BORR DRILLING LIMITED
ANNUAL REPORT 2018
BOARD OF DIRECTORS
REPORT
Borr Drilling Limited (the "Company" or "Borr" and, together with
its subsidiaries, the "Group", “we”, or “Borr Drilling”) is an
international drilling contractor incorporated in Bermuda in August
2016, initially named Magni Drilling Limited. The Company has
been listed on the Oslo Stock Exchange since August 30, 2017. The
Group owns and operates jack-up drilling rigs of modern and high-
specification design providing drilling services to the oil and gas
industry worldwide in water depths up to approximately 400 feet. As
of 31 December 2018, the Group’s fleet consisted of 27 jack-up
drilling rigs, with an additional 9 to be delivered during 2019 and
2020.
The Company’s strategy is to establish itself as the preferred
provider of drilling services in the jack-up drilling market.
The consolidated financial statements of the Company have been
prepared on a going-concern basis and in accordance with generally
accepted accounting principles in the United States of America (U.S.
GAAP)
Fleet
From our initial acquisition of rigs in early 2017, we have expanded
rapidly into one of the world’s largest international offshore jack-up
drilling contractors by number of jack-up rigs
2018 2017
Total Fleet as of January 1.………………….………. 13 0
Jack-up Rigs Acquired 1…………...…………………… 23 12
Newbuild Jack-up Rigs Delivered from Shipyards……… 9 1
Jack-up Rigs Disposed of……………………………….. 18 0
Total Fleet as of December 31………………………… 27 13
Newbuilds not yet delivered as of December 31………… 9 13
Total Fleet as of December 31, including Newbuilds.... 36 26
As of December 31, 2018, our drilling fleet consists of 27 rigs, of
which six are standard jack-up rigs, 20 are premium jack-up rigs and
one is a semi-submersible rig. In addition, we have agreed to
purchase nine additional premium jack-up rigs to be delivered prior
to the end of 2020. Premium jack-up rigs means rigs delivered from
the yard in 2001 or later and which are suitable for operations in
water depths up to 400 feet with an independent leg cantilever
design. The majority of our rigs were built after 2013 and as of
December 31, 2018 the average age of our premium fleet (excluding
our six standard jack-up rigs and our semi-submersible rig) is 3.6
years. As of the date of the last expected delivery of the newbuild
jack-up rigs we have agreed to purchase, which is in 2020, the
average age of our premium fleet (excluding our six standard jack-
up rigs and our semi-submersible rig) and of our entire fleet will be
4.1 years and 9.1 years, respectively, which is among the lowest
average fleet age in the industry, both currently and as of the date of
our last expected delivery.
Jack-up rigs are mobile, self-elevating drilling platforms equipped
with legs that are lowered to the seabed. A jack-up rig is towed to
the drill site with its hull riding in the water and its legs raised. At
the drill site, the jack-up rig’s legs are lowered until they penetrate
the sea bed. Its hull is then elevated (jacked-up) until it is above the
surface of the water. After the completion of drilling operations at a
1 Includes acquisition of one semi-submersible rig in 2018
drill site, the hull is lowered until it floats on the water and the legs
are raised. The rig can then be relocated to another drill site. Jack-up
rigs typically operate in shallow water, generally in water depths of
less than 400 feet and with crews of 90 to 150 people. We believe a
modern fleet allows us to enjoy better utilization and higher daily
rates for our jack-up rigs than competitors with older rigs.
As of December 31, 2018, we had 27 total jack-up rigs, of which 10
rigs were ‘‘warm stacked,’’ which means the non-contracted rigs,
including our newbuild jack-up rigs which have been delivered but
are kept ready for redeployment and retain a maintenance crew. Four
rigs were ‘‘cold stacked,’’ which means the rigs are stored in a
harbor, shipyard or a designated offshore area and the crew is
reassigned to an active rig or dismissed. We believe that well-
planned and well-managed stacking will significantly reduce
reactivation cost and the cost of mobilization of a rig towards a
contract. We are therefore focusing on securing cost efficiencies
during stacking while
limiting future risk from premature
reactivation. This means concentrating stacked rigs in as few
locations as possible to be able to share crew, running reduced but
sufficient maintenance programs on equipment and preserving
critical equipment.
We intend to prioritize the deployment of our currently contracted
premium jack-up rigs. Reactivation of our premium jack-up rigs that
are stacked will be undertaken for selected contract opportunities.
However, a stacked rig will only be reactivated if the achievable
dayrate supports the reactivation and subsequent operating costs in
a sensible way. Our ability to keep our jack-up rigs operational when
under contract, or Technical Utilization, for the year ended
December 31, 2018 was 99.3% and the proportion of the potential
full contractual dayrate that each contracted jack-up rig actually
earns each day, or Economic Utilization, for the year ended
December 31, 2018 was 97.6%.
The fleet is certified by ABS and DNV GL, enabling universal
recognition of our equipment as qualified for international
operations.
Health, safety and environment
The Company is committed to protecting the health and safety of all
our people and our contractors in all work activities. We
continuously pursue the goal of zero harm to people, assets and the
environment. We promote active risk management to mitigate
foreseeable hazards and ensure QHSE is integral in everything we
do. The Company provides information, instruction and training that
is relevant to employees’ duties and responsibilities. We strive for
continuous improvement by setting clear objectives, performance
monitoring and the encouragement of constructive feedback.
In 2018, five accidents (including two Medical Treatment Cases)
were reported in accordance with our internal reporting guidelines.
To ensure our operations are conducted with proper regard for the
environment we have established several measures to reduce
environmental risk to levels as low as reasonably practicable. One
uncontrolled discharge, of 445 liters of bunker fuel, was recorded in
2018.
Human Resources and Diversity
The Company promotes a workplace free from harassment and
discrimination. The Company does not tolerate working conditions
that conflict with international laws and practices. Our employees
are required to respect the personal dignity, privacy and rights of
everyone they interact with during work and those affected by our
business operations. As of December 31, 2018, the Company had
592 full time employees. Our onshore and offshore employees were
126 offshore employees and 466 onshore employees respectively.
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The gender proportion of our employees as of December 31, 2018
was 462 offshore males and 4 offshore females, and 95 onshore
males and 31 onshore females. As of December 31, 2018, neither of
our two Executives were female and none of our four members of
the Board of Directors (“the Board”) were female. In February 2019,
we appointed two new Board members and expanded our Board
from four members to six. Following these appointments, two of our
six Board Members are female (33%). Improving gender diversity
is a continued priority to the Company. The absence due to sickness
for onshore employees was approximately 1% in 2018.
Going Concern
The 2018 Consolidated Financial Statements have been prepared on
a going concern basis. We are dependent on loans and/or equity
issuances to finance the remaining payment obligations under our
current secured loans, newbuilding contracts and working capital
requirements, which raises substantial doubt about our ability to
continue as a going concern. Given the recent execution of our $120
million bridge facility, the approval by our Board of our current
plans to increase our long-term debt, including the receipt of a non-
binding term sheet for loan financing up to $550.0 million, and our
track record in terms of raising equity financing and convertible debt
financing, we believe that we will be able to meet our anticipated
liquidity requirements for our business for at least the next twelve
months as of the date of our Consolidated Financial Statements.
However, there is no assurance that we will be able to execute this
financing.
Corporate development and Financing
In January 2018, Patrick Schorn, Executive Vice President – Wells
in Schlumberger Limited, joined the Board of Directors.
On March 29, 2018, the Company completed the acquisition of
Paragon Offshore Limited (“Paragon”) and took ownership of 22
jack-up drilling rigs, of which six were under contract, and one semi-
submersible working under contractual obligations in the North-Sea.
Total consideration paid by the Company was approximately
US$240 million. Additionally, at closing the Company paid down
the outstanding term loan of Paragon in the amount of US$89.3
million, including accrued interest and breakage fee.
On May 16, 2018, the Company announced the completion of a
US$350 million convertible bonds issuance with a coupon of
3.875% per annum and a conversion premium of 37.5% above a
reference price of US$4.87 per share. In connection with this
placement the Company entered into a call spread at a cost of
approximately 8% of the gross proceeds, which increases the
effective conversion premium for the Company to 75% above the
reference price.
On May 16, 2018 the Company announced the acquisition of five
rigs under construction from Keppel FELS Limited (“Keppel”) for a
total consideration of US$742.5 million. Of the total consideration,
the Company paid US$288 million up-front and secured US$432
million in delivery financing from the yard for the five rigs at
attractive terms. The loans are non-amortizing and payable five
years after delivery of the rigs.
In May 2018, the Company entered into a US$200 million Senior
Secured Revolving Loan Facility Agreement with DNB Bank. The
facility has an availability period of two years at attractive terms.
Financial Performance & Operating Results
Statements of Operations
Our operating revenues were $164.9 million for the year ended
December 31, 2018, compared to $0.1 million for 2017. The increase
of $164.8 million is primarily due to a significantly higher number
of jack-up rigs in operation throughout 2018, as compared to 2017,
when one jack-up rig was on contract for approximately one day late
in the year. The increase in jack-up rigs in operation was primarily
due to the Paragon Transaction, where we acquired six rigs operating
under contract and contracted for a further two of the acquired rigs
throughout 2018. In addition, in 2018 we recognized certain one off
items, notably a gain from bargain purchase of $38.1 million relating
to the Paragon purchase, and gains on disposals of $18.8 million. We
sold 18 jack-up rigs during 2018, 16 of which we acquired in the
Paragon Transaction, for total proceeds of $37.6 million. No jack-up
rigs were sold in 2017.
Our rig operating and maintenance expenses, including stacking
costs, were $180.1 million for the year ended December 31, 2018,
compared to $36.2 million for 2017. The increase of $143.9 million
was primarily driven the significantly higher number of jack-up rigs
in operation throughout 2018. Our rig operating and maintenance
expenses for the year ended December 31, 2018 also includes $12.0
million related to amortization of mobilization costs compared with
$nil for 2017.
Depreciation, amortization and impairment was $79.5 million for the
year ended December 31, 2018, compared to $47.9 million for 2017,
and related mainly to our jack-up rigs. The increase of $31.6 million
was a result of a larger fleet of jack-up rigs in 2018 and no
impairment in 2018.
Amortization of contract backlog was $24.2 million for the year
ended December 31, 2018, compared to $nil for 2017. The increase
of $24.2 million was the result of our capitalization of contract
backlog acquired in connection with the Paragon Transaction, which
is amortized over the firm contract periods.
Our general and administrative expenses were $38.7 million for the
year ended December 31, 2018, compared to $21.0 million for 2017.
The increase was a result of a larger organization and additional
offices due to both having more jack-up rigs in operation in 2018
and the Paragon Transaction where we acquired office leases in 2018
in Aberdeen, United Kingdom, Beverwijk, The Netherlands
Houston and United States.
Our restructuring costs were $30.7 million for the year ended
December 31, 2018, compared to $nil for 2017. This relates to costs
incurred in connection with closure of certain offices following the
Paragon Transaction, including termination payments to certain
Paragon employees and lease agreement counterparties following
the Paragon Transaction.
Our total other income (expenses), net was a loss of $57.0 million
for the year ended December 31, 2018 compared to a gain of $21.7
million for 2017. The main reason for the negative movement of
$78.7 million in 2018 are net losses on forward contracts relating to
marketable securities of $14.2 million in 2018 compared with gains
of $19.3 million in 2017, unrealized loss on the call spread
transactions entered into in 2018 of $25.7 million and interest
expense net of capitalized interest of $13.7 million in 2018
compared with $nil in 2017.
Our income tax expense for the year ended December 31, 2018 was
$2.5 million, compared to $nil for 2017.
Balance Sheet
The Company had total assets of US$2,913.7 million as of
December 31, 2018 (December 31, 2017: US$1,672.3 million).
Total assets increased by US$1,241.4 million in the twelve months
ended December 31, 2018, mainly due to the delivery of seven
newbuilds from PPL Shipyard Pte. Ltd. (“PPL”) of US$614.9
million, the deposit of US$288.0 million related to the transaction
with Keppel in May 2018 and the additional assets purchased via the
Paragon acquisition of US$241.3 million.
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Total liabilities as of December 31, 2018, were US$1,380.2 million
increase of
(December 31, 2017: US$179.4 million). The
US$1,200.8 million is driven by the yard financing incurred when
taking delivery of PPL newbuilds of US$609.0 million, the
convertible bond of US$350.0 million and drawdown on the
revolving credit facility of US$130.0 million.
As of December 31, 2018, total equity was US$1,533.5 million
compared to total equity of US$1,492.9 million at December 31,
2017.
Consolidated Statement of Cash Flows
Cash Flows Used in Operating Activities
Net cash used in operating activities was $135.2 million during the
year ended December 31, 2018, compared to $184.8 million during
the year ended December 31, 2017. The decrease of $49.6 million
was primarily due to operating cash loss in the period, interest paid
and change in working capital.
Cash Flows Used in Investing Activities
Net cash used in investing activities was $560.1 million for the year
ended December 31, 2018, compared to $1,256.5 million for 2017.
Our investment activities in the year ended December 31, 2018
relate to payments and costs in respect of newbuilds of $362.4
million, ($785.2 million in 2017), payments to acquire Paragon, net
of cash acquired, of $195.1 million ($324.5 million in 2017 for the
Transocean Transaction), purchase of marketable securities of $13.0
million ($26.9 million in 2017), payments and costs in respect of
jack-up drilling rigs of $23.3 million ($119.8 million in 2017) and
purchase of plant and equipment of $7.8 million ($0.1 million in
2017), offset by proceeds from the sale of rigs of $41.6 million in
2018 compared to $nil in 2017.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities was $583.5 million for the
year ended December 31, 2018, compared to $1,506.3 million for
the year ended December 31, 2017. Our financing activities in the
year ended December 31, 2018 relate to proceeds from long-term
debt, net of deferred loan costs, of $474.4 million, proceeds from
share issuance net of issuance costs of $218.9 million, proceeds from
a shareholder loan of $27.7 million, offset by repayment of long-
term debt of $89.3 million and purchase of financial instruments and
purchase of treasury shares of $19.7 million. In the period ended
December 31, 2017, we generated proceeds from share issuance, net
of issuance costs and conversion of shareholders loans of $1,415
million, proceeds from issuance of long-term debt, net of deferred
loan costs of $87.0 million and proceeds from a related party
shareholder loan of $12.7 million, offset by purchase of treasury
shares of $8.4 million.
Outstanding Shares
As of December 31, 2018, the Company had a share capital of
US$5,326,403.27, divided into 532,640,327 shares of par value
$0.01 each.
On August 28, 2018, the Company’s Board of Directors approved a
share repurchase program for the Company’s shares, to be purchased
in the open market by December 30, 2018 and limited to a total
amount of US$20.0 million. During the year, the Company
purchased 5,328,572 of its own shares at an average price of NOK
30.72 per share, or US$19.7 million in total. Following these
purchases, the Company held 7,298,572 of its own shares in treasury
at the end of the fourth quarter 2018 at an average price of NOK
31.72 per share, or US$26.2 million in total.
Operations
As of January 1, 2018, we had two contracted rigs whereof one was
operating. In March we acquired Paragon with six operating rigs and
one rig with a future contract. During the year we signed 13 new
contracts and extensions, excluding exercised options, whereof five
rigs will commence operation in 2019. The total number of rigs
operating at some point during 2018 was 11.
Frigg
The “Frigg” continued its contract with Total in Nigeria throughout
2018. The contract duration was twelve months firm with options
for extension thereafter up to a maximum of twelve months.
In December 2018 Borr and Total entered into an agreement to
exercise the option extending the contract by ten months, including
a seven months assignment to a subsidiary of Shell in Nigeria. This
extension is expected to keep the rig on contract until October 2019.
Norve
The “Norve” commenced operation for BW Energy in Gabon in
January 2018. The contract duration was for the drilling of three
production wells and was completed in July 2018.
In May 2018, the Company secured a six-month firm contract with
Perenco in West Africa for “Norve”. This contract commenced in
direct continuation of the BW Energy contract.
In November 2018, the Company signed an approximately ten to
eleven months contract with BW Energy for the “Norve”
commencing in June 2019.
Prospector 1
The “Prospector 1”, which was contracted at the time of the Paragon
acquisition, concluded its contract with Orange-Nassau Energy
during August 2018.
In May 2018 we signed a contract with Tulip Oil for four firm wells
plus one well option. This contract commenced in December 2018,
with an estimated duration of five months.
Prospector 5
In June 2018, we entered into a contract with Nexen in the UK for
one HPHT well program
for approximately six months.
Subsequently, the “Prospector 5” was reactivated and commenced
operations in August 2018. This program was successfully
completed in February 2019 and has proven the rig’s and the
Company’s capabilities in delivering complex wells safely and
efficiently on time.
MSS1
The MSS1was under contract with TAQA in the UK at the time of
the Paragon acquisition and has remained on contract throughout
2018. Further, in the fourth quarter of 2018, Borr secured an
approximately two-month contract extension with increased rates
with the same costumer. With this extension, the “MSS1” is
expected to remain on contract until November 2019.
Mist
In October 2018, Borr secured a four firm wells plus one well option
for the “Mist”. The rig commenced its short-term contract with Kris
Energy in Thailand in the fourth quarter of 2018. This contract was
successfully concluded in late February 2019 and the rig has been
demobilized to Singapore where it remains warm stacked.
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C20051
The “C20051”, which was contracted at the time of the Paragon
acquisition, commenced its contract with Perenco in the UK in late-
April 2018. This contract was concluded in August 2018.
Subsequently the “C20051” commenced operations with Total in the
Netherlands in mid-September 2018 under a four workover wells
program with an expected duration of approximately 60 days. Total
exercised its options under the contract keeping the rig active until
March 2019. The rig is now warm stacked pending a new contract.
Dhabi II
The “Dhabi II” which was contracted at the time of the Paragon
acquisition continued its operation with ADNOC throughout 2018
with expected completion in July 2019.
B152
The “B152” which was contracted at the time of the Paragon
acquisition continued its operation with ADNOC throughout 2018
with expected completion in November 2019.
B391
The “B391” which had a signed contract at the time of the Paragon
acquisition commenced its contract with Spirit Energy in March
2018 with expected completion in December 2019.
L1112
The “L1112” (Ed Holt) concluded its contract in India in late
September and was subsequently sold in October 2018.
Signed future contracts and activations
In 2018, Borr has entered into five contracts for certain premium
jack-up rigs with commencement of operation estimated to start in
first half of 2019. In connection with these contracts the Company
has started activation and reactivation activities of these units as
discussed below.
The premium jack-up rigs “Gerd” and “Groa” have secured two
years firm plus two one-year options each with Exxon in Nigeria.
The activation of these units commenced in late 2018 ahead of their
contract, which is anticipated to commence in the second quarter of
2019.
The premium jack-up “Natt” has secured two years firm plus one
year option with First E&P in Nigeria. The activation of this unit
commenced in late 2018 ahead of its contract, which is anticipated
to commence in the second quarter of 2019.
The premium jack-up rig “Odin” has secured a contract of
approximately nine months in Mexico. The Company started the
reactivation of the “Odin” in December 2018. In January 2019, the
activation was successfully completed, and the rig commenced its
mobilization to Mexico ahead of its contract start in April 2019. The
Odin commenced operations in April 2019.
The premium jack-up rig “Ran” has secured a contract of
approximately one year with Spirit Energy, which is anticipated to
start in the second quarter of 2019. The rig currently continues to
undergo reactivation activities ahead of its contract.
Market
Economic utilization of the global jack-up fleet has continued its
recent upward trend, driven by increasing utilization of jack-up rigs
built after 2000.
Based on the budgets reported by independent oil companies in the
fourth quarter of 2018, offshore focused E&P companies are
projecting an increase in capital expenditures for 2019 of more than
5%, according to a number of investment banks. In addition, we
expect that the spending plans of national oil companies will
continue to increase in 2019. We believe that offshore spending by
E&P companies, including national oil companies, will increase in
2019 for the first time in recent years.
During the fourth quarter of 2018, tendering activities have remained
strong across all regions. As reported by IHS, there are currently 73
outstanding jack-up tenders equating to a total of 104 rig years on
offer. In addition, it is anticipated that PEMEX will award around
15 jack-up contracts in 2019 with durations of approximately two
years each. In several of these tenders, such as ones in Qatar (eight
units), Pemex (fifteen units), Petronas/Malaysia (up to nine rigs), a
restrictive age ban has been introduced, which effectively blocks
units built before 2010 from participating. Requirements of BOP
capabilities, cantilever reach, crane capacity and water depth, further
limits the availability of suitable units.
A noteworthy trend in the second half of 2018 was the incremental
number of contracted rigs in China. The number of jack-up rigs
operating in China has increased by six rigs since mid-2018,
reflecting an effort by the Chinese government to boost Chinese
production. We believe that the increased demand in China may help
to alleviate newbuild supply pressure in other regions. The Chinese
government has stated that it intends to create a new state-owned
asset company, Beijing Guohai Offshore Ltd, for the purpose of
owning distressed shipyard assets (including jack-up rigs) with the
intention of deploying and operating these units locally in China.
There are currently 27 uncontracted jack-ups built in 2010 or after,
out of which Borr owns 5. Additionally, Borr has 9 premium rigs
under construction, including flexibility to accelerate delivery of
some of these units should market conditions be favorable to do so.
Several important tenders in South East Asia, Middle East and
Mexico are expected to be concluded in the coming months, which
could lead to a number of multi-year awards and an incremental
jack-up demand that could exceed 40 rigs by year end 2019,
according to Fearnleys.
During the fourth quarter of 2018, three jack-up rigs were retired
from the worldwide jack-up rig fleet, according to IHS. In total, 35
jack-up rigs were retired in 2018, which was on par with the number
of retirements in 2016 and 2017 combined, according to Rystad
Energy. We believe that a significant number of the approximate 99
jack-up rigs that are more than thirty years old and uncontracted will
remain uncompetitive and unlikely to return to the active fleet in the
near future, if at all. According to Rystad Energy, the total number
of jack-up rigs under contract as of March 1, 2019 was 289
(including 123 rigs built after 2010), up from 280 at the lowest point
in January 2018, compared to a peak of 422 in 2014.
Outlook
The last months have shown a breakthrough for tenders for
integrated drilling services. The contract structures in Mexico and
Kuwait are tendered on an integrated basis. The Company’s
partnership with Schlumberger (as defined below) is developing
positively, and we are bidding together on fully integrated work.
The tightening of the market has led to a lack of rig availability
among incumbent drilling contractors. Some of these have
approached Borr with offers on both bareboat structures and
purchase options. Both bareboat and purchase options have been at
attractive levels, and the Company is actively evaluating such
opportunities. This creates an opportunity to sell assets at a
significant premium to the current Borr share price valuation, and
opportunistically use proceeds to redeem shares.
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The Company has in the space of 26 months gone from having zero
to 18 rigs contracted. The Company expects to be cash-flow positive
in terms of cash from operations at the end of the second quarter of
2019 when all of these contracts have commenced. This may be a
watershed moment in the history of Borr compared to the cash-burn
experienced in 2018.
severe damage to or destruction of property and equipment,
pollution or environmental damage, claims by jack-up rig personnel,
third parties or customers and suspension of operations. Our fleet is
also subject to hazards inherent in marine operations, either while
on-site or during mobilization, such as capsizing, sinking,
grounding, collision, damage from or due to severe weather,
The Board is optimistic that Borr will have a major part of its open
marketed capacity contracted out at attractive day rate levels before
year-end 2019. Further upside potential in the Company will be
linked to the contracting of seven newbuilds to be delivered in 2020.
The Board sees clear evidence that the offshore cycle has turned and
has started its path to a healthy recovery driven by oil companies’
increased focus on offshore.
Corporate Governance and Corporate Social Responsibility
Report
The Company has prepared a Corporate Governance Report and a
Corporate Social Responsibility Report which is included as
separate sections of this annual report. The Company has based its
corporate governance policies and practices on the Norwegian Code
of Practice for Corporate Governance published on 30 October 2014
(the “Code”). Most of the principles and recommendations in the
Code are included in the Company's corporate governance policy.
There are, however, some areas where the Company's governance
principles differ from those of the Code, primarily due to differences
between the Bermuda Companies Act and/or the Company’s Bye-
Laws and the Norwegian Public Limited Companies Act.
Risk Factors
The Company is exposed to a variety of risks, including market,
operational, liquidity and financial risks. The most significant risk to
the Company, is the cyclicality and volatility in the offshore contract
drilling industry. The level of activity in the offshore drilling
industry is impacted by oil and natural gas prices. Sustained periods
of low oil and natural gas prices typically result in reduced demand
for drilling services because the capital expenditure budgets of
companies exploring for or producing oil and/or natural gas (“E&P
Companies”) are sensitive to changes in oil and natural gas prices.
The Group’s focus is on operations in the shallow water segment
where the drilling costs are generally lower than in the deeper water
environments. Hence, such areas will normally be preferred for new
exploration over areas in deeper water. Activity in this segment
therefore tends to be maintained longer, and demand to recover more
quickly. A decline in the activity level of the oil and natural gas
industry could therefore have a material adverse effect on the
demand for the Group’s services and on the business, financial
condition and results of the Group’s operations.
Other key risks are outlined below, which are not meant to be
exhaustive:
The Company’s operations are highly dependent upon our ability to
train, attract and retain skilled personnel. Our employees and
contractors generally require training certifications, which need to
be current at all times. In addition, we need our offshore and onshore
employees to be highly mobile, which depends on our ability to
obtain visas and work permits for our crews and onshore staff, as
well as our ability to work closely with our local partners.
Our operations are subject to hazards inherent in the drilling
industry, such as blowouts, reservoir damage, loss of production,
loss of well control, lost or stuck drill strings, equipment defects,
punch-throughs, cratering’s, fires, explosions and pollution.
Contract drilling and well servicing require the use of heavy
equipment and exposure to hazardous conditions, which may subject
us to liability claims by employees, customers, subcontractors and
third parties. These hazards can cause personal injury or loss of life,
including hurricanes, and marine life infestations
The Group’s revenues are denominated in US dollars. In some
countries where the Group operate, it incurs costs in other currencies
than US dollars. Changes in foreign exchange rates, to the extent the
Company has not hedged such changes, may have a negative effect
on
the Company’s business, financial condition, results of
operations or prospects.
The Group is exposed to variable interest rates on long term
financing as the Group has not hedged such changes. Interest rates
are influenced by many factors, including but not limited to
governmental, monetary and tax policies, domestic and international
economic and political conditions, and other factors beyond the
Company’s control. The interest rates of debt facilities may fluctuate
significantly and could have an adverse effect on the Company’s
business, financial condition and results of operation.
The Group is dependent upon having access to long-term funding,
including debt facilities or equity, to the extent its own cash flow
from operations is insufficient to fund its operations and capital
expenditures. In turn, the Group must secure and maintain sufficient
equity capital to support any such borrowing facilities.
Like most modern companies, we depend on digital technologies to
conduct our offshore and onshore operations, to collect payments
from customers and to pay vendors and employees. Our data
protection measures and measures taken by our customers and
vendors may not prevent unauthorized access of information
technology systems. Threats to our information technology systems
and the systems of our customers and vendors, associated with
cybersecurity risks or attacks continue to grow. Threats to our
systems and our customers’ and vendors’ systems may derive from
human error, fraud or malice on the part of employees or may be the
result of accidental technological failure. Our drilling operations or
other business operations could also be targeted by individuals or
groups seeking to sabotage or disrupt our information technology
systems and networks, or to steal data. A successful cyberattack
could materially disrupt our operations, including the safety of our
operations, or lead to an unauthorized release of information or
alteration of information on our systems. In addition, breaches to our
systems and systems of our customers and vendors could go
unnoticed for some period of time. Any such attack or other breach
of our information technology systems, or failure to effectively
comply with applicable laws and regulations concerning privacy,
data protection and information security, could have a material
adverse effect on our business, financial condition and results of
operations
6
Largest shareholders
As at December 31, 2018 our 20 largest shareholders are:
Rank
Shareholder name
Shares
1 Schlumberger Oilfield Holdings Limited
75,658,500
Owners
hip %
14.2%
2 Euroclear Bank S.A./N.V.
53,980,494
10.1%
3
Folketrygdefondet
4 Drew Holdings Ltd
5 Goldman Sachs International
6
7
JPMorgan Chase Bank, N.A., London
FID ADV NEW INSIGHTS FD-SUB B
8 Skagen Kon-Tiki
9 Ubon Partners AS
10 Clearstream banking
11
JPMorgan Chase Bank, N.A., London
12 Verdipapirfondet DNB Norge
13 Magni Partners (Bermuda) Ltd
14 BNP Paribas
15 State Street Bank and Trust Comp
16
17
Fidelity Funds
The Bank of New York Mellon SA/NV
18 Borr Drilling Limited
19 Brown Brothers Harriman (Lux.) SCA
20
Franklin Int Small Cap Grwt FD
42,743,422
35,569,900
22,087,695
21,121,750
15,662,000
14,560,024
11,271,100
9,996,832
9,533,339
8,949,737
7,840,658
7,674,084
7,561,348
7,496,000
7,435,900
7,298,572
6,605,478
6,309,275
8.0%
6.7%
4.1%
4.0%
2.9%
2.7%
2.1%
1.9%
1.8%
1.7%
1.5%
1.4%
1.4%
1.4%
1.4%
1.4%
1.2%
1.2%
Sum 20 largest
Other (4053 shareholders)
379,356,108
71.2%
153,284,219
28.8%
Subsequent events
Delivery of Jack Up Rig, ‘Njord’
In January 2019, the Company took delivery of the ‘‘Njord’’. The
final delivery installment was $87.0 million, which was financed
through shipyard financing for the same amount.
Secured $160 million financing
In March 2019, the Company executed a $160 million financing
agreement consisting of a $100 million revolving credit facility and
a $60 million guarantee credit line for issuance of guarantees.
Appointment of Directors
The Board of Directors appointed Alexandra Kate Blankenship as
director of the Company and Georgina Sousa as director and
company secretary on February 27, 2019.
Share option awards
In March 2019, the Company granted 2,300,000 options to certain
employees and directors of the Company. The awards were granted
under the existing approved share option scheme. The options have
a strike price of $3.50 per share.
Novation of ‘‘Thor’’
In March 2019, we entered into an assignment agreement with
BOTL Lease Co. Ltd for an assignment, and subsequently a novation
and amendment agreement of the rights and obligations to purchase
a KFELS Super B Bigfoot premium jack-up drilling rig with hull
number B378 being built by Keppel for a purchase price of USD
122.1 million. We expect to take delivery of the rig from the yard
prior to May 31, 2019 and the rig will be named ‘‘Thor’’.
To finance the rig purchase we entered into a $120 million senior
secured term loan facilities agreement, consisting of two facilities
(Facility A and Facility B) of $60 million each. The facilities mature
on September 30, 2019. As of March 29, 2019, Facility A had been
utilized in the amount of $60 million, and $60 million in Facility B
remained undrawn. The availability period of Facility B expires June
30, 2019.
New contracts
On March 15, 2019, Borr announced that one of its subsidiaries, in
partnership with OPEX Perforadora S.A. de C.V., has received an
official award from Petroleos Mexicanos ("PEMEX") for the
delivery of offshore wells in Mexico
Under this award, Borr has agreed to deliver a total of nine offshore
development wells to our customer under an integrated services
model. The scope of services will include the deployment of two of
the Company's premium new build jack-ups, the "Grid" and
"Gersemi", for period estimated to be around 18 months and
expected commencement in mid-2019.
7
CORPORATE GOVERNANCE
REPORT
Borr Drilling Limited is a company organized and existing under the
laws of Bermuda. The corporate governance principles applicable to it
are set out in the Bermuda Companies Act 1981, its bye-laws (the
"Bye-Laws") and its memorandum of association.
As the Company’s shares is listed on the Oslo Stock Exchange (the
"OSE"), certain aspects of Norwegian law, notably the Norwegian
Securities Trading Act and
the Norwegian Stock Exchange
Regulations are also relevant for its corporate governance policy.
The Company's Corporate Governance Policy
The overall corporate governance policy of the Company is the
responsibility of its Board of Directors.
In defining this policy, the Board has observed the requirements set out
in applicable laws, relevant recommendations and the specific
requirements arising from the Company's business activities.
The most important recommendation of relevance to the Company's
corporate governance is the Norwegian Code of Practise for Corporate
Governance of 30 October 2014 (the "Code").
The Board recognizes that the Code represents an important standard
for corporate governance for companies whose shares are listed on the
OSE. Most of the principles and recommendations in the Code are
included in the Company's corporate governance policy. There are,
however, some areas where the Company's governance principles
differ from those of the Code, primarily due to differences between the
Bermuda Companies Act and/or the Bye-Laws and the Norwegian
Public Limited Companies Act.
The Board has codified certain corporate governance principles in a
"Code of Conduct," applicable to all employees in the Company and
its subsidiaries (the "Borr Group").
The Code of Conduct can be found on the Company's website
(www.borrdrilling.com).
The Board has formulated the Company's overall mission and the core
values on which all of the activities of the Borr Group shall be based
on. These can be found in the Company’s website.
The Business
The Company’s memorandum of association describes the Company’s
objects and purposes as unrestricted. This deviates from the
recommendation in the Code but is in line with the requirements of the
Bermuda Companies Act.
Under the Bye-Laws, the Board may declare dividends and
distributions without the approval of the shareholders in general
meetings. This differs from the recommendation in the Code.
The Company’s aim is to provide its shareholders with a competitive
return on their investment through a positive development in the price
of the Company’s shares and, when the Company’s profits so allows,
dividends to its shareholders.
The Company’s shareholders may, by way of a resolution in a general
meeting of all shareholders (a “General Meeting”) increase the
Company’s authorized share capital, reduce the authorized share
capital (by reducing the number of unissued but authorized shares) and
increase or reduce the issued share capital. The procedures for this are
set out in the Bye-Laws and the Bermuda Companies Act.
The Board has, under Bermuda law, wide powers to issue authorized
but unissued shares in the Company. The Board is also authorized in
the Bye-Laws to purchase the Company’s shares and hold these in
treasury. These powers are not restricted to any specific purposes nor
to a specific period as the Code recommends.
Equitable treatment of shareholders and transactions with close
associates
The Company has one class of shares only. Each share carries one vote.
All shares have equal rights. All shares give a right to participate in
General Meetings.
Under the Bermuda Companies Act, no shareholder has a pre-emptive
right to subscribe for new shares in a limited company unless (and only
to the extent that) the right is expressly granted to the shareholder under
the bye-laws of such company or under any contract between the
shareholder and such company. The Bye-Laws do not provide for pre-
emptive rights.
The Board will only transact in the Company’s shares at their market
value (as reflected in the share price quoted on the OSE from time to
time).
Members of the Board (each a "Director") and the Company's senior
management shall notify the Board if they have any material interest,
whether direct or indirect, in any transaction which the Borr Group
intends to conclude.
Following these guidelines, any Directors and/or member of the
Company's senior management who have an interest in any such
transaction shall always refrain from participating in the discussions
on whether to conclude such transaction or not in the relevant corporate
bodies in the Borr Group.
Further, the Board shall always consider whether it is appropriate to
obtain an independent third-party valuation of the object of any
material transaction between the Company and any of its close
associates.
Freely negotiable shares
The Company has clear objectives and strategies for its business. These
are described in the Company’s annual report and on its website.
The Company's share is, subject to the exception set out below, freely
tradable.
Equity and Dividends
The Board strives to identify and pursue clear business goals and
strategies for the Company, to assess and manage the risks associated
with these, and to maintain an equity capital and liquidity position
which are sufficient to match the same.
The Bye-Laws requires the Board to decline to register a transfer of the
Company's shares in a situation where the Board is of the opinion that
such transfer might breach any applicable law or requirement of any
authority or the OSE until it has received such evidence as it needs to
satisfy itself that no such breach will occur.
General meetings
The Code requires that notice of General Meetings, (including any
supporting documents for the resolutions to be considered therein) is
made available on the Company's website no later than 21 days prior
to the date of the General Meeting.
The Bye-Laws allows, in accordance with Bermuda law, for notice to
be given no less than 7 days (excluding the day on which the notice is
served and the day on which the General Meeting to which it relates is
to be held) prior to a General Meeting. This differs from the
recommendation of the Code.
The Board aspires to maintain good relations with its shareholders and
possible investors in its shares, and to have an investor relation policy
which complies with the OSE's Code of Practice for Investor Relations.
The Board shall ensure that as many shareholders as possible are able
to participate in the General Meetings. To achieve a high rate of
shareholder attendance therein the Company shall:
provide, on its website, the date of and, if possible, further
information on each General Meeting as early as possible, and
at the latest seven days in advance thereof;
provide, together with or before the notice is given, sufficient
supporting documentation for any resolution proposed to be
made therein in order for the shareholders to prepare;
ensure that any registration deadline is set as close to the
General Meeting as possible; and
ensure that the shareholders may vote for each and all of the
candidates for the Board.
Nomination Committee
The Code recommends that the Company has a nomination committee.
The Company is not, under Bermuda law, obliged to establish a
nomination committee. We have established a nominating and
corporate governance committee in February 2019 comprised of Mr.
Rask and Mr. Halvorsen.
Corporate Assembly and Board of Directors, composition and
independence
The Company does not have a corporate assembly.
According to the Bye-Laws the Board shall consist of not less than two
Directors. Currently the Board consists of six Directors.
It is the view of the Board that at least two of its Directors are
independent of the Company’s main shareholders. Further, it is the
view of the Board that a majority of the Directors are independent of
the Borr Group's senior managers and main business partners. No
Director is employed by the Borr Group.
The Board will, in accordance with normal procedures for Bermuda
companies, elect its chairman. This differs from the recommendation
in the Code that the General Meeting shall elect their chairman of the
Board.
The Directors shall, subject to applicable law and the Bye-Laws, hold
office until the first General Meeting following such Director’s
election. The Directors may be re-elected.
A short description of the current Directors is available on The
Company’s website – www.borrdrilling.com.
The work of the Board
The Code recommends that the Board develops and approves written
guidelines for its own work as well as the work of the Borr Group's
senior managers with particular emphasis on establishing clear internal
allocation of responsibilities and duties.
The Bermuda Companies Act does not require the Board to prepare
such guidelines. The Board is of the opinion that there are no reasons
to issue such guidelines at present.
The Code recommends that the Board establishes an audit committee
and a remuneration committee.
The Bermuda Companies Act does not require the Company to
establish such committees. The Board is of the opinion given the
increasing size and complexity of the Company, an Audit Committee
and a Remuneration Committee are appropriate from March 2019.
Kate Blankenship (Chairperson) and Tor Olav Trøim are the members
of the Audit Committee as of the date of this report, and Patrick Schorn
(Chairperson) and Kate Blankenship comprise the Remuneration
Committee as of the date of this report.
As of December 31, 2018, the Company did not have an Audit
Committee, a Nomination Committee or a Remuneration Committee.
Risk management and internal control
The Board is focused on ensuring that the Borr Group's business
practices are sound and that adequate internal control routines are in
place. The Board continuously assesses the possible consequences of
and the risks related to the Borr Group’s operations.
The Company is committed to protecting the health and safety of all of
the Borr Group's employees and contractors in all their activities for
the Borr Group and is committed to ensure generally accepted QHSE
principles are integrated in everything the Borr Group does.
The Board supervises the Company’s internal control systems. These
covers both the Borr Group's operations and its guidelines for ethical
conduct and social responsibility.
In addition, the Board supervises Management’s processes and
controls governing the Internal Control over Financial Reporting, to
ensure the accuracy and timeliness of Management’s reporting to
shareholders and the Market on matters pertaining to the Company’s
primary financial statements (Statement of Operations, Balance Sheet
and Statement of Cash Flows).
In connection with the audits of our consolidated financial statements
as of and for the years ended December 31, 2017 and 2018, we and our
independent registered public accounting firm identified a material
weakness in our internal control over financial reporting. If we fail to
develop and maintain an effective system of internal control over
financial reporting, we may be unable to accurately report our financial
results or prevent fraud.
The Company was established in 2016 and has since that time
experienced significant expansion, especially during 2018 when the
company acquired Paragon Offshore Limited and shortly thereafter
proceeded with a rationalization program. This growth, combined with
the loss of historically significant individuals and relationships in the
9
financial
internal controls over
legacy Paragon business, resulted in too few accounting personnel to
adequately follow and maintain our accounting processes, and
constrained our ability to deploy resources with which to address
reporting.
compliance with
Subsequently, although we are not subject to certification or attestation
requirements in the course of preparing and auditing our consolidated
financial statements for the years ended December 31, 2017 and 2018,
we and our independent registered public accounting firm respectively
identified one material weakness in our internal control over financial
reporting as of December 31, 2018. In accordance with reporting
requirements, a “material weakness” is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of our
company’s annual or interim consolidated financial statements will not
be prevented or detected on a timely basis. The material weakness
identified relates to lack of sufficient competent financial reporting and
accounting personnel to prepare and review our consolidated financial
statements and related disclosures in accordance with U.S. GAAP and
financial reporting requirements. Neither we nor our independent
registered public accounting firm undertook a comprehensive
assessment of our internal control for purposes of identifying and
reporting any material weakness in our internal control over financial
reporting. Had we performed a formal assessment of our internal
control over financial reporting or had our independent registered
public accounting firm performed an audit of the effectiveness of our
reporting, additional material
internal control over
weaknesses may have been identified.
financial
To remedy our identified material weakness subsequent to December
31, 2018, we plan to undertake steps to strengthen our internal control
over financial reporting, including hiring more qualified personnel to
strengthen the financial reporting function and to improve the financial
and systems control framework, and implementing regular and
continuous U.S. GAAP accounting and financial reporting training
programs for our accounting and financial reporting personnel.
Remuneration of the Directors
The remuneration of the Directors is set by the General Meeting. The
Company may, on occasion, pay Directors their fee in the Company's
shares and/or grant Directors options under the Company's share
option scheme.
Section 11 of the Code requires that Directors should not take on
specific assignments for the Company in addition to their appointment
as Directors.
The Company will not refrain from engaging Directors for specific
assignments for the Company if such engagement is considered
beneficial to the Company. This differs from the recommendation in
the Code. However, such assignments will be disclosed to the Board
and the Board shall approve the assignment, as well as the
remuneration.
Remuneration of leading employees
The remuneration of the Borr Group's senior managers is based on
three components. The first component is each individual’s fixed
salary. This is set based on the individual’s position and responsibility
and the international salary level for comparable positions and local
compensation such as housing allowance, mandatory pension
payments, etc.
The second component is a variable, discretionary bonus. Bonuses will
be granted based on the performance of the Borr Group as a whole and
each individual in relation to targets set annually.
The third component is a share option scheme established by the
Company where share options can be issued to senior managers in the
Borr Group.
The Code recommends that guidelines for the remuneration of
executive personnel are prepared and approved by the General
Meeting. Such guidelines should set forth an absolute limit to
performance related remuneration. The Borr Group's remuneration
policy does not require such a procedure, nor does it contain any such
limit. This differs from the recommendation in the Code.
The Bye-Laws permits the Board to issue share options to the
Company's employees, including members of the Borr Group's senior
management team, without requiring that the General Meeting
approves the number of options granted or the terms and conditions of
such. In addition, the share option scheme is an incentive program
rather than remuneration directly limited to the Company’s results.
Information and communication
The Company is committed to provide information on its financial
situation, ongoing projects and other circumstances relevant for the
valuation of the Company’s shares to the financial markets on a regular
basis.
The Company is also committed to disclose all information necessary
to assess the value of its share on its web site. Interested parties will
find the Company’s latest news releases, financial calendar, company
presentations, share and shareholder information, information about
analyst coverage and other relevant information here.
Such information may also be found on the website of the OSE –
www.oslobors.no.
Information to The Company’s shareholders shall be published on the
Company’s website at the same time as it is sent to the shareholders.
Takeover Offer
The Board has prepared guidelines applicable in the event a general
offer is made for its shares.
The Board will seek to ensure that the Company’s business activities,
in such event, are not disrupted unnecessarily. The Board will,
furthermore, strive to ensure that shareholders are given sufficient
information and time to form a view of the terms of such offer.
The Board will not pass any resolutions with the intention of
obstructing the completion of any take-over offer unless this is
approved by the General Meeting following the announcement of such
offer.
If a take-over offer is made, the Board will issue a statement on its
merits
the
recommendations in the Code.
in accordance with statutory
requirements and
The Board will consider obtaining a valuation of the Company's equity
capital from an independent expert if a take-over offer is made in order
to provide guidance to its shareholders as to whether to accept such
offer or not.
10
Any transaction that is in effect a disposal of all of the Company's
activities will be submitted to the General Meeting for its approval.
Auditor
The Audit Committee of the Board will, each year, agree a plan for the
audit of the Borr Group's accounts with its auditor. The Audit
Committee will furthermore interact regularly with the auditor within
the scope of this plan.
The current incumbent auditors are PriceWaterhouseCoopers AS,
Dronning Eufemias, Gate 8, 0191 Oslo, Norway.
11
CORPORATE SOCIAL
RESPONSIBILITY
The Company is committed to conducting its operations ethically and
in compliance to applicable laws and regulations. The Company
understands that an awareness of Sustainability and Corporate Social
Responsibly (CSR) within operations is essential to meet our
workforce and customer’s expectations, and that of wider society.
Although Borr is a young company, it has already established a strong
CSR foundation. For example, the 2018 Safety records, the Total
Recordable Incident Frequency (TRIF) of 1.54 is below the industry
average 1.81. In 2018, The Company participated in the Carbon
Disclosure Project (CDP), publicly reporting its Greenhouse gas
emissions. And in an independent review of our CSR policies,
procedure and actions by EcoVadis (a specialist in CSR company
evaluation) The Company obtained a Silver Rating.
With the acquisition of Paragon Offshore, the Company obtained an
established management system, which was certified to ISO9001
Quality Management System, ISO14001 Environmental Management
System and OHSAS18001 OH&S Management System.
This CSR statement is prepared in consideration of the Non-financial
reporting requirements of Section 3.3c of Norwegian Accounting Act.
To ensure the CSR reporting, which is representative of the business
operations in 2018, the following materiality and boundaries are
observed through the report.
We incorporate our Vision, Mission in everything we do
Vision – To be the leading offshore drilling company
Mission – To apply
talent, entrepreneurial spirit and
commitment to performance throughout our modern fleet
creating value for customers and investors
Values – Adaptability, Teamwork, integrity and commitment.
Materiality and boundaries
The Company is committed to protecting the health and safety of all
our employees and external stakeholder, and conservation of the
environment. To this affect the materiality topics of sustainably/ CSR
reporting focuses on our people, safe operation, environment and
business ethics.
Middle East Africa –
o Rigs - Dhabi II, Paragon B152, Mist
o
Support office - Abu Dhabi (UAE)
Singapore ‘New Builds’ –
o Rigs - Gerd, Groa, Natt, Odin.
Other Support office are:
Dubai (UAE) - Corporate HQ
Oslo (Norway) - Finance
Houston (USA) - legacy Paragon office
Notes on Boundaries
Oslo, Port Harcourt and Port Gentil offices are sublet and therefore
electricity usage not available and excluded from GHG emissions
calculations
All Paragon Offshore offices and rigs are included in The Company data
as of 29th March 2018.
The rigs Paragon C463, Paragon HZ1, Ed Holt were sold during 2018.
Emissions data for these rigs included up to date of sale.
Performance Indicators
Throughout the CSR report, relevant performance indicators are
presented. Historical data is limited, as Borr was established late in
2016, and with limited operation in 2017. Paragon data is included
from 29th March 2018, the date which Paragon was acquired by the
Company.
Stakeholder Engagement
The Company has a commitment to stakeholder engagement with
internal workforce and external interested parties. Management
maintains an open line of communication with personnel, providing
them with key updates related to the company. Most of our rigs have a
Safety Committee, with
the crew and
management. Meetings are held regularly to have open discussions and
setting actions for ensuring safety onboard our rigs. Senior
Management engage with the Board of Directors on a regular basis.
Along with reporting on financial statements and press releases, the
Board is also informed of significant safety and environmental events.
representatives
from
Client engagement is continuous to ensure operational excellence and
safe operations. These include Drilling Well on Paper (“DWOP”)
exercise, bridging documents workshop and performance and HSE
review meetings. Regulators are engaged to ensure compliance with
applicable legislations. Planned inspections of rigs occur and the
Company fully support inspectors during these processes.
The Company is a member of the International Association of Drilling
Contractors (“IADC”), the representative body for drilling contractors.
Reporting Boundaries
Our People
The boundaries set forth are operating and warm stacked rigs and
support offices, as well as corporate headquarters. During 2018 our
report covers:
North Sea
o Rigs - Paragon MSS1, Paragon B391, Paragon C20051,
Prospector 1 and Prospector 5.
Support offices - Aberdeen (UK) and Beverwijk (NL)
o
West Africa –
o Rigs - Frigg and Norve.
o
Support Offices - Port Harcourt (Nigeria) and Port-
Gentil (Gabon)
Our fleet is growing and so is the Company. The number of employees
has significantly increased, from 80 employees in 2017 to 592
employees at the end of 2018. The Company believes that our
employees are our most important resource. Our culture is based
around a diverse work force and a belief in working together and
benefit from each other’s strengths. We are an equal opportunity
employer who respects diversity in the workplace and promote a work
environment where discrimination is not permitted. These principles
are lay out in the Code of Conduct, which all employees are bound to
abide by.
12
Gender Diversity
Safe Operations
The offshore drilling industry has traditionally been dominated by
men, primarily driven by the physically demanding nature of the work
and extended periods of work rotations. That is not to say that the
Company does not promote gender diversity and is an equal
opportunity employer. In 2018, approximately 24.6% of our shore-
based workforce where females. No executive team members or
member of the Board of Directors were female as of December 31,
2018. Following our expansion of the Board to six persons in February
2019, two of our Directors are female (33% of the Board). The
percentage of females working offshore is approximately 0.8%.
Training and Competency of Workforce
By increasing the competence base of our organization, we will
produce confident and highly qualified staff, which enable the
organization to achieve its goals and objectives. Personnel are
provided training necessary to improve and maintain their competency
at work. Appropriately trained and competent workforce is vital to
ensure operational excellence and safe operations. This is administered
by our dedicated Learning and Development Team and utilized though
the Atlas Competency Program (Advancement Through Leadership,
Ability and Skill) for our offshore employees. This program allows for
demonstration of competency of all our offshore crews and serves as a
mechanism for career development and progression.
Healthy Workers
The health and well-being of our crews is very important for the
Company. All our rigs have recreation rooms and communal areas to
relax and unwind after a day or night of work. There are opportunities
to stay fit in the onboard gym and our mess halls offer healthy options
as well as a diverse range of local and international cuisines. Each
offshore installation has a qualified health care professional and fully
equipped clinic with necessary medicines and equipment to provide
first aid treatment to employees. In case of any serious injury or illness,
the Company has partnered with International SOS, whom aids with
shore-based support to medics, evacuation of personnel to healthcare
facilities, and consultation on health-related concerns in the area of
operations. All personnel are provided with information on Malaria
before travelling to countries where such disease is prevalent and must
undergo an awareness training prior to travel. arrangements are in
place to medevac to an onshore health care facility.
Security
A security assessment is carried out prior to operating in high risk
areas. The Company consults with Control Risk Group on matters of
security as and when required. Where necessary, our rigs are aligned
to the International Ship and Port Facility Security (ISPS) Code. This
ensures safety and security of our personnel.
Independent CSR Assessment by EcoVadis
EcoVadis is an independent provider of business sustainability
assessment, with a focus on Human Rights, Labour Rights,
Environment and Supplier Sustainability. EcoVadis conducted a CSR
assessment of the Company in November 2018. Based on our CSR
policies, procedures and actions, we were awarded a Silver rating,
placing the Company among the top 87 percentile of companies
evaluated by EcoVadis. This is an excellent recognition of strong
policies and procedures we have in place for Human and Labour
Rights.
The Company continuously pursues the goal of zero harm to people by
taking proactive measures to prevent work related injuries and
illnesses. Such measures include:
Providing the necessary resources to ensure that operations can
be conducted safely
Promoting active risk management to mitigate foreseeable
hazards.
Providing information, instruction and training to ensure
personnel are competent to carry out their duties and
responsibilities.
Ensuring plant, equipment and machinery are safe to operate,
through industry leading maintenance management system.
Continuous monitoring of activities to ensure that compliance
to Company Management System and all applicable health,
safety and environmental regulations.
All offshore operation is supported by HSE personnel on the
installation, in the corporate office and in the regional offices. We
perform a daily review of all HSE events and each month a review of
HSE performance is carried out by the corporate management team.
Monthly performance reports are provided to the Board, senior
management and company personnel. Performance reports are also
provided to clients for the relevant rigs on their contract.
The key performance indicators for HSE includes personnel injury
incidents, dropped object incidents, near miss incidents, spills to
environment and participation of personnel in the safety observation
program. Every incident and near miss is investigated to identify root
cause and corrective actions are implemented to prevent reoccurrence.
Experience from such incidents are shared across the fleet through
safety alerts.
Safety Performance Indicators
The key safety statistics for 2018 are LTIF of 0.62 and TRIF of 1.54.
This is compared to an IADC industry TRIF of 1.81. The Company
includes all personnel on the rig in safety statistics, including third
party person.
During 2018, there were five recordable incidents across the all
operations, consisting of two MTC, one RWC and two LTI.
Notes: Definition of safety statistic terms
TRIF (Total Recordable Incident Frequency) = (MTC + RWC + LTI +
FAT) x 1,000,000 / Total Manhours.
Medical treatment case (MTC), Restricted work case (RWC), Lost Time
incident (LTI) Fatalities (FAT).
LTIF (Lost Time Incident Frequency) = (LTI) x 1,000,000 / Total
Manhours
Recordable Incident = MTC + RWC + LTI + FAT.
Emergency Preparedness
Emergency response procedures and systems are in place at rig, region
and corporate level. Frequent drills are conducted offshore to ensure
robustness of the arrangements and the readiness of the crew. The
Company has partnered with Restrata, a leading provider of emergency
response coordination facilities. During 2018, Borr participated in two
major simulation emergency exercises with clients and Rastrata in the
North Sea, to test our emergency responses in a controlled
environment.
13
Environment
Environmental management of operations is accomplished by utilizing
the ISO14001 framework. The key environmental aspects from
offshore operations are discharges to sea, emissions to air and waste
generation, and the potential for spills to sea. The processes around
these aspects have been mapped and stringent procedural controls have
been put in place to reduce environmental risk to levels as low as
reasonably practicable. As of December 31, 2018, all our rigs comply
with the applicable rules set forth by the International Marine
Organization (“IMO”) and the environmental protective regulation in
the International Convention for the Prevention of Pollution from
Ships (“MARPOL”). Our rigs have International Oil Pollution
Prevention Certificate,
International Air Pollution Prevention
Certificate and International Sewage Pollution Prevention Certificate.
In addition they gave a Shipboard Oil Pollution Emergency Plan
(SOPEP) and Garbage Management Plans
Spills to Sea
The Company’s key environmental objective is to have zero spills to
sea. We utilize mechanic and operational controls to achieve this
objective. Regular spill response exercises are performed on rigs to
ensure that if a spill did occur, all onboard and on the shore are
prepared to react and act in a planned and suitable manner. During
2018, there was one spill to sea from a Borr Drilling rig, in which 445
liters of fuel oil was spilled during a bunkering incident.
Air emissions and Greenhouse Gases (“GHG”)
GHG emission are calculated in accordance with the GHG Protocol
Industry
Corporate Accounting and
Environmental Conservation Associations (“IPIECA”) Oil and Gas
Industry Guidance on Voluntary Sustainability Reporting
International Petroleum
The IPIECA Guidance sets the boundary of Drilling Contractor’s
Scope 1 emissions as fuel burned on the rig and refrigeration gas
emissions. Emissions from flaring are outside the Drilling Contractor’s
scope. The main source of air emissions arises from combustion of fuel
in the rig’s engines. Our fleet mainly comprises of new premium rigs,
which have higher energy efficiency than older standard rigs. The
second source Scope 1 emissions is from refrigeration gases, also
known as F-gases. The Company has a progressive approach to
managing F-gases, including preventative maintenance of F-gas
containing units and reporting of all F-gas losses. Other GHG
emissions arise from electricity usage (Scope 2) and emissions in
supply chain (Scope 3)
In 2018, Scope 1 emissions of 92,119 MT CO2 equivalent were emitted
from all offshore operations; 91,407 MT CO2 equivalent from engines
and 713MT from F-gas releases. This compares to a gross Scope 1
emission of 10,362 MT CO2 equivalent in 2017. The increase in 2018
was due to acquisition of Paragon Offshore operational assets and
overall increase in operations.
Scope 2 GHG emissions from electricity usage is 1,233 MT CO2
equivalent. In 2017 the Scope 2 emission was reported as 13 MT CO2
equivalent (Borr’s Dubai office only). The increase was based on
acquisition of Paragon Offshore and its associated offices, expansion
of operations and the use of shore-based electricity on certain warm
stacked rigs in Singapore.
Emissions Intensity related to turnover was 1.776 in 2018, compared
to 0.104 in 2017. The increase was due to increase in operations
activity.
CDP Disclosure
The Carbon Disclosure Project (“CDP”) is an international non-
government organization that provides a global disclosure system for
investors, companies, cities and states to manage their environmental
impact. In 2018, the Company made a disclosure to the CDP following
a request from institutional investors. The Company is only one of two
offshore drilling company to make a disclosure and we are very proud
that we contributing to this important forum. This demonstrates our
management and Board commitment to sustainability. The 2018
submission was a ‘minimum’ disclosure, and therefore was not scored.
Business Ethics
The Company’s management is committed to having a business that
operates within the applicable rules and regulations and ensuring that
the business is operated in an ethical way. This includes, for example,
ensuring there is no discrimination and that our supply chain is free of
modern slavery.
Anti-Corruption
A company’s supply chain is recognized as being both an integral part
of operations, but also an area where a company can influence
sustainability and good CSR practices. In 2018 Borr initiated the
process of communicating with suppliers its Sustainability and CSR
expectations via our Supplier Procurement and Corporate Social
Responsibility Policy. This policy address matters including anti-
bribery and corruption, modern slavery, as well and environmental and
safety management. It is expected that all vendors who do business
with the Company will sign up to and adhere to this policy.
The Company prohibits payments of bribes or kickbacks of any kind,
whether in dealings with public officials or individuals in the private
sector. The Company conducts appropriate due diligence of Borr
Business Partners which include third-party’ agents who perform
marketing, shipping, freight forwarding, customs and visa services.
The Company has partnered with TRACE, a globally recognized anti-
bribery business organization, as part of the risk assessment of new
vendors, local partners and customers. Each contract, agreement,
engagement and/or any written commitment entered into between the
Company and its partners, suppliers or agents contain provisions
enforcing and promoting strict compliance to this Policy and or
relevant Anti Bribery Anti-Corruption Regulations. This is verified by
the Marketing department and external
legal counsel, where
appropriate.
Ethics and Integrity
The Company is committed to conducting its operations with integrity
and respecting the laws, cultures, and rights of individuals, in all the
countries in which we operate. The Code of Conduct constitutes the
basis upon which all our policies and procedures are built. The
objective of the Code of Conduct is to describe Borr Drilling´s
commitment and requirements regarding business practice and
personal conduct. It defines the behavior Borr Drilling expects of our
employees and what they can expect of Borr Drilling. Everybody
associated with Borr Drilling is responsible for following our Code of
Conduct. A copy of our Code of Conduct can be found on the
14
Company’s website, www.borrdrilling.com. The Company’s Code of
Conduct policy prohibits its employees from:
Offer or acceptance of bribe and facilitation payment of any
variety to any person, whether private or public.
Directly, or indirectly through a third party, offering anything
of value to influence the actions or decisions of any official,
other person in public or legal duty, any person acting on behalf
of customers or sub-contractors/suppliers, or any other third
party, or to otherwise obtain any improper advantage, in selling
goods and services, conducting financial transactions or
representing The Company´s interests.
Providing gifts and hospitality to influence business decisions,
or cause others to perceive an influence, to release The
Company form any contractual obligation.
Having interests outside the company in any business that
competes with or provides services to The Company, and/or
that would affect the individual’s objectivity in carrying out
his/her company responsibilities.
Violation of antitrust laws, competition laws and regulations.
The Company is committed to fair and open competition
Disclosure of information by an employee to prime contractors,
subcontractors, and suppliers, as well as to the public, for
personal benefit or for the benefit of anyone other than The
Company.
Whistleblower Policy
The corporate Whistleblower policy requires board members, officers
and employees to report any breach of Code of Conduct Policy as well
as violation of any applicable law in countries where the Company
operates. An anonymous reporting phoneline is available to employees
to report any concerns regarding:
Health and Safety;
Environmental;
Human Rights and Labor practices (Forced labor and human
trafficking; Child labor; Harassment; Discrimination; Equal
opportunities);
Data and Information Breaches;
Business Ethics and Compliance (Bribery; Corruption; Insider
trading),
All reports are promptly investigated, and appropriate corrective action
taken if warranted by the investigation. The Compliance Risk Officer
notifies the CEO of all such complaints and the status of their
resolution.
Human Rights and Labor Practices
The Company respects human rights of its work force and the
communities it operates in. No children are employed by The
Company. Personnel working offshore must be a minimum of 18 years
old. The Company does not tolerate the use of human trafficking or
forced labor in its operations or in its supply chain.
In 2018, with the expansion of the Company’s operations into the UK,
the company because subject to the UK Modern Slavery Act. A
revision of the Company’s ‘Against Modern Slavery’ policy and
procedure were competed in 2018 to ensure compliance with the UK
Modern Slavery Act.
In addition, Borr has policies and procedures in place to ensure
compliance with the California Transparency in Supply Chains Act
and/or the U.S. Government’s Federal Acquisition Regulation on
Ending Trafficking in Persons.
15
BORR DRILLING LIMITED
CONSOLIATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Years ended December 31, 2018 and 2017
(In $ millions, except per share data)
Operating revenues
Gain from bargain purchase
Gain on disposals
Operating expenses
Rig operating and maintenance expenses
Depreciation of non-current assets
Impairment of non-current assets
Amortization of acquired contract backlog
General and administrative expenses
Restructuring costs
Cost for issuance of warrants
Total operating expenses
Operating loss
Other income (expenses), net
Interest income
Interest expenses, net of amounts capitalized
Other, net
Total other income (expenses), net
Loss before income taxes
Income tax expense
Net loss
Net (loss) attributable to non-controlling interests
Net (loss) attributable to shareholders of Borr Drilling Limited
Earnings (loss) per share
Basic loss per share
Diluted loss per share
Weighted-average shares outstanding
Notes
3
14
4
11
11
14, 23
14
25
5
6
22
7
7
7
2018
2017
164.9
38.1
18.8
(180.1)
(79.5)
—
(24.2)
(38.7)
(30.7)
—
(353.2)
(131.4)
1.2
(13.7)
(44.5)
(57.0)
(188.4)
(2.5)
(190.9)
(0.4)
(190.5)
0.1
—
—
(36.2)
(21.2)
(26.7)
—
(21.0)
—
(4.7)
(109.8)
(109.7)
3.2
(0.5)
19.0
21.7
(88.0)
—
(88.0)
—
(88.0)
(0.37)
(0.37)
514,387,507
(0.34)
(0.34)
258,631,442
See accompanying notes that are an integral part of these Audited Consolidated Financial Statements
17
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
for the Years ended December 31, 2018 and 2017
(In $ millions)
Loss after income taxes
Unrealized gain (loss) from marketable securities
Other comprehensive income (loss)
Total comprehensive loss
Comprehensive loss attributable to
Shareholders of Borr Drilling Limited
Non-controlling interests
Total comprehensive loss
Notes
15
2018
(190.9)
0.6
0.6
2017
(88.0)
(6.2)
(6.2)
(190.3)
(94.2)
(189.9)
(0.4)
(190.3)
(94.2)
—
(94.2)
See accompanying notes that are an integral part of these Audited Consolidated Financial Statements
18
BORR DRILLING LIMITED
CONSOLIDATED BALANCE SHEET
as of December 31, 2018 and 2017
(In $ millions, except number of shares)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Trade accounts receivables
Marketable securities
Prepaid expenses
Acquired contract backlog
Deferred mobilization costs
Accrued revenue
Tax retentions receivable
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Jack-up drilling rigs
Newbuildings
Marketable securities
Other long-term assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payables
Amounts due to related parties
Unrealized loss on forward contracts
Accrued expenses
Onerous contracts
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Other liabilities
Onerous contracts
Total non-current liabilities
Total liabilities
Commitments and contingencies
See accompanying notes that are an integral part of these Audited Consolidated Financial Statements
Notes
2018
2017
27.9
63.4
25.1
4.2
10.8
20.2
6.0
18.9
11.6
20.5
208.6
164.0
39.1
—
—
2.6
—
10.3
—
—
9.5
225.5
9.5
2,278.1
361.8
31.0
24.7
2,705.1
0.1
783.3
642.7
20.7
—
1,446.8
2,913.7
1,672.3
9.6
0.4
35.1
63.7
3.2
7.3
119.3
9.6
—
—
11.5
—
—
21.1
1,174.6
8.0
78.3
1,260.9
87.0
—
71.3
158.3
1,380.2
179.4
8
9
15
14
10
11
12
15
17
16
20
18
19
20
21
19
BORR DRILLING LIMITED
CONSOLIDATED BALANCE SHEET
as of December 31, 2018 and 2017
(In $ millions, except number of shares)
Stockholders’ Equity
Common shares of par value $0.01 per share: authorized 625,000,000 (2017: 525,000,000) shares,
issued 532,640,327 (2017: 478,292,500) shares and outstanding 525,341,755 (2017: 476,322,500)
shares at December 31, 2018
Treasury shares
Additional paid in capital
Other comprehensive loss
Accumulated deficit
Equity attributable to the Company
Non-controlling interest
Total equity
Total liabilities and equity
Notes
2018
2017
5.3
(26.2)
1,837.5
(5.6)
(279.2)
1,531.8
4.8
(6.7)
1,587.8
(6.2)
(88.8)
1,490.9
1.7
1,533.5
2.0
1,492.9
2,913.7
1,672.3
See accompanying notes that are an integral part of these Audited Consolidated Financial Statements
20
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Years ended December 31, 2018 and 2017
(In $ millions)
Notes
2018
Cash Flows from Operating Activities
Net (loss)
Adjustments to reconcile net (loss to net cash used in operating activities:
Non-cash compensation expense related to stock options and warrants
Depreciation of non-current assets
Impairment of non-current assets
Amortization of acquired contract backlog
Amortization of onerous contracts
Gain on sale of rigs
Unrealized (gain) loss on financial instruments
Bargain purchase gain
Deferred income tax
Change in other current and non-current assets
Change in current and non-current liabilities
Net cash used in operating activities
Cash Flows from Investing Activities
Purchase of plant and equipment
Proceeds from sale of fixed assets
Purchase business combination (acquisition), net of cash acquired
Purchase of marketable securities
Additions to newbuildings
Additions to jack-up drilling rigs
Net cash used in investing activities
Cash Flows from Financing Activities
Proceeds from share issuance, net of issuance costs and conversion of shareholders loans
Proceeds from related party shareholder loan
Purchase of treasury shares
Repayment of long-term debt
Purchase of financial instruments
Proceeds, net of deferred loan costs, from issuance of long-term debt
Net cash provided by financing activities
Net (decrease) increase in cash, restricted cash and cash equivalents
Foreign exchange translation difference
Cash and cash equivalents and restricted cash at beginning of the period
Cash and cash equivalents and restricted cash at the end of period
23
11
11
4
16
14
6
4
14
15
12
11
26
28
14
19, 12, 13
See accompanying notes that are an integral part of these Audited Consolidated Financial Statements
2017
(Restated)
(88.0)
8.2
21.2
26.7
—
(152.2)
—
(4.4)
—
—
(16.5)
20.1
(184.8)
(190.9)
3.7
79.5
—
24.2
—
(18.8)
65.2
(38.1)
(0.5)
(24.8)
(34.7)
(135.2)
(7.8)
41.6
(195.1)
(13.0)
(362.4)
(23.4)
(560.1)
(0.1)
—
(324.5)
(26.9)
(785.2)
(119.8)
(1,256.5)
218.9
27.7
(19.7)
(89.3)
(28.5)
474.4
583.5
1,415.0
12.7
(8.4)
—
—
87.0
1,506.3
(111.8)
—
203.1
91.3
65.0
—
138.1
203.1
21
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Years ended December 31, 2018 and 2017
(In $ millions)
Supplementary disclosure of cash flow information
Interest paid, net of capitalized interest
Income taxes paid
Issuance of long-term debt as non-cash settlement for newbuild delivery instalment
Non-cash settlement of shareholder loan with issuance of shares
2018
2017
(8.6)
(3.2)
609.0
27.7
—
—
—
—
See accompanying notes that are an integral part of these Audited Consolidated Financial Statements
22
BORR DRILLING LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
for the Years ended December 31, 2018 and 2017
(In $ millions, except share and per share data)
Consolidated balance at December 31,
2016
Issue of common shares
Equity issuance costs
Other transactions:
Exercise of warrants
Fair value of warrants issued
Equity issuance costs, warrants
Purchase of warrants
Stock based compensation
Purchase of treasury shares
Total comprehensive loss
Sale of shares to non-controlling interest
Other, net
Consolidated balance at December 31,
2017
Issue of common shares (03.23.18)
Equity issuance costs
Issue of common shares (05.30.18)
Other transactions:
Stock based compensation
Settlement of directors’ fees
Purchase of treasury shares
Total comprehensive loss
Non-controlling interest
Other, net
Consolidated balance at December 31,
Number of
outstanding
shares
77,505,000
391,100,000
—
9,687,500
—
—
—
—
(1,970,000)
—
—
—
476,322,500
46,707,500
—
7,640,327
—
—
(7,298,572)
—
—
—
Common
shares
Treasury
shares
Additional
paid in
capital
Other
Comprehensive
(Loss)/Income
Accumulated
Deficit
Non-
controlling
interest
Total
equity
0.8
3.9
—
0.1
—
—
—
—
—
—
—
4.8
0.4
—
0.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.7
(8.4)
—
—
—
157.8
1,446.2
(17.8)
—
7.7
(3.0)
(4.7)
1.8
—
—
—
(0.2)
(6.7)
1,587.8
—
—
—
—
0.2
(19.7)
—
—
—
214.3
(3.2)
35.1
3.7
(0.2)
—
—
—
—
—
—
—
—
—
—
—
—
—
(6.2)
—
—
(6.2)
—
—
—
—
—
0.6
—
—
(0.8)
—
—
—
—
—
—
—
—
(88.0)
—
—
—
—
—
—
—
—
—
—
—
2.0
—
157.8
1,450.1
(17.8)
0.1
7.7
(3.0)
(4.7)
3.5
(8.4)
(94.2)
2.0
(0.2)
(88.8)
2.0
1,492.9
—
—
—
—
—
(190.5)
0.1
—
—
—
—
—
—
(0.4)
0.1
—
214.7
(3.2)
35.2
3.7
—
(19.7)
(190.3)
0.2
—
2018
525,341,755
5.3
(26.2)
1,837.5
(5.6)
(279.2)
1.7
1,533.5
See accompanying notes that are an integral part of these Audited Consolidated Financial Statements
23
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – General information
Borr Drilling Limited was incorporated in Bermuda on August 8, 2016. The company is listed on the Oslo Stock Exchange, under
the ticker symbol “BDRILL.” Borr Drilling Limited is an international offshore drilling contractor providing services to the oil and gas
industry, with the objective of acquiring and operating modern jack-up drilling rigs. As of December 31, 2018, we had 27 total jack-up
rigs, including 10 rigs “warm stacked” and 4 rigs “cold stacked,” and had agreed to purchase 9 additional premium jack-up rigs under
construction.
As used herein, and unless otherwise required by the context, the term “Borr Drilling” refers to Borr Drilling Limited and the terms
“Company,” “we,” “Group,” “our” and words of similar import refer to Borr Drilling and its consolidated companies. The use herein of
such terms as “group”, “organization”, “we”, “us”, “our” and “its”, or references to specific entities, is not intended to be a precise
description of corporate relationships.
Basis of presentation
The consolidated financial statements are presented in accordance with generally accepted accounting principles in the United
States of America (U.S. GAAP). The amounts are presented in United States Dollars (“U.S. dollar or $”) rounded to the nearest million,
unless otherwise stated.
Operating results for the years ending December 31, 2018 and 2017 are not necessarily indicative of the results that may be expected
for any future period.
The consolidated financial statements present the financial position of Borr Drilling Limited and its subsidiaries. Investments in
companies in which the Company controls, or directly or indirectly holds more than 50% of the voting control are consolidated in the
financial statements.
Subsequent events have been reviewed from the period end to the date at which the financial statements were made available for
issue, which is April 30, 2019.
Restatement of Comparative Consolidated Statements of Cash Flows
We have restated our Consolidated Financial Statements to correct an error within our Consolidated Statements of Cash Flows. In
the course of preparing our consolidated financial statements for 2018, we identified an error for the year ended December 31, 2017, of
approximately $152.2 million between Net cash used in operating activities and Net cash used in investing activities sections of our
statement of cash flows related to the extinguishment of the onerous contract related to the Keppel Rigs (as defined below). The
following table presents the effect of the correction on the selected line items previously reported in the Consolidated Statements of
Cash Flows for the year ended December 31, 2017:
(In $ millions)
Cash Flows from Operating Activities
Net (loss)
2017
Adjustments
2017
(Restated)
(88.0)
—
(88.0)
Adjustments to reconcile net (loss to net cash used in operating activities:
Amortization of onerous contracts
Net cash used in operating activities
—
(32.6)
(152.2)
(152.2)
(152.2)
(184.8)
Cash Flows from Investing Activities
Additions to newbuildings
Net cash used in investing activities
(937.4)
(1,408.7)
152.2
152.2
(785.2)
(1,256.5)
There were no impacts to net cash provided by financing activities within our consolidated statements of cash flows and there was
no impact to the net increase (decrease) in cash and cash equivalents resulting from the restatement. In addition, there was no impact to
our consolidated statement of operations or financial position.
24
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of consolidation
The consolidated financial statements include the assets and liabilities of the Company. All intercompany balances, transactions
and internal sales have been eliminated on consolidation. Unrealized gains and losses arising from transactions with associates are
eliminated to the extent of the Company’s interest in the entity. The non-controlling interests of subsidiaries were included in the
consolidated balance sheet and Statements of Operations as “Non-controlling interests”. Profit or loss and each component of other
comprehensive income are attributed to the shareholders of the Company and to the non-controlling interests, even if this results in the
non-controlling interests having a deficit balance.
Going concern
The consolidated financial statements have been prepared on a going concern basis. The Company is dependent on loans and/or
equity issuances to finance the remaining obligations under its current secured loan repayments, newbuilding contracts and working
capital requirements which raises substantial doubt about the Company’s ability to continue as a going concern. Given the recent
execution of our March 2019 bank facility, (see note 31), Board (as defined below) approved current plans to increase our long-term
debt, including the receipt of an indicative term sheet for loan financing up to $550.0 million and our track record in terms of raising
equity financing, we believe we will be able to meet our anticipated liquidity requirements for our business for at least the next twelve
months as of the date of these financial statements. There is no assurance that we will be able to execute this financing.
Use of estimates
Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 2 – Accounting policies
Revenue
The Company performs services that represent a single performance obligation under its drilling contracts. This performance
obligation is satisfied over time. The Company earns revenues primarily by performing the following activities: (i) providing the drilling
rig, work crews, related equipment and services necessary to operate the rig (ii) delivering the drilling rig by mobilizing to and
demobilizing from the drill location, and (iii) performing certain pre-operating activities, including rig preparation activities or
equipment modifications required for the contract.
The Company recognizes revenues earned under drilling contracts based on variable dayrates, which range from a full operating
dayrate to lower rates or zero rates for periods when drilling operations are interrupted or restricted, based on the specific activities
performed during the contract. Such dayrate consideration is attributed to the distinct time period to which it relates within the contract
term, and therefore recognized as the Company performs the services. The Company recognizes reimbursement revenues and the
corresponding costs as the Company provides the customer-requested goods and services, when such reimbursable costs are incurred
while performing drilling operations. Prior to performing drilling operations, the Company may receive pre-operating revenues, on
either a fixed lump-sum or variable dayrate basis, for mobilization, contract preparation, customer-requested goods and services or
capital upgrades, which the Company recognizes over time in line with the satisfaction of the performance obligation.
The Company incurs costs to prepare a rig for contract and deliver or mobilize a rig to the drilling location. The Company defers
pre-operating costs, such as contract preparation and mobilization costs, and recognizes such costs on a straight-line basis, consistent
with the general level of activity, in operating and maintenance costs over the estimated firm period of drilling.
Jack-up rigs
The carrying amount of our jack-up rigs is subject to various estimates, assumptions, and judgments related to capitalized costs,
useful lives and residual values and impairments. Jack-up rigs and related equipment are recorded at historical cost less accumulated
depreciation. Jack-up rigs acquired as part of asset acquisitions are stated at fair
25
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
market value as of the date of the acquisition. The cost of these assets, less estimated residual value, is depreciated on a straight-line
basis over their estimated remaining economic useful lives. The estimated economic useful life of our jack-up rigs and our semi-
submersible drilling rig when new, is 30 years.
We determine the carrying values of our jack-up rigs and semi-submersible and related equipment based on policies that incorporate
estimates, assumptions and judgments relative to the carrying values, remaining useful lives and residual values. These assumptions and
judgments reflect both historical experience and expectations regarding future operations, utilization and performance. The use of
different estimates, assumptions and judgments in establishing estimated useful lives and residual values could result in significantly
different carrying values for our jack-up rigs and semi-submersible, which could materially affect our balance sheet and results of
operations.
The useful lives of our jack-up rigs and semi-submersible and related equipment are difficult to estimate due to a variety of factors,
including technological advances that impact the methods or cost of oil and gas exploration and development, changes in market or
economic conditions and changes in laws or regulations affecting the drilling industry. We re-evaluate the remaining useful lives of our
jack-up rigs and semi-submersible as of and when events occur that may directly impact our assessment of their remaining useful lives.
This includes changes the operating condition or functional capability of our rigs as well as market and economic factors.
The carrying values of our jack-up rigs and semi-submersible and related equipment are reviewed for impairment when certain
triggering events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. We assess
recoverability of the carrying value of an asset by estimating the undiscounted future net cash flows expected to result from the asset,
including eventual disposition. If the undiscounted future net cash flows are less than the carrying value of the asset, an impairment loss
is recorded equal to the difference between the asset’s carrying value and fair value. In general, impairment analyses are based on
expected costs, utilization and dayrates for the estimated remaining useful lives of the asset or group of assets being assessed. An
impairment loss is recorded in the period in which it is determined that the aggregate carrying amount is not recoverable. Asset
impairment evaluations are, by nature, highly subjective. They involve expectations about future cash flows generated by our assets,
and reflect management’s assumptions and judgments regarding future industry conditions and their effect on future utilization levels,
dayrates and costs. The use of different estimates and assumptions could result in significantly different carrying values of our assets
and could materially affect our balance sheet and results of operations.
As of December 2018, management identified certain indicators, among others, that the carrying value of our jack-up rigs and
semi-submersible and related equipment may not be recoverable and our market capitalization was lower than the book value of our
equity. These market indicators include the reduction in new contract opportunities, decrease in market dayrates and contract
terminations. We assessed recoverability of the carrying value of our jack-up rigs and semi-submersible by first evaluating the estimated
undiscounted future net cash flows based on projected dayrates and utilizations of the rigs. The estimated undiscounted future net cash
flows were found to be greater than the carrying value of our jack-up rigs and semi-submersible, with sufficient headroom. As a result,
we did not need to proceed to assess the discounted cash flows of our rigs, and no impairment charges were recorded.
With regard to older jack-up rigs which have relatively short remaining estimated useful lives, the results of impairment tests are
particularly sensitive to management’s assumptions. These assumptions include the likelihood of the rig obtaining a contract upon the
expiration of any current contract, and our intention for the rig should no contract be obtained, including warm/cold stacking or disposal.
The use of different assumptions in the future could potentially result in an impairment of our jack-up rigs, which could materially affect
our balance sheet and results of operations. If market supply and demand conditions in the jack-up drilling market do not improve, it is
likely that we will be required to impair certain jack-up rigs.
Newbuildings
Jack-up rigs under construction are capitalized, classified as newbuildings and presented as non-current assets. The capitalized
costs are reclassified from newbuildings to jack-up rigs when the asset is available for its intended use.
26
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Interest cost capitalized
Interest costs are capitalized on all qualifying assets that require a period of time to get them ready for their intended use. Qualifying
assets consist of newbuilding rigs under construction. The interest costs capitalized are calculated using the weighted average cost of
borrowings, from commencement of the asset development until substantially all the activities necessary to prepare the assets for its
intended use are complete. We do not capitalize amounts beyond the actual interest expense incurred in the period.
Rig operating and maintenance expenses
Rig operating and maintenance expenses are costs associated with operating a rig that is either in operation or stacked, and include
the remuneration of offshore crews and related costs, rig supplies, inventory, insurance costs, expenses for repairs and maintenance as
well as costs related to onshore personnel in various locations where we operate the jack-up rigs and are expensed as incurred. Stacking
costs for rigs are expensed as incurred.
Business combinations
The Company applies the acquisition method of accounting for business combinations in accordance with ASC 805. The acquisition
method requires the total of the purchase price of acquired businesses and any non-controlling interest recognized to be allocated to the
identifiable tangible and intangible assets and liabilities acquired at fair value, with any residual amount being recorded as goodwill as
of the acquisition date. Costs associated with the acquisition are expensed as incurred. The Company allocates the purchase price of
acquired businesses to the identifiable tangible and intangible assets and liabilities acquired, with any remaining amount being recorded
as goodwill.
The estimated fair value of the jack-up rigs in a business combination is derived by using a market and income-based approach
with market participant-based assumptions. When we acquire jack-up rigs there may exist unfavorable contracts which are recorded at
fair value at the date of acquisition. An unfavorable contract is a contract that has a carrying value which is higher than prevailing market
rates at the time of acquisition. The net present value of such contracts when lower than prevailing market rates, is recorded as an
onerous contract at the purchase date.
In a business combination, contract backlog is recognized when it meets the contractual-legal criterion for identification as an
intangible asset when an entity has a practice of establishing contracts with its customers. We record an intangible asset equal to its fair
value on the date of acquisition. Fair value is determined by using Multi-Period Excess Earnings Method. The multi-period Excess
Earnings Method is a specific application of the discounted cash flow method. The principle behind the method is that the value of an
intangible asset is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible asset after
deducting contributory asset charges. The asset is then amortized over its estimated remaining contract term.
Onerous contracts
Newbuildings: When we acquire rigs there may exist unfavorable contracts which are recorded at fair value at the date of
acquisition. An unfavorable contract is a contract that has a carrying value which is higher than prevailing market rates at the time of
acquisition. The net present value of such contracts when lower than prevailing market rates, is recorded as a liability at the purchase
date.
Office leases: Onerous contracts are recognized for costs that will continue to be incurred under a contract for its remaining term
without economic benefit to the Company. The net present value of such contracts is recorded as a liability at the cease-use date.
Share-based compensation
We have an employee share ownership plan under which our employees, directors and officers may be allocated options to
subscribe for new shares in the Company as a form of remuneration. The cost of equity settled transactions is measured by reference to
the fair value at the date on which the share options are granted. The fair value of the share options issued under the Company’s employee
share option plans are determined at the grant date taking into account the terms and conditions upon which the options are granted, and
using a valuation technique that is
27
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
consistent with generally accepted valuation methodologies for pricing financial instruments, and that incorporates all factors and
assumptions that knowledgeable, willing market participants would consider in determining fair value. The fair value of the share options
is recognized as a general and administrative expense with a corresponding increase in equity over the period during which the
employees become unconditionally entitled to the options. Compensation cost is initially recognized based upon options expected to
vest, excluding forfeitures, with appropriate adjustments to reflect actual forfeitures.
Marketable securities
Marketable debt securities held by us which do not give us the ability to exercise significant influence are considered to be available-
for-sale. These are re-measured at fair value each reporting period with resulting unrealized gains and losses recorded as a separate
component of accumulated other comprehensive income in shareholders’ equity. Gains and losses are not realized until the securities
are sold or subject to temporary impairment. Gains and losses on forward contracts to purchase marketable equity securities that do not
meet the definition of a derivative are accounted for as available-for-sale securities. We analyze our available-for-sale securities for
impairment at each reporting period to evaluate whether an event or change in circumstances has occurred in that period that may have
a significant adverse effect on the value of the securities. We record an impairment charge for other-than-temporary declines in value
when the value is not anticipated to recover above the cost within a reasonable period after the measurement date, unless there are
mitigating factors that indicate impairment may not be required. If an impairment charge is recorded, subsequent recoveries in value are
not reflected in earnings until sale of the securities held as available for sale occurs.
Where there are indicators that fair value is below the carrying value of our investments, we will evaluate these for other-than-
temporary impairment. Consideration will be given to (i) the length of time and the extent to which fair value of the investments is
below carrying value, (ii) the financial condition and near-term prospects of the investee, and (iii) our intent and ability to hold the
investment until any anticipated recovery. Where we determine that there is other-than-temporary impairment, we will recognize an
impairment loss in the period.
Marketable equity securities with readily determinable fair value are re-measured at fair value each reporting period with unrealized
gains and losses recognized under total other income (expenses), net.
Legal proceedings
We may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. A provision
will be recognized in the financial statements only where we believe that a liability will be probable and for which the amounts are
reasonably estimable, based upon the facts known prior to the issuance of the financial statements.
Foreign currencies
The Company and the majority of its subsidiaries use the U.S. dollar as their functional currency because the majority of their
revenues and expenses are denominated in U.S. dollars. Accordingly, the Company’s reporting currency is also U.S. dollars. For
subsidiaries that maintain their accounts in currencies other than U.S. dollars, the Company uses the current method of translation
whereby the statements of operations are translated using the average exchange rate for the period and the assets and liabilities are
translated using the period end exchange rate. Foreign currency translation gains or losses on consolidation are recorded as a separate
component of other comprehensive income in shareholders’ equity.
Transactions in foreign currencies are translated into U.S. dollars at the rates of exchange in effect at the date of the transaction.
Gains and losses on foreign currency transactions are included in the consolidated statement of operations.
Current and non-current classification
Assets and liabilities (excluding deferred taxes) are classified as current assets and liabilities respectively, if their maturity is within
1 year of the balance sheet date. Otherwise, they are classified as non-current assets and liabilities.
28
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other intangible assets and liabilities
Other intangible assets and liabilities are recorded at fair value on the date of acquisition less accumulated amortization. The
amounts of these assets and liabilities less the estimated residual value, if any, is generally amortized on a straight-line basis over the
estimated remaining economic useful life or contractual period.
Cash and cash equivalents
Cash and cash equivalents consist of cash, bank deposits and highly liquid financial instruments with original maturities of three
months or less.
Restricted cash
Restricted cash consists of margin accounts which have been pledged as collateral in relation to forward contracts and bank deposits
which have been pledged as collateral for guarantees issued by a bank or minimum deposits which must be maintained in accordance
with contractual arrangements. Restricted cash amounts with maturities longer than one year are classified as non-current assets.
Trade receivables
Trade receivables are presented net of allowances for doubtful balances. At each balance sheet date, all potentially uncollectible
accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts.
Fair Value
The Company accounts for fair value in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair
value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and
minimize the use of unobservable inputs. The Company uses a three-tier hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
Level 1.
Quoted prices in active markets for identical assets or liabilities.
Level
2.
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level
3.
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. The Company’s cash
and cash equivalents and restricted cash, which are held in operating bank accounts, are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable
levels of price transparency. The carrying value of accounts receivable and payables approximates fair value due to the short time to
expected payment or receipt of cash.
Income taxes
Borr Drilling Limited is a Bermuda company that has a number of subsidiaries in various jurisdictions. Whilst the Company is
resident in Bermuda, it is not subject to taxation under the laws of Bermuda, so currently, the Company is not required to pay taxes in
Bermuda on ordinary income or capital gains. The Company and each of its subsidiaries and affiliates that are Bermuda companies have
received written assurance from the Minister of Finance in Bermuda that that in the event that Bermuda enacts legislation imposing
taxes on ordinary income or capital gains, any such tax shall not be applicable to the Company or such subsidiaries and affiliates until
31 March 2035. Certain subsidiaries operate in other jurisdictions where taxes are imposed. Consequently, income taxes have
29
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
been recorded in these jurisdictions when appropriate. Our income tax expense is based on our income and statutory tax rates in the
various jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which
operations are conducted and income is earned.
The determination and evaluation of our annual group income tax provision involves interpretation of tax laws in various
jurisdictions in which we operate and requires significant judgment and use of estimates and assumptions regarding significant future
events, such as amounts, timing and character of income, deductions and tax credits. There are certain transactions for which the ultimate
tax determination is unclear due to uncertainty in the ordinary course of business. We recognize tax liabilities based on our assessment
of whether our tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant
taxing authority’s widely understood administrative practices and precedence. Changes in tax laws, regulations, agreements, treaties,
foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability in any
given year. While our annual tax provision is based on the information available to us at the time, a number of years may elapse before
the ultimate tax liabilities in certain tax jurisdictions are determined. Current income tax expense reflects an estimate of our income tax
liability for the current period, withholding taxes, changes in prior year tax estimates as tax returns are filed, or from tax audit
adjustments.
Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to
local tax rules.
Deferred tax assets and liabilities are based on temporary differences that arise between carrying values used for financial reporting
purposes and amounts used for taxation purposes of assets and liabilities and the future tax benefits of tax loss carry forwards.
Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected on the
balance sheet. Valuation allowances are determined to reduce deferred tax assets when it is more likely than not that some portion or all
of the deferred tax assets will not be realized. To determine the amount of deferred tax assets and liabilities, as well as of the valuation
allowances, we must make estimates and certain assumptions regarding future taxable income, including assumptions regarding where
our jack-up rigs are expected to be deployed, as well as other assumptions related to our future tax position. A change in such estimates
and assumptions, along with any changes in tax laws, could require us to adjust the deferred tax assets, liabilities, or valuation
allowances. The amount of deferred tax provided is based upon the expected manner of settlement of the carrying amount of assets and
liabilities, using tax rates enacted at the balance sheet date. The impact of tax law changes is recognized in periods when the change is
enacted.
Provisions
A provision is recognized in the balance sheet when the Company has a present legal or constructive obligation as a result of a past
event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the
amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Contingencies
We recognize contingencies in the consolidated balance sheet where we have a present legal or constructive obligation as a result
of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of
the amount can be made. If, and only when the timing of related cash flows is fixed or reliably determinable, provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
Related parties
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common
significant influence.
30
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Warrants (Equity-based payments to non-employees)
All non-employee stock-based transactions, in which goods or services are the consideration received in exchange for equity
instruments are required to be accounted for based on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
Earnings/(loss) per share
Basic earnings per share (“EPS”) is calculated based on the loss for the period available to common shareholders divided by the
weighted average number of shares outstanding for basic EPS for the period. Diluted EPS includes the effect of the assumed conversion
of potentially dilutive instruments which for the Company includes share options and warrants. The determination of dilutive earnings
per share requires the Company to potentially make certain adjustments to net income and for the weighted average shares outstanding
used to compute basic earnings per share unless anti-dilutive.
Interest-bearing debt
Interest-bearing debt is recognized initially at fair value less directly attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortized cost. Transaction costs are amortized over the term of the loan.
Derivatives
We have a Call Spread (as defined below) derivative to mitigate the economic exposure from a potential exercise of conversion
rights embedded in the convertible bonds. Call options bought and sold are cash settled European options exercisable only at maturity.
The Call Spread derivative is fair value adjusted at each reporting period using a valuation technique that is consistent with generally
accepted valuation methodologies for pricing financial instruments, and that incorporates all factors and assumptions that
knowledgeable, willing market participants would consider in determining fair value. The fair value adjustments are recognized under
total other income (expenses), net with a corresponding increase or decrease in other long-term assets over the duration of the bonds.
Forward contracts that meet the definition of derivative instruments are recognized at fair value. Changes in the fair value of these
derivatives are recorded in total other income (expenses), net in our Consolidated Statements of Operations. Cash outflows and inflows
resulting from economic derivative contracts are presented as cash flows from operations in the consolidated statement of cash flows.
Debt and equity issuance costs
Issuance costs are allocated to the debt and equity components in proportion to the allocation of proceeds to those components.
Allocated costs are accounted for as debt issuance costs (capitalized and amortized to interest expense using the interest method) and
equity issuance costs (charged to shareholders’ equity) recorded as a reduction of the share balance/additional paid-in capital,
respectively.
Treasury shares
Treasury shares are recognized at cost as a component of shareholders’ equity.
Adoption of new accounting standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance to Accounting Standards Update (“ASU”)
2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments provide guidance on
evaluating whether transactions should be accounted for as an asset acquisition or a business combination (or disposal). The guidance
requires that in order to be considered a business, a transaction must include, at a minimum, an input and a substantial process that
together significantly contribute to the ability to create output. The guidance removes the evaluation of whether a market participant
could replace the missing elements. The revised guidance is effective for annual reporting periods beginning after December 15, 2017,
including interim reporting periods within those annual reporting periods. The adoption did not have a material impact on the
Consolidated Financial Statements and related disclosures.
In March 2017 the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The amendments in this update require that
an employer disaggregate the service cost component from the other components of net benefit cost and provide guidance on how to
present the service cost component and the other components of net benefit cost in the income statement. The guidance is effective for
31
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
public company financial statements issued for annual reporting periods beginning after December 15, 2017, and interim periods within
annual periods beginning after December 15, 2018. The amendment for the service cost component and the other components of net
periodic pension cost and net periodic postretirement benefit cost should be applied retrospectively. The adoption did not have a material
impact on the Consolidated Financial Statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which amends the scope of modification
accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based
payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, the ASU is
effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15,
2017. The adoption did not have a material impact on the Consolidated Financial Statements and related disclosures.
Issued not effective accounting standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update requires an entity to recognize right-of-use
assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. It also offers specific accounting
guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative
information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash
flows arising from leases. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years and early adoption is permitted. We expect to elect the new optional transition method of adoption. With respect
to our drilling contracts, which could contain a lease component, we expect to apply the practical expedient. Our drilling contracts
contain a lease component related to the underlying drilling equipment, in addition to the service component provided by our crews and
our expertise to operate such drilling equipment. We have concluded that the non-lease service of operating our equipment and providing
expertise in the drilling of the customer’s well is predominant in our drilling contracts. We expect to apply the practical expedient to
account for the lease and associated non-lease operations as a single component. With the election of the practical expedient, we will
continue to present a single performance obligation under the new revenue guidance in ASC 606 and recognize revenues based on the
service component, which we have determined is the predominant component of our contracts. The Company believes that the adoption
of this standard will not have a material effect on the Consolidated Financial Statement and related disclosure.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new
standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies
the impairment model for available-for-sale debt securities. The guidance will be effective January 1, 2020, with early adoption
permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is adopted. The Company is in the process of evaluating the impact of this
standard update on its Consolidated Financial Statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework –Changes to
the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820 by identifying
a narrower set of disclosures about that topic to be required on the basis of, amongst other considerations, an evaluation of whether the
expected benefits of entities providing the information justify the expected costs. The amendments are effective for all entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company
does not intend to early adopt this standard. The Company believes that the adoption of this standard will not have a material effect on
the Consolidated Financial Statements and related disclosures.
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to
Nonemployee Share Based-Payment Accounting. This ASU intends to improve the usefulness of information provided and reducing
the cost and complexity of financial reporting. A main objective of this ASU is to substantially align the accounting for share-based
payments to employees and non-employees. The guidance is effective for annual reporting periods beginning after December 15, 2018
for public entities, including interim periods within that period, with early adoption permitted. The Company believes that the adoption
of this standard will not have a material effect on the Consolidated Financial Statements and related disclosures.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities. This ASU refines and expands hedge accounting for both financial (e.g. interest rate) and commodity risks and
creates more transparency around how economic results are
32
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
presented, both on the face of the financial statements and in the footnotes, for investors and analysts. The amendments are effective for
annual periods beginning after December 15, 2018 for public entities, including interim periods within that period, with early adoption
permitted. The Company believes that the adoption will not have a material effect on the Consolidated Financial Statements and related
disclosures.
In August 2018, the FASB issued ASU No. 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans –General
(Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. This amendment
modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The main objective
of this ASU is to remove disclosures that are no longer considered cost beneficial, clarify specific requirements of disclosures and to
add disclosure requirements that are identified as relevant. The amendments are effective for fiscal years ending after December 15,
2020, with early adoption permitted. The Company does not intend to early adopt this standard. The Company believes that the adoption
of this standard will not have a material effect on the Consolidated Financial Statements and related disclosures.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), to provide clarity on when
transactions between entities in a collaborative arrangement should be accounted for under the new revenue standard, ASC 606. In
determining whether transactions in collaborative arrangements should be accounted under the revenue standard, the ASU specifies that
entities shall apply unit of account guidance to identify distinct goods or services and whether such goods and services are separately
identifiable from other promises in the contract. The accounting update also precludes entities from presenting transactions with a
collaborative partner which are not in scope of the new revenue standard together with revenue from contracts with customers. The
accounting update is effective January 1, 2020 and early adoption is permitted. We are currently evaluating the impact of the adoption
of the accounting standard on our Consolidated Financial Statements and related disclosures.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity, and Derivatives and
Hedging, which changes the classification of certain equity-linked financial instruments with down round features. As a result, a free
standing equity-linked financial instrument or an embedded conversion option would not be accounted for as a derivative liability at fair
value as a result of existence of a down round feature. For freestanding equity classified financial instruments, the amendment requires
the entities to recognize the effect of the down round feature when triggered in its earnings per share calculations. The standard is
effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018. We are currently not expecting
any material impact as a result of the adoption of this accounting standard on our Consolidated Financial Statements and related
disclosures.
Note 3 – Segment information
The Company has one operating segment, and this is reviewed by the Chief Operating Decision Maker, which is the Company’s
board of directors (the “Board”), as an aggregated sum of assets, liabilities and activities that exists to generate cash flows.
Geographic data
Revenues are attributed to geographical location based on the country of operations for drilling activities, i.e. the country where
the revenues are generated. The following presents our revenues by geographic area:
(in $ millions)
Middle East
North Sea
West Africa
South East Asia
Total
For the Year Ended
December 31,
2018
2017
41.1
75.1
44.4
4.3
164.9
—
—
0.1
0.1
33
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Major customers
In the years ended December 31, 2018 and 2017, the following customers accounted for more than 10% of our contract revenues:
(In % of operating revenues)
National Drilling Company (ADOC)
TAQA Bratani Limited
BW Energy Energy Gabon S.A.
Totals S.A.
Centrica North Sea Limited (Spirit Energy)
Total
Fixed Assets — Jack-up rigs(1)
For the Year Ended
December 31,
2018
2017
21%
17%
13%
13%
10%
73%
—%
—%
—%
100%
—%
100%
The following presents the net book value of our jack-up rigs by geographic area as of December 31, 2018 and 2017:
(In $ millions)
Middle East
North Sea
West Africa
South East Asia
Total
As of December 31,
2018
2017
42.0
320.0
203.0
1,713.1
2,278.1
42.5
122.9
169.8
448.1
783.3
(1)The fixed assets referred to in the table above exclude assets under construction. Asset locations at the end of a period are not necessarily indicative of the geographic
distribution of the revenues or operating profits generated by such assets during such period.
Contract balances
Accounts receivable are recognized when the right to consideration becomes unconditional based upon contractual billing schedules.
Payment terms on invoiced amounts are typically 30 days. Current contract asset balances are included in “Deferred mobilization
costs, Acquired contract backlog and Accrued revenue” and noncurrent contract assets are included in “Other assets” on our
Consolidated Balance Sheets.
The following table provides information about contract assets from contracts with customers:
(In $ millions)
Current contract assets
Non-current contract assets
Total contract assets
As of December 31,
2018
2017
45.1
5.1
50.2
10.4
—
10.4
Significant changes in the remaining performance obligation contract assets balances for the year ended December 31, 2018 are as
follows:
(In $ millions)
Net balance at January 1, 2018
Additions to deferred costs, acquired contract backlog and accrued revenue
Amortization of deferred costs
Total contract assets
Contract assets
10.4
76.1
(36.3)
50.2
Contract Costs
Certain direct and incremental costs incurred for upfront preparation, initial rig mobilization and modifications are costs of fulfilling a
34
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
contract and are recoverable. These recoverable costs are deferred and amortized ratably to contract drilling expense as services are
rendered over the initial term of the related drilling contract. Costs incurred for the demobilization of rigs at contract completion are
recognized as incurred during the demobilization process.
Practical expedient - We have applied the disclosure practical expedient in ASC 606-10-50-14A(b) and have not included estimated
variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts,
including dayrate revenue. The duration of our performance obligations varies by contract.
Impact of Topic 606 on Financial Statement Line Items - Our revenue recognition pattern under ASC 606 is materially equivalent to
revenue recognition under the previous guidance. For the year ended December 31, 2018, there were no material effects to our
Consolidated Balance Sheets, Consolidated Statements of Operations, or Consolidated Statements of Cash Flows.
Note 4 – Gain on disposals
We have recognized the following gains on disposal of 18 rigs for the year ended December 31, 2018:
(In $ millions)
April 2018
May 2018
June 2018
October 2018
Total
Gain on disposals in 2017
We did not dispose of any jack-up rigs during 2017.
Note 5 – Total other income (expenses), net
Total other income (expenses), net is comprised of the following:
(In $ millions)
Foreign exchange loss
Other financial expenses
(Loss)/gain on forward contracts (note 16)
Change in unrealized (loss)/gain on Call Spread (note 16)
Total
Net proceeds /
recoverable
amount
Book value
on disposals
4.2
29.0
2.0
2.4
37.6
2.1
14.3
1.3
1.1
18.8
Gain
2.1
14.7
0.7
1.3
18.8
For the Year Ended
December 31,
2018
2017
(1.1)
(3.5)
(14.2)
(25.7)
(44.5)
(0.3)
—
19.3
—
19.0
(Loss)/gain on forward contracts is presented net. For the year ended December 31, 2018, the Company recorded an unrealized
losses of $35.1 million and reversal of unrealized gains of $4.4 million and partly offset by realized gains of $25.3 million. For the year
ended December 31, 2017 the Company recorded an unrealized gain of $4.4 million and realized accounting gain of $14.9 million.
Note 6 – Taxation
Borr Drilling Limited is a Bermuda company not required to pay taxes in Bermuda on ordinary income or capital gains under a tax
exemption granted by the Minister of Finance in Bermuda until 31 March, 2035. We operate through various subsidiaries in numerous
countries throughout the world and are subject to tax laws, policies, treaties and regulations, as well as the interpretation or enforcement
thereof, in jurisdictions in which we or any of our subsidiaries operate, were incorporated, or otherwise considered to have a tax presence.
Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was
incurred. For the year ended December 31, 2018, our pre-tax loss in 2018 is all attributable to foreign jurisdictions except for $4 million
loss associated with Bermuda.
35
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense is comprised of the following:
(In $ millions)
Current tax
Change in deferred tax
Total
For the Year Ended
December 31,
2018
2017
2.0
0.5
2.5
—
—
—
Our annual effective tax rate for the year ended December 31, 2018 was approximately (1.3%), on a pre-tax loss of $188.4 million.
Changes in our effective tax rate from period to period are primarily attributable to changes in the profitability or loss mix of our
operations in various jurisdictions. As our operations continually change among numerous jurisdictions, and methods of taxation in
these jurisdictions vary greatly, there is little direct correlation between the income tax provision/benefit and income/loss before taxes.
A reconciliation of the Bermuda statutory tax rate to our effective rate is shown below:
Reconciliation of the Bermuda statutory tax rate to our effective rate:
Bermuda statutory income tax rate
Tax rates which are different from the statutory rate
Adjustment attributable to prior years
Change in valuation allowance
Adjustments to uncertain tax positions
Total
The components of the net deferred taxes are as follows:
(In $ millions)
Deferred tax assets
Net operating losses
Excess of tax basis over book basis of Property, Plant and Equipment
Other
Deferred tax assets
Less: Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Deferred tax liabilities
Net deferred tax asset (liabilities)
For the Year Ended
December 31,
2018
2017
0%
(1.95%)
1.17%
(0.26%)
(0.28%)
(1.32%)
0 %
—
—
—
—
0 %
2018
2017
12.6
75.8
2.0
90.4
(87.8)
2.6
—
2.6
—
—
—
—
—
—
—
—
The deferred tax assets related to our net operating losses were generated in the United Kingdom and will not expire. We recognize
a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be
realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if estimates of future taxable
income change.
We conduct business globally and, as a result, we file income tax returns, or are subject to withholding taxes, in various
jurisdictions. In the normal course of business we are generally subject to examination by taxing authorities throughout the world,
including major jurisdictions we operate or used to operate, such as Denmark, Egypt, Gabon, India, Israel, the Netherlands, Nigeria,
Norway, Oman, Saudi Arabia, the United Kingdom, the United States, and Tanzania. We are no longer subject to examinations of tax
matters for Paragon Offshore Limited (“Paragon”) legacy companies prior to 1999.
36
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of the liabilities related to our unrecognized tax benefits:
(In $ millions)
Unrecognized tax benefits, excluding interest and penalties, at January 1,
Additions as a result of Paragon acquisition
Unrecognized tax benefits, excluding interest and penalties, at December 31,
Interest and penalties
Unrecognized tax benefits, including interest and penalties, at December 31,
2018
2017
$
$
—
4.8
4.8
3.4
8.1
—
—
—
—
—
We include, as a component of our income tax provision, potential interest and penalties related to liabilities for our unrecognized
tax benefits within our global operations. Interest and penalties resulted in an income tax expense of $0.5 million, and $nil million for
the years ended December 31, 2018 and 2017, respectively.
At December 31, 2018, the liabilities related to our unrecognized tax benefits, including estimated accrued interest and penalties,
totaled $8.1 million, and if recognized, would reduce our income tax provision by $8.1 million. At December 31, 2017, the liabilities
related to our unrecognized tax benefits totaled $0 million. It is reasonably possible that our existing liabilities related to our
unrecognized tax benefits may increase or decrease in the next twelve months primarily due to the progression of open audits or the
expiration of statutes of limitation. However, we cannot reasonably estimate a range of potential changes in our existing liabilities for
unrecognized tax benefits due to various uncertainties, such as the unresolved nature of various audits.
Note 7 – Earnings/(loss) per share
The computation of basic EPS is based on the weighted average number of shares outstanding during the period. Diluted EPS
exclude the effect of the assumed conversion of potentially dilutive instruments which are 13,075,000 of share options (2017: 8,555,000)
outstanding issued to employees and directors and convertible bonds with a conversion price of $6.6963 for a total of 52,267,670 shares
(2017: nil). Due to the current loss-making position these are deemed to have an anti-dilutive effect on the EPS of the Company.
Basic loss per share
Diluted loss per share
Issued ordinary shares at the end of the year
Weighted average number of shares outstanding during the year
For the Year Ended
December 31,
2018
2017
(0.37)
(0.37)
532,640,327
514,387,507
(0.34)
(0.34)
478,292,500
258,631,442
The number of share options that would be considered dilutive under the “if converted method” in 2018 is 767,286 (2017: 436,762).
Note 8 – Restricted cash
Restricted cash is comprised of the following:
(In $ millions)
Opening balance
Transfer to (from) restricted cash
Total restricted cash
For the Year Ended
December 31,
2018
2017
39.1
24.3
63.4
—
39.1
39.1
All restricted cash is classified as current assets and consist of margin accounts which have been pledged as collateral in relation
to forward contracts (see Note 16) and bank deposits which have been pledged as collateral for issued guarantees.
Note 9 – Trade accounts receivable
Trade accounts receivable are presented net of allowances for doubtful accounts. The allowance for doubtful accounts receivables
at December 31, 2018 was $0.1 million (2017: $nil million).
Included within trade receivables as of December 31, 2018 are amounts due from Related Parties of $nil (2017: $nil), see Note 26
for details).
37
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Other current assets
Other current assets are comprised of the following:
(In $ millions)
Financial instruments
Client rechargeable
Current taxes receivable
Deferred financing fee
Other receivables
Total other current assets
Note 11 – Jack-up rigs
Set forth below is the carrying value of our jack-up rigs
(In $ millions)
Opening balance
Additions
Transfers from newbuildings (note 12)
Depreciation and amortization
Disposals
Impairment
Total
For the Year Ended
December 31,
2018
2017
—
5.1
4.3
3.2
7.9
20.5
4.4
—
1.0
—
4.1
9.5
For the Year Ended
December 31,
2018
2017
783.3
307.5
1,275.7
(69.6)
(18.8)
—
2,278.1
—
688.4
142.8
(21.2)
—
(26.7)
783.3
In addition, the Company recorded a depreciation charge of $9.9 million for the full year 2018 related to property, plant and
equipment ($ nil in 2017).
Impairment assessment of jack-up rigs
Jack-up drilling rigs are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. Management identified indications of impairment for the years ended December 31, 2018 and
2017 and tested recoverable amounts of jack-up drilling rigs.
Future cash flows expected to be generated from the use or eventual disposal of the assets are estimated to determine the amount
of impairment, if any. Estimating future cash flows requires management to make judgments regarding long-term forecasts of future
revenues and costs. Significant changes to these assumptions could materially alter our calculations and may lead to impairment.
In estimating future cash flows of the jack-up rigs, management has assumed that revenue levels and utilization will be at lower
levels in 2019 and thereafter start to increase, ultimately reaching revenue levels and utilization in the lower quartile observed in the
jack-up market in the last 10 years.
The Company recognized an impairment of $ nil and $26.7 million for the years ended December 31, 2018 and 2017, respectively,
relating to “Brage” and “Fonn” which were disposed in 2018. We estimated the fair value of the two impaired rigs using estimated scrap
values less cost of disposal.
A scenario with a 10% decrease in day rates used when estimating undiscounted cash flows would result in $5.7 million shortfall
between the undiscounted cash flow and carrying value for the cold stacked rig “Eir” for the year ended December 31, 2018. No other
rigs will have a shortfall with a 10% decrease in day rates.
38
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Newbuildings
The table below set forth our carrying value of our newbuildings:
(In $ millions)
Opening balance
Additions
Capitalized interest
Transfers to jack-up rigs (note 11)
Total
For the Year Ended
December 31,
2018
2017
642.7
971.4
23.4
(1,275.7)
361.8
—
785.5
—
(142.8)
642.7
The table below sets forth information regarding our rigs that were delivered during 2018, together with their final instalment and related
financing where applicable
Delivery date
Final instalment
($ million)
Delivery financing
($ million
Rig
Saga*
Gerd
Gersemi
Grid
Gunnlod
Skald
Groa
Gyme
Natt
January – 18
January – 18
February – 18
April – 18
June – 18
June – 18
July – 18
September – 18
October – 18
72.5
87.0
87.0
87.0
87.0
72.4
87.0
87.0
87.0
Shipyard
— Keppel
87.0 PPL
87.0 PPL
87.0 PPL
87.0 PPL
— Keppel
87.0 PPL
87.0 PPL
87.0 PPL
The table above does not include first instalment and capitalized interest and will not cast to the transfers to Jack-up Rigs. *The
final instalment of $72.5 million for “Saga” was paid in December 2017, before taking delivery of the rig in January 2018.
Note 13 – Asset acquisitions
Acquisition of Keppel Rigs
In May 2018, the Company signed a master agreement to acquire five premium newbuild jack-up drilling rigs from Keppel FELS
Limited. Total consideration for the transaction will be approximately $742.5 million. In the second quarter of 2018, the Company paid
a pre-delivery instalment of $288.0 million. The pre-delivery instalment is secured by a parent guarantee from Keppel Offshore &
Marine Ltd. The Company has secured financing of the delivery payment for each Keppel Rig from Offshore Partners Pte. Ltd (formerly
Caspian Rigbuilders Pte. Ltd). Each loan is non-amortizing and matures five years after the respective delivery dates. The delivery
financing will be secured by a first priority mortgage, an assignment of earnings, an assignment of insurance and a charge over shares
and parent guarantee from the Company. The Company expects to take delivery of the first rig in the fourth quarter of 2019, with the
remaining rigs scheduled to be delivered quarterly thereafter until the last rig is delivered in the fourth quarter of 2020. The remaining
contracted instalments, payable on delivery, for the Keppel newbuilds acquired in 2018 are approximately $454.5 million as of
December 31, 2018.
Acquisition of PPL Rigs
In October 2017, the Company signed a master agreement with PPL Shipyard Pte Ltd. (“PPL”) setting forth the terms pursuant to
which PPL agreed to sell six premium jack-up drilling rigs and three premium jack-up drilling rigs under construction at its yard in
Singapore (together, the “PPL Rigs”) to designated subsidiaries of the Company for a total consideration of approximately $1,300
million, $55.8 million of this was paid per rig on October 31, 2017, and we agreed to accept delivery financing for a portion of the
purchase price equal to $87.0 million per rig. The Company entered into loans for the financing of the delivery payment for each PPL
Rig from PPL. Each loan is non-amortizing and matures five years after the delivery date. These loans are secured by a first priority
39
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
mortgage over the relevant PPL Rig and a guarantee from the Company. In addition, the seller is entitled to certain fees payable in
connection with the increase in the market value of the relevant PPL Rig from October 31, 2017 until the repayment date, less the
relevant rig owner’s equity cost of ownership of each rig and any interest paid on the delivery financing. The back-end fee, which is
included within portion of the purchase price for which we have agreed to accept delivery financing as described above, will be
recognized as part of the cost price for each rig while the fees payable in connection with the increase in value of the relevant PPL Rig,
as more fully described above, have not been recognized as of the date of the financial statements. The remaining contracted instalments,
payable on delivery, for the PPL newbuilds are approximately $87 million as of December 31, 2018 ($696.0 million as of December 31,
2017).
Acquisition of Hercules Triumph (“Ran”) and Hercules Resilience (“Frigg”)
On December 2, 2016, the Company entered into a purchase and sale agreement with Hercules British Offshore Limited
(“Hercules”) to purchase the jack-up drilling rigs “Hercules Triumph” and “Hercules Resilience” (named “Ran” and “Frigg”
respectively) for a total consideration of $130.0 million. On the same date, the Company paid $13.0 million which represented 10% of
the agreed contractual price for the rigs. On January 23, 2017, the Company took delivery of the rigs, which was considered to be the
acquisition date.
The Company considered the guidance in ASC 805 “Business Combinations” and concluded that none of the Keppel, PPL and
Hercules transactions listed above constituted a business under ASC 805 and the purchases were therefore accounted for as asset
acquisitions.
Note 14 – Business combinations
Paragon Transaction
The Company announced a binding tender offer agreement (the “Tender Offer Agreement”) on February 21, 2018 to offer to
purchase all outstanding shares in Paragon Offshore Limited (“Paragon”) (“the Offer”). The total acquisition price to purchase all
outstanding shares was $241.3 million. The transaction was subject to the satisfaction of the offer conditions, customary closing
conditions, including, among other customary conditions, that (a) at least 67% of the outstanding Paragon shares were validly tendered
and not withdrawn before the expiration date, (b) no material adverse change shall have occurred prior to closing, and (c) Paragon shall
have completed all actions necessary to acquire ownership of certain Prospector drilling rigs and legal entities currently subject to
Chapter 11 proceedings in the United States Bankruptcy Court in the District of Delaware. On March 29, 2018, all of the conditions to
the Offer were satisfied and the transaction closed. Shareholders holding 99.41% of the shares accepted the offer for a total payment of
approximately $240.0 million.
40
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recognized amounts of identifiable assets acquired, and liabilities assumed at fair value:
(In $ millions)
Cash and cash equivalents
Restricted cash
Trade receivables
Other current assets (including acquired contract backlog of $31.6 million)
Jack-up drilling rigs
Assets held for sale
Property, plant and equipment
Other long-term assets (including acquired contract backlog of $12.8 million)
Trade payables
Accruals and other current liabilities
Long term debt
Other non-current liabilities
Total
Fair value of consideration satisfied by cash:
Payment upon completion by the Company (March 29, 2018)
Payment to non-controlling interest
Total
Total fair value of purchase consideration
Fair value of net assets acquired
Bargain gain
March
29,2018
41.7
4.2
31.0
53.4
246.0
15.0
16.1
24.8
(10.5)
(40.9)
(87.7)
(13.7)
279.4
240.0
1.3
241.3
241.3
279.4
(38.1)
At the time of the acquisition, Paragon was an international driller with a fleet of 23 drilling units. This fleet included two modern
jack up drilling rigs, the Prospector 1 and Prospector 5, built in 2013 and 2014, respectively. The fleet also included a semi-submersible
drilling rig, MSS1, with a long-term contract for TAQA in the North Sea which commenced on March 6, 2018. We disposed of 16 jack-
up rigs acquired in the Paragon transaction during 2018.
The Paragon transaction is accounted for as a business combination. The estimated fair value of the individual rigs was derived by
using a market and income-based approach with market participant-based assumptions. A bargain purchase gain of $38.1 million was
recognized in the Consolidated Statement of Operations. A bargain purchase gain arises when fair value of the net assets acquired is
higher than total fair value of purchase consideration.
Immediately following the closing of the Paragon transaction, the Company settled the long-term debt of $87.7 million plus $1.6
million of accrued interest and brokerage fees.
During 2018, the Company purchased the remaining outstanding shares in Paragon Offshore limited for $1.0 million.
41
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Restructuring
The table below sets forth the movements in restructuring provisions as a result of Paragon transaction:
(In $ millions)
2018
2017
Non-current
Opening balance
Onerous office lease (ii)
Non-current restructuring provision (a)
Current
Opening balance
Severance (i)
Severance payments (i)
Onerous office lease (ii)
Lease payments
Current restructuring provision (b)
Total (a+b)
(i)
Severance payment
—
7.0
7.0
—
22.8
(21.1)
5.2
(2.0)
4.9
11.9
—
—
—
—
—
—
—
—
—
—
As part of the Tender Offer Agreement signed February 21, 2018, the Company initiated a workforce reduction program at closing of the transaction to align the size and
composition of the Paragon workforce to Company’s expected future operations and strategy. An agreement was reached with relevant employees of Paragon that specifies
the amounts payable to those made redundant. The Company recognized $22.8 million in restructuring expense for the year ended December 31, 2018 related to those
employees. As of December 31, 2018, $1.7 million is recognized within other current liabilities as final settlement for Paragon employees still employed by the Company.
It is expected that the liability will be settled in 2019 when the employees are no longer employed by the Company.
(ii)
Office lease
The Company recognized $7.8 million as restructuring cost for vacating excess Paragon offices as part of the workforce reduction program. The restructuring expense of
$7.8 million relates to future lease obligations still present after the cease of use date. The Company’s future lease obligation of $10.2 is recognized under onerous
contracts, whereof $4.4 million where recognized by Paragon before the acquisition as part of Paragon’s own restructuring plan. All future payments will be recognized
against onerous contracts until February 2022 when the lease obligation is settled. The Company expects no additional cost to be recognized related to the Paragon
restructuring after the year ended December 31, 2018.
Paragon pro forma information (unaudited)
Basis of preparation
The unaudited pro forma financial information is based on Borr Drilling’s and Paragon’s historical consolidated financial
statements as adjusted to give effect to the acquisition of Paragon. The unaudited revenue and net income (loss) for the twelve months
ended December 31, 2018 and 2017 give effect to the Paragon acquisition as if it had occurred on January 1, 2017.
42
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Pro forma for the Year
Ended December 31,
2017
2018
(unaudited)
(unaudited)
192.1
(297.5)
185.5
738.0
(In $ millions)
Revenue
Net income (loss)
Certain one-time adjustments were included in the pro forma financial information.
For the period from March 29, 2018 until December 31, 2018, Paragon contributed $116.3 million in revenue resulting in loss
before income taxes of $42.7 million, excluding bargain purchase gain of $38.1 million.
Transocean Transaction
On March 15, 2017, the Company entered into an agreement to acquire 15 high specification jack-up drilling rigs from Transocean
Inc. (“Transocean”). The transaction consisted of Transocean’s entire jack-up fleet, comprising eight rig owning companies (which
together owned ten rigs) and five newbuildings under construction at Keppel FELS Limited’s shipyard in Singapore. Total consideration
for the transaction was $1,240.5 million and included jack-up rigs of $547.7 million, onerous contract of $223.7 million, current assets
of $0.5 million and future newbuild contracts of $916.0 million.
On March 15, 2017 a deposit of $32.0 million was paid to Transocean. The Company financed the transaction through a private
placement of 228,600,000 shares, issued at $3.50 per share.
On May 31, 2017, the acquisition date, the Company completed the transaction with Transocean upon paying further consideration
of $288.7 million, in addition to the $32.0 million deposit already paid. As a result of the transaction, the Company acquired 100%
ownership of the following established rig owning entities and branches, which have been accounted for as a business combination
under ASC 805:
Name of Acquired Entities
Constellation II Limited
GlobalSantaFe West Africa Drilling Limited
Transocean Andaman Limited
Transocean Ao Thai Limited
Constellation Rig Owner I Limited
Transocean Drilling Resources Limited
Transocean Drilling Services Offshore Inc.
Transocean Siam Driller Limited
New Name of Acquired Entities
-
Borr Baug Limited
Borr Idun Limited
Borr Mist Limited
Borr Atla Limited
Borr Brage Limited
Borr Jack-Up XIV Inc.
Borr Odin Limited
Three of the Transocean rigs were on contract with an external customer at the time of closing. The rigs ended their contracts in
July 2017, March 2018 and October 2018, respectively. While the Company took title and ownership to the rigs at the time of closing,
Transocean retained the associated revenue, expenses and cash flow associated with the customer contracts including risks and rewards.
The Company agreed that the existing bareboat charters to Transocean for these rigs would continue for the remaining contract periods
(the “Transocean Bareboat Charters”). As part of the agreement, the Company agreed to pay Transocean an amount equal to the amounts
received by the owners of the three rigs under the Transocean Bareboat Charters to Transocean. As a result of the agreement with
Transocean, the bareboat proceeds and payments for these rigs are presented net in the consolidated statement of operations.
43
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recognized amounts of identifiable assets acquired and liabilities assumed at fair value:
(In $ millions)
Jack-up drilling rigs
Current assets
Onerous contract (Note 20)
Total
Fair value of consideration satisfied by cash:
Deposit on March 15, 2017
Payment upon completion (May 31, 2017)
Balancing payment
Total
Total fair value of purchase consideration
Fair value of net assets acquired
Goodwill
May 31,
2017
547.7
0.5
(223.7)
324.5
32.0
288.7
3.8
324.5
324.5
324.5
—
The estimated fair value of the jack-up drilling rigs was derived by using a market and income based approach with market
participant-based assumptions. An onerous contract liability was recognized with regards to the newbuilding contracts acquired as the
carrying value (future commitments) differed from prevailing market rates at the time of acquisition. The net present value of the
newbuilding contracts has been recorded as a liability at the purchase date. No goodwill was recognized from the business combination.
Acquisition related transaction costs consisted of various legal, accounting, commissions, valuations and other professional fees
which amounted to $3.3 million, which were expensed as incurred and are presented in the statement of operations within general and
administrative expenses.
No quantitative pro forma profit and loss information has been prepared for the Transocean transaction, as it is impractical. Post-
acquisition, the acquired business contributed $4.2 million and $nil million in operating revenue in the Consolidated Financial
Statements for the year ended December 31, 2018 and the period from May 31, 2017 through December 31, 2017, resulting in a loss
before income taxes of $52.1 million and $51.8 million, respectively.
In June 2017, the Company paid $275.0 million to Keppel as a second instalment of the contract value for the construction of five
new-build jack-up drilling rigs. The payment of $275.0 million made by the Company was allocated first against the relevant part of the
onerous contract directly attributable to each hull (newbuild). An adjustment of $38.0 million and $39.2 million was made towards the
onerous contract for Hull B364 (TBN “Saga”) and Hull B365 (TBN “Skald”), respectively. A further adjustment of $62.0 million and
$60.8 million was capitalized as newbuildings milestone payments for Hull B364 (TBN “Saga”) and Hull B365 (TBN “Skald”),
respectively. Of the remaining $75.0 million, $25.0 million was adjusted each towards the onerous contracts for Hull B366 (TBN
“Tivar”), Hull B367 (TBN “Vale”) and Hull B368 (TBN “Var”). The remaining contracted instalments as of December 31, 2018,
payable on delivery, for the Keppel newbuilds acquired in 2017 are approximately $448.2 million (approximately $515 million as of
December 31, 2017).
44
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 15 – Marketable securities
Marketable securities are marked to market, with changes in fair value recognized in “Other comprehensive income” (“OCI”).
2017
2018
(In $ millions)
Opening balance
Purchase of marketable securities
Unrealized gain / (loss) on marketable securities
Total
20.7
13.9
0.6
35.2
—
26.9
(6.2)
20.7
In 2017, the Company purchased debt securities for approximately $26.9 million. In 2018, the Company purchased additional debt
securities for approximately $9.7 million and shares for approximately $4.2 million. An accumulated unrealized gain of $0.6 million
was recognized in other comprehensive income in the year ended December 31, 2018 (loss of $6.2 million in 2017).
Note 16 – Financial instruments
Forward contracts
As of December 31, 2018, the Company has forward contracts to purchase shares in listed drilling companies for an aggregate
amount of approximately $85.4 million. The unrealized loss related to these forward contracts is $35.1 million as of December 31, 2018.
The forward contracts are presented net in the consolidated balance sheet as of December 31, 2018 and consist of forward assets of
$50.3 million and forward liabilities of $85.4 million. As of December 31, 2018, there is $37.9 million of restricted cash recorded in the
balance sheet as collateral for these forward contracts (December 31, 2017: $20.0 million).
Call Spread
On May 16, 2018 the Company issued $350.0 million in convertible bonds due in 2023 (the “Convertible Bonds”) (see note 19).
The Company has purchased, from Goldman Sachs International, call options over 52,268,060 shares with an exercise price of $6.6963
per share to mitigate the economic exposure from a potential exercise of the conversion rights embedded in the Convertible Bonds. In
addition, the Company sold to Goldman Sachs International call options for the same number of shares with an exercise price of $8.5225
per share. The transactions are referred to as the “Call Spread”. The purpose of the Call Spread is to improve the effective conversion
premium for the Company in relation to the Convertible Bonds to 75% over $4.87. The average maturity of the call options purchased
and sold is May 14, 2023 with maturities starting on May 16, 2022 and ending on May 16, 2024. The call options bought and sold are
European options exercisable only at maturity and are cash settled. Fair value adjustments in 2018 resulted in an unrealized loss of $25.7
million related to one-off costs for entering into the Call Spread and subsequent fair value adjustments recognized in the Consolidated
Statements of Operations under total other income (expenses), net.
Note 17 – Other long-term assets
Other long-term assets are comprised of the following:
(In $ millions)
Other receivables
Deferred tax asset
Call Spread (Note 16)
Tax refunds
Deferred mobilisation costs — long term
Prepaid fees
Total
2018
2017
0.5
2.6
2.8
4.2
5.1
9.5
24.7
—
—
—
—
—
—
—
45
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 18 – Accruals and other current liabilities
Accruals and other current liabilities are comprised of the following:
(In $ millions)
Accrued payroll and severance
Taxes payable
Total accruals and other current liabilities
Note 19 – Long-term debt
Long-term debt is comprised of the following:
2018
2017
3.1
4.2
7.3
—
—
—
As of December 31, 2018
(In $ millions)
$200 million senior secured revolving
loan facility
Convertible bonds
Delivery financing from PPL
Total
As of December 31, 2017
(In $ millions)
Delivery financing from PPL
Total
Carrying
value
Fair value
Principal
Back end
fee
Less than
6 months
Maturities
6 months
to 1 year
1-5
years
130.0
346.5
698.1
1,174.6
130.0
287.9
695.7
1,113.6
130.0
350.0
669.6
1,149.6
—
—
26.1
26.1
—
—
—
—
—
—
—
—
130.0
350.0
695.7
1,175.7
Carrying
value
Fair value
Principal
Back end
fee
Less than
6 months
6 months
to 1 year
1-5
years
Maturities
87.0
87.0
87.0
87.0
83.7
83.7
3.3
3.3
—
—
—
—
87.0
87.0
$200 million senior secured revolving loan facility
In May 2018, we entered into a $200 million senior secured revolving loan facility agreement with DNB Bank ASA (the “DNB
Revolving Credit Facility”) secured by mortgages over five of our jack-up rigs, assignments of rig insurances, pledges over shares and
related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs. As of December
31, 2018, $70 million remained undrawn under our DNB Revolving Credit Facility. Our DNB Revolving Credit Facility agreement
contains various financial covenants, including requirements that we maintain a minimum book equity ratio of 40%, positive working
capital and minimum liquidity equal to the greater of $50 million and 5% of net interest-bearing debt. Our DNB Revolving Credit
Facility Agreement also contains a loan to value clause requiring that the fair market value of our rigs shall at all times cover at least
175% of the aggregate outstanding facility amount and any undrawn and uncancelled part of the facility. The facility also contains
various covenants, including, among others, restrictions on incurring additional indebtedness and entering into joint ventures; restrictions
on paying dividends; and restrictions on the repurchase of our Shares; restrictions on changing the general nature of our business; and
restrictions on removing Tor Olav Trøim from our Board. Furthermore, Tor Olav Trøim is required to maintain ownership of at least 30
million Shares (subject to adjustment for certain transactions, including any reverse share split). Our DNB Revolving Credit Facility
agreement also contains events of default which include non-payment, cross default, breach of covenants, insolvency and changes which
have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations under the DNB
Revolving Credit Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default,
DNB Bank ASA may have the right to declare a default or may seek to negotiate changes to the covenants and/or require additional
security as a condition of not doing so. DNB Bank ASA may also require replacement or additional security if the fair market value of
the jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant.
The DNB Revolving Credit Facility matures in May 2020 and bears interest at a rate of LIBOR plus a specified margin.
In January 2019, we executed an amendment to the DNB Revolving Credit Facility agreement which allows us to procure the
issuance of guarantees as required in the ordinary course of business, typically for bid bonds, import bonds and performance bonds, up
to an aggregate amount of $30 million. Our obligations to reimburse the bank for any payment made under such guarantees is secured
46
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
by the guarantees, security over the rigs, insurances and shares provided under the DNB Revolving Credit Facility agreement. This
amendment replaced the cash collateral required by the common terms agreement with DNB Bank ASA, which we refer to as the
Guarantee Facility, and resulted in the release of $25.0 million of cash that was categorized as restricted as of December 31, 2018.
As of December 31, 2018, we were in compliance with the covenants and our obligations under the DNB Revolving Credit Facility
agreement. We expect to remain in compliance with the covenants and our obligations under the DNB Revolving Credit Facility
agreement in 2019.
As of December 31, 2018, Frigg, Idun, Norve, Prospector 1 and Prospector 5 was pledged as collateral for the Senior Secure
Revolving Loan Facility. Total book value of the encumbered rigs was $482.0 million as of December 31, 2018.
Convertible Bonds
In May 2018 we raised $350.0 million through the issuance of our Convertible Bonds, which mature in 2023. The initial conversion
price (which is subject to adjustment) is $6.6963 per Share, for a total of 52,267,670 Shares. The Convertible Bonds have a coupon of
3.875% per annum payable semi-annually in arrears in equal installments. The terms and conditions governing our Convertible Bonds
contain customary events of default, including failure to pay any amount due on the bonds when due, and certain restrictions, including,
among others, restrictions on our ability and the ability of our subsidiaries to incur secured capital markets indebtedness. The Company
has entered into Call Spreads to mitigate the effect of conversion – see Note 16 for details.
As of December 31, 2018, we were in compliance with the covenants and our obligations under our Convertible Bonds. We expect
to remain in compliance with our obligations under our Convertible Bonds in 2019.
Our Delivery Financing Arrangements
In addition to two jack-up rigs which we have taken delivery of against full payment from Keppel, we have contracts with Keppel
to purchase nine jack-up rigs under construction. We have the option to accept delivery financing for two of the jack-up rigs to be
delivered from Keppel. For five of our newbuild jack-up rigs under construction and nine additional jack-up rigs which have been
delivered from PPL, we have agreed to accept and accepted, respectively, delivery financing from PPL and Keppel subject to the terms
described below:
PPL Newbuild Financing
In October 2017, we agreed to acquire nine premium “Pacific Class 400” jack-up rigs from PPL (the “PPL Rigs”). We accepted
delivery of eight of the PPL Rigs as of December 31, 2018 and all nine PPL Rigs had been delivered as of January 31, 2019. In connection
with delivery of the PPL Rigs, our rig-owning subsidiaries as buyers of the PPL Rigs agreed to accept delivery financing for a portion
of the purchase price equal to $87.0 million per jack-up rig (the “PPL Financing”). The PPL Financing for each PPL Rig is an interest-
bearing secured seller’s credit, guaranteed by the Company which matures on the date falling 60 months from the delivery date of the
respective PPL Rig.
The PPL Financing for each respective PPL Rig is secured by a mortgage on such PPL Rig and an assignment of the insurances in
respect of such PPL Rig. The PPL Financing also contains various covenants and the events of default include non-payment, cross
default, breach of covenants, insolvency and changes which have or are likely to have a material adverse effect on the relevant obligor’s
business, ability to perform its obligations under the PPL Financing agreements or security documents, or jeopardize the security. In
addition, each rig-owning subsidiary is subject to covenants which management considered to be customary in a transaction of this
nature.
As of December 31, 2018, we had $695.6 million of PPL Financing outstanding and were in compliance with the covenants and
our obligations under the PPL Financing agreements. We expect to remain in compliance with the covenants and our obligations under
the PPL Financing agreements in 2019. We expect to satisfy our obligations under the PPL Financing for each respective PPL Rig with
cash flow from operations when due.
As of December 31, 2018, Galar, Gerd, Gersemi, Grid, Gunnlod, Groa, Gyme and Natt was pledged as collateral for the PPL
financing. Total book value for the encumbered rigs was $1,151.3 million as of December 31, 2018.
47
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Keppel Newbuild Financing
In May 2018, we agreed to acquire five premium KFELS B class jack-up rigs, three completed and two under construction from
Keppel (the “Keppel Rigs”). As of December 31, 2018, all five Keppel Rigs remain to be delivered. In connection with delivery of the
Keppel Rigs, Keppel has agreed to extend delivery financing for a portion of the purchase price equal to $90.9 million per jack-up rig
(the “Keppel Financing”). Separately from the Keppel Financing described below, we may exercise an option to accept delivery
financing from Keppel with respect to two additional newbuild jack-up rigs, “Vale” and “Var,” acquired in connection with the
Transocean Transaction. We will, prior to delivery of each jack-up rig from Keppel, consider available alternatives to such financing.
The Keppel Financing for each Keppel Rig is an interest-bearing secured facility from the lender thereunder (an affiliate of Keppel),
guaranteed by the Company which will be made available on delivery of each Keppel Rig and matures on the date falling 60 months
from the delivery date of each respective Keppel Rig.
The Keppel Financing for each respective Keppel Rig will be secured by a mortgage on such Keppel Rig, assignments of earnings
and insurances and a charge over the shares of the rig-owning subsidiary which holds each such Keppel Rig. The Keppel Financing
agreements also contain a loan to value clause requiring that the fair market value of our rigs shall at all times be at least 130% of the
loan and also contains various covenants, including, among others, restrictions on incurring additional indebtedness. Each Keppel
Financing agreement also contains events of default which include non-payment, cross default, breach of covenants, insolvency and
changes which have or are likely to have a material adverse effect on the relevant obligor’s business, ability to perform its obligations
under the Keppel Financing agreements or security documents, or jeopardize the security.
As of December 31, 2018, we had no Keppel Financing outstanding and were in compliance with our pre-drawdown covenants
and obligations under the Keppel Financing agreements. We expect to remain in compliance with our Keppel Financing obligations in
2019. We expect to satisfy our obligations under the Keppel Financing for each respective Keppel Rig with cash flow from operations
when due.
Interest
Average interest rate for all our interest-bearing debt was 5.84% for the year ended December 31, 2018.
Note 20 – Onerous contracts
Onerous contracts are comprised of the following:
(In $ millions)
Onerous lease commitments
Onerous rig construction contracts acquired
Total onerous contracts
2018
2017
10.2
71.3
81.5
—
71.3
71.3
Onerous contracts for Hull B366 (TBN “Tivar”) of $16.8 million, Hull B367 (TBN “Vale”) of $26.9 million and Hull B368 (TBN
“Var”) of $27.6 million, in total $71.3 million, relate to the estimated excess of remaining shipyard instalments to be made to Keppel
FELS over the value in use estimate for the jack-up drillings rigs to be delivered. Remaining shipyard instalments and onerous contract
are expected to be amortized when the newbuildings are delivered and paid in 2020.
Note 21 – Commitments and contingencies
The Company has the following commitments:
(In $ millions)
Delivery instalments for jack-up drilling rigs
As at December 31, 2018
Delivery
instalment
Back-end
fee
As at December 31, 2017
Delivery
instalment
Back-end
fee
963.9
25.8
1,190.2
26.0
In addition, under the PPL Financing, PPL is entitled to certain fees payable in connection with the increase in the market value
of the relevant PPL Rig from October 31, 2017 until the repayment date, less the relevant rig owner’s equity cost of ownership of each
rig and any interest paid on the delivery financing. See note 13.
48
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table sets for maturity of our commitments as of December 31, 2018
(In $ millions)
Delivery instalments for jack-up rigs
Operating leases
Less than
1 year
170.1
1–3 years
793.8
3–5 years
0.0
More than
5 years
0.0
Total
963.9
Future minimum lease payments for operating leases for years ending December 31, 2018 are as follows:
(In $ millions)
Minimum lease payments
3.6
3.6
4.6
0.5
2019
2020
2021
2022
Thereafter
Total
—
12.3
Our leases consist of office leases, warehouses, vehicles and office equipment. The majority of our lease commitments relate to
office leases, of which $10.2 million is recognized as onerous lease liability, (see note 20). At the end of the various initial lease terms
the Company can renew its leases, usually for a period of one year. As of December 31, 2018, all our leases were classified as operational
leases.
Other commercial commitments
We have other commercial commitments which contractually obligate us to settle with cash under certain circumstances. Surety
bonds and parent company guarantees entered into between certain customers and governmental bodies guarantee our performance
regarding certain drilling contracts, customs import duties and other obligations in various jurisdictions.
The principal amount of the outstanding surety bonds were $13.2 million and $12.9 million as of December 31, 2018 and 2017,
respectively. In addition, we had outstanding bank guarantees and performance bonds amounting to $9.8 million (2017: $3.0 million).
As of December 31, 2018, these obligations stated in $ equivalent and their expiry dates are as follows:
(In $ millions)
Surety bonds and other guarantees
Rigs pledged as collateral
2019
22.6
2020
—
2021
—
2022
—
Thereafter
0.5
Total
23.1
As of December 31, 2018, Frigg, Idun, Norve, Prospector 1 and Prospector 5 was pledged as collateral for the Senior Secure
Revolving Loan Facility. Total book value of the encumbered rigs was $482.0 million as of December 31, 2018.
As of December 31, 2018, Galar, Gerd, Gersemi, Grid, Gunnlod, Groa, Gyme and Natt was pledged as collateral for the PPL
financing. Total book value for the encumbered rigs was $1,151.3 million as of December 31, 2018.
Note 22 – Non-controlling interest
Non-controlling interests consists of a 10% ownership interest in Borr Jack-Up XVI Inc. acquired in late 2017 by Valiant Offshore
Contractors Limited.
Note 23 – Share based compensation
Share-based payment charges for the year ending
(In $ millions)
Share-based payment charge
Total
2018
2017
3.7
3.7
1.8
1.8
In January, April, July, September and October 2018 the Company issued 50,000, 150,000, 7,820,000, 100,000 and 200,000 share
options, respectively, to employees of the Company. The options have an exercise price per share of $4.00, $4.20, $4.87, $4,59 and
$4.55, respectively. Share price at grant date for the 2018 grants was $4.35, $4.57, $4.59, $4.56 and $4.57, respectively. The options
will expire after five years and have a four-year vesting period. The total estimated cost of the share option granted in 2018 will be
approximately $9.9 million which will be expensed over the requisite service period. The total aggregated number of share options
authorized by the Board is 17,470,000. As of December 31, 2018, 13,075,000 share options are outstanding.
49
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In June, July and October 2017, the Company issued 4,380,000, 2,800,000 and 1,875,000 share options, respectively, to employees
of the Company. The options expire in five years and vest over a period of three years. Vesting is contingent upon employment on the
vesting date. The exercise price is $3.50 per share for the options issued in June and July 2017 and $4.00 per share for the options issued
in October 2017. The share price at the grant date for the options issued in October 2017 was $4.36. The Company was not listed when
granting options in June and July 2017. The options are non-transferable. The fair values of the share options were calculated at $2.9
million, $1.7 and $2.2 million, respectively, and will be charged to the statement of operations as general and administrative expenses
over the vesting period.
During 2017 the Company transferred 500,000 of its treasury shares to the then-CEO as part of his remuneration package and $1.7
million was charged to the statement of operations in 2017. As part of the CEO’s termination, the Company repurchased 500,000 of its
own shares at a price of $4.65 per share for a total consideration of $2.3 million. The Company transferred 71,428 treasury shares to a
director as settlement of director’s fees in the fourth quarter of 2018.
The table below sets forth the number of share options granted and weighted average exercise price during the years ended
December 31, 2018 and 2017.
Number and weighted average exercise price stock options:
Outstanding at January 1
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at December 31
Exercisable at December 31
Number
—
8,555,000
—
—
8,555,000
—
2017
Weighted Average
Exercise Price
(in $)
—
3.6
—
—
3.6
—
Number
8,555,000
8,320,000
—
3,800,000
13,075,000
1,668,334
2018
Weighted Average
Exercise Price
(in $)
3.6
4.8
—
3.6
4.4
3.6
The fair value of equity settled options are measured at grant date using the Black Scholes option pricing model.
Following input is used when calculating fair value:
Expected future volatility
Expected dividend rate
Risk-free rate
Expected life after vesting
2017
2018
25%
—
1,5% - 2.0%
2 years
30%
—
2.1% - 2.9%
2 years
In 2017 the expected future volatility was based on peer group volatility due to the short lifetime of the Company. In 2018 volatility
was derived by using an average of (i) Historic volatility of the Company’s shares since listing on the Oslo Stock Exchange (ii)
Deleveraged peer group volatility (iii) Oslo Energy sector index volatility.
50
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 24 – Fair values of financial instruments
The carrying value and estimated fair value of the Company’s cash and financial instruments were as follows:
(In $ millions)
Assets
Cash and cash equivalents
Restricted cash
Marketable securities – non-current
Marketable securities – current
Other current assets (excluding prepayments and financial
instruments)
Forward contracts (note 16)
Liabilities
Long term liabilities
Other non-current liabilities
Trade payables
Accruals and other current liabilities
Forward contracts (note 16)
As at December 31, 2018
Carrying
value
Fair value
As at December 31, 2017
Carrying
value
Fair value
Hierarchy
1
1
1
1
1
2
2
1
1
2
27.9
63.4
31.0
4.2
20.5
50.3
27.9
63.4
31.0
4.2
20.5
50.3
1,113.6
8.0
10.0
71.0
85.4
1,174.6
8.0
10.0
71.0
85.4
164.0
39.1
20.7
—
9.5
60.6
87.0
—
9.6
11.5
56.2
164.0
39.1
20.7
—
9.5
60.6
87.0
—
9.6
11.5
56.2
Financial instruments included in the table above are included within ‘Level 1 and 2’ of the fair value hierarchy because they are
valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency.
The forward contracts are presented net in the consolidated balance sheet as of December 31, 2018 and December 31, 2017. The carrying
value of any accounts receivable and payables approximates fair value due to the short time to expected payment or receipt of cash.
Note 25 – Warrants
Schlumberger Oilfield Holdings Limited
On March 21, 2017, the Company issued 4,736,887 warrants to subscribe for ordinary shares at a subscription price of $3.50 plus
4% per annum. per share to Schlumberger Oilfield Holdings Limited (“Schlumberger”) for its role, support and participation in the
March 2017 Private Placement. At the grant date, the warrants issued to Schlumberger were valued at $3.01 million and were deemed
to have vested on the basis that Schlumberger had fulfilled all of its performance criteria. The amount recognized as additional paid in
capital with respect to the warrants issued to Schlumberger was $3.01 million in which the entire amount has been allocated against
equity as issuance costs within the Statement of Changes in Shareholders’ Equity for the year ended December 31, 2017. The average
contractual term of the warrants was 4 years.
In October 2017, the Company issued 4,736,887 additional warrants to Schlumberger as a consequence of a final collaboration
agreement between the Company and Schlumberger being signed. The warrants were valued at $4.7 million which was charged to the
statement of operations in 2017. Immediately thereafter, the Company agreed to repurchase all of 9,473,774 Warrants held by
Schlumberger at a price of $0.50 per Warrant, $4.7 million in total. Consequently, all warrants originally issued to Schlumberger were
then cancelled.
51
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The warrants outstanding as of December 31, 2018 were as follows:
Warrants outstanding, December 31, 2016
Granted
Exercised
Warrants outstanding, December 31, 2017
Granted
Exercised
Warrants outstanding, December 31, 2018
Number of
Shares
Outstanding
under
Warrants
9,687,500 $
—
9,687,500 $
—
—
—
—
Weighted Average
Exercise Price per
Share
0.01
—
0.01
—
—
—
—
Average
Contractual
Term
5 years
—
—
—
—
Note 26 – Related party transactions
Agreements and other Arrangements with Drew Holdings Limited (“Drew”)
Drew is a trust established for the benefit of Tor Olav Trøim, chairman of our Board. Drew is, following its merger with Taran
Holdings Limited (“Taran”) in 2017, a large shareholder in us.
Loans & Related Facilities
A short-term loan of $13.0 million was provided by Taran to us on December 2, 2016 to finance the deposit payable for the Hercules
acquisition, which was completed in January 2017. The loan was repaid with no interest accruing by way of set-off against Taran’s
subscription of shares in our first private placement in December 2016.
Taran also provided us with a revolving credit facility of $20.0 million on December 12, 2016. The facility was never utilized and
expired at the completion of the Transocean transaction.
Taran provided us with a short-term loan of $12.75 million on March 15, 2017, to finance a deposit payable pursuant to the terms
of the acquisition agreement for the Transocean Transaction. The loan was repaid with no interest accrued by way of set-off against
Taran’s payment obligations for its subscription of shares in our private placement in March 2017.
Other
On March 22, 2018, it was announced that we would raise up to $250 million in an equity offering divided in two tranches. Tranche
2 of the equity offering was subject to approval by the extraordinary general meeting to be held on April 5, 2018 and subsequent share
issue. In connection with the settlement of tranche 2, $27.7 million was recorded as a liability to shareholders, including $20.0 million
to Drew as of March 31, 2018. On May 30, 2018, the 7,640,327 new shares allocated in tranche 2 of the equity offering were validly
issued and fully paid and the related liabilities settled.
Agreements and other Arrangements with Magni Partners Limited (“Magni”)
Mr. Tor Olav Trøim is the chairman of our Board and is the sole owner of Magni.
Corporate Support Agreement
Magni is party to a Corporate Support Agreement with the Company pursuant to which it is providing strategic advice and
assistance in sourcing investment opportunities, financing etc. This agreement was formalized on March 15, 2017.
52
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Magni received cash compensation of $1.4 million for various commercial services provided in connection with the acquisition of
the Hercules rigs (Hercules Triumph and Hercules Resilience) which completed in the first quarter of 2017. Of this amount $1.0 million
has been capitalized within drilling rigs, $0.3 million has been offset against additional paid in capital as equity issuance cost and $0.07
million has been recognized within opening retained earnings.
In the third quarter of 2017, $2.0 million was paid to Magni for its assistance in the March 2017 Private Placement ($1.75 million)
and Transocean Transaction ($0.25 million). The total cost for the March 2017 Private Placement (including the payment to the
investment banks and Magni) was $8.75 million, or 1.1% of the gross proceeds. In the fourth quarter of 2017, $1.5 million was paid to
Magni for its assistance in the October 2017 Private Placement ($1.25 million) and PPL Transaction ($0.25 million). The total cost for
the October 2017 Private Placement (including the payment to the investment banks and Magni) was $8.75 million, or 1.3% of the gross
proceeds.
Agreements and other Arrangements with Schlumberger Limited (“Schlumberger”)
Schlumberger is our largest shareholder, holding 14,2% at December 31, 2018 and Patrick Schorn, Executive Vice President of
Wells at Schlumberger Limited, is a Director on our Board.
Collaboration Agreement
On October 6, 2017, we signed an enhanced collaboration agreement with Schlumberger with the intention of offering performance-
based drilling contracts to our clients whereby the required drilling services along with the rig equipment were integrated under a single
contract. We believe that this provide us with a competitive advantage while tendering for such work.
Warrants
On March 28, 2017 our Board issued warrants to Schlumberger – see Note 25.
Commercial Arrangements
We have obtained certain rig and other operating supplies from Schlumberger and may continue to obtain such supplies in the
future. Purchases from Schlumberger were $8.5 million during 2018 and $0.1 million during 2017. $0.4 million and $ nil were
outstanding at December 31, 2018 and 2017, respectively.
Note 27 – Risk management and financial instruments
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits.
Accounts held at Norwegian finance institutions are insured by Norges Bank (Bank of Norway) up to NOK 2.0 million. As of December
31, 2018, the Company had $91.1 million (December 31, 2017: $202.9 million) in excess of the Norges Bank insured limit. Of the
uninsured amount at December 31, 2018, $nil (December 31, 2017: $140.0 million) was held on a short-term time deposit account.
Foreign exchange risk management
The majority of the Company’s transactions, assets and liabilities are denominated in U.S. dollars, the functional currency of the
Company. However, the Company has operations and assets in other countries and incurs expenditures in other currencies, causing its
results from operations to be affected by fluctuations in currency exchange rates, primarily relative to the U.S. dollar. There is thus a
risk that currency fluctuations will have a positive or negative effect on the value of the Company’s cash flows. The Company has not
entered into derivative agreements to mitigate the risk of fluctuations.
Market risk for forward contracts and marketable securities
The Company’s listed equity securities are susceptible to market price risk arising from uncertainties about future values of the
investment securities.
53
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Supplier risk
A supplier risk exists in relation to our vessels undergoing construction with Keppel and PPL. However, we believe this risk is
remote as Keppel and PPL are global leaders in the rig and shipbuilding sectors. Failure to complete the construction of any newbuilding
on time may result in the delay, renegotiation or cancellation of employment contracts secured for the newbuildings. Further, significant
delays in the delivery of the newbuildings could have a negative impact on the Company’s reputation and customer relationships. The
Company could also be exposed to contractual penalties for failure to commence operations in a timely manner or experience a loss due
to non-payment under refund guarantees issued by Keppel’s and PPL’s respective parent, all of which would adversely affect the
Company’s business, financial condition and results of operations.
Concentration of financing risk
There is a concentration of financing risk with respect to our long-term debt to the extent that a substantial amount of our long-
term debt is carried or will be carried by Keppel and PPL in the form of shipyard financing. We believe the counterparties to be sound
financial institutions. Therefore, we believe this risk is remote.
Note 28 – Common shares
All shares are common shares of $0.01 par value each
Authorized share capital
Issued and fully paid share capital
Treasury shares held by the company
Outstanding shares in issue
$ million
$ million
December 31, 2018
Shares
625,000,000
532,640,327
(7,298,572)
525,341,755
6.3
5.3
(0.1)
5.3
December 31, 2017
Shares
525,000,000
478,292,500
(1,970,000)
476,322,500
5.3
4.8
—
4.8
As at December 31, 2018, our shares were listed on the Oslo Stock Exchange.
On March 23, 2018, 46,707,500 new shares were issued at a subscription price of $4.60 per share. On May 30, 2018, 7,640,327
new shares were issued at a subscription price of $4.60 per share. As of December 31, 2018, the Company has a share capital of
$5,326,403.27 divided into 532,640,327 shares.
On August 8, 2017, the Company’s Board of Directors approved share repurchase program for the Company’s shares to purchase
2,470,000 shares in the open market. In the third quarter of 2017, the Company purchased 2,470,000 shares for $8.4 million, and
transferred 500,000 treasury shares to the former CEO of the Company (see note 23). On August 28, 2018, the Company’s Board of
Directors approved a share repurchase program for the Company’s shares, to be purchased in the open market by December 30, 2018
and limited to a total amount of $20.0 million. In the first quarter of 2018, the Company purchased 500,000 treasury shares at a cost of
$2.3 million. In the third quarter of 2018, the Company purchased 1,700,000 treasury shares at a cost of $7.4 million. In the fourth
quarter of 2018 the Company purchased 3,200,000 shares at a cost of $10.0 million. No treasury shares are canceled as of December 31,
2018.
The Company transferred 71,428 treasury shares as settlement of director’s fees in the fourth quarter of 2018. At December 31,
2018 the Company owned 7,298,572 treasury shares. All treasury shares were pledged as collateral for forward contracts at December
31, 2018.
Note 29 – Compensation
During the year ended December 31, 2018, we paid our directors and executive officers aggregate compensation of $8.3million (2017:
$3.2 million), including compensation in the form of 71,428 Shares valued at $250,000 issued to Jan A. Rask and any in-kind benefits
provided to such persons. We did not incur any costs related to the provision of pension, retirement or similar benefits to our directors
and executive officers (2017: $0.1 million). In addition to cash compensation, during 2018 we also recognized an expense of $1.3 million
(2017: $0.8 million) relating to stock options granted to certain of our executives.
54
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Auditors fee:
(In $ millions)
Statutory audit fee
Other certification services
Tax advice
Other non-auditing services
Total fees
Note 30 – Dividend and shareholders
Dividend
Under the Bermuda Companies Act, dividends cannot be paid if there are reasonable grounds for believing that
(a) The company is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) The realizable value of the company’s assets would thereby be less its liabilities
For the year ended December 31, 2018 and 2017 we did not pay any dividend.
As at December 31, 2018 our 20 largest shareholders are:
Rank
Shareholder name
1 Schlumberger Oilfield Holdings Limited
2 Euroclear Bank S.A./N.V.
3
Folketrygdefondet
4 Drew Holdings Ltd
5 Goldman Sachs International
6
7
JPMorgan Chase Bank, N.A., London
FID ADV NEW INSIGHTS FD-SUB B
8 Skagen Kon-Tiki
9 Ubon Partners AS
10 Clearstream banking
11
JPMorgan Chase Bank, N.A., London
12 Verdipapirfondet DNB Norge
13 Magni Partners (Bermuda) Ltd
14 BNP Paribas
15 State Street Bank and Trust Comp
16
17
Fidelity Funds
The Bank of New York Mellon SA/NV
18 Borr Drilling Limited
19 Brown Brothers Harriman (Lux.) SCA
20
Franklin Int Small Cap Grwt FD
Sum 20 largest
Other (4053 shareholders)
2018
0.7
0.2
0.1
—
1.0
2017
0.3
0.1
—
—
0.4
Shares
Ownership %
75,658,500
53,980,494
42,743,422
35,569,900
22,087,695
21,121,750
15,662,000
14,560,024
11,271,100
9,996,832
9,533,339
8,949,737
7,840,658
7,674,084
7,561,348
7,496,000
7,435,900
7,298,572
6,605,478
6,309,275
379,356,108
153,284,219
14.2%
10.1%
8.0%
6.7%
4.1%
4.0%
2.9%
2.7%
2.1%
1.9%
1.8%
1.7%
1.5%
1.4%
1.4%
1.4%
1.4%
1.4%
1.2%
1.2%
71.2%
28.8%
55
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 31 – Pension
Defined Benefit Plans
As part of the Paragon acquisition on March 29, 2018, the Company acquired two defined benefit pension plans.
As of December 31, 2018, the Company sponsored two non-U.S. noncontributory defined benefit pension plans, the Paragon Offshore
Enterprise Ltd and the Paragon Offshore Nederland B.V. pension plans, which cover certain Europe-based salaried employees. As of January 1, 2017,
all active employees under the defined benefit pension plans were transferred to a defined contribution pension plan as related to their future service.
The accrued benefits under the defined benefit plan were frozen on and all employees became deferred members. The transfer to a defined contribution
pension plan was accounted for as a curtailment during the year ended December 31, 2016.
At December 31, 2018 our pension obligations represented an aggregate liability of $140.7 million and an aggregate asset of $141.0 million,
representing the funded status of the plans. In the year ended December 31, 2018, aggregate periodic benefit costs showed interest cost of $1.6 million
and expected return on plan assets of $1.6 million. Our defined benefit pension plans are recorded at fair value. See Note 2 - Accounting Policies –
Adoption of new accounting standards.
A reconciliation of the changes in projected benefit obligations (“PBO”) for our pension plans is as follows:
(In $ millions)
Benefit obligation at beginning of period
Benefit obligation acquired through business combination
Service cost
Interest cost
Actuarial loss (gain)
Benefits and expenses paid
Foreign exchange rate changes
Benefit obligation at end of period
A reconciliation of the changes in fair value of plan assets is as follows:
(In $ millions)
Fair value of plan assets at beginning of period
Plan assets acquired through business combination
Actual return on plan assets
Employer contribution
Benefits paid
Plan participants’ contributions
Expenses paid
Foreign exchange rate changes
Fair value of plan assets at end of period
December 31, 2018
—
147.2
—
1.6
4.2
(1.0)
(11.3)
140.7
December 31, 2018
—
146.5
5.8
1.0
(1.0)
0.1
—
(11.2)
141.0
56
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
The funded status of the plans is as follows:
(In $ millions)
Funded status
Amounts recognized in the Consolidated Balance Sheets consist of:
(In $ millions)
Other assets - noncurrent
Other liabilities - noncurrent
Net pension asset (liability)
Accumulated other comprehensive loss recognized in financial statements
Net amount recognized
Amounts recognized in OCI consist of:
(In $ millions)
Net loss
Accumulated other comprehensive income (loss)
Pension cost includes the following components:
(In $ millions)
Interest cost
Expected return on plan assets
Net pension expense
Defined Benefit Plans - Disaggregated Plan Information
Disaggregated information regarding our pension plans is summarized below:
(In $ millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Defined Benefit Plans - Key Assumptions
The key assumptions for the plans are summarized below:
0.3
December 31, 2018
0.3
—
0.3
—
0.3
December 31, 2018
—
—
March 29, 2018 to
December 31, 2018
1.6
(1.6)
—
140.7
140.7
141.0
December 31, 2017
Weighted Average Assumptions Used to Determine Benefit Obligations
As of December 31, 2018
Discount rate
Rate of compensation increase
1.16% to 1.50%
Not applicable
57
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost
December 31, 2018
March 29, 2018 to
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
1.16% to 1.50%
1.16% to 1.50%
Not applicable
The discount rates used to calculate the net present value of future benefit obligations are determined by using a yield curve of high-quality
bond portfolios with an average maturity approximating that of the liabilities.
We use a portfolio return model to assess the initial reasonableness of the expected long-term rate of return on plan assets. To develop the
expected long-term rate of return on assets, we considered the current level of expected returns on risk free investments (primarily government bonds),
the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of
each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate
of return on assets for the portfolio.
Defined Benefit Plans - Plan Assets
At December 31, 2018, assets of Paragon Offshore Enterprise Ltd and Paragon Offshore Nederland B.V. pension plans were invested in
instruments that are similar in form to a guaranteed insurance contract. The plan assets are based on surrender values. Surrender values are calculated
based on the Dutch Central Bank interest curve. This yield curve is based on inter-bank swap rates. There are no observable market values for the
assets (Level 3); however, the amounts listed as plan assets were materially similar to the anticipated benefit obligations under the plans. The actual
fair value of our pension plans as of December 31, 2018 is as follows:
(In $ millions)
December 31, 2018
Fixed Income securities:
Insurance contracts
Other
Total
Estimated Fair Value Measurements
Carrying
Amount
Quoted
Prices in Active
Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
140.7
0.3
141.0
—
—
—
—
—
—
140.7
0.3
141.0
The following table details the activity related to the guaranteed insurance contract during the years.
Balance as of January 1, 2018
Acquisition of plan assets
Balance as of March 29, 2018
Assets sold/benefits paid
Return on plan assets
Foreign exchange rate changes
Balance as of December 31, 2018
Fair value
-
146.5
146.5
0.1
5.8
(11.3)
141.0
58
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Defined Benefit Plans - Cash Flows
In 2018 we made $1.0 million in contributions to our pension plans.
The following table summarizes our benefit payments at December 31, 2018 estimated to be paid within the next ten years:
Estimated benefit payments
28.2
1.5
1.7
1.9
2.2
2.6
18.3
Total
2019
2020
2021
2022
2023
Five Years Thereafter
Payments by Period
Note 31 – Subsequent events
Delivery of Njord
In January 2019, we took delivery of the “Njord”. The final delivery installment was $87.0 million, which was financed through
shipyard financing for the same amount.
Secured $160 million financing
In March 2019, we executed a $160 million financing agreement consisting of a $100 million revolving credit facility and a $60
million guarantee credit line for issuance of guarantees.
Appointment of Directors
The Board of Directors appointed Alexandra Kate Blankenship as director of the Company and Georgina Sousa as director and
company secretary on February 27, 2019.
Share option awards
In March 2019, we granted 2,300,000 options to certain employees and directors of the Company. The awards were granted under
the existing approved share option scheme. The options have a strike price of $3.50 per share.
Novation of “Thor”
In March 2019, we entered into an assignment agreement with BOTL Lease Co. Ltd. (the “Original Owner”) for an assignment,
and subsequently a novation and amendment agreement of the rights and obligations to purchase a KFELS Super B Bigfoot premium
jack-up drilling rig with hull number B378 being built by Keppel FELS Limited for a purchase price of $122.1 million. We expect to
take delivery of the rig from the yard prior to May 31, 2019 and the rig will be named “Thor”.
To finance the rig purchase we entered into a $120 million senior secured term loan facilities agreement, consisting of two facilities
(Facility A and Facility B) of $60 million each. The facilities mature on September 30, 2019. As of March 29, 2019, Facility A had been
utilized in the amount of $60 million, and $60 million in Facility B remained undrawn. The availability period of Facility B expires June
30, 2019.
59
Responsibility Statement
On behalf of the Board of Directors and management, we confirm that, to the best of our knowledge the financial statements for 2018 have been
prepared in accordance with the current applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and
profit or loss for the Group as a whole.
We also confirm that the Board of Director’s Report includes a true and fair review of the development and performance of the business and the position
of the Group, together with a description of the financial risks and uncertainties facing the Group.
April 30, 2019
Chairman
Director
Tor Olav Trøim
Kate Blankenship
_________________
___________________