Executive Summary / Key Takeaways

• Resilient Performance and Strategic Rebound: Borr Drilling ($BORR) has demonstrated robust operational performance and a strategic rebound in activity, with 22 out of 24 rigs active in Q2 2025, driving a 39% increase in Adjusted EBITDA to $133.2 million quarter-over-quarter.
• Strengthened Financial Position and Capital Allocation: A proactive $200 million liquidity boost in July 2025, including a $102.5 million equity raise, significantly fortifies the balance sheet, enabling disciplined growth and potential industry consolidation, while 2025 maintenance CapEx is projected to be below $50 million.
• Differentiated Technology and Operational Edge: Borr's fleet of 24 premium, young jack-up rigs, including units with unique offline capabilities and green energy upgrades, provides a competitive advantage through superior operational efficiency, lower cost barrels, and strong customer loyalty, particularly in shallow-water and gas-focused projects.
• Favorable Long-Term Market Fundamentals: Despite near-term volatility from regional conflicts and oversupply, the long-term outlook for the jack-up market remains compelling, driven by an aging global fleet, no new builds, and resilient demand for shallow-water oil and gas projects.
• Mexico as a Strategic Growth Driver: Renewed commitment from the Mexican government to Pemex's liquidity and production goals, alongside the growth of private investment projects, positions Borr Drilling to capture significant incremental drilling activity and secure long-term contract extensions in a key region.

The Resilient Core: Borr Drilling's Modern Fleet in a Dynamic Energy Landscape

Borr Drilling Limited operates at the forefront of the offshore shallow-water drilling sector, providing essential jack-up drilling rigs to the global oil and gas industry. The company's core business revolves around three main service lines: Day Rate Drilling Services, Bareboat Charter Services, and Management Contract Services. This focused approach, coupled with a strategic emphasis on a modern, high-specification fleet, positions Borr as a critical enabler for exploration and production companies seeking efficient and reliable shallow-water solutions.

The broader energy landscape is characterized by a complex interplay of regional conflicts, global trade tariffs, and evolving OPEC policies, which have introduced periods of commodity price volatility. Despite these macro uncertainties, Brent crude prices have demonstrated resilience, averaging approximately $68 in Q2 2025. This price level consistently supports the economic viability of shallow-water projects, which are attractive to customers due to their lower breakevens and faster cash flow generation. The global jack-up market, in particular, benefits from an aging fleet—with 30% of units over 35 years old—and a decade-long absence of new rig orders, suggesting a tightening supply that favors modern, high-performance assets like Borr's.

Borr Drilling's foundational strength lies in its fleet of 24 premium jack-up rigs, which stands as the youngest in the industry following the completion of its newbuild program with the delivery of the VAR in November 2024. This technological differentiation is not merely about age; it translates into tangible operational and financial benefits. The rigs are designed with advanced capabilities, such as unique offline features, which enhance drilling efficiency and reduce non-productive time. For example, the Mist, operating offshore Thailand, received a one-year extension due to its unique offline capabilities, enabling it to consistently deliver wells ahead of schedule and generate substantial value for its customer. This operational superiority allows Borr to generate some of the lowest cost barrels for its clients, fostering strong customer loyalty and securing contracts even in competitive environments.

Furthermore, Borr is actively pursuing technological advancements with an environmental focus. The Prospector 1 in the North Sea is undergoing upgrades to operate with 100% green energy supplied from a nearby wind farm, aiming for near-zero emission levels. This initiative not only aligns with evolving industry environmental standards but also positions Borr to capture opportunities with customers prioritizing sustainable operations. These technological advantages contribute directly to Borr's competitive moat, enabling higher utilization rates, better margins, and a stronger market position by offering a superior value proposition to clients.

Operational Momentum and Strategic Growth Initiatives

Borr Drilling's operational performance has been consistently strong, even amidst market fluctuations. In Q2 2025, the company reported a technical utilization of 99.6% and an economic utilization of 97.8%, with 22 out of its 24 rigs actively working. This robust performance underscores the efficiency and reliability of its modern fleet and operational teams.

The company has been proactive in securing new business, adding significant value to its backlog. Year-to-date Q2 2025, Borr secured 14 new contract commitments, contributing $318 million to its backlog. These include a multi-rig award in Vietnam for approximately 500 days, expected to commence in early Q4 2025, and a 500-day contract for the Arabia II in the Middle East, which will return the rig to the active fleet in early September 2025. Notably, the Arabia II contract includes performance incentives that could result in a day rate uplift of up to 10% to 15%, reflecting the value Borr's high-performance rigs bring to customers.

Mexico remains a strategically vital market for Borr, representing approximately 20% of its available coverage in 2026. The Mexican government's renewed commitment to strengthening Pemex's liquidity and its production goal of 1.8 million barrels per day are significant tailwinds. The government's plan, including a $12 billion debt offering and a $13 billion facility for Pemex projects, is expected to enhance Borr's liquidity and position it to capture incremental drilling activity. Private investment projects, such as the Bacab-Lum field where a Borr rig is currently operating, are projected to contribute a quarter of Mexico's production by 2033, offering attractive value propositions that incentivize performance and reduce exposure to Pemex's payment cycles. Borr's proven track record of delivering best-in-class wells in Mexico uniquely positions it to capitalize on these opportunities.

Financial Strength and Prudent Capital Management

Borr Drilling's financial performance in Q2 2025 demonstrated a significant rebound. Total operating revenues increased by $51.1 million, or 24%, to $267.7 million compared to Q1 2025. This revenue growth translated into a substantial increase in profitability, with Adjusted EBITDA rising by $37.1 million, or 39%, to $133.2 million. Net income for the quarter was $35.1 million, a $52 million improvement over the net loss in Q1 2025. These figures underscore the profitability inherent in Borr's revenue streams when its fleet is highly utilized.

The company generated $106.5 million in free cash flow during the first six months of 2025. Recognizing the importance of a robust balance sheet, Borr took a decisive step in July 2025 by securing a comprehensive financing package. This initiative included a $102.5 million equity raise and amendments to its revolving credit facilities, effectively increasing its liquidity by $200 million. This proactive measure, undertaken while market conditions were favorable, bolstered the company's pro forma liquidity to approximately $425 million (comprising $192 million cash and $234 million RCF capacity) as of Q2 2025. This strengthened liquidity provides a solid foundation for pursuing opportunistic transactions, including potential industry consolidation, and supporting future growth.

Capital allocation is managed prudently. With the newbuild program concluded in late 2024, growth capital expenditures have ceased. Maintenance CapEx for 2025 is projected to be below $50 million, equating to approximately $2 million per rig, plus an estimated $5 million to $6 million for each of the two scheduled special periodic surveys and $1.5 million per rig for long-term maintenance. This reduced CapEx profile is expected to significantly enhance cash flow in 2025. While the Board suspended dividends in Q1 2025 due to market uncertainties, it has demonstrated a flexible approach to shareholder returns, opting for share buybacks when the stock trades at attractive levels, as seen in Q3 2024.

Competitive Landscape and Strategic Positioning

Borr Drilling operates in a competitive environment alongside major players like Valaris (VAL), Transocean (RIG), Seadrill (SDRL), and Noble Corporation (NE). Borr differentiates itself through its specialized focus on shallow-water jack-up rigs and its commitment to a young, high-specification fleet.

Compared to Valaris, which boasts a larger and more diverse fleet, Borr's specialization allows for greater efficiency and agility in its niche. While Valaris may offer broader market reach, Borr's streamlined operations and customer-centric approach can lead to more cost-effective solutions for specific shallow-water projects. Against Transocean, a deepwater specialist, Borr's jack-up offerings provide simpler, potentially faster solutions for shallow-water drilling. Borr's operational execution in its core areas is a key strength, though it may lag in the sheer scale of technological innovation seen in deepwater. Seadrill, with its focus on harsh environments, shares some market overlap, but Borr's emphasis on consistent operational delivery and strong customer relationships provides a distinct advantage, particularly in regions where predictable results are paramount. Noble Corporation, another significant jack-up operator, competes directly, but Borr's younger fleet and performance-driven contracts often give it an edge in securing renewals and new awards.

Borr's competitive advantages stem from its operational efficiency and the tangible benefits of its modern rigs. The company's ability to deliver "best-in-class wells" and generate "lowest cost barrels" for customers, as highlighted in Mexico, translates into stronger customer loyalty and recurring revenue. This operational excellence allows Borr to command competitive day rates, with its 2025 contract coverage at an average day rate of $145,000, and 2026 coverage at $139,000. While the inflow of rigs from the Middle East has pressured rates in some regions like Southeast Asia, Borr's strong reputation for operational delivery helps maintain rate structures in markets like West Africa. The ongoing retirement of older, less efficient jack-ups further tightens supply, creating a favorable market for Borr's premium assets.

Outlook and Key Risks

Borr Drilling's outlook for 2025 remains positive, with the company comfortable with the Bloomberg consensus estimate of approximately $470 million for Adjusted EBITDA. This confidence is built on a robust contract coverage of 84% for 2025 and 47% for 2026, with expectations for further improvements. The company anticipates a comparable level of activity and performance in Q3 2025 as in Q2 2025.

Key drivers for future growth include sustained demand in the Middle East, particularly in Kuwait and the neutral zone, where incremental demand is expected to absorb market oversupply by 2026-2027. Aramco's nearing $8 billion in EPCI tender awards also signals long-term incremental demand in Saudi Arabia. In Mexico, the government's commitment to Pemex's liquidity and production goals, coupled with the rise of private investment projects, is expected to drive significant rig demand and contract stability. Borr is actively engaged in discussions for multi-year work on its Mexican rigs and is optimistic about securing extensions.

Despite the positive outlook, several risks warrant attention. The oil and gas sector remains susceptible to regional conflicts, global trade tariffs, and OPEC policy changes, which can introduce price volatility and impact customer spending. Delays in collections from Mexico, though expected to improve with government financing initiatives, have historically impacted working capital. While Borr's contracts include termination for convenience clauses with payouts equivalent to expected EBITDA backlog, market downturns could still lead to contract renegotiations or suspensions. The market continues to absorb excess capacity from Saudi suspensions, which has exerted downward pressure on day rates in some regions. However, the dwindling number of available modern rigs (less than 10 competitive units remaining) suggests this pressure may abate.

Conclusion

Borr Drilling stands as a compelling investment proposition, underpinned by its modern, high-specification jack-up fleet, operational excellence, and strategic positioning in key shallow-water markets. The company's ability to consistently deliver strong financial results, even amidst a complex global environment, speaks to the resilience of its business model and the effectiveness of its management team. The proactive strengthening of its balance sheet, coupled with a disciplined approach to capital allocation, provides a solid foundation for future growth and opportunistic consolidation.

The long-term fundamentals of the jack-up market remain robust, driven by an aging global fleet and sustained demand for cost-effective shallow-water production. Borr's technological differentiators, such as its efficient rigs and commitment to greener operations, provide a competitive edge that translates into superior operational performance and strong customer relationships. As the company continues to maximize its backlog and capitalize on strategic opportunities in regions like Mexico and the Middle East, its trajectory points towards sustained value creation for shareholders, solidifying its position as a leader in the international jack-up drilling sector.