Executive Summary / Key Takeaways

• Market Trough to Inflection: Borr Drilling has engineered a strategic pivot through the 2024-2025 jack-up market trough, with clear signals of demand recovery in Saudi Arabia and Mexico—two of the world's largest shallow-water markets—positioning its premium fleet to capture disproportionate upside as utilization tightens and day rates stabilize.

• Operational Moat as Differentiator: The company's 97.9% technical utilization and 48.9% EBITDA margin in Q3 2025 reflect an operational platform that consistently outperforms peers, translating into customer loyalty that secured 22 new commitments worth $625 million year-to-date despite market headwinds.

• Strategic Transformation Complete: With the November 2024 delivery of its final newbuild rig, Borr Drilling has concluded its growth CapEx phase and is transitioning to a cash-generating consolidator, evidenced by the December 2025 acquisition of five premium jack-ups from Noble Corporation for $360 million.

• Financial Resilience with Leverage Overhang: While liquidity improved to $462 million and Q3 free cash flow turned positive at $39.8 million, the company's elevated leverage (Debt/EBITDA approaching 5x) remains the critical variable that will determine whether this recovery story generates equity value or merely services debt.

• Mexico Diversification as Risk Mitigation: Management's strategic shift from seven direct Pemex-exposed rigs to a diversified portfolio—two with payment protection, two with IOCs, and only one direct Pemex exposure—materially reduces payment timing risk while preserving access to this strategically vital market.

Setting the Scene: The Pure-Play Jack-Up Specialist

Borr Drilling Limited, incorporated in 2016 in Hamilton, Bermuda, emerged from a blank slate to become a leading international jack-up drilling contractor in under a decade. Patrick Schorn, who joined in 2017 and served as CEO until September 2025, built the company through a disciplined strategy: assemble a world-class leadership team, expand presence in key markets like Saudi Arabia and Mexico, and construct a fleet of modern, high-specification rigs. Bruno Morand, who joined alongside Schorn in 2017, recently succeeded him as CEO, bringing two decades of offshore drilling experience to guide the company through its next phase.

The business model is straightforward yet cyclical: Borr Drilling charters its fleet of premium jack-up rigs to global oil and gas companies for shallow-water drilling campaigns, generating revenue through three streams. Day rate revenue (86.9% of Q3 2025 revenue) provides the core earnings power, where the company supplies both rig and crew for drilling, workover, plug and abandonment, and emerging Carbon Capture and Storage services. Bareboat charter revenue (9.6%) offers a lower-risk alternative, leasing rigs without crew and gaining traction as a growth driver. Management contract revenue (3.4%) rounds out the portfolio, derived from operating rigs for joint ventures.

This pure-play focus differentiates Borr Drilling from diversified peers like Valaris and Noble Corporation , which maintain mixed fleets of jack-ups and deepwater floaters. While diversification can buffer against shallow-water cyclicality, Borr's specialization enables superior operational focus and cost discipline, evidenced by its industry-leading utilization rates. The company sits in a market where approximately 30% of the global jack-up fleet exceeds 35 years old, creating a structural supply tailwind as older rigs face retirement due to high maintenance costs and safety concerns.

Technology, Products, and Strategic Differentiation: The Premium Fleet Advantage

Borr Drilling's competitive moat rests on three pillars: fleet quality, operational execution, and customer relationship depth. The company's rigs represent the youngest and most premium specifications in the water, a critical advantage in an industry where modern units command 20-30% day rate premiums over vintage alternatives. This fleet quality translates directly into economic outcomes: Q3 2025 technical utilization reached 97.9% and economic utilization hit 97.4%, while peers like Seadrill reported 91.1% utilization and Noble's fleet utilization dropped to 65% in the same period.

Operational excellence manifests in the company's ability to generate the lowest-cost barrels for customers. In Mexico, Borr has drilled nearly 100 offshore wells with efficiency that makes it the "first rig to go back" when activity resumes, as management noted. This track record secured 2-year extensions for the Galar and Gersemi rigs with improved commercial terms, including fixed 45-day payment terms for operating costs—materially reducing working capital needs compared to the previous 180-day bareboat charter terms. The quality of the fleet means customers "default back to us and look at us as kind of the preferred alternatives," giving Borr a faster path to filling coverage than peers.

The strategic differentiation extends beyond hardware to portfolio management. When Pemex suspended rigs in late 2024, management didn't simply wait for payment. They diversified the Mexico footprint, reducing direct Pemex exposure from seven rigs to one while adding IOC contracts and private investment projects like Bacab-Lum. This pivot preserved market presence while mitigating the payment timing risk that plagued the industry. Two rigs now operate under payment protection provisions, two with international oil companies, and only one remains directly exposed to Pemex—a transformation that materially de-risks the Mexico narrative.

Financial Performance: Evidence of Strategic Execution

Borr Drilling's Q3 2025 results provide compelling evidence that the strategy is working. Total operating revenues increased 4% quarter-over-quarter to $277.1 million, with day rate revenue up $2.5 million to $241.0 million and bareboat charter revenue surging $6.4 million to $26.7 million. Adjusted EBITDA rose 2% to $135.6 million, delivering a 48.9% margin that substantially exceeds peer benchmarks—Valaris posted 29% margins, Seadrill 24.4%, and Noble approximately 32% in their most recent quarters.

The revenue composition tells a story of strategic pivot. Day rate revenue growth stemmed from increased operating days and higher rates for the Ran and Thor, plus the Odin converting from bareboat to day rate status. Bareboat charter revenue jumped as the Galar, Grid, and Gersemi resumed full operations after Q1 suspensions. This rebound validates management's decision to maintain these assets through the trough rather than cold-stack them, a move that preserved customer relationships and market position.

Cash flow dynamics reveal both strength and ongoing challenges. Operating cash flow was $72.1 million in Q3, but working capital build consumed liquidity—Mexico receivables increased $42 million and Vali receivables $13 million. However, subsequent collections of $17 million from Mexico and $10 million from Vali demonstrate the temporary nature of this build. Free cash flow turned positive at $39.8 million in Q3, a significant improvement from the -$332 million TTM figure distorted by growth CapEx. With maintenance CapEx now below $50 million annually and the newbuild program complete, free cash generation should accelerate.

The balance sheet presents a mixed picture. Liquidity stands at $462 million ($228 million cash plus $234 million undrawn revolver), providing ample cushion. However, debt service remains substantial—semiannual bond amortization of $135 million and interest expenses that consumed $93.4 million in Q4 2024 alone. With Debt/EBITDA approaching 5x based on 2025 guidance, leverage remains the central risk variable. The July 2025 financing package, which added $102.5 million in equity and expanded credit facilities, was a necessary de-risking step, but the Noble acquisition will test this improved liquidity position.

Outlook and Guidance: Assumptions and Execution Risk

Management's 2025 adjusted EBITDA guidance of $455-470 million implies confidence in a market inflection. This range aligns with Bloomberg consensus and assumes 85% fleet coverage at an average day rate of $145,000, up from $136,000 in 2024. The guidance embeds several critical assumptions: Saudi Arabia's rig recall continues, Pemex stabilizes payments under its $13 billion financing program, and private investment projects in Mexico accelerate.

The 2026 coverage picture supports this optimism. Fleet coverage including priced options reached 62%, a 15-point improvement since the last report, with 79% coverage in the first half of 2026. This provides a solid foundation as the company enters the year, though management cautions that "near-term volatility may persist." The key question is whether day rates have truly bottomed. Management believes they have, citing that "more than half of the modern rig capacity from the Saudi suspension has been absorbed" and that "less than 10 modern units remain available and competitive."

Execution risk centers on the Noble acquisition. The $360 million purchase price, funded through $84 million in equity, $165 million in senior secured notes, seller financing, and cash, adds five premium jack-ups but also integration complexity. Two rigs will charter back to Noble on bareboat terms for 12 months, generating $29 million in earnings before debt service, providing cash flow certainty. However, successfully integrating these assets while maintaining Borr's operational standards will test management's platform capabilities.

Risks: The Leverage Variable and Market Cyclicality

The investment thesis faces three material risks, each directly tied to the core narrative. First, elevated leverage creates vulnerability. With Debt/EBITDA approaching 5x, a demand shock or day rate decline could quickly compress free cash flow available for equity holders. The semiannual $135 million bond amortization represents a fixed charge that must be serviced regardless of market conditions. While the $462 million liquidity cushion provides comfort, a prolonged downturn could force difficult choices between debt service and capital investment.

Second, the jack-up market's cyclicality remains a structural challenge. Pure-play exposure means Borr lacks the deepwater buffer that helps Valaris and Noble weather shallow-water downturns. The company's performance is tightly correlated with OPEC+ decisions, regional conflicts, and oil price volatility. Recent sanctions that forced termination of Odin and Hild contracts in Mexico demonstrate how quickly geopolitical events can impact operations. While management re-contracted Odin promptly, the incident highlights the fragility of concentrated market exposure.

Third, execution risk on the Noble acquisition could derail the consolidation thesis. Integrating five rigs while maintaining 97%+ utilization requires exceptional operational control. Any misstep—cost overruns, customer dissatisfaction, or utilization drops—would amplify leverage concerns and compress margins. The decision to suspend the dividend in Q1 2025 to "reinforce the balance sheet" was prudent but signals that management prioritizes financial flexibility over immediate shareholder returns, a trade-off that will only pay off if the acquisition delivers synergies.

Competitive Context and Positioning

Borr Drilling's competitive positioning is best understood through direct comparison. Against Valaris , the largest jack-up operator, Borr punches above its weight on margins (48.9% vs. 29%) and utilization (97.9% vs. 95%) but lags dramatically in scale and backlog depth ($1.35 billion vs. $4.45 billion). Valaris's diversification into floaters provides cyclical buffer but dilutes focus, while Borr's pure-play strategy enables superior operational execution.

Seadrill presents a cautionary tale. Its Q3 2025 net loss of $11 million and 91.1% utilization demonstrate that even technical expertise can't overcome portfolio misalignment. Seadrill's heavy deepwater exposure created margin volatility that Borr's shallow-water focus avoids. However, Seadrill's lower leverage (Debt/Equity 0.22 vs. Borr's 1.80) provides more financial flexibility, highlighting the trade-off between operational focus and balance sheet strength.

Noble Corporation , now a seller to Borr, illustrates the industry's consolidation imperative. Noble's Q3 2025 decision to divest five jack-ups reflects a strategic pivot away from shallow water, creating opportunity for Borr to acquire premium assets at what management believes is an attractive price. Noble's 65% utilization in Q3 suggests these rigs were underutilized within Noble's portfolio, but Borr's operational platform may unlock value through superior deployment.

Odfjell Drilling, with its 99% utilization and 51% EBITDA margin, represents the operational gold standard. However, its smaller scale (eight rigs vs. Borr's 29 post-acquisition) and regional concentration limit growth optionality. Borr's geographic diversification across Middle East, Mexico, Southeast Asia, and West Africa provides more avenues for growth, though at the cost of increased complexity.

Valuation Context: Pricing the Recovery

At $3.94 per share, Borr Drilling trades at an enterprise value of $3.04 billion, representing 6.06x TTM EBITDA and 2.97x TTM revenue. These multiples sit in line with or below key peers: Valaris (VAL) trades at 6.34x EBITDA, Seadrill (SDRL) at 8.90x, and Noble (NE) at 5.37x. The discount to Seadrill reflects Borr's leverage concerns, while the premium to Noble reflects growth prospects.

The EV/EBITDA multiple of 6.06x appears reasonable only if EBITDA recovers toward the $500-550 million range achieved in 2024. Current 2025 guidance of $455-470 million suggests a forward multiple of 6.5-6.7x, leaving limited upside unless day rates accelerate. The company's 6.09% dividend yield (currently suspended) and 14.29% payout ratio from prior periods indicate management's historical commitment to returns, though the suspension was necessary to prioritize debt service.

Free cash flow valuation presents a more nuanced picture. TTM free cash flow of -$332 million reflects the completed growth CapEx program, but Q3 free cash flow of $39.8 million and management's guidance for sub-$50 million maintenance CapEx suggest an annualized free cash power of $150-200 million is achievable. This would imply a price-to-free-cash-flow multiple of 15-20x, reasonable for a cyclical recovery play but demanding execution.

The balance sheet's Debt/Equity ratio of 1.80x and Debt/EBITDA approaching 5x remain the primary valuation constraints. Until management demonstrates consistent deleveraging through EBITDA growth and debt paydown, the stock will likely trade at a discount to operational performance. The Noble acquisition, if successful, could accelerate EBITDA toward $600 million by 2026, making the current valuation appear attractive in hindsight. If integration falters, however, leverage could become a value trap.

Conclusion: The Execution Test

Borr Drilling has engineered a remarkable strategic turnaround, transforming from a growth-phase contractor into a market consolidator precisely as the jack-up cycle inflects. The company's operational moat—97.9% utilization, 48.9% EBITDA margins, and deep customer relationships—provides a durable competitive advantage that peers cannot easily replicate. The diversification of Mexico exposure and the Noble acquisition demonstrate management's ability to execute complex strategic pivots under pressure.

The investment case, however, remains finely balanced. The market inflection thesis is credible: Saudi rig recalls, Pemex stabilization, and private investment projects create a favorable demand backdrop. Yet the company's elevated leverage means this upside must materialize quickly and smoothly to generate equity value. The Noble acquisition will be the defining test—successful integration could drive EBITDA toward $600 million and unlock significant value, while missteps could strain liquidity and compress multiples.

For investors, the critical variables are execution velocity on the Noble integration and the pace of day rate recovery. If Borr can maintain operational excellence while deleveraging, the stock offers compelling exposure to a tightening jack-up market. If leverage becomes a constraint or the market recovery stalls, however, the downside could be substantial. The story is no longer about survival through the trough—it's about whether Borr can capitalize on its hard-won position to deliver sustainable returns.