experiencing. With that, I would like to turn the word back to Patrick, please.
Thank you, Magnus. As Magnus has shown, our capacity for full year 2023 is over 90% committed, and for 2024, that's around 53%. Both numbers clearly an indication of how tight the market for modern jack-up is. In the graph on the left hand, you can see that the proportion of modern rigs has been continuously increasing and that the number of total contracted jack-up rigs has already reached a peak of 2020. In the graph on the right-hand side, you see the historic order book for new rigs. During several of the past cycles, this order book was far in excess of 100 rigs under construction. Currently, when adjusted for already committed rigs, there's about a handful of rigs entering the market, which is the lowest that we have seen in the last 25 years.
In the middle graph, you see a representation of the available supply of modern jack-up rigs, where between the current available supply plus the new builds at the shipyards and the current contracted rigs, there are possibly nine rigs available. We are currently aware of demand that is at least double that and is increasing. The fact that the market is very tight is clear, and I often get the question regarding the longevity of the current cycle for the modern jackups specifically. For that, we should have a look at the customers. Next slide, please. In the graph on the left, you see the demand for the jack-up rigs by customer group, where 20 years ago, the IOCs were proportionally some of the largest users of jack-up rigs. Today, the situation is very different.
Over the last years, the proportion of rigs employed by the NOCs has grown tremendously to currently about three-quarters of all of the jack-up rigs worldwide being employed by NOCs. In line with that, the backlog for Borr Drilling is 75% directed towards NOCs as well. The NOCs are the largest and most strategic operators in the industry, and as such, have well-developed long-term production plans which require multiyear elevated levels of activity to achieve the required production goals.
As these plans are long-term, the contracting has become for the longer term as well, as you can see in the graph on the right, which is understandable based on the long-term activity plans of the NOCs and makes even more sense considering the finite asset pool of jack-up rigs available to carry out these works. The supply of jack-up rigs struggles to meet demand, which has a immediate impact on the day rate and pricing. A few words on that. Next slide, please. On the graph on the left-hand side, you see the utilization chart with the modern rigs being at 95%, particularly when taking into account the owner-operated rigs that are really not playing in the open market.
At these utilization levels, looking at the previous cycles as depicted in the right-hand graph with inflation-adjusted day rates, the day rate increases rapidly with the average being around $180,000 per day. What is different now versus the previous cycles is that there is no order book to speak of that could moderate long-term pricing. Therefore, we expect further upward moving in day rates from the level of our recent awarded new contracts, which were in the $140,000-$160,000 per day range. Next slide, please. In conclusion, the large refinance resulting in all maturities being pushed out to 2025 has been successfully concluded. The asset pool is finite. Utilization ratios are high and customers focus on contracting assets for the long term. We've given clear guidance for 2023 and 2024 earnings expectations.
Based on these, at the end of 2024, our debt will be less than 3x the adjusted EBITDA, a very financiable ratio. Secondly, we expect the value of our rigs to steadily increase, and towards the end of 2024, we anticipate having less than $60 million of debt per rig. Again, a very financiable situation. Based on the outlook thus far, we expect to be in a position to distribute dividends to our shareholders immediately after the 2024 refinance. Our operational team continues to fully dedicate and manage itself to safe operations with high operational efficiency to create the maximum value for our customers. I would like to end here our prepared remarks and we can go to the Q&A.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please kindly ask one question and possibly a follow-up question at a time to leave room for other participants. If you have any further questions, you can please rejoin the queue. If you wish to ask a question via the webcast, please type it in the question box and click Submit. We are now going to proceed with our first question. The first question come from the line of Fredrik Stene from Clarksons. Please ask your question. Your line is open.
Hey, Patrick, Magnus. Hope you're well. I have a question about your guidance. You're talking about hitting on an adjusted EBITDA range somewhere between $360 million and $400 million. I think at least compared to my numbers before you published that guidance, I was a bit lower, around $330 million. Even at that time, you had quite good contract coverage for 2023. Now it's even better. I was wondering if you could give us some color on how the end or what type of uncertainty is included in that number. Also since you're activating the Hild, if it's fair to expect some sort of long-term contract for that rig as well, that can positively impact 2023 numbers.
Any color you can share would be greatly appreciated.
Sure, Fredrik. It is true. I mean, we've tried to guide as much as we can without letting the commercial cat out of the bag, so to say. If you talk about the uncertainty for 23 with a 94%, 95% coverage, it's obviously not very high. If you wanna talk about what are the things that are uncertainties, then you could say there is the exact start of dates from, for instance, the Arabia III or the Hild. There is some contract extensions that we have towards the end of the year. If you would have a week more or less of downtime, you would have some uncertainty there. Quite frankly, it is very little uncertainty.
If we are able to keep everything running the way we are now with a very good technical uptime and economic uptime, I think that there is little uncertainties. The contract coverage is there, as you say, and there is not many unknowns. We need to execute as we have been doing, and then these numbers should be the resultant of that.
Perfect. Thank you. Just to follow up on the thinking about 2024 versus 2023, you have approximately half your fleet covered in 2024. You seem to be, you know, positive when it comes to the direction of day rates. Are you having any particular type of strategy when it comes to contracting the rigs for 2024? Are you going to kind of wait until rates are higher, or do you think you're in a position already now to fix a, you know, okay term at the higher rates so far ahead?
If you look at the last few announcements we have made, these are all contracts within the $140,000-$160,000 per day range. I would expect that to continue and increase in the second half of this year. I would think that we are going to see contracts that are going to be at the $175,000 range. When you look at the 2024 guidance we have given, that is actually expecting pricing to continue where we are now with only very slight increases to actually achieve those kind of numbers. I think that when...
You are right, there is about half of the contracts that roll off in 2024, and if we are recontracting at the current pricing that we are seeing, then we will be totally fine in delivering that type of guidance as well. I don't think we're looking for extraordinary things to happen, but I do feel that based on the tightness in the market, that pricing will increase a bit further from where we are now. Like I said, our last four or five contracts that we have announced were in the $140-$160. I would expect that to continue going up during the year to the $175.
Right. Thank you so much.
Thank you.
That's all for me.
Once again, as a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your questions, please press star one and one again. Please kindly ask one question and possibly a follow-up question at a time to leave room for other participants. If you want to ask any further questions, you can please rejoin the queue. If you wish to ask a question via the webcast, please type it in the question box and click Submit. We are now going to take the next questions on the phone lines. The questions come from the line of Greg Lewis from BTIG . Please ask your question. Your line is open.
Yeah. Thank you. Good afternoon, everybody, and thanks for taking my question. You know, I did wanna talk a little bit about the market and the fleet. You know, clearly you guys have done a great job and the market has cooperated in your ability to push pricing. You know, as we kinda look globally at the fleet, you know, clearly there's a lot of... You know, you have most of your exposure in Asia. You know, given some of the strength that we've seen in other basins, do you see the potential to potentially move some of those jackups that are, that have open days in Asia on into another basin, maybe where you can get, you know, basically make more money?
Greg, I think it's a good question, and I think that if you maybe look traditionally, it used to be true that the day rates in Asia were a little bit lower. Your OpEx was a little bit lower, so the option to make money there was good, but the day rates were a bit suppressed. I think what we have seen now is that on a worldwide basis, over the different regions, the day rates are actually very uniform. It's too easy to move a rig around and therefore, if you want to be participating as an operator and get a rig to work for you basically have to kind of work with this worldwide average that I was earlier mentioning.
The rates in the last contracts that we have also in Asia are in that same bracket, and the monies that we make out of that are equally good as we make elsewhere. Even though there are opportunities to move assets from Asia, let's say elsewhere, we have very long customer relationship and very important relationships to us. We are fully committed to that market, and we'll continue to serve the customers there as everywhere else. Obviously, you are right to say that assets will go eventually where most money is made. I think that today it is very fairly distributed over the different basins in the world.
Okay, great. Just realizing that, you know, it's, it's interesting to think that, you know, now we're talking about rig scarcity, you know, realizing, hey, it's the cycle's just getting going and there's still a lot of work to do, you know, on everybody's end. As we think about the new builds and realizing those are, you know, we have a couple years, you know, before we need to take delivery of those, you know, at what point could we start to see the company actively bid those rigs into the market, just given you know, some of the pricing and the longer term contracts that look like they're starting to pop into the market?
Yeah, no, that's a fair question. In our case, we only have two rigs left under construction. Based on the refinancing that we have done, we are to take delivery of those in 2025. However, the market today is that strong that we are in discussions with the various stakeholders to see how we can actually bring that forward. We're quite interested to put them in the market, as soon as possible, which still, I mean, as everybody understands, these are units under construction, so it will take some time. If I could get these units to be working as early as 2024, I'd be quite pleased. Based on the strength in the market, the demand that we see today, I'd be very keen to see that we pull that forward into 2024.
Those are discussions ongoing, and we'll just have to see where we can land that.
Okay, perfect. Hey, thank you very much for the time, everybody. Have a great day.
Thank you.
We are now going to proceed with the next question. The next question comes from the line of Samantha Hoh from Evercore ISI. Please ask your question.
Hey, guys. Thanks for taking my question. I guess, I just wanted to dig in a little bit about the work that you're doing on the Arabia III, you know, what type of contract prep that all entails, with, you know, bringing that rig over. Then, if you could also just maybe provide some guidance on the CapEx line. You know, obviously a little elevated this last quarter, but just kind of wondering in terms of visibility for maybe bringing that down over the course of the year.
The Arabia III is going to work on a contract in the Middle East under a five-year contract, where there's an option to extend that. We are in the process to fully activate it and get its contract ready. There are some specific requirements for the contract when it comes to the technical specifications of the rigs and its capabilities. We're upgrading it to that, and we would expect that rig to be commencing operations somewhere in the third quarter of this year. Let's say in another six months or so. That is where we are. Magnus, do you wanna give any further comment regarding CapEx in general?
CapEx in general, not talking about this rig, you do have a five year every five year special survey, which we estimate to be in the ballpark, $6 million per rig. I think in general, CapEx, we normally recommend that you set aside approximately, sorry, $1.2 million per year, per rig to smooth that general CapEx out in the modeling.
Okay. Would we assume then that maybe the Hild will need similar type of, you know, upgrades for the type of work that it has, where, I think, CapEx should just drop off pretty dramatically, I presume, in the fourth quarter of 2023?
Yeah. I think it is fair to say that the activation CapEx at that time for us will come to an end. There are no rigs to immediately activate any further. The Hild at this moment is on a similar timeframe as what we do with the Arabia III, both are in the process of being prepared. Then it purely depends on which contract the Hild will end up, whether there is some contract specific spend that we might need to do on it.
Absent of that, we should see CapEx overall then come down, and then it will be purely related to more the periodic surveys that we need to be doing, before we receive the last two rigs from the yard, which will be, as we had discussed in the previous question, from 2024 onwards and could be as late as 2025.
Just to add on the Hild, that would be more of a standard newbuild activation that we've done nine, 10 of already, which we estimate typically to be costing around between $12 million-$15 million. Before you do any contract specific costs like Patrick mentioned.
Yeah, that's super helpful. Thank you so much, guys.
Thank you.
We have no further questions on the phone line. I will now hand back for any web questions that you may have.
Yeah, we have one question. What market conditions does Borr think are needed for someone to make a commitment to investing in a newbuild program? Does Borr think newbuilds are required?
I think that what you would need to see is day rates in excess of the $175, and you need to have a situation where certain customers are willing to give the drilling contractor contracts that are of seven-10 year in duration. I think we are a little bit away from that, although maybe not very far away from that. The question is, are we going to need that or not, is a question where I think that if we see what we have still to be done in the shallow water when it comes to production potential over the next few decades, then I cannot believe that the current fleet is sufficient. Over time, new assets will have to enter the market, if nothing else, to replace some of the very old units that are still working today.
I would say there is going to be a time in which we will see newbuilds. It is probably going to require day rates that are slightly higher than what we see now. Where the operator is willing to extend significant long contracts that these investments can be justified. Because obviously, at the same time as the requirements of these units might go up, the cost price is going up as well. These are fairly large investments that I just think are going to take a while before people are going to make that step. Clearly, in that environment and where there is no order book today, it is a very interesting environment for us to be having commercial discussions with customers around rigs that are of the quality and age that we have.
It's an interesting environment. I think that that's all that I would say regarding new builds. Do we have any other questions?
We have no further questions at this time. I would now like to hand the conference back to Mr. Patrick Schorn for closing remarks.
All right. I think that there is not much more to say than we have said. We have had, as part of the refinance here over the last few weeks, a very intense communication with all our different stakeholders and investors. Ladies and gentlemen, thank you very much for your attention. We look forward to talk to you soon again to further update you on the progress we're making with Borr Drilling. At the end of the day, these are very exciting times for our industry, and there's a tremendous upward potential. We'll be talking soon, and thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.