UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________
FORM 20-F
☐
OR
☒
☐
OR
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
____________________________________________
Commission File Number: 001-39007
____________________________________________
Borr Drilling Limited
(Exact name of registrant as specified in its charter)
____________________________________________
Bermuda
(Jurisdiction of incorporation or organization)
S.E. Pearman Building
2nd Floor 9 Par-la-Ville Road
Hamilton HM11 Bermuda
+1 (441) 737-0152
(Address of principal executive offices)
Georgina Sousa
2nd Floor 9 Par-la-Ville Road
Hamilton HM11 Bermuda
+1 (441) 737-0152
James A. McDonald
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
40 Bank Street, Canary Wharf
London E14 5DS England
+44(0)20 7519 7183
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
____________________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common shares of par value $0.05 per
share
Trading Symbol
BORR
Name of Each Exchange on Which
Registered
The New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the
annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
As of December 31, 2020, there were 218,858,990 common shares outstanding.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such a shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
Yes ☒ No ☐
Large accelerated filer ☐
Accelerated filer ☒ Non-accelerated filer ☐
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards †
provided pursuant to Section 13(a) of the Exchange Act. ☒
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the
International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has
elected to follow:
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Item 17 ☐ Item 18 ☐
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☐ No ☒
Yes ☐ No ☐
PART I
ITEM 1.
A.
B.
C.
ITEM 2.
ITEM 3.
A.
B.
C.
D.
ITEM 4.
A.
B.
C.
D.
ITEM 4A.
ITEM 5.
A.
B.
C.
D.
E.
F.
G.
ITEM 6.
A.
B.
C.
D.
E.
ITEM 7.
A.
B.
C.
ITEM 8.
A.
B.
ITEM 9.
A.
B.
C.
D.
E.
F.
ITEM 10.
A.
TABLE OF CONTENTS
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
DIRECTORS AND SENIOR MANAGEMENT
ADVISERS
AUDITORS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
SELECTED FINANCIAL DATA
CAPITALIZATION AND INDEBTEDNESS
REASONS FOR THE OFFER AND USE OF PROCEEDS
RISK FACTORS
INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
BUSINESS OVERVIEW
ORGANIZATIONAL STRUCTURE
PROPERTY, PLANTS AND EQUIPMENT
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OPERATING RESULTS
LIQUIDITY AND CAPITAL RESOURCES
RESEARCH & DEVELOPMENT
TREND INFORMATION
OFF-BALANCE SHEET ARRANGEMENTS
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
SAFE HARBOR
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
COMPENSATION
BOARD PRACTICES
EMPLOYEES
SHARE OWNERSHIP
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
RELATED PARTY TRANSACTIONS
INTERESTS OF EXPERTS AND COUNSEL
FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
SIGNIFICANT CHANGES
THE OFFER AND LISTING
OFFER AND LISTING DETAILS.
PLAN OF DISTRIBUTION
MARKETS
SELLING SHAREHOLDERS
DILUTION
EXPENSES OF THE ISSUE
ADDITIONAL INFORMATION
SHARE CAPITAL
1
7
7
7
7
7
7
7
7
10
10
10
46
46
46
64
64
64
65
76
80
92
92
93
93
93
94
94
96
96
98
98
99
99
100
100
100
101
101
101
101
101
101
101
101
101
101
101
B.
C.
D.
E.
F.
G.
H.
I.
ITEM 11.
ITEM 12.
A.
B.
C.
D.
PART II
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
MEMORANDUM OF ASSOCIATION AND BYE-LAWS
MATERIAL CONTRACTS
EXCHANGE CONTROLS
TAXATION
DIVIDENDS AND PAYING AGENTS
STATEMENT BY EXPERTS
DOCUMENTS ON DISPLAY
SUBSIDIARY INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEBT SECURITIES
WARRANTS AND RIGHTS
OTHER SECURITIES
AMERICAN DEPOSITARY SHARES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
[RESERVED]
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16E.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16F.
ITEM 16G.
CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
PART III
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
101
106
106
107
110
110
110
111
111
112
112
112
112
112
112
112
113
114
114
114
114
115
115
115
115
115
115
115
115
2
NOTE ON THE PRESENTATION OF INFORMATION
We have prepared this annual report using a number of conventions, which you should consider when reading the
information contained herein. In this annual report, unless the context otherwise requires, (i) references to “Borr Drilling
Limited,” “Borr Drilling,” the “Company,” the “Registrant,” “we,” “us,” “Group,” “our” and words of similar import refer to Borr
Drilling Limited and its consolidated subsidiaries, (ii) references to our “Board” or “Board of Directors” refer to the board of
directors of Borr Drilling Limited as constituted at any point in time and “Director” or “Directors” refers to a member or members
of the Board, as applicable, (iii) references to “Borr Drilling Management UK” refers to our subsidiary Borr Drilling Management
(UK) Ltd (iv) references to our “Memorandum,” each provision thereof a “Clause,” or the “Bye-Laws,” each provision thereof a
“Bye-Law,” refer to the memorandum of association and the amended and restated bye-laws of Borr Drilling Limited,
respectively, each as in effect from time to time, (v) references to “Magni” or “Magni Partners” refers to Magni Partners
(Bermuda) Limited, (vi) references to “Ubon” refer to Ubon Partners AS, (vii) references to “Drew” refer to Drew Holdings
Limited, (viii) references to our “DNB Revolving Credit Facility” or “DNB RCF” refer to our historical revolving credit facility
with DNB Bank ASA, (ix) references to our “Guarantee Facility” refer to our historical guarantee facility with DNB Bank ASA,
(x) references to our “Bridge Facility” or “Bridge RCF” refer to our historical revolving credit facility with Danske Bank A/S and
DNB Bank ASA, (xi) references to our “Hayfin Facility” refer to our term loan facility with Hayfin Services LLP, among others,
(xii) references to our “Syndicated Facility” refer to our senior secured credit facilities with DNB Bank ASA, Danske Bank,
Citibank N.A., Jersey Branch, Clifford Capital Pte. Ltd. and Goldman Sachs Bank USA, (xiii) references to our “New Bridge
Facility” refer to our senior secured revolving credit facility with DNB Bank ASA and Danske Bank, (xiv) references to our
“Convertible Bonds” refer to our $350.0 million convertible bonds due 2023, (xv) references to our “jack-up rigs” shall be
deemed to include our semi-submersible rig (as the context may require) which was sold in 2020, (xvi) references to our “Reverse
Share Split” refer to the conversion of each of our shares into 0.20 shares, resulting in a reverse share split at a ratio of 5-for-1.
Unless otherwise indicated, all share and per share data in this annual report are adjusted to give effect to our Reverse Share Split
and is approximate due to rounding, (xvii) references to “Schlumberger” refer to Schlumberger Limited and affiliates and where
this term is used to refer to one of our shareholders, means Schlumberger Oilfield Holdings Limited, (xviii) references to Mexican
JVs refers to Opex Perforadora S.A. de C.V. (“Opex”), Perforadora Profesional AKAL I, SA de CV (“Akal”), Perforaciones
Estrategicas e Integrales Mexicana S.A. de C.V. (“Perfomex”) and Perforaciones Estrategicas e Integrales Mexicana II, SA de CV
(“Perfomex II”) as the context may require and (xix) references to our “Shares” refer to our outstanding common shares of par
value $0.05 per share.
References in this annual report to our “Financing Arrangements” refer to our Hayfin Facility, Syndicated Facility, New
Bridge Facility, convertible bonds and shipyard delivery financing arrangements described more fully herein, collectively,
including the agreements and other terms governing our Hayfin Facility, Syndicated Facility, New Bridge Facility, Convertible
Bonds and delivery financing arrangements, respectively.
References in this annual report to (i) the “SEC” refer to the United States Securities and Exchange Commission and (ii)
“U.S. GAAP” refer to the generally accepted accounting principles in the United States as in effect at any point in time.
References in this annual report to “Keppel” and “PPL” refer to the shipyards Keppel FELS Limited and PPL Shipyard Pte
Ltd., respectively, including their respective subsidiaries and affiliates as the context may require.
References in this annual report to “NDC,” “Total,” “ExxonMobil,” “TAQA,” “BW Energy,” “Spirit Energy,” “Tulip,”“Pan
American Energy”, “Chevron” and “ENI” refer to our key customers the National Drilling Company, Total S.A., Exxon Mobil
Corporation, Abu Dhabi National Energy Company PJSC, BW Offshore Limited, Spirit Energy Limited, Tulip Oil Holding B.V.,
Pan American Energy S.L., Chevron Corporation and ENI SpA respectively, including their respective subsidiaries and affiliates
as the context may require.
References in this annual report to “ABS” refer to the American Bureau of Shipping.
PRESENTATION OF FINANCIAL INFORMATION
We produce financial statements in accordance with U.S. GAAP and all financial information included in this annual report is
derived from our U.S. GAAP consolidated financial statements, except as otherwise indicated. In particular, this annual report
contains certain non-U.S. GAAP financial measures which are defined under “Item 3.A Selected Financial and Other Data.”
Our consolidated financial statements included in this annual report comprise of consolidated statements of operations,
comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended December 31, 2020, 2019 and 2018 and
3
consolidated balance sheets as of December 31, 2020 and 2019 (“Consolidated Financial Statements”). We present our
consolidated financial statements in U.S. dollars.
Unless otherwise indicated, all references to “U.S.$” and “$” in this annual report are to, and amounts are presented in, U.S.
dollars. All references to “€,” “EUR,” or “Euros” are to the single currency of the European Monetary Union, all references to
“£,” “Pounds” or “GBP” are to pounds sterling. All references to “NOK” are to Norwegian Kroner.
NON-U.S. GAAP FINANCIAL INFORMATION
In this annual report, we disclose non-GAAP financial measures, namely Adjusted EBITDA, each as defined under “Item 3.A
Selected Consolidated Financial and Other Data.” Each of these measures are important measures used by us, and our businesses,
to assess financial performance. Adjusted EBITDA is a non-GAAP financial measure and as used herein represents net loss
adjusted for: depreciation and impairment of non-current assets, amortization of contract backlog, income/(loss) from equity
method investments, interest income, interest capitalized to newbuildings, foreign exchange loss (gain), net, other financial
expenses, interest expense, gross, change in unrealized loss on call spread transactions (as defined in note 19 to the Consolidated
Financial Statements), (loss)/gain on forward contracts, gain from bargain purchase, amortized mobilization costs, amortized
mobilization revenue, and income tax expense. We present Adjusted EBITDA because we believe that it and other similar
measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of
performance. We believe Adjusted EBITDA provides meaningful information about the performance of our business and
therefore we use it to supplement our U.S. GAAP reporting. Moreover, our management uses Adjusted EBITDA in presentations
to our Board to provide a consistent basis to measure operating performance of our business, as a measure for planning and
forecasting overall expectations, for evaluation of actual results against such expectations and in communications with our
shareholders, lenders, bondholders, rating agencies and others concerning our financial performance. We believe that Adjusted
EBITDA improves the comparability of year-to-year results and is representative of our underlying performance, although
Adjusted EBITDA has significant limitations, including not reflecting our cash requirements for capital or deferred costs, rig
reactivation costs, newbuild rig activation costs, taxes or debt service. Non-GAAP financial measures may not be comparable to
similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or
as a substitute for analysis of our net income or other operating results as reported under U.S. GAAP.
MARKET AND INDUSTRY DATA
In this annual report, we present certain market and industry data. Certain information contained in this annual report
regarding our industry and the markets in which we operate is based on our own internal estimates and research. This information
is based on third party services which we believe to be reliable. Unless otherwise indicated, the basis for any statements regarding
our competitive position in this annual report is based on our own assessment and knowledge of the market in which we operate.
Forward-looking information obtained from third party sources is subject to the same qualifications and the uncertainties
regarding the other forward-looking statements in this annual report.
Market data and statistics are inherently predictive and subject to uncertainty and do not necessarily reflect actual market
conditions. Such statistics are based on market research, which, itself, is based on sampling and subjective judgments by both the
researchers and the respondents, including judgments about what types of products and transactions should be included in the
relevant market. As a result, investors should be aware that statistics, statements and other information relating to markets, market
sizes, market shares, market positions and other industry data set forth in this annual report, including in the section entitled “Item
4.B Business Overview—Industry Overview” (and projections, assumptions and estimates based on such data) may not be
reliable indicators of our future performance and the future performance of the offshore drilling industry. See the sections entitled
“Item 3.D Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report and any other written or oral statements made by us or on our behalf may include forward-looking
statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking
statements. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-
looking statements. Sections of this annual report on Form 20-F entitled "Risk Factors," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," among others, discuss factors which could adversely
impact our business and financial performance.
4
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,”
“estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends that we believe may affect our
financial condition, results of operations, liquidity requirements, business strategy and financial needs. These forward-looking
statements include statements about plans, objectives, goals, strategies, future events or performance, underlying assumptions,
expected industry trends, including the attractiveness of shallow water drilling and activity levels in the jack-up rig and oil
industry, day rates, contract backlog, expected contracting and operation of our jack-up rigs and contract terms including
expectations with respect to contracting available rigs including warm stacked rigs, expected industry trends including with
respect to demand for and expected utilization of rigs, expectations as to the role of the Company in any industry consolidation,
statements with respect to newbuilds, including expected delivery dates, entry into new drilling contracts and new tenders,
including expected commencement date and duration of new contracts, statements with respect to our fleet and its expected
capabilities and prospects, including plans regarding rig deployment, total contract backlog projections, contract terms, including
indemnification, and potential cancellations or extensions; the strategy, outlook, growth prospects, operational and financial
objectives, including any statements relating to expectations for financial results and performance for periods for which historical
financial information is not available and statements as to expected growth, margin, and dividend policy; statements with respect
to our joint venture entities, or JVs, including statements with respect to our Mexican JVs, including plans and strategy and
expected payments from our JVs’ customers, the sale of and expected sale proceeds for rigs; our commitment to safety and the
environment; growth prospects, competitive advantages and rig utilization, business strategy, including our growing industry
footprint, strengthening of our drilling industry relationships; our aim to establish ourselves as the preferred provider in the
industry, establishment of high-quality and cost-efficient operations and integrated services, including expected benefits of certain
collaborations and of relationships with key suppliers; statements with respect to compliance with laws and regulations;
statements as to industry trends, including the attractiveness of shallow water drilling, expected recovery of demand and oil price
trends, the impact of the COVID-19 outbreak, our expected sources of liquidity and funding requirements, expected ability to
generate cash from operations, or extend our liquidity runway, ability to attract additional capital, the statements in this report
under the heading "—Going concern in Note 1 of the Consolidated Financial Statements", outlook regarding results of operations
and factors affecting results of operations, statements with respect to our obligations under our financing arrangements, statements
with respect to amendments to agreements with certain of our secured creditors and other statements relating to agreements and
expected arrangements with creditors, the sale of the "Balder" and expected sale proceeds for other rigs, our commitment to safety
and the environment and expected enhancement of growth prospects, competitive advantages, and expected adoption of new
accounting standards and their expected impact, as well as other statements in the sections entitled “Item 4.B Business Overview
—Industry Overview” and “Item 5.D Trend Information,” and other non historical statements, which are other than statements of
historical or present facts or conditions.
The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn,
upon further assumptions, including, without limitation, management’s examination of historical operating trends, data contained
in our records and other data available from third parties. These assumptions are inherently subject to significant uncertainties and
contingencies that are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or
accomplish these expectations, beliefs or projections. There are important factors that could cause our actual results, level of
activity, performance or achievements to differ materially from the results, level of activity, performance or achievements
expressed or implied by these forward-looking statements including risks relating to our industry and business and liquidity, the
risk of delays in payments to our Mexican JVs and consequent payments to us, the risk that our customers do not comply with
their contractual obligations, including payment or approval of invoices for factoring, risks relating to industry conditions and
tendering activity, risks relating to the agreements we have reached with lenders, risks relating to our liquidity, risks that the
expected liquidity improvements do not materialize or are not sufficient to meet our liquidity requirements and other risks relating
to our liquidity requirements, risks relating to cash flows from operations, the risk that we may be unable to raise necessary funds
through issuance of additional debt or equity or sale of assets; risks relating to our loan agreements and other debt instruments
including risks relating to our ability to comply with covenants and obtain any necessary waivers and the risk of cross defaults,
risks relating to our ability to meet our debt obligations and obligations under rig purchase contracts and our other obligations as
they fall due and other risks described in our working capital statement, risks relating to future financings including the risk that
future financings may not be completed when required and future equity financings will dilute shareholders and the risk that the
foregoing would result in insufficient liquidity to continue our operations or to operate as a going concern and other risks
described in “Item 3.D Risk Factors.” Given these risks and uncertainties, you should not place undue reliance on forward-looking
statements as a prediction of actual results.
Any forward-looking statements that we make in this annual report speak only as of the date of such statements and we
caution readers of this annual report not to place undue reliance on these forward-looking statements. Except as required by law,
we undertake no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of unanticipated events. The foregoing factors that
5
could cause our actual results to differ materially from those contemplated in any forward-looking statement included in this
annual report should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for us to predict
all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.
You should read this annual report, and each of the documents filed as exhibits to the annual report, completely, with this
cautionary note in mind, and with the understanding that our actual future results may be materially different from what we
expect.
6
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A.
DIRECTORS AND SENIOR MANAGEMENT
PART I
Not applicable.
B.
ADVISERS
Not applicable.
C.
AUDITORS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
A.
SELECTED FINANCIAL DATA
Our selected consolidated statement of operations, cash flow statement and other financial data for the years ended December
31, 2020, 2019, and 2018 and our selected consolidated balance sheets data as of December 31, 2020 and 2019 have been derived
from our Consolidated Financial Statements, included herein, and should be read in conjunction with such statements and the
notes thereto.
The selected statement of operations and cash flow statement data for the year ended December 31, 2017 and selected
balance sheets data for the fiscal years ended December 31, 2018 and 2017 have been derived from our consolidated financial
statements not included herein. 2016 is not presented as we were newly formed in 2016 with no operations and with an
acquisition of two initial assets late in 2016.
Our Consolidated Financial Statements are prepared and presented in accordance with U.S. GAAP. Our historical results are
not necessarily indicative of results expected for future periods.
The following table should be read in conjunction with the section entitled “Item 5. Operating and Financial Review and
Prospects” and our Consolidated Financial Statements and notes thereto, which are included herein. Our Consolidated Financial
Statements are presented in U.S. dollars. We refer you to the notes to our Consolidated Financial Statements for a discussion of
the basis on which our Consolidated Financial Statements are prepared.
In June 2019, we converted each one of our Shares into 0.20 Shares, resulting in a Reverse Share Split at a ratio of 5-for-1.
Unless otherwise indicated, all Share and per Share data in this annual report is adjusted to give effect to our Reverse Share Split
and is approximate due to rounding.
7
SELECTED CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Dayrate revenue
Related party revenue
Total operating revenues
Gain from bargain purchase
Gain on disposal
Operating expenses
Operating loss
Income/(loss) from equity method investments
Total financial income (expenses), net
Income tax expense
Net loss
Other comprehensive gain (loss)
Total comprehensive loss
Net loss per common share:
Basic
Diluted
Common shares outstanding
Weighted average common shares outstanding
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents
Other current assets, including restricted cash
Jack-up drilling rigs
Newbuildings
Other long-term assets
Total Assets
Trade accounts payable
Accruals and other current liabilities
Long-term debt (including current portion)
Other liabilities
Total Liabilities
Total Equity
SELECTED CASH FLOW DATA:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
For the Year Ended December 31,
2020
2019
2018
2017
(in $ millions, except per share data)
$
$
$
$
265.2 $
42.3
307.5
—
19.0
(514.5)
(188.0) $
9.5
(122.9)
(16.2)
(317.6) $
—
(317.6) $
327.6 $
6.5
334.1
—
6.4
(491.3)
(150.8) $
(9.0)
(128.1)
(11.2)
(299.1) $
5.6
(293.5) $
164.9 $
—
164.9
38.1
18.8
(353.2)
(131.4) $
—
(57.0)
(2.5)
(190.9) $
0.6
(190.3) $
—
—
0.1
—
—
(109.8)
(109.7)
—
21.7
—
(88.0)
(6.2)
(94.2)
(2.11)
(2.11)
(2.78)
(2.78)
(1.85)
(1.85)
218,858,990
150,354,703
110,818,351
107,478,625
105,068,351
102,877,501
(1.70)
(1.70)
95,264,500
51,726,288
As of December 31,
2020
2019
(in $ millions)
2018
2017
19.2
121.6
2,824.6
135.5
70.2
3,171.1 $
20.4
75.7
1,906.2
132.1
2,134.4 $
1,036.8 $
59.1
218.8
2,683.3
261.4
57.4
3,280.0 $
14.1
235.6
1,709.8
26.4
1,985.9 $
1,294.1 $
27.9
180.7
2,278.1
361.8
65.2
2,913.7 $
9.6
106.5
1,174.6
89.5
1,380.2 $
1,533.5 $
164.0
61.5
783.3
642.7
20.7
1,672.3
9.6
11.5
87.0
71.3
179.4
1,492.9
For the Year Ended December 31,
2020
2019
(in $ millions)
2018
2017
(54.8) $
(119.7)
65.2
(89.0) $
(271.1)
397.3
(135.2) $
(560.1)
583.5
(184.8)
(1,256.5)
1,506.3
$
$
$
$
8
OTHER FINANCIAL AND OPERATIONAL DATA:
Adjusted EBITDA(1) (in $ millions)
Total Contract Backlog(2) (in $ millions)
Technical Utilization(3) (in %)
Economic Utilization(4) (in %)
TRIF(5)(number of incidents)
For the Year Ended December 31,
2020
2019
2018
2017
$
21.5 $
132.1
99.5
92.1
1.66
(2.6) $
308.5
99.0
95.9
2.12
(55.3) $
377.5
99.3
97.9
1.54
(61.8)
28.5
—
—
—
(1)
Adjusted EBITDA is a non-GAAP financial measure and as used herein represents net loss adjusted for: depreciation and
impairment of non-current assets, amortization of acquired contract backlog, interest income, interest capitalized to
newbuildings, foreign exchange loss (gain), net, other financial expenses, interest expense, gross, change in unrealized
(loss) on call spread transactions (as defined in Note 19 to our Consolidated Financial Statements), (loss)/gain on
forward contracts, gain from bargain purchase, income/(loss) from equity method investments, amortization of
mobilization cost, amortization of mobilization revenue and income tax expense. We present Adjusted EBITDA because
we believe that it and other similar measures are widely used by certain investors, securities analysts and other interested
parties as supplemental measures of performance. We believe Adjusted EBITDA provides meaningful information about
the performance of our business and therefore we use it to supplement our U.S. GAAP reporting. Moreover, our
management uses Adjusted EBITDA in presentations to our Board to provide a consistent basis to measure operating
performance of our business, as a measure for planning and forecasting overall expectations, for evaluation of actual
results against such expectations and in communications with our shareholders, lenders, bondholders, rating agencies and
others concerning our financial performance. We believe that Adjusted EBITDA improves the comparability of year-to-
year results and is representative of our underlying performance, although Adjusted EBITDA has significant limitations,
including not reflecting our cash requirements for capital or deferred costs, rig reactivation costs, newbuild rig activation
costs contractual commitments, taxes, working capital or debt service. Non-GAAP financial measures may not be
comparable to similarly titled measures of other companies and have limitations as analytical tools and should not be
considered in isolation or as a substitute for analysis of our operating results as reported under U.S. GAAP. The
following table sets forth a reconciliation of Adjusted EBITDA to net loss for the years ended December 31, 2020, 2019,
2018 and 2017:
Net loss
Depreciation and impairment of non-current assets
Amortization of acquired contract backlog*
Interest income
Interest capitalized to newbuildings
Foreign exchange (gain) loss, net
Other financial expenses
Interest expense, gross
Change in unrealized loss on call spread transactions
Loss (gain) on forward contracts
Gain from bargain purchase
Income/(loss) from equity method investments
Amortized mobilization cost
Amortized mobilization revenue
Income tax expense
Adjusted EBITDA
For the Year Ended December 31,
2020
2019
(in $ millions)
2018
2017
$
$
(317.6) $
195.0
—
(0.2)
(5.0)
(1.5)
9.8
92.4
2.3
26.6
—
(9.5)
28.9
(15.9)
16.2
21.5 $
(299.1) $
112.8
20.2
(1.5)
(18.5)
(0.7)
30.2
88.9
0.5
29.2
—
9.0
22.6
(7.4)
11.2
(2.6) $
(190.9) $
79.5
24.2
(1.2)
(23.4)
1.1
3.5
37.1
25.7
14.2
(38.1)
—
12.2
(1.6)
2.5
(55.2) $
(88.0)
47.9
—
(3.2)
—
0.3
—
0.5
—
(19.3)
—
—
—
—
—
(61.8)
* Amortization of the fair market value of existing contracts at the time of the initial acquisition.
(2)
Our Total Contract Backlog includes only firm commitments for contract drilling services represented by definitive
agreements. Total Contract Backlog (in $ millions) is calculated as the maximum contract drilling dayrate revenue that
9
can be earned from a drilling contract based on the contracted operating dayrate. Total Contract Backlog excludes
revenue resulting from mobilization and demobilization fees, contract preparation, capital or upgrade reimbursement,
recharges, bonuses and other revenue sources and is not adjusted for planned out-of-service periods during the contract
period. The contract period excludes additional periods that may result from the future exercise of extension options
under our contracts, and such extension periods are included only when such options are exercised. The contract
operating dayrate may temporarily change due to, among other factors, mobilization, force majeure, weather or repairs.
As used in this annual report, Total Contract Backlog (in $ millions) is not the same measure as the acquired contract
backlog presented in our Consolidated Financial Statements. Please see Notes 2 and 17 to our Consolidated Financial
Statements for further information. See the section entitled “Item 4.B Business Overview—Our Business—Customers
and Contract Backlog.”
Technical Utilization is the efficiency with which we perform well operations without stoppage due to mechanical,
procedural or other operational events that result in down, or zero, revenue time. Technical Utilization is calculated as
the technical utilization of each rig in operation for the period, divided by the number of rigs in operation for the period,
with the technical utilization for each rig calculated as the total number of hours during which such rig generated dayrate
revenue, divided by the maximum number of hours during which such rig could have generated dayrate revenue,
expressed as a percentage measured for the period. We have not provided Technical Utilization data for the year ended
December 31, 2017 because only one of our jack-up rigs was in operation for approximately one day at the end of
December 2017. See “Item 4.B Business Overview—Acquisition from Transocean” for more information. Technical
Utilization is calculated only with respect to rigs in operation for the relevant period and is not calculated on a fleet-wide
basis. Technical Utilization is a measure of efficiency of rigs in operation and is not a measurement of utilization of our
fleet overall.
Economic Utilization is the dayrate revenue efficiency of our operational rigs and reflects the proportion of the potential
full contractual dayrate that each jack-up rig actually earns each day. Economic Utilization is affected by reduced rates
for standby time, repair time or other planned out-of-service periods. Economic Utilization is calculated as the economic
utilization of each rig in operation for the period, divided by the number of rigs in operation for the period, with the
economic utilization of each rig calculated as the total revenue, excluding bonuses, as a proportion of the full operating
dayrate multiplied by the number of days on contract in the period. We have not provided Economic Utilization data for
the year ended December 31, 2017 because only one of our jack-up rigs was in operation for approximately one day at
the end of December 2017. See “Item 4.B Business Overview—Acquisition from Transocean” for more information.
Economic Utilization is calculated only with respect to rigs in operation for the relevant period and is not calculated on a
fleet-wide basis. Economic Utilization is a measure of efficiency of rigs in operation and is not a measurement of
utilization of our fleet overall.
Total recordable incident frequency (“TRIF”) is a measure of the rate of recordable workplace injuries. TRIF, as defined
by the International Association of Drilling Contractors, is derived by multiplying the number of recordable injuries
during the twelve- month period prior to the specified date by 1,000,000 and dividing this value by the total hours
worked in that period by the total number of employees. An incident is considered “recordable” if it results in medical
treatment over certain defined thresholds (such as receipt of prescription medication or stitches to close a wound) as well
as incidents requiring the injured person to spend time away from work. We have not provided TRIF data for the year
ended December 31, 2017 because only one of our jack-up rigs was in operation for approximately one day at the end of
December 2017. See “Item 4.B Business Overview—Acquisition from Transocean” for more information.
(3)
(4)
(5)
B.
CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
10
D.
RISK FACTORS
Our business, financial condition, results of operations and liquidity can suffer materially as a result of any of the risks
described below. While we have described all of the risks we consider material, these risks are not the only ones we face. We
are also subject to the same risks that affect many other companies, such as technological obsolescence, labor relations,
geopolitical events, climate change and risks related to the conducting of international operations. Additional risks not known
to us or that we currently consider immaterial may also adversely impact our businesses. Our business routinely encounters
and addresses risks, some of which may cause our future results to be different—sometimes materially different—than we
presently anticipate.
SUMMARY OF KEY RISKS
•
Risk factors related to our industry
◦
◦
◦
◦
The jack-up drilling market historically has been highly cyclical and highly competitive, with periods of low
demand and/or over-supply that could result in adverse effects on our business.
The offshore contract drilling industry is highly competitive, with periods of excess rig availability which
reduce dayrates and could result in adverse effects on our business.
The success of our business largely depends on the level of activity in the oil and gas industry, which can be
significantly affected by volatile oil and natural gas prices.
Down-cycles in the jack-up drilling industry and other factors may affect the market value of our jack-up rigs
and the newbuild rigs we have agreed to purchase.
•
Risk factors related to our business
◦ We may not be able to renew contracts which expire and our customers may seek to cancel or renegotiate their
contracts, particularly in response to unfavorable industry conditions.
◦
◦
Our Total Contract Backlog may not be realized.
Our Joint Ventures for integrated well services business in Mexico may not make a profit, and we may receive
cash calls from our Joint Ventures in order to fund working capital or capital expenditure outlays.
◦ We have a limited operating history and have experienced net losses since inception.
◦ We rely on a limited number of customers, and we are exposed to the risk of default or material non-
performance by customers.
◦
In connection with the audits of our consolidated financial statements, 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.
◦ We are reliant on positive cash flow generation from our Joint Ventures, and we may not receive funds in a
timely manner.
◦
◦
◦
Our drilling contracts contain fixed terms and dayrates, and consequently we may not fully recoup our costs in
the event of a rise in expenses, including operating and maintenance costs.
Prevailing market conditions, including the supply of jack-up rigs worldwide, may affect our ability to obtain
favorable contracts for our newbuild jack-up rigs or our jack-up rigs that do not have contracts.
Outbreaks of epidemic and pandemic diseases, such as the COVID-19 outbreak, and governmental responses
thereto have and could further adversely affect our business.
11
◦
If we are unable to attract and retain highly skilled personnel who are qualified and able to work in the locations
in which we operate it could adversely affect our operations. Our information technology systems are subject to
cybersecurity risks and threats.
◦ We have suffered, and may suffer in the future, losses through our investments in other companies in the
offshore drilling and oilfield services industry, including debt and other securities issued by such companies.
◦
The limited availability of qualified personnel in the locations in which we operate may result in higher
operating costs as the offshore drilling industry recovers.
•
Risk factors related to our financing arrangements
◦
◦
◦
◦
Future cash flows may be insufficient to meet obligations under the terms of our Financing Arrangements.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, growth and
prospects.
As a result of our significant cash flow needs, we may be required to raise funds through the issuance of
additional debt or equity, and in the event of lost market access, may not be successful in doing so.
The covenants in certain of our Financing Arrangements impose operating and financial restrictions on us.
◦ Our Financing Arrangements allow our secured creditors, under certain conditions, to purchase our rigs at or
near the outstanding balance of debt, or to cancel planned newbuilding contracts thereby reducing our premium
fleet.
◦ We face risks in connection with delivery financing arrangements in place with Keppel
◦ Our Financing Arrangements are not necessarily reflective of those that may be in place from time to time.
◦
Interest rate fluctuations could affect our earnings and cash flow.
•
Risk factors related to applicable laws and regulations
◦
◦
Compliance with, and breach of, the complex laws and regulations governing international drilling activity and
trade could be costly, expose us to liability and adversely affect our operations.
Local content requirements may increase the cost of, or restrict our ability to, obtain needed supplies or hire
experienced personnel, or may otherwise affect our operations.
◦ We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or
feasibility of doing business.
◦
◦
◦
Climate change and the regulation of greenhouse gases could have a negative impact on our business.
Future government regulations may adversely affect the offshore drilling industry.
A change in tax laws in any country in which we operate could result in higher tax expense.
•
Risk factors related to our common shares
◦
◦
The price of our common shares may fluctuate widely in the future, and you could lose all or part of your
investment.
Future sales of our equity securities in the public market, or the perception that such sales may occur, could
reduce our share price, and any additional capital raised by us through the sale of equity or convertible securities
may dilute your ownership in us.
12
RISK FACTORS RELATED TO OUR INDUSTRY
The jack-up drilling market historically has been highly cyclical, with periods of low demand and/or over-supply that
could result in adverse effects on our business.
The jack-up drilling market historically has been highly cyclical and is primarily related to the demand for jack-up rigs and
the available supply of jack-up rigs. Demand for jack-up rigs is directly related to the regional and worldwide levels of offshore
exploration and development spending by oil and gas companies, which is beyond our control. It is not unusual for jack-up rigs to
be un-utilized or underutilized for significant periods of time and subsequently resume full or near full utilization when business
cycles change. During historical industry periods of high utilization and high dayrates, industry participants have ordered the
construction of new jack-up rigs, which has resulted in an over-supply of jack-up rigs worldwide. During periods of supply and
demand imbalance, jack-up rigs are frequently contracted at or near cash breakeven operating rates for extended periods of time
until dayrates increase when the supply/demand balance is restored and in recent years oversupply has resulted in "stacking" of
rigs. Offshore exploration and development spending may fluctuate substantially from year-to-year and from region-to-region.
Over the past several years, crude oil prices have been volatile, reaching a high of $115 per barrel in 2014, declining to $55
per barrel by the end of 2014 and reaching as low as $28 per barrel during 2016. Moreover, as of December 2019, oil prices had
rebounded from the 12-year lows experienced during early 2016, and in 2017 experienced the first increase in average prices
since 2014, with prices ranging from a low of $44 to a high of $67 per barrel. Oil prices experienced both increases and declines
throughout 2019 and remained generally volatile, with prices ranging from a low of $53 to a high of $75 per barrel, according to
Bloomberg. In 2020, oil prices continued to be volatile, reaching as low as $19 per barrel as of April 21, 2020; as of December 31,
2020, the price of oil was $51 per barrel, having started 2020 in the mid-to-upper $60-per-barrel range. Oil prices have
experienced significant volatility in part due to the COVID-19 as well as supply trends by the Organization of the Petroleum
Exporting Countries ("OPEC") and other oil producing countries and prices are not at a level that supports rig demand which
sufficiently absorbs existing rig supply and generates a meaningful increase in dayrates As a result of, among other things, the
continued volatility in the oil price and its uncertain future, the offshore drilling industry has experienced a substantial decline in
demand for its services in 2020 and this volatility and difficult trading environment continues, as well as a significant decline in
dayrates for contract drilling services. The significant decline in oil and gas prices and resulting reduction in spending by
customers, together with the increase in supply of jack-up rigs in recent years, has resulted in an oversupply of jack-up rigs and a
decline in utilization and dayrates, a situation which may persist for many years. The decline in demand for our contract drilling
services and the dayrates for those services has had a significant impact on our operations, and if the industry downturn continues,
may continue to adversely affect our business, which may have an adverse effect on our financial condition, results of operations
and cash flows, including negative cash flows, as well as our liquidity and ability to meet covenants in our loan agreements. The
protracted downturn in our industry will exacerbate many of the other risks included below and other risks that we face, and we
cannot predict if or when the downturn will end.
The current industry downturn has resulted in many operators idling rigs and a number of our rigs were not in operation for
significant periods of 2020 and impacted dayrates for those rigs that were active and we have agreed deferrals of deliveries of
newbuild rigs. A prolonged period of reduced demand and/or excess jack-up rig supply may require us to idle or dispose of
additional jack-up rigs or to enter into low dayrate contracts or contracts with unfavorable terms. For more information on our
jack-up rig disposal policy, see the section entitled “Item 4.B Business Overview—Our Business—Our Fleet.” There can be no
assurance that the demand for jack-up rigs will increase or even remain at current levels in the future. Any further decline or if
there is not an improvement in demand for jack-up rigs could have a material adverse effect on our business, financial condition
and results of operations.
The offshore contract drilling industry is highly competitive, with periods of excess rig availability which reduce dayrates
and could result in adverse effects on our business.
Our industry is highly competitive, and our contracts are traditionally awarded on a competitive bid basis. Pricing, rig age,
safety records and competency are key factors in determining which qualified contractor is awarded a job. Competitive factors
include: rig availability, rig location, rig operating features and technical capabilities, pricing, workforce experience, operating
efficiency, condition of equipment, contractor experience in a specific area, reputation and customer relationships. If we are not
able to compete successfully, our revenues and profitability may be impacted, which could have a material adverse effect on our
business, financial condition and results of operations.
The supply of offshore drilling rigs, including jack-up rigs, has increased significantly in recent years. Delivery of newbuild
drilling rigs will continue to increase rig supply in coming years and could curtail a strengthening, or trigger a further reduction, in
utilization and dayrates. Approximately 11 newbuild jack-up rigs (of which two were delivered to us) were delivered during 2020,
13
representing an approximate 3% increase in the total worldwide fleet of competitive offshore jack-up drilling rigs since the end of
2019. As of April 2021, there were approximately 34 newbuild jack-up rigs reported to be on order or under construction
scheduled to be delivered no later than the end of 2023. Most of the newbuild jack-up rigs to be delivered no later than the end of
2023, including the five newbuild jack-up rigs we have agreed to purchase, do not have drilling contracts in place. In addition, the
supply of marketed offshore drilling rigs could further increase due to depressed market conditions resulting in an increase in
uncontracted rigs as existing contracts expire. There is no assurance that the market in general or a geographic region in particular
will be able to fully absorb the supply of new rigs in future periods. Any continued oversupply of drilling rigs could have a
material adverse effect on our business, financial condition and results of operations.
The success of our business largely depends on the level of activity in the oil and gas industry, which can be significantly
affected by volatile oil and natural gas prices.
The success of our business largely depends on the level of activity in offshore oil and natural gas exploration, development
and production, which may be affected by conditions in the worldwide economy. Oil and natural gas prices, and market
expectations of potential changes in these prices, significantly affect the level of drilling activity. Historically, when drilling
activity and operator capital spending decline, utilization and dayrates also decline and drilling may be reduced or discontinued,
resulting in an oversupply of drilling rigs. Oil and natural gas prices have historically been volatile, and oil prices have declined
significantly since mid-2014 when prices were in excess of $100 per barrel, causing operators to reduce capital spending and
cancel or defer existing programs, substantially reducing the opportunities for new drilling contracts.
We expect insufficient demand to continue as long as oil prices and rig supply remain at current levels. A lack of a
meaningful and sustained recovery in oil and natural gas prices, continued volatility in prices or further price reductions, may
cause our customers to maintain historically low levels or further reduce their overall level of activity, in which case demand for
our services may decline and our results of operations may be adversely affected through lower rig utilization and/or low dayrates.
Numerous factors may affect oil and natural gas prices and the level of demand for our services, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
regional and global economic conditions and changes therein;
oil and natural gas supply and demand;
expectations regarding future energy prices;
the ability of OPEC to reach further agreements to set and maintain production levels and pricing and to implement
existing and future agreements;
the level of production by non-OPEC countries;
capital allocation decisions by our customers, including the relative economics of offshore development versus
onshore prospects;
tax policy;
the occurrence or threat of epidemic or pandemic diseases and any government response to such occurrence or threat,
specifically, the current implications of, and future expectations in relation to, COVID-19 on global economic activity
and therefore oil prices, cross border trade restrictions, employees’ ability and willingness to, work, oil supply and
demand, and resource owners ability to deliver future projects;
advances in exploration and development technology;
costs associated with exploring for, developing, producing and delivering oil and natural gas;
the rate of discovery of new oil and gas reserves and the rate of decline of existing oil and gas reserves;
trade policies and sanctions imposed on oil-producing countries or the lifting of such sanctions;
laws and government regulations that limit, restrict or prohibit exploration and development of oil and natural gas in
various jurisdictions, or materially increase the cost of such exploration and development;
14
•
•
•
•
•
•
•
•
•
•
•
•
the further development or success of shale technology to exploit oil and gas reserves;
available pipeline and other oil and gas transportation capacity;
the development and exploitation of alternative fuels;
laws and regulations relating to environmental matters, including those addressing alternative energy sources and the
risks of global climate change;
changes in tax laws, regulations and policies;
merger, acquisition and divestiture activity among exploration and production companies (“E&P Companies”);
the availability of, and access to, suitable locations from which our customers can explore and produce hydrocarbons;
activities by non-governmental organizations to restrict the exploration, development and production of oil and gas in
light of environmental considerations;
disruption to exploration and development activities due to hurricanes and other severe weather conditions and the risk
thereof;
natural disasters or incidents resulting from operating hazards inherent in offshore drilling, such as oil spills;
the worldwide social and political environment, including uncertainty or instability resulting from changes in political
leadership and environmental policies, changes in geopolitical-social views toward fossil fuels and renewable energy
and changes in investors’ expectations regarding environmental, social and governance matters; and
the worldwide military and political environment, including uncertainty or instability resulting from an escalation or
additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East or
geographic areas in which we operate, or acts of terrorism.
Despite significant declines in capital spending and cancelled or deferred drilling programs by many operators since 2015, oil
and gas production has not been reduced by amounts sufficient to result in a rebound in pricing to levels seen prior to the current
downturn, and we may not see sufficient supply reductions or a resulting rebound in pricing for an extended period of time or at
all. Further, any agreements of OPEC and certain non-OPEC countries to freeze and/or cut production may not be fully realized.
The lack of actual production cuts or freezes, or the perceived risk that OPEC countries may not comply with such agreements,
may result in depressed oil and gas prices for an extended period of time. In addition, higher oil and gas prices may not
necessarily translate into increased activity, and even during periods of high oil and gas prices, customers may cancel or curtail
their drilling programs, or reduce their levels of capital expenditures for exploration and production for a variety of reasons,
including their lack of success in exploration efforts. Any increase or reduction in drilling activity by our customers may not be
uniform across different geographic regions. Locations where costs of drilling and production are relatively higher may be subject
to greater reductions in activity or may recover more slowly. Such variation between regions may lead to the relocation of drilling
rigs, concentrating drilling rigs in regions with relatively fewer reductions in activity leading to greater competition.
Advances in onshore exploration and development technologies, particularly with respect to onshore shale, could also result
in our customers allocating more of their capital expenditure budgets to onshore exploration and production activities and less to
offshore activities.
Moreover, there has historically been a strong link between the development of the world economy and the demand for
energy, including oil and gas. An extended period of adverse development in the outlook for the world economy could also reduce
the overall demand for oil and gas and for our services. The continuing COVID-19 crisis has caused significant adverse impacts
on the global economy and we do not know when this trend will improve.
These factors could impact our revenues and profits and as a result limit our future growth prospects as well as our liquidity
and ability to comply with covenants in loan agreements. Any significant decline in dayrates or utilization of our rigs could have a
material adverse effect on our business, financial condition and results of operations. In addition, these risks could increase
instability in the financial and insurance markets and make it more difficult for us to access capital and obtain insurance coverage
that we consider adequate or are otherwise required by our contracts.
15
Global, International and National trends to renewable energy based infrastructure and power supply and generation may
cause long term demand for our customers products and services to fall, and in turn affect the demand for our services.
Various global and transnational initiatives exist, and continue to be proposed by governments, non-governmental
organizations and power suppliers in particular, which exist to hasten the long term transition from fossil fuels to low or zero
carbon alternatives, such as wind, water or hydrogen based power or fuel sources. We provide drilling services to customers who
own and produce fossil fuels, and therefore where low or zero based carbon policies are implemented in territories in which we
operate or may be capable of operating in the future, there exists a risk that demand for our customer’s services falls or fails to
increase, and in turn the demand for our rigs and services falls or fails to increase.
Down-cycles in the jack-up drilling industry and other factors may affect the market value of our jack-up rigs and the
newbuild rigs we have agreed to purchase.
Consumer demand in the shallow-water offshore drilling market, or the jack-up drilling market, has been adversely impacted
by trends in the price of oil since 2014 and has not yet recovered, as trends in the price of oil impact the spending for jack-up rigs.
If oil prices do not stabilize at favorable levels or we experience continued or further oil price down-cycles, we expect customer
demand will continue to be negatively affected. Adverse developments in the offshore drilling industry including the price of oil,
can cause the fair market value of our existing and newbuild jack-up rigs to decline. In addition, the fair market value of the jack-
up rigs that we currently own, have agreed to acquire, or may acquire in the future, may decrease depending on a number of
factors, including:
•
•
•
•
•
•
•
•
the general economic and market conditions affecting the offshore contract drilling industry, including competition
from other offshore contract drilling companies;
developments in the global economy including in oil prices and demand in the shall-water offshore drilling market, as
well as the impact of the COVID-19 crisis on the foregoing impact our ability to operate rigs;
the types, sizes and ages of our jack-up rigs;
the supply and demand for our jack-up rigs;
the costs of newbuild jack-up rigs;
prevailing drilling services contract dayrates;
government or other regulations; and
technological advances.
If jack-up rig values fall significantly, we may have to record an impairment in our financial statements, which could affect
our results of operations. Certain of our competitors in the offshore drilling industry may have a larger or more diverse fleet and a
more favorable capitalization than we do, which could allow them to better withstand any impairment recorded for their own
fleets or the effects of a commodity price down-cycle. Additionally, if we sell one or more of our jack-up rigs at a time when
drilling rig prices have fallen, we may incur a loss on disposal and a reduction in earnings, which may cause us to breach the
covenants in certain of our finance agreements. We have stated that we may sell a small number of vessels on an opportunistic
basis and we face difficult market conditions for any such sales and could incur losses. Under certain of our Financing
Arrangements, we are required to comply with loan-to-value or minimum-value-clauses, which could require us to post additional
collateral or prepay a portion of the outstanding borrowings should the value of the jack-up rigs securing borrowings under each
of such agreements decrease below required levels. If we are unable to comply with the covenants in certain of our financing
agreements and we are unable to get a waiver, a default could occur under the terms of those agreements. We have agreed
amendments with secured creditors in respect of certain covenants under certain of our loan facilities including loan to value
covenants and to change interest payment dates under certain of our loan facilities and we have also agreed to include loan to
value covenants in other facilities as part of our agreement with creditors in January 2021, which included among other things,
interest deferrals. See “Item 5.B Operating and Financial Review and Prospects—Liquidity and Capital Resources” for more
information.
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Our operations involve risks due to their international nature.
We operate in various regions throughout the world. As a result of our international operations, we may be exposed to
political and other uncertainties, including risks of:
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terrorist acts;
armed hostilities, war and civil disturbances;
acts of piracy, which have historically affected marine assets;
significant governmental influence over many aspects of local economies;
the seizure, nationalization or expropriation of property or equipment;
uncertainty of outcome in court proceedings in any jurisdiction where we may be subject to claims;
the repudiation, nullification, modification or renegotiation of contracts;
limitations on insurance coverage, such as war risk coverage, in certain areas;
political unrest;
the occurrence or threat of epidemic or pandemic diseases or any governmental or industry response to such
occurrence or threat, which could impact demand and our ability to conduct operations;
monetary policy and foreign currency fluctuations and devaluations;
an inability to repatriate income or capital;
complications associated with repairing and replacing equipment in remote locations;
import-export quotas, wage and price controls, and the imposition of trade barriers;
imposition of, or changes in, local content laws and their enforcement, particularly in West Africa and Southeast Asia,
where the legislatures are active in developing new legislation;
sanctions or trade embargoes;
compliance with various jurisdictional regulatory or financial requirements;
compliance with and changes to tax laws and interpretations;
other forms of government regulation and economic conditions that are beyond our control; and
government corruption.
It is difficult to predict whether, and if so, when the risks referred to above may come to fruition and the impact thereof.
Failure to comply with, or adapt to, applicable laws and regulations or other disturbances as they occur may subject us to criminal
sanctions, civil remedies or other increases in costs, including fines, the denial of export privileges, injunctions, seizures of assets
or the inability to otherwise remove our jack-up rig from the country in which it operates.
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RISK FACTORS RELATED TO OUR BUSINESS
We may not be able to renew contracts which expire and our customers may seek to cancel or renegotiate their contracts,
particularly in response to unfavorable industry conditions.
Many jack-up drilling contracts are short-term, and oil and natural gas companies tend to reduce activity levels quickly in
response to declining oil and natural gas prices. Our jack-up drilling contracts, including our bareboat contracts with equity
method investments in Mexico, typically range from three to twenty-four months, although contract periods may be longer in
certain countries or regions. During oil price down-cycles, our customers may be unwilling to commit to long-term contracts.
Short-term drilling contracts do not provide the stability or visibility of revenue that we would otherwise receive with long-term
drilling contracts.
In addition, in difficult market conditions, some of our customers may seek to terminate their agreements with us or to
renegotiate our contracts using various techniques, including threatening breaches of contract, relying on force majeure clauses,
and applying commercial pressure. Some of our customers have the right to terminate their drilling contracts without cause upon
the payment of an early termination fee or compensation for costs incurred up to termination. For example, in April 2020, one of
our clients, ExxonMobil, served notice to exercise its rights to terminate two contracts in West Africa due to COVID-19 related
issues, triggering an obligation to pay an early termination fee. The general principle under our arrangements with customers
typically is that any such early termination payment, where applicable, should compensate us for lost revenues less operating
expenses for the remaining contract period; however, in some cases, any such payments may not fully compensate us for the loss
of the drilling contract. Under certain circumstances our contracts may permit customers to terminate contracts early without any
termination payment either for convenience or as a result of non-performance, periods of downtime or impaired performance
caused by equipment or operational issues (typically after a specified remedial period), or sustained periods of downtime due to
force majeure events beyond our control. In addition, state-owned oil company customers may have special termination rights by
law. Our customers themselves may have contracts from their customers terminated in reliance on similar contractual provisions,
putting pressure on our customers to terminate or renegotiate their agreements with us.
During periods of challenging market conditions, we may be subject to an increased risk of our (i) customers choosing not to
renew short-term contracts or drill option wells, (ii) customers repudiating contracts or seeking to terminate contracts on grounds
including extended force majeure circumstances or on the basis of assertions of non-compliance by us of our contractual
obligations, (iii) customers seeking to renegotiate their contracts to reduce the agreed day rates and (iv) cancellation of drilling
contracts for convenience (with or without early termination payments). For instance, in Spring 2020, the Company received early
terminations, suspensions and cancellation of contracts for six rigs. Loss of contracts may have a material adverse effect on our
business, financial condition and results of operations.
Prevailing market conditions, including the supply of jack-up rigs worldwide, may affect our ability to obtain favorable
contracts for our newbuild jack-up rigs or our jack-up rigs that do not have contracts.
As of March 2021, 186 jack up rigs in the existing fleet were off contract and a relatively large number of the drilling rigs
under construction have not been contracted for future work, including the five jack-up rigs we have agreed to purchase which
have not been delivered. In addition, as of April 13, 2021 we had 10 rigs warm stacked which are available for contracting, with
one of these - "Skald" - scheduled to start operations in June 2021.
The current over-supply of jack-up rigs may be exacerbated by the entry of newbuild rigs into the market, many of which are
without drilling contracts (including the 5 rigs we have agreed to purchase). The supply of available uncontracted jack-up rigs has
intensified price competition, reducing dayrates as the active fleet worldwide grows. The COVID-19 crisis has exacerbated this
trend with its impact on rig operations and demand as a result of the impact on the global economy and oil prices. Customers may
also opt to contract older rigs in order to reduce costs, which could adversely affect our ability to obtain new drilling contracts due
to our newer fleet. For an overview of our fleet, see the section entitled “Item 4.B Business Overview—Our Business—Our
Fleet.”
Our ability to obtain new contracts will depend on our customers and prevailing market conditions, which may vary among
different geographic regions and types of drilling rigs sought. There is no assurance that we will secure drilling contracts for the
newbuild rigs we have agreed to purchase or our jack-up rigs that are stacked, and the drilling contracts that we do secure may be
at unattractive dayrates. If we are unable to secure contracts for our newbuild jack-up rigs, we may idle or stack these rigs, which
means such rigs will not produce revenues but will continue to require cash expenditures for crews, fuel, insurance, berthing and
associated items. The key characteristics of our uncontracted rigs which may yield differences in their marketability or readiness
for use include whether such rigs are warm stacked or cold stacked, age of the rig, geographic location and technical
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specifications; please see “Item 4.B Business Overview—Our Business—Our Fleet” for further information concerning these
features by rig. We may also seek to delay delivery of our newbuild jack-up rigs, which could adversely affect our revenues and
profitability. We have no right to delay delivery of the newbuild rigs we have agreed to purchase on grounds that we are unable to
secure contracts. If we request a delay to the contractual delivery dates, we are dependent upon the outcome of any negotiations
with the shipyard, which may not result in any delay or may lead to an increase in cost to compensate the shipyard.
If new contracts are entered into at dayrates substantially below the existing dayrates or on terms otherwise less favorable
compared to existing contract terms among our then-active fleet, our business could be adversely affected. We may also be
required to accept more risk in areas other than price to secure a contract and we may be unable to push this risk down to other
contractors or be unable or unwilling at competitive prices to insure against this risk, which will mean the risk will have to be
managed by applying other controls. Accepting such increased risk could lead to significant losses or us being unable to meet our
liabilities in the event of a catastrophic event affecting any rig contracted on this basis.
Our Total Contract Backlog may not be realized.
The Total Contract Backlog (in $ millions) presented in this annual report is only an estimate and is not the same measure as
the acquired contract backlog presented in our Consolidated Financial Statements. Many of our contracts are short-term. As of
December 31, 2020, our Total Contract Backlog was approximately $132.1 million, excluding unexercised options, and we had
nine contracts that expire during 2021 and two contracts that expire during 2022. Actual expiry dates could be earlier or later.
The actual amount of revenues earned and the actual periods during which revenues are earned will be different from our
Total Contract Backlog projections due to various factors, including shipyard and maintenance projects, downtime and other
events within or beyond our control. We do not adjust our Total Contract Backlog for expected or unexpected downtime. If we or
our customers are unable to perform under our or their contractual obligations, this could lead to results that vary significantly
from those contemplated by our Total Contract Backlog.
Some of our customers have the right to terminate their drilling contracts without cause upon the payment of an early
termination fee or compensation for costs incurred up to termination. Under certain circumstances our contracts may permit
customers to terminate contracts early without any termination payment either for convenience or as a result of non-performance,
periods of downtime or impaired performance caused by equipment or operational issues (typically after a specified remedial
period), or sustained periods of downtime due to force majeure events beyond our control. In addition, state-owned oil company
customers may have special termination rights by law.
The continuing global uncertainty caused by the COVID-19 crisis has contributed to the uncertainty as to our Total Contract
Backlog. For example, in 2020 we received early termination notices for three ongoing contracts and one cancellation of an
upcoming contract. This uncertainty and related impact on us may continue.
Our Joint Ventures for integrated well services business in Mexico may not make a profit, and we may receive cash calls
from our Joint Ventures in order to fund working capital or capital expenditure outlays.
During 2019 we entered into a joint venture with Proyectos Globales de Energia y Servicos CME, S.A. DE C.V. (“CME”) to
provide integrated well services to Petróleos Mexicanos (“PEMEX”). This involved Borr Mexico Ventures Limited (“BMV”)
subscribing for 49% of the equity of Opex and Akal. CME’s wholly owned subsidiary, Operadora Productora y Exploradora
Mexicana, S.A. de C.V. (“Operadora”) owns 51% of each of Opex and Akal. . We provide five jack-up rigs on bareboat charters
to two other joint venture companies, Perfomex and Perfomex II, which are owned in the same way as Opex and Akal. Perfomex
and Perfomex II provide the jack-up rigs under traditional dayrate drilling and technical service agreements to Opex and Akal.
Opex and Akal also contract technical support services from BMV, management services from Operadora and well services from
specialist well service contractors (including an affiliate of one of our principal shareholders, Schlumberger) and logistics and
administration services from Logística y Operaciones OTM, S.A. de C.V, an affiliate of CME. This structure enables Opex and
Akal to provide bundled integrated well services to PEMEX. The potential revenue earned is fixed under each of the PEMEX
contracts, while Opex and Akal manage the drilling services and related costs on a per well basis. Therefore, if Opex or Akal are
unable to complete each well within the time and cost agreed, they bear the completion risk.
Our Joint Ventures in Mexico have experienced payment delays from the customer, which has had and could continue to
have a significant impact on our liquidity.
Our Joint Venture has experienced delays in getting invoices approved and paid by PEMEX, which delays have had a
significant impact on our liquidity at various times in 2020. In order to improve this situation, in May 2020, the Joint Venture
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entered into an agreement with a Mexican state controlled bank whereby payment of a portion of these invoices, subject to
PEMEX approval, can be advanced through a factoring solution with the target to secure a more stable cash flow. If Opex or Akal
are nonetheless unable to receive payment from their customer in a timely fashion, as shareholders we may be required to fund
working capital or capital expenditure outlays, or we may not be paid dividends or any other distributions in a timely manner or at
all. If Opex or Akal are unable to make a profit, we will recognize losses from our equity method investments and may be unable
to receive dividends or distributions from those businesses. This could have a significant adverse effect on our operations and
liquidity. We are also obligated, as a 49% shareholder, to fund any capital shortfall in Opex or Akal where the Board of Opex or
Akal make a cash call to the shareholders under the provisions of the Shareholder Agreements.
We have a limited operating history and have experienced net losses since inception.
We have a limited operating history upon which to base an evaluation of our current business and future prospects. Also, our
lack of operating history may affect our ability to obtain customer contracts. We are establishing our history as an operator of
jack-up rigs and as a result, the revenue and income potential of our business is still developing. We have experienced net losses
since inception and this trend may continue. We may not be able to generate significant additional revenues in the future. We will
be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We
may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so may have a material
adverse effect on our business, financial condition and results of operations.
In connection with the audits of our consolidated financial statements, 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.
We were established in 2016 and have since that time experienced significant expansion, especially during 2018 when we
acquired Paragon Offshore Limited (or Paragon as defined below) and shortly thereafter proceeded with a reorganization
program. This growth, combined with the loss of historically significant individuals and relationships in the 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 compliance with internal controls over financial reporting. Subsequently,
and although we are not subject to the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, in the course of
preparing and auditing our consolidated financial statements, we and our independent registered public accounting firm
respectively identified a material weakness in our internal control over financial reporting as of December 31, 2018, December
31, 2019 and December 31, 2020. In accordance with reporting requirements set forth by the SEC, 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 a sufficient number of 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 set forth by the SEC. Our independent registered public accounting firm did not
undertake an assessment of our internal control under the Sarbanes-Oxley Act for purposes of identifying and reporting any
material weakness in our internal control over financial reporting. Had they performed an assessment of our internal control over
financial reporting, additional material weaknesses may have been identified.
In addition, during 2019 we determined that certain advances made to our chief executive officer and chief financial officer
had not been approved by our compensation committee or board of directors and therefore we inadvertently violated Section 402
of the Sarbanes-Oxley Act of 2002. See “Item 7.B—Related Party Transactions.” Such payments without authorization could
indicate insufficient controls over compensation payments.
To remedy our identified material weakness and other control deficiencies, we are continuing to take steps to strengthen our
internal control over financial reporting, including hiring more technically qualified accounting personnel to strengthen the
financial reporting function and to improve the financial and systems control framework. Further, we have engaged and may
continue to engage external consultants to help us assess the design and implementation of our internal controls. Additionally, we
may also engage external consultants for testing and compliance to assist us in the evaluation of the effectiveness of our controls,
as defined in Rule 13a-15 of the Exchange Act. These measures may not be sufficient to improve our internal controls to
remediate and eliminate any material weaknesses.
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We rely on a limited number of customers, and we are exposed to the risk of default or material non-performance by
customers.
We have a limited number of customers and potential customers for our services. Mergers among oil and gas exploration and
production companies have further reduced the number of available customers, which may increase the ability of potential
customers to achieve pricing terms favorable to them as the jack-up drilling market recovers. Our five largest customers,
subsidiaries of ExxonMobil, NDC, Spirit Energy, Perfomex and ENI, comprised 58% of our revenue, including related party
revenue for the year ended December 31, 2020.
We are subject to the risk of late payment, non-payment or non-performance by our customers. Certain of our customers may
be highly leveraged and subject to their own operating and regulatory risks and liquidity risk, and such risks could lead them to
seek to cancel, repudiate or seek to renegotiate our drilling contracts or fail to fulfill their commitments to us under those
contracts. These risks are heightened in periods of depressed market conditions. If we experience payment delays or non-
payments, we may be unable to make scheduled payments which exposes the business to risk of litigation or defaults, including
under our Financing Arrangements, which may have a material adverse effect on our business.
In addition, our drilling contracts provide for varying levels of indemnification and allocation of liabilities between our
customers and us, including with respect to (i) well-control, reservoir liability and pollution, (ii) loss or damage to property, (iii)
injury and death to persons arising from the drilling operations we perform and (iv) each respective parties’ consequential losses,
if any. Apportionment of these liabilities is generally dictated by standard industry practice and the particular requirements of a
customer. Under our drilling contracts, liability with respect to personnel and property customarily is generally allocated so that
we and our customers each assume liability for our respective personnel and property, or a “knock-for-knock” basis but that may
not always be the case.
Customers have historically assumed most of the responsibility for, and agreed to indemnify contractors from, any loss,
damage or other liability resulting from pollution or contamination, including clean-up and removal and third-party damages
arising from operations under the contract when the source of the pollution originates from the well or reservoir; damages
resulting from blow-outs or cratering of the well; and regaining control of, or re-drilling, the well and any associated pollution.
However, there can be no assurance that these customers will be willing, or financially able, to indemnify us against all these
risks. Customers may seek to cap or otherwise limit indemnities or narrow the scope of their coverage, reducing our level of
contractual protection.
In addition, under the laws of certain jurisdictions, such indemnities may not be enforceable in all circumstances, for example
if the cause of the damage was our gross negligence or willful misconduct. If that were the case we may incur liabilities in excess
of those agreed in our contracts. Although we maintain certain insurance policies, the policy may not respond or insurance
proceeds, if paid, may not fully compensate us in the event any key customers or potential customers default on their indemnity
obligations to us. Our insurance policies do not cover damages arising from the willful misconduct or gross negligence of our
personnel (which may include our subcontractors in some cases). In the event of a default or other material non-payment or non-
performance by any customers, our business, financial condition and results of operations could be adversely affected.
In addition, customers tend to request that we assume a limited amount of liability for pollution damage when such damage
originates from our jack-up rigs and/or equipment above the surface of the water or is caused by our negligence, which liability
generally has caps for ordinary negligence, with much higher caps or unlimited liability where the damage is caused by our gross
negligence or willful misconduct, respectively. We may also be exposed to a risk of liability for reservoir or formation damage or
loss of hydrocarbons when we provide, directly or indirectly (for example through our participation in joint ventures where there
are parent company guarantees granted to the ultimate customer), integrated well services.
We are reliant on positive cash flow generation from our Joint Ventures, and we may not receive funds in a timely
manner.
Our Mexican Joint Venture businesses operate five of our rigs, which we provide to them on bareboat lease contracts. These
rigs are bundled with other services from other providers by the Joint Venture Businesses and provide Integrated Drilling Services
to PEMEX, who is their sole ultimate customer. Within our operating and liquidity assumptions for 2021 and future years, we
have made certain assumptions around the profitability, timing and amounts of receipts of cash from the Joint Venture Businesses,
whether by repayment of loans, payment of the bareboat or proposed distributions to shareholders, if declared. In addition, we had
outstanding receivables due from the Joint Venture Businesses on our balance sheet of $34.9 million as of December 31, 2020,
collection of which is dependent on the Joint Venture Businesses collecting amounts due to them from PEMEX.
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The timing of payments made by PEMEX to suppliers, including our Joint Venture Businesses, is often later than contractual
terms and this has impacted our liquidity and continues to do so. Should PEMEX continue to not pay our Joint Venture
Businesses in a timely manner, the Joint Venture Businesses in turn will continue to not be able settle receivable balances with us
in a timely manner which would continue to adversely affect our working capital, and may necessitate seeking additional funding
and there is no assurance that we will be able to obtain such funding on reasonable terms or at all.
During 2020, one of our JVs, Opex, entered into a factoring agreement with NAFINSA, a state owned bank, subject to certain
criteria including a timely approval of invoices by PEMEX. One of our Mexican JVs has also agreed the terms of a factoring
agreement with an international financing entity which allows for $50 million to $150 million of receivables in the JV to be
factored, with a variable rate of interest on balances outstanding until collection. As of the date of this report, no amounts have
been factored under this facility. However there is no guarantee that they will receive timely approval of invoices from PEMEX,
or receive funds in a faster timescale than their historical working capital cycle; and there is no assurance that they will enter into
more effective, or indeed any other, factoring arrangements in the future; and where any factoring arrangement is entered into, the
cost of such factoring may be expensive and could have a material and adverse impact on the results and cashflows of Opex or
AKAL which could have a material impact on cashflows or us and accordingly our liquidity.
Our drilling contracts contain fixed terms and dayrates, and consequently we may not fully recoup our costs in the event
of a rise in expenses, including operating and maintenance costs.
Our operating costs are generally related to the number of rigs in operation and the cost level in each country or region where
the rigs are located, which may increase depending on the circumstances. In contrast, the majority of our contracts have dayrates
that are fixed over the contract term. These provisions allow us to adjust the dayrates based on stipulated cost increases, including
wages, insurance and maintenance costs. However, actual cost increases may result from events or conditions that do not cause
correlative changes to the applicable indices. The adjustments are typically performed on a semi-annual or annual basis. For these
reasons, the timing and amount awarded as a result of such adjustments may differ from our actual cost increases, which could
result in us being unable to recoup incurred costs.
Some of our long-term contracts contain rate adjustment provisions based on market dayrate fluctuations rather than cost
increases. In such contracts, the dayrate could be adjusted lower during a period when costs of operation rise, which could
adversely affect our financial performance. Shorter-term contracts normally do not contain escalation provisions. In addition,
although our contracts typically contain provisions for either fixed or dayrate compensation during mobilization, these rates may
not fully cover our costs of mobilization, and mobilization may be delayed for reasons beyond our control, increasing our costs,
without additional compensation from the customer.
We incur expenses, such as preparation costs, relocation costs, operating costs and maintenance costs, which we may not
fully recoup from our customers, including where our jack-up rigs incur idle time between assignments.
Our operating expenses and maintenance costs depend on a variety of factors, including crew costs, provisions, equipment,
insurance, maintenance and repairs, and shipyard costs, many of which are beyond our control. Operating and maintenance costs
will not necessarily fluctuate in proportion to changes in operating revenues. In connection with new contracts or contract
extensions, we incur expenses relating to preparation for operations, particularly when a jack-up rig moves to a new geographic
location. These expenses may be significant. Expenses may vary based on the scope and length of such required preparations and
the duration of the contractual period over which such expenditures are amortized. In addition, equipment maintenance costs
fluctuate depending upon the type of activity that the jack-up rig is performing and the age and condition of the equipment. In
situations where our jack-up rigs incur idle time between assignments, the opportunity to reduce the size of our crews on those
jack-up rigs is limited, as the crews will be engaged in preparing the rig for its next contract, which could affect our ability to
make reductions in crew costs, provisions, equipment, insurance, maintenance and repairs or shipyard costs.
When a jack-up rig faces longer idle periods, reductions in costs may not be immediate as some of the crew may be required
to prepare the jack-up rig for stacking and maintenance in the stacking period. As of December 31, 2020, we had 12 jack-up rigs
that were “warm stacked,” which means the rigs, including our newbuild jack-up rigs which have not yet been activated, are kept
ready for redeployment and retain a maintenance crew, and one rig that was “cold stacked,” which means the rig is stored in a
harbor, shipyard or a designated offshore area, and the crew is reassigned to an active rig or dismissed, not including our jack-up
rigs being activated to commence drilling operations as of such date. When idled or stacked, jack-up rigs do not earn revenues,
but continue to require cash expenditures for crews, fuel, insurance, berthing and associated items. These expenses may be
significant. Should units be idle for a longer period, we may be unable to reduce these expenses. This could have a material
adverse effect on our business, financial condition and results of operations.
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We incur activation and reactivation costs, which we may not fully recoup from our customers.
We have incurred significant costs activating and mobilizing our newbuild fleet as contracts have been secured, in particular
for the five rigs which are working in Mexico. In addition, as of April 13, 2021, we had 10 rigs warm stacked which are available
for contracting, with one of these - "Skald" - scheduled to start operations in June 2021. These rigs may require additional
activation or reactivation costs before commencing operations, if contracted. Also, as of April 13, 2021, we had an order with
Keppel for five newbuild jack-up rigs, which are currently scheduled for delivery in 2023 following the 2021 Amendments (see
please see “Item 5.B Liquidity and Capital Resources – Our Existing Indebtedness.” - “2021 Amendments”). In connection with
contract commencement of any our newbuild jack-up rigs, we will incur costs relating to the activation of such newbuild rigs.
These costs are significant and historically have been in the range of $11 million to $14 million per newbuild jack-up rig activated
and may be higher dependent upon the circumstances of the rig activation. Costs vary based on the scope and length of such
required preparations and fluctuate depending upon the type of activity that the rig is intended to perform.
In addition, construction of our newbuild jack-up rigs is subject to risks of delay or cost overruns inherent in any large
construction project from numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in
the delivery of ordered materials and equipment or shipyard construction, the failure of equipment to meet quality and/or
performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated actual
or purported change orders, the inability to obtain required permits or approvals, unanticipated cost increases between order and
delivery, design or engineering changes, and work stoppages and other labor disputes. Risks include adverse weather conditions
or any other events such as yard closures due to epidemics or pandemics, terrorist acts, war, piracy or civil unrest (which may or
may not qualify as force majeure events in the relevant contract). Significant cost overruns or delays could have a material
adverse effect on our business, financial condition and results of operations. Additionally, failure to deliver a newbuild rig on time
may result in the delay of revenue from that rig. Newbuild jack-up rigs may also experience start-up difficulties following
delivery or other unexpected operational problems that could result in uncompensated downtime or the cancellation or termination
of drilling contracts, which could have a material adverse effect on our business, financial condition and results of operations.
The limited availability of qualified personnel in the locations in which we operate may result in higher operating costs as
the offshore drilling industry recovers.
Competition for skilled and other labor required for our drilling operations has increased in recent years as the number of rigs
activated or added to worldwide fleets has increased, and this may continue to rise. In some regions, the limited availability of
qualified personnel in combination with local regulations focusing on crew composition are expected to further impact the supply
of qualified offshore drilling crews. In addition, during industry down-cycles, such as the extended downturn experienced over the
past few years, qualified personnel may elect to seek alternative employment and may not return to the offshore drilling industry
immediately during periods of recovery, if at all, which may have the effect of further reducing the supply of qualified personnel.
Personnel salaries across the jack-up drilling market are affected by the cyclical nature of the offshore drilling industry,
particularly during industry down-cycles. As the jack-up drilling market recovers, the tightness of labor supply within the industry
could further create and intensify upward pressure on wages and make it more difficult or costly for us to staff and service our
rigs. Furthermore, as a result of any increased competition for qualified personnel, we may experience a reduction in the
experience level of our personnel, which could lead to higher downtime and more operating incidents. Such developments could
have a material adverse effect on our business, financial condition and results of operations.
Furthermore, offshore drilling personnel (both employees and contractors) in certain regions, including those personnel who
are employed on rigs operating for example in West Africa, Mexico and Europe, are represented by collective bargaining
agreements. Pursuant to these agreements, we are required to contribute certain amounts to retirement funds and pension plans
and are restricted in our ability to dismiss employees. In addition, individuals covered by these collective bargaining agreements
may be working under agreements that are subject to salary negotiation. These negotiations could result in higher personnel or
other increased costs or increased operating restrictions.
If we are unable to attract and retain highly skilled personnel who are qualified and able to work in the locations in which
we operate it could adversely affect our operations.
We require highly skilled personnel in the right locations to operate and provide technical services and support for our
business. At a minimum, all offshore personnel are required to complete Basic Offshore Safety Induction and Emergency
Training (“BOSIET”) or a similar offshore survival and training course. We may also require additional training certifications
prior to employment with us, depending on the location of the drilling and related technical requirements. In addition to direct
costs associated with BOSIET, other training courses and required training materials, there may be indirect costs to personnel
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(such as travel costs and opportunity costs) which have the effect of limiting the flow of new qualified personnel into the offshore
drilling industry.
In addition to the technical certification requirements, our ability to operate worldwide depends on our ability to obtain the
necessary visas and work permits for such personnel to travel in and out of, and to work in, the jurisdictions in which we operate.
Governmental actions in some of the jurisdictions in which we operate may make it difficult for us to move our personnel in and
out of these jurisdictions by delaying or withholding the approval of these permits. This includes local content laws which restrict
or otherwise effect our crew composition. If we are not able to obtain visas and work permits for the employees we need for
operating our rigs on a timely basis, or for third-party technicians needed for maintenance or repairs, we might not be able to
perform our obligations under our drilling contracts, which could allow our customers to cancel the contracts. These factors could
increase competition for highly-skilled personnel throughout the offshore drilling industry, which may indirectly affect our
business, financial condition and results of operations.
The travel and other restrictions implemented in response to the COVID-19 outbreak have made it difficult to transport
personnel to our rigs which has impacted operations and we expect to continue to experience such disruptions as long as this
outbreak continues. It is difficult to predict whether certain countries will continue to operate ‘closed border’ policies, enable
foreign employees to continue to travel or to prioritize the offshore sector as and when COVID-19 related restrictions begin to be
relaxed. In addition, it is difficult to know when COVID-19 related restrictions may be relaxed or re-implemented in any given
territory where we operate.
We have established, and may from time to time be a party to certain joint venture or other contractual arrangements with
partners that introduce additional risks to our business.
We have established, and may again in the future establish, relationships with partners, whether through the formation of
joint ventures with local participation or through other contractual arrangements. For example, in Mexico, our operations are
structured through the JV structures with our local partner in Mexico, CME, to provide integrated well services to PEMEX,
pursuant to two contracts (“PEMEX Contracts”). We commenced operations under the first PEMEX Contract in August 2019 and
under the second contract in March 2020.
Please see the section entitled “Item 4.B Business Overview—Our Business—Joint Venture, Partner and Agency
Relationships” for more information.
We believe that opportunities involving partners may arise from time to time and we may enter into such arrangements. We
may not realize the expected benefits of any such arrangements and such arrangements may introduce additional risks to our
business. In order to establish or preserve our relationship with our partners, we may agree to risks and contributions of resources
that are proportionately greater than the returns we could receive, which could reduce our income and return on our investment in
such arrangements. In certain joint ventures or other contractual relationships with our partners, we may transfer certain
ownership stakes in one or more of our rig-owning subsidiaries and/or accept having less control over decisions made in the
ordinary course business. In certain arrangements with our local partners we may also guarantee the performance of their
obligations under the relevant contract and we may not be able to enforce any contractual indemnifications we obtain from such
parties. Any reduction in our ownership of our rig-owning subsidiaries and/or control over decisions made in the ordinary course
of business could significantly reduce our income and return on our investment in such arrangements.
Our operations involving partners are subject to risks, including (i) disagreement with our partner as to how to manage the
drilling operations being conducted; (ii) the inability of our partner to meet their obligations to us, the joint venture or our
customer, as applicable; (iii) litigation between our partner and us regarding joint-operational matters and (iv) failure of a partner
to comply with applicable laws, including sanctions and anti-money laundering laws and regulations, and indemnity obligations.
The happening of any of the foregoing events may have a material adverse effect on our business, financial condition and results
of operations.
In addition, we rely on the internal controls and financial reporting controls of our subsidiaries and if any of our subsidiaries,
including joint ventures which are subsidiaries, fail to maintain effective controls or to comply with applicable standards, this
could make it difficult to comply with applicable reporting and audit standards. For example, the preparation of our consolidated
financial statements requires the prompt receipt of financial statements from each of our subsidiaries and associated companies,
some of whom rely on the prompt receipt of financial statements from each of their subsidiaries and associated companies.
Additionally, in certain circumstances, we may be required to file with our annual report on Form 20-F, or a registration statement
filed with the SEC, financial information of associated companies which has been audited in conformity with SEC rules and
regulations and applicable audit standards. If we are unable for any reason to procure such financial statements or audited
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financial statements, as applicable, from our subsidiaries and associated companies, we may be unable to comply with applicable
SEC reporting standards.
We are exposed to the risk of default or material non-performance by subcontractors.
In order to provide drilling services to our customers, we rely on subcontractors to perform certain services. We may be liable
to our customers in the event of non-performance by any such subcontractor. We cannot ensure that our back-to-back
arrangements with our subcontractors, contractual indemnities or insurance arrangements will provide adequate protection for the
risks we face. To the extent that there is any back-to-back arrangement, contractual indemnity and/or receipt of evidence of
insurance from a subcontractor, there can be no assurance that our subcontractors will be in a financial position to honor such
arrangements in the event a claim is made against us by a customer and we seek to pass on the related damages to the
subcontractor. In addition, under the laws of certain jurisdictions, there may be circumstances in which such indemnities are not
enforceable. The foregoing could result in us having to assume liabilities in excess of those agreed in our contracts, which may
have a material adverse effect on our business, financial condition and results of operations.
Outbreaks of epidemic and pandemic diseases, such as the COVID-19 outbreak, and governmental responses thereto have
and could further adversely affect our business.
Public health threats, such as the COVID-19 outbreak, influenza and other highly communicable diseases or viruses,
outbreaks of which have from time to time occurred in various parts of the world in which we operate, could adversely impact our
operations, the timing of completion of any outstanding or future newbuilding projects, as well as the operations of our customers.
During the current COVID-19 pandemic we are facing ongoing operational disruptions, including delays, unavailability of
normal infrastructure and services which cause limited access to, or movement of equipment, critical goods, and personnel.
Movement of rigs between countries has been impacted by border closures and reduced availability of customs officials. Our
crews work on a rotation basis, with a substantial portion relying on international air transport for rotation. Disruptions due to
quarantine following positive testing on our rigs have impacted the cost of rotating crews and the ability to maintain a full crew on
all rigs at a given time. Global disruptions in the supply chain and industrial production may have a negative impact on our ability
to secure necessary supplies for our rigs and services, among other potential consequences attendant to epidemic and pandemic
diseases.
Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and
temporarily closing businesses. These restrictions, and future prevention and mitigation measures, have had and are likely to
continue to have an adverse impact on global economic conditions, which has significantly impacted global economic activity and
the price of oil. As our business depends to a significant extent on customers’ expectations in respect of the price of oil, the impact
of this crisis may significantly impact demand from customers, which could also negatively impact our business, financial
condition and cash flows as well as our liquidity and ability to comply with loan facility covenants.
We also face risks in connection with the impact of COVID-19 and related restrictions on our on-shore staff. For example,
increased reliance on remote working has increased and may continue to increase the likelihood of cyber security attacks.
The extent of the continued impact of COVID-19 on our operational and financial performance will depend on future
developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict
considering the rapidly evolving landscape. The COVID-19 pandemic has had and is likely to continue to have, an adverse impact
on, our business including our ability to keep all rigs operational at all times.
Our crews generally work on a rotation basis, with a substantial portion relying on international air transport for rotation.
Public health threats, such as COVID-19, Ebola, influenza, SARS, the Zika virus and other highly communicable diseases or
viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate, could adversely
impact our operations, and the operations of our customers. In addition, public health threats in any area, including areas where
we do not operate, could disrupt international transportation. Any such disruptions could impact the cost of rotating our crews,
and possibly impact our ability to maintain a full crew on all rigs at a given time. Any of these public health threats and related
consequences could adversely affect our business and financial results. We have experienced and continue to experience
disruption in crewing our rigs as a result of the COVID-19 outbreak which has impacted our rig operations. Such disruptions
could have a material impact on our business, and such impact is expected to continue as long as the outbreak impacts the global
economy.
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We rely on a limited number of suppliers and may be unable to obtain needed supplies on a timely basis or at all.
We rely on certain third parties to provide supplies and services necessary for our offshore drilling operations, including
drilling equipment suppliers, catering and machinery suppliers. There are a limited number of available suppliers throughout the
offshore drilling industry and past consolidation among suppliers, combined with a high volume of drilling rigs under
construction, may result in a shortage of supplies and services, thereby increasing the cost of supplies and/or potentially inhibiting
the ability of suppliers to deliver on time.
With respect to certain items, such as blow-out preventers and drilling packages, we are dependent on the original equipment
manufacturer for repair and replacement of the item or its spare parts. We maintain limited inventory of certain items, such as
spare parts, and sourcing such items may involve long-lead times (six months or longer). Standardization across our fleet assists
with our inventory management, however the inability to obtain certain items may be exacerbated if such items are required on
multiple jack-up rigs simultaneously. Furthermore, our suppliers may experience disruptions and delays in light of the COVID-19
outbreak, which could result in delays in receipt of supplies and services and/or force majeure notices.
If we are unable to source certain items from the original equipment manufacturer for any reason, including as a result of
disruptions experienced by our suppliers as a result of the restrictions imposed in many countries in response to the COVID-19
outbreak, or if our inventory is rendered unusable by the original equipment manufacturer due to safety concerns, resulting delays
could have a material adverse effect on our results of operations and result in rig downtime and delays in the repair and
maintenance of our jack-up rigs. In addition, we may be unable to activate our jack-up rigs in response to market opportunities.
We may be unable to obtain, maintain and/or renew the permits necessary for our operations or experience delays in
obtaining such permits, including the class certifications of rigs.
The operation of our jack-up rigs requires certain governmental approvals, the number and prerequisites of which vary,
depending on the jurisdictions in which we operate our jack-up rigs. Depending on the jurisdiction, these governmental approvals
may involve public hearings and costly undertakings on our part. We may not be able to obtain such approvals or such approvals
may not be obtained in a timely manner. If we fail to secure the necessary approvals or permits in a timely manner, our customers
may have the right to terminate or seek to renegotiate their drilling contracts to our detriment.
Offshore drilling rigs, although not self-propelled units, are nevertheless registered in international shipping or maritime
registers and are subject to the rules of a classification society, which allows such rigs to be registered in an international shipping
or maritime register. The classification society certifies that a drilling rig is “in-class,” signifying that such drilling rig has been
built and maintained in accordance with the rules of the relevant classification society and complies with applicable rules and
regulations of the drilling rig’s country of registry, or flag state, and the international conventions to which that country is a party.
In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
Our jack-up rigs are built and maintained in accordance with the rules of a classification society, currently being ABS. The
class status varies depending on a jack-up rig’s status (stacked or in operation). Operational rigs are certified by the relevant
classification society as being in compliance with the mandatory requirements of the relevant national authorities in the countries
in which our jack-up rigs are flagged and other applicable international rules and regulations. If any jack-up rig does not maintain
the appropriate class certificates for its present status (stacked or in operation), fails any periodic survey or special survey and/or
fails to comply with mandatory requirements of the relevant national authorities of its flag state, the jack-up rig may be unable to
carry on operations and, depending on its status (stacked or in operation), may not be insured or insurable. Any such inability to
carry on operations or be employed could have a material adverse effect on our business, financial condition and results of
operations.
We are a holding company and are dependent upon cash flows from subsidiaries and equity method investments to meet
our obligations. If our operating subsidiaries or equity method investments experience sufficiently adverse changes in
their financial condition or results of operations, or we otherwise become unable to arrange further financing to satisfy
our debt or other obligations as they become due, we may become subject to insolvency proceedings.
Our only material assets are our interests in our subsidiaries. We conduct our operations through, and all of our assets are
owned by, our subsidiaries and our operating revenues and cash flows are generated by our subsidiaries. As a result, cash we
obtain from our subsidiaries is the principal source of liquidity that we use to meet our obligations. Contractual provisions and/or
local laws, as well as our subsidiaries’ financial condition, operating requirements and debt requirements, may limit our ability to
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obtain cash from subsidiaries that we require to pay our expenses or otherwise meet our obligations when due. Applicable tax
laws may also subject such payments to us by subsidiaries to further taxation.
If we are unable to transfer cash from our subsidiaries, then even if we have sufficient resources on a consolidated basis to
meet our obligations when due, we may not be permitted to make the necessary transfers from our subsidiaries to meet our debt
and other obligations when due. The terms of certain of our Financing Arrangements, which are described under “Item 5.
Operating and Financial Review and Prospects—Our Existing Indebtedness,” also limit certain intragroup cash transfers and
require us to maintain reserves of cash that could inhibit our ability to meet our debt and other obligations when due.
If our operating subsidiaries experience sufficiently adverse changes in their financial condition or results of operations, or
we otherwise become unable to arrange further financing to satisfy our debt or other obligations as they become due, we may
become subject to insolvency proceedings. Any such proceedings may have a material adverse effect on our business, financial
condition and results of operations and could have a significant negative impact on the market price of our Shares.
Our business and operations involve numerous operating hazards.
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, craterings, 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, 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, including hurricanes, and marine life infestations. For instance, during Hurricane Harvey in the Gulf of Mexico in
2017, the hurricane caused a drillship owned by a subsidiary of Paragon (as defined below) to break loose from its moorings and
it was subsequently involved in a series of collisions. Operations may also be suspended because of machinery breakdowns,
abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages. We
customarily provide contractual indemnities to our customers and subcontractors for claims that could be asserted by us relating to
damage to or loss of our equipment, including rigs and claims that could be asserted by us or our employees relating to personal
injury or loss of life.
Damage to the environment could also result from our operations, particularly through spillage of fuel, lubricants or other
chemicals and substances used in drilling operations, or extensive uncontrolled fires. We may also be subject to fines and
penalties and to property, environmental, natural resource and other damage claims, and we may not be able to limit our exposure
through contractual indemnities, insurance or otherwise.
Consistent with standard industry practice, customers have historically assumed, and indemnify contractors against, any loss,
damage or other liability resulting from pollution or contamination when the source of the pollution originates from the well or
reservoir, including damages resulting from blow-outs or cratering of the well, regaining control of, or re-drilling, the well and
any associated pollution. However, there can be no assurances that these customers will be willing or financially able to
indemnify us against all these risks. Customers may seek to cap indemnities or narrow the scope of their coverage, reducing a
contractor’s level of contractual protection. In addition, customers tend to request that contractors assume (i) limited liability for
pollution damage above the water when such damage has been caused by the contractor’s jack-up rigs and/or equipment and (ii)
liability for pollution damage when pollution has been caused by the negligence or willful misconduct of the contractor or its
personnel. Consistent with standard industry practice, we may therefore assume a limited amount of liability for pollution damage
when such damage originates from our jack-up rigs and/or equipment above the surface of the water or is caused by our
negligence, in which case such liability generally has caps for ordinary negligence, with much higher caps or unlimited liability
where the damage is caused by our gross negligence. When we provide integrated well services, we may also be exposed to a risk
of liability for reservoir or formation damage or loss of hydrocarbons.
In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable. For example, in
a 2012 decision in a case related to the fire and explosion that took place on the unaffiliated Deepwater Horizon Mobile Offshore
Drilling rig in the Gulf of Mexico in April 2010 (the “2010 Deepwater Horizon Incident”) (to which we were not a party), the
U.S. District Court for the Eastern District of Louisiana invalidated certain contractual indemnities for punitive damages and for
civil penalties under the U.S. Clean Water Act under a drilling contract governed by U.S. maritime law as a matter of public
policy.
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If a significant accident or other event occurs that is not fully covered by our insurance or an enforceable or recoverable
indemnity from a customer, the occurrence could adversely affect us. Moreover, pollution and environmental risks generally are
not totally insurable.
Our insurance policies and contractual rights to indemnity may not adequately cover losses, and we do not have insurance
coverage or rights to indemnification for all risks. In addition, where we do have such insurance coverage, the amount recoverable
under insurance may be less than the related impact on enterprise value after a loss or not cover all potential consequences of an
incident and include annual aggregate policy limits. As a result, we retain the risk through self-insurance for any losses in excess
of these limits or that are not insurable. Any such lack of reimbursement may cause us to incur substantial costs or may otherwise
result in losses. No assurance can be made that we will be able to maintain adequate insurance in the future at rates that we
consider reasonable, or that we will be able to obtain insurance against certain risks. We could decide to retain more risk through
self-insurance in the future. This self-insurance results in a higher risk of losses, which could be material.
Our information technology systems are subject to cybersecurity risks and threats.
We depend on digital technologies to conduct our offshore and onshore operations, to collect payments from customers and
to pay vendors and employees. Additionally, since the beginning of the COVID-19 pandemic, certain of our offices have been
closed, and a large proportion of our onshore employee base have either been required to or encouraged to work remotely which
has made us more dependent on digital technology to run our business.
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 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 and financial
results.
Remote working increases the risk of cyber security issues. We have been subject to cyberattacks. For example, we have
been targeted by parties using fraudulent “spoof” and “phishing” emails and other means to misappropriate information or to
introduce viruses or other malware through “trojan horse” programs to our computers. In response to these attacks and to prevent
future attacks, we have engaged, and may in the future engage, third party vendors to review and supplement our defensive
measures and assist us in our effort to eliminate, detect, prevent, remediate, mitigate or alleviate cyber or other security problems,
although such measures may not be effective.
While we have not experienced any cybersecurity attacks or breaches to date that had a material impact on us, such attacks in
the future could have a material impact on our business or operations. There is risk that these types of activities will recur and
persist. There can be no assurance that our defensive measures will be adequate to prevent them in the future. The costs to us to
eliminate, detect, prevent, remediate, mitigate or alleviate cyber or other security problems, viruses, worms, malicious software
programs, phishing schemes and security vulnerabilities could be significant and our efforts to address these problems may not be
successful and could adversely impact our business, financial condition and results of operations.
We may be subject to litigation, arbitration and other proceedings that could have an adverse effect on us.
We are from time to time involved in various litigation matters, and we anticipate that we will be involved in litigation
matters from time to time in the future. The operating hazards inherent in our business expose us to litigation, including personal
injury and employment-dispute litigation, environmental litigation, contractual litigation with customers, subcontractors and/or
suppliers, intellectual property litigation, litigation regarding historical liabilities of acquired companies, tax or securities litigation
and maritime lawsuits, including the possible arrest of our jack-up rigs. Risks associated with litigation include potential negative
outcomes, the costs associated with asserting our claims or defending against such litigation, and the diversion of management’s
attention to these matters. Accordingly, current and future litigation and the outcome of such litigation could adversely affect our
business, financial condition and results of operations.
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We may be subject to claims related to Paragon and the financial restructuring of its predecessor.
Paragon Offshore Limited (“Paragon”) was incorporated on July 18, 2017 as part of the financial restructuring of its
predecessor, Paragon Offshore plc, which commenced proceedings under Chapter 11 of the U.S. Bankruptcy Code on February
14, 2016.
We believe that substantially all of the material claims against Paragon Offshore plc that arose prior to the date of the
bankruptcy filing were addressed during the Chapter 11 proceedings and have been or will be resolved in accordance with the
plan of reorganization and the order of the Bankruptcy Court confirming such plan. If, however, we are subject to claims that are
attributable to Paragon Offshore plc, or any of its subsidiary undertakings, including in accordance with certain litigation
arrangements in place prior to the acquisition of Paragon, our business, financial condition and results of operations could be
adversely affected.
RISK FACTORS RELATED TO OUR FINANCING ARRANGEMENTS
Future cash flows may be insufficient to meet obligations under the terms of our Financing Arrangements.
As of December 31, 2020, we had $1,857.5 million in principal amount of debt outstanding (including current portion but
excluding back-end fees), representing 58.6% of our assets. As of December 31, 2020, our principal debt instruments included the
following:
•
•
•
•
•
$270 million drawn on our Syndicated Facility (which excludes utilization under the $70 million tranche for
guarantees)
$30 million drawn on our New Bridge Facility,
$195 million drawn on our Hayfin Facility,
$1,012.5 million outstanding to shipyards under delivery financing arrangements, and
$350 million outstanding under our convertible bonds.
Our Syndicated Facility and New Bridge Facility are secured by, among other things, mortgages on eight of our jack-up rigs
and shares of certain of our subsidiaries.
Our Hayfin Facility is secured by mortgages over three of our jack-up rigs, pledges over shares of and related guarantees
from certain of our rig-owning subsidiaries who provide this security as owners of the mortgaged rigs and general assignments of
rig insurances, certain rig earnings, accounts charters, intragroup loans and management agreements from our related rig-owning
subsidiaries.
Our delivery financing arrangements are secured by the relevant rigs that are financed, being twelve rigs as of December 31,
2020. In relation to nine of our delivered PPL rigs, the respective rig owners’ financial obligations are cross-guaranteed and cross-
collateralized. In relation to three of our delivered Keppel rigs, secured finance is in place. We have committed delivery financing
in relation to four of our undelivered rigs and one undelivered rig does not have delivery finance arrangements.
Following the amendments to the Syndicated Facility, the New Bridge Facility, the Hayfin Facility and the Existing Shipyard
Financing in June 2020 and pursuant to the 2021 Amendments (see please see “Item 5.B Liquidity and Capital Resources – Our
Existing Indebtedness.” - “2021 Amendments”), this debt will now mature between the first quarter of 2023 and 2026. In
addition, outstanding obligations under our Hayfin Facility, Syndicated Facility and New Bridge Facility will mature in 2022.
Certain payment obligations for accrued interest fall due in the first quarter of 2022 and obligations to make payments to purchase
the undelivered rigs from Keppel fall due in May 2023 (“Tivar”), July 2023 (“Vale”), September 2023 (“Var”), October 2023
(“Huldra”) and December 2023 (“Heidrun”). Our convertible Bonds mature in 2023. Please see - “Item 5.B Liquidity and Capital
Resources – Our Existing Indebtedness.”.
These obligations will require significant cash payments, or we will need to refinance such debt. Our future cash flows may
be insufficient to meet all of these debt obligations and contractual commitments and we do not expect to have sufficient cash to
repay all of these facilities at their currently scheduled due dates and expect we will need to refinance at least some of these
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facilities, and if we are unable to repay or refinance our debt and make other debt service payments as they fall due, we would
face defaults under such debt instruments which could result in cross-defaults under other debt instruments.
Our ability to fund planned expenditures and amortization payments related to our delivery financing arrangements, will be
dependent upon our future performance, which will be subject to prevailing economic conditions, industry cycles and financial,
business, regulatory and other factors affecting our operations, many of which are beyond our control.
Our outstanding and future indebtedness could affect our future operations, since a portion of our cash flow from operations
will be dedicated to the payment of interest and principal on such debt, and consequently will not be available for other purposes.
If we are unable to repay our indebtedness as it becomes due at maturity, we may need to refinance our debt, raise new debt, sell
assets or repay the debt with the proceeds from equity offerings—however, covenants in certain of our credit facilities limit our
ability to take some of these actions without consent. If we are not able to borrow additional funds, raise other capital or utilize
available cash on hand, a default could occur under certain or all of our Financing Arrangements. If we are able to refinance our
debt or raise new debt or equity financing, such financing might not be on favorable terms. For the substantial doubt over our
ability to continue as a going concern, please refer to note 1 of our Consolidated Financial Statements.
If we fail to make a payment when due under our newbuilding contracts, fail to take delivery of our newbuild jack-up rigs in
accordance with the relevant contract terms or otherwise breach the terms of any of our newbuilding contracts we could lose all or
a portion of the pre delivery installments paid to Keppel, which as of December 31, 2020, amounted to $190.2 million, and we
could be liable for penalties and damages under such contracts in which case our business, financial condition and results of
operations could be adversely affected.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, growth and prospects.
We are largely dependent on cash generated by our operations, cash on hand, borrowings under our Financing Arrangements
and potential issuances of equity or long-term debt to cover our operating expenses, service our indebtedness and fund our other
liquidity needs. The level of cash available to us depends on numerous factors, including the price of oil, current global economic
conditions, demand for our services, the dayrates we are paid by our customers, the level of utilization of our drilling rigs, our
ability to control and reduce costs, our access to capital markets and amounts available to us under our Financing Arrangements
and amounts received from our JVs. One or more of such factors could be negatively impacted and our sources of liquidity could
be insufficient to fund our operations and service our obligations such that we may require capital in excess of the amount
available from those sources. Our access to funding sources in amounts adequate to finance our operations and planned capital
expenditures and repay our indebtedness or on terms that are acceptable could be impaired by factors such as negative views and
expectations about us, the oil and gas industry or the economy in general and disruptions in the financial markets.
Our financial flexibility will be severely constrained if we experience a significant decrease in cash generated from our
operations or are unable to maintain our access to or secure new sources of financing. If additional financing sources are
unavailable, or not available on reasonable terms, our financial condition, results of operations, growth and future prospects could
be materially adversely affected, and we may be unable to continue as a going concern. As such, we cannot assure you that cash
flow generated from our business and other sources of cash, including future borrowings under Financing Arrangements and debt
financings and new debt and equity financings, will be sufficient to enable us to pay our indebtedness and to fund our other
liquidity needs. For the substantial doubt over our ability to continue as a going concern, please refer to note 1 of our
Consolidated Financial Statements.
We currently have limited cash resources and we have limited incremental facilities and limited or no ability to draw on any
incremental credit facilities without lender consent. We are also subject to minimum liquidity covenants. (Please see “Item 5.B
Liquidity and Capital Resources – Our Existing Indebtedness.” for further details of the agreed terms and conditions precedent to
their effectiveness). We have significant debt maturities in 2023 which will require us to raise additional financing and/or extend
maturities due in 2023.
As a result of our significant cash flow needs, we may be required to raise funds through the issuance of additional debt
or equity, and in the event of lost market access, may not be successful in doing so.
Our cash flow needs, both in the short-term and long-term, include:
•
•
normal recurring operating expenses,
planned and discretionary capital expenditures, and
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•
repayment of debt and interest.
We have incurred significant losses since inception and are dependent on additional financing in order to fund continued
losses expected in the next 12 months and to meet its existing capital expenditure commitments and further execute on its planned
capital expenditure program. The negative cash effects as a result of previous and any future contract terminations further extend
the existing need for additional financing.
We currently have limited cash resources and we have limited or no ability to draw on credit facilities without lender consent.
We have significant debt maturities and capital commitments in 2023 which will require us to raise additional financing and/or
extend maturities due in 2023.
We may seek to raise additional capital in a number of ways, including accessing capital markets, obtaining additional lines
of credit or disposing of assets. We may also issue additional securities and our subsidiaries may also issue securities in order to
fund working capital, capital expenditures, such as activation, reactivation and mobilization costs, or other needs. Any such equity
issuance would have the effect of diluting our existing shareholders. However, we can provide no assurance that any of these
options will be available to us on acceptable terms, or at all. Current capital market conditions as well as industry conditions and
our debt levels could make it very difficult or impossible to raise capital until conditions improve.
We may delay or cancel discretionary capital expenditures, which could have certain adverse consequences, including
delaying upgrades or equipment purchases that could make the affected rigs less competitive, adversely affect customer
relationships and negatively impact our ability to contract such rigs.
The covenants in certain of our Financing Arrangements impose operating and financial restrictions on us.
Certain of our Financing Arrangements impose operating and financial restrictions on us. These restrictions may affect our
flexibility in planning for, and reacting to, changes in our business or economic conditions and may otherwise prohibit or limit our
ability to undertake certain business activities without consent of the lending banks. In addition, the restrictions contained in
certain of our Financing Arrangements and future financing arrangements could impact our ability to withstand current or future
economic or industry downturns, compete with others in our industry for strategic opportunities or operationally (to the extent our
competitors are subject to less onerous restrictions) and may also limit our ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate and other purposes. These restrictions include (i) paying dividends
and repurchasing our Shares, (ii) changing the general nature of our business, (iii) making financial investments, (iv) entering into
certain secured capital markets indebtedness. Furthermore, a change of control event occurs if Mr. Tor Olav Trøim ceases to serve
on our Board or Mr. Tor Olav Trøim ceases to maintain ownership of at least six million shares (subject to adjustment for certain
transactions).
The terms of certain of our Financing Arrangements require us to maintain specified financial ratios and to satisfy financial
covenants. In June 2020 we obtained waivers from compliance with certain covenants and consents to defer certain interest
payments, and we ultimately reached agreement with our secured creditors to defer certain payments and to amend financial
covenants. Through the 2021 Amendments we have agreed similar amendments to our Financing Arrangements (Please see
“Item 5.B Liquidity and Capital Resources – Our Existing Indebtedness.”) for further details of the agreed terms and conditions
precedent to their effectiveness). We may not be able to obtain our lenders’ consent to waive or amend covenants that are
beneficial for our business, which may impact our performance. Moreover, in connection with any future waivers or amendments
to our Financing Arrangements that we may obtain, our lenders may modify the terms of our Financing Arrangements or impose
additional operating and financial restrictions on us. If we are unable to comply with any of the covenants in our current or future
debt agreements, and we are unable to obtain a waiver or amendment from our lenders, a default could occur under the terms of
those agreements.
In addition, our Hayfin Facility agreement contains a requirement that we maintain minimum cash collateral equal to
three months interest on the facility when the jack-up rigs providing security thereunder are not actively operating under an
approved drilling contract (as defined in the Hayfin Facility agreement) from January 1, 2021. In addition, if there is a change of
circumstances that the lenders under certain of our Financing Arrangements believe has had, or is reasonably likely to have, a
material adverse effect on our business, our ability to comply with our obligations under our Financing Arrangements and/or the
security we have provided for our obligations, the lenders may have the right to declare a default.
The lenders under certain of our Financing Arrangements 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 the market value-to-loan covenant in our
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various agreements. Any impairment charges to our jack-up rigs or other investments and assets could adversely impact our
ability to comply with the financial ratios and tests in certain of our Financing Arrangements. Our Financing Arrangements also
contain events of default which include non-payment, cross default, breach of covenants, insolvency and changes that have or are
likely to have a material adverse effect on the relevant obligor’s business, ability to perform obligations under any of such
agreements or related security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders
under our Financing Arrangements 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. In addition, PPL also have a requirement that the Company should
provide additional security if the average value of any rigs financed under the PPL arrangement falls below $70 million in 2021,
$75 million in 2022 or $80 million thereafter. Additionally, the Syndicated Facility and New Bridge Facility agreements contain a
“Most Favored Nation” clause whereby the lenders thereunder have a right to amend the financial covenants to reflect any more
lender-favorable covenants in any other agreement pursuant to which loan or guarantee facilities are provided to us, including
amendments to our Financing Arrangements.
We may not be able to obtain our lenders’ consent to waive or amend covenants that are beneficial for our business, which
may impact our performance. Moreover, in connection with any future waivers or amendments to our Financing Arrangements
that we may obtain, the terms of our Financing Arrangements may be modified to impose additional operating and financial
restrictions on us. If we are unable to comply with any of the covenants in our current or future debt agreements, and we are
unable to obtain a waiver or amendment from our lenders, a default could occur under the terms of those agreements.
If there is a default under our Financing Arrangements, this would enable the lenders thereunder to terminate their
commitments to lend and accelerate the loan and declare all amounts borrowed due and payable or require the unwinding of
certain guarantees provided under our Syndicated Facility. Our Financing Arrangements contain cross-default provisions,
meaning that if we are in default under any of our Financing Arrangements, this would result in a cross-default under our other
Financing Arrangements and shipyard loans as well as our convertible bonds, and enable such creditors to declare all amounts
payable (i.e. “accelerate”) thereunder. We do not have funds to pay amounts outstanding under such debt instruments if amounts
outstanding thereunder are accelerated. This could result in us seeking protection under bankruptcy laws or making an insolvency
filing.
Our Financing Arrangements allow our secured creditors, under certain conditions, to purchase our rigs at or near the
outstanding balance of debt, or to cancel planned newbuilding contracts thereby reducing our premium fleet.
As a result of the 2021 Amendments (Please see “Item 5.B Liquidity and Capital Resources – Our Existing Indebtedness.”),
our secured lenders have purchase options on two of our rigs, the ‘Thor’ and the ‘Skald’, if we do not activate the rigs for work
before the end of 2021, with a right for us to repay/refinance loan and retain the rig within a certain time period. In addition, our
shipyard rig providers PPL has the right to repurchase one rig, the ‘Gyme’, if the rig is not activated, and which is currently not
activated. Exercise of those purchase options would lead to an impairment of the book value of those rigs. In addition, Keppel
have the right to terminate our five newbuilding contracts with no refund of deposits, or other compensation, if it receives an offer
from a third party, unless Borr purchases the rigs at the offer price within a certain time period. PPL has been granted a purchase
option in respect of the “Gyme” for the price of the outstanding secured debt on the relevant rig, with the right for the company to
repay/refinance the loan and retain the rig within a certain time period. It is difficult to predict if and when any of these options
will be exercised, and whether we would seek (or be able to raise) alternate financing at that time in order to retain the relevant
rigs and newbuilding contracts.
Our Financing Arrangements are not necessarily reflective of those that may be in place from time to time.
We may need to borrow from time to time to fund working capital and capital expenditures, such as activation, reactivation
and mobilization costs and/or to fund the issuance of guarantees required for temporary import of rigs, customs bonds,
performance guarantees or other needs, subject to compliance with the covenants in certain of our Financing Arrangements.
However, our business is capital intensive and to the extent we do not generate sufficient cash from operations and to the extent
we are unable to draw under our credit facilities, we may need to raise additional funds through public or private debt or equity
offerings or through bank, shipyard or other financing arrangements to fund our capital expenditures, and in industry down cycles,
our operating expenses. We may not be able to raise additional indebtedness. Any additional indebtedness which we are able to
raise may include additional revolving credit facilities, term loans, bonds, refinancing of our Financing Arrangements or other
forms of indebtedness. We may also issue additional Shares or other securities and our subsidiaries may also issue securities in
order to fund working capital, capital expenditures, such as activation, reactivation and mobilization costs, or other needs. Any
such equity issuance would have the effect of diluting our existing shareholders.
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Our ability to incur additional indebtedness or refinance our current Financing Arrangements will depend on a number of
factors, including the condition of the lending markets, capital markets and our financial position at such time. Any additional
indebtedness or refinancing of our Financing Arrangements may result in higher interest rates or further encumbrances on our
jack-up rigs and may require us to comply with more onerous covenants, which could further restrict our business operations.
Increases in interest rates will increase interest costs on our variable interest rate debt instruments, which would reduce our cash
flows. If we are not able to maintain a level of cash flows sufficient to operate our business in the ordinary course according to our
business plan and are unable to incur additional indebtedness or refinance our Financing Arrangements, our business, financial
condition and results of operations may be adversely affected.
We face risks in connection with delivery financing arrangements in place with Keppel
We have an order book with Keppel for five newbuild jack-up rigs as of December 31, 2020, and we have corresponding
delivery financing facilities with Keppel for four of these rigs in the amount of $415.3 million in respect of certain newbuild jack-
up rigs that were originally to be delivered by Keppel no later than the end of 2020, but are now scheduled to be delivered in
2023. Accordingly, as new rigs are delivered, our indebtedness will increase, as will our debt service payments, and we will be
required to comply with the covenants in such facilities. We have not secured finance for 'Tivar". In addition, pursuant to the 2021
Amendments, Keppel may cancel these newbuilding contracts at any time prior to delivery, if they receive a bona fide offer from
a third party. We have a right to match any offer they receive to continue with the newbuilding contracts, but this will accelerate
payments due from us to Keppel.
We have been provided with refund guarantees and/or parent company guarantees as security for Keppel’s obligation to
refund predelivery installment payments in the event of a default by Keppel. Such guarantees entitle us to a refund under the
relevant construction contract. If we are not able to secure finance for "Tivar" and /or Keppel is unable to honor its obligations to
us, including the obligation to refund installment payments under certain circumstances or provide the underlying financing for
our delivery financing arrangements, and we are not able to borrow additional funds, raise other capital or use available cash on
hand or borrowings under our Syndicated Facility and New Bridge Facility and available current cash on hand are not sufficient to
pay the remaining installments related to our contracted commitments for our newbuild jack-up rigs, we may not be able to
acquire these jack-up rigs and/or may be subject to lengthy arbitral or court proceedings, any of which may have a material
adverse effect on our business, financial condition and results of operations.
We are also required to meet conditions to draw the loans to be provided under these delivery financing facilities, including
giving customary representations and confirmation at the time of borrowing, and if we are unable to meet such conditions we
would need to obtain alternative financing. We believe it would be very challenging to obtain alternative financing at this time,
therefore a failure to meet draw conditions could result in a breach of contract to acquire the rig, and loss of deposit which could
impact other financing arrangements.
We have suffered, and may suffer in the future, losses through our investments in other companies in the offshore drilling
and oilfield services industry, including debt and other securities issued by such companies.
From time to time, we have made and held investments in other companies in our industry that own/operate offshore drilling
rigs with similar characteristics to our fleet of jack-up rigs, subject to compliance with the covenants contained in certain of our
Financing Arrangements that restrict such investments. We have also purchased and held debt or other securities issued by other
companies in the offshore drilling industry from time to time.
The market value of our equity interest in, or debt or other securities issued by, these companies has been, and may continue
to be, volatile and has fluctuated, and may continue to fluctuate, in response to changes in oil and gas prices and activity levels in
the offshore oil and gas industry. If we sell our equity interest or debt or other securities in an investment at a time when the value
of such investment has fallen, we may incur a loss on the sale or an impairment loss being recognized, ultimately leading to a
reduction in earnings.
For example in 2019 we invested in forward contracts for marketable securities in Valaris PLC (formerly EnscoRowan PLC)
and incurred total realized loss on expiration of the contracts of approximately $91.0 million.
An economic downturn could have an adverse effect on our ability to access the capital markets.
Negative developments in worldwide financial and economic conditions could impact our ability to access the lending and
capital markets, which could impact our ability to react to changing economic and business conditions. Worldwide economic
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conditions could in the future impact lenders' willingness to provide credit facilities to us, or our customers, causing them to fail
to meet their obligations to us.
A renewed period of adverse development in the outlook for the financial stability of European, Middle Eastern or other
countries, or market perceptions concerning these and related issues, could reduce the overall demand for oil and natural gas and
for our services and thereby could affect our business, financial condition and results of operations. Brexit, or similar events in
other jurisdictions, can impact global markets, which may have an adverse impact on our ability to access the capital markets. In
addition, turmoil and hostilities in various geographic areas and countries around the world add to the overall risk picture.
Our Hayfin Facility and New Bridge Facility are provided by European banking and financing institutions and our
Syndicated Facility is provided jointly by European and U.S. banking institutions. In addition, a substantial portion of our long-
term debt, our delivery financing arrangements, is provided by Keppel and PPL, Singaporean companies that may be highly
leveraged, are not capitalized in the same manner as a financial institution and that are subject to their own operating, liquidity or
regulatory risks. These risks could lead Keppel to seek to cancel, repudiate or renegotiate our construction contracts or fail to
fulfill or challenge their commitments to us under those contracts, including the obligation to refund installment payments. The
risks of liquidity concerns are heightened in periods of depressed market conditions. If economic conditions in European or
American markets preclude or limit financing from European and/or American banking institutions, or if financial conditions in
the Republic of Singapore impair the ability of Keppel or PPL to honor their obligations to us, we may not be able to obtain
financing from other institutions on terms that are acceptable to us, or at all, even if conditions outside Europe or the United States
remain favorable for lending. If our ability to access the debt or capital markets is affected by general economic conditions and
contingencies and uncertainties that are beyond our control, there may be a material adverse effect on our business and financial
condition.
The COVID-19 outbreak and its impact on the global economy has had a significant adverse impact on the global economy
and capital and lending markets, which has and may continue to subject us to the risks and impacts described above.
Interest rate fluctuations could affect our earnings and cash flow.
In order to finance our growth, we have incurred significant amounts of debt. A significant portion of our debt bears floating
interest rates. As such, movements in interest rates could have an adverse effect on our earnings and cash flow. Interest rates
under certain of our Financing Arrangements are determined with reference to the London Inter-bank Offered Rate (“LIBOR”)
above a specified margin.
We currently have no hedging arrangements in place with respect to our floating-rate debt. We may enter into hedging
arrangements from time to time in the future with respect to our interest rate exposure, but such hedging may not significantly
reduce the risk we face. If we are unable to effectively manage our interest rate exposure through interest rate swaps in the future,
any increase in market interest rates would increase our interest rate exposure and debt service obligations, which would
exacerbate the risks associated with our leveraged capital structure.
Moreover, on March 5, 2021, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, confirmed
that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after
December 31, 2021, in the case of Sterling, Euro, Swiss franc and Japanese yen settings and immediately after June 30, 2023, in
the case of remaining US dollar settings. The overall financial markets may be disrupted as a result of the phase-out or
replacement of LIBOR. Uncertainty as to the nature of such potential phase-out and alternative reference rates or disruption in the
financial market could have a material adverse effect on our business, financial condition and results of operation.
Fluctuations in exchange rates and an inability to convert currencies could result in losses to us.
We use the U.S. dollar as our functional currency because the majority of our revenues and expenses are denominated in U.S.
dollars. Accordingly, our reporting currency is also U.S. dollars. As a result of our international operations, we may be exposed to
fluctuations in foreign exchange rates due to revenues being received and operating expenses paid in currencies other than U.S.
dollars.
Notably, with respect to jack-up drilling contracts in the North Sea, revenues are commonly received, and salaries generally
paid, in Euros or Pounds. In addition, we may receive revenue or incur expenses in other currencies, including the Nigerian naira.
Accordingly, we may experience currency exchange losses if we have not adequately hedged our exposure to a foreign currency,
or if revenues are received in currencies that are not readily convertible. Moreover, we may experience adverse tax consequences
attributable to currency fluctuations. We may also be unable to collect revenues because of a shortage of convertible currency
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available in the country of operation, controls over currency exchange or controls over the repatriation of income or capital. As
we earn revenues and incur expenses in currencies other than our reporting currency, there is a risk that currency fluctuations
could have an adverse effect on our statements of operations and cash flows.
RISK FACTORS RELATED TO APPLICABLE LAWS AND REGULATIONS
Compliance with, and breach of, the complex laws and regulations governing international drilling activity and trade
could be costly, expose us to liability and adversely affect our operations.
We are directly affected by the adoption and entry into force of national and international laws and regulations that, for
economic, environmental or other policy reasons, curtail, or impose restrictions, obligations or liabilities in connection with,
exploration and development drilling for oil and gas in the geographic areas in which we operate.
The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic
sanctions are complex and constantly changing. Import activities are governed by unique customs laws and regulations in each of
the countries of operation. Moreover, many countries, including the United States, control the export and re-export of certain
goods, services and technology and impose related export recordkeeping and reporting obligations. Shipments can be delayed and
denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from the
failure to comply with existing legal and regulatory regimes. Delays or denials of shipments of parts and equipment that we need
could cause unscheduled operational downtime. Future earnings may be negatively affected by compliance with any such new
legislation or regulations.
Any failure to comply with applicable legal and regulatory trading obligations, including as a result of changed or amended
interpretations or enforcement policies, could also result in administrative, criminal and civil penalties and sanctions, such as
fines, imprisonment, debarment from government contracts, the seizure of shipments, the loss of import and export privileges and
the suspension or termination of operations. New laws, the amendment or modification of existing laws and regulations or other
governmental actions that prohibit or restrict offshore drilling or impose additional environmental protection requirements that
result in increased costs to the oil and gas industry, in general, or to the offshore drilling industry, in particular, could adversely
affect our performance.
Local content requirements may increase the cost of, or restrict our ability to, obtain needed supplies or hire experienced
personnel, or may otherwise affect our operations.
Local content requirements are policies imposed by governments that require companies who operate within their jurisdiction
to use domestically supplied goods and services or work with a domestic partner in order to operate within the jurisdiction.
Governments in some countries in which we operate, or may operate in the future, have become increasingly active in the
requirements with respect to the ownership of drilling companies, local content requirements for equipment used in operations
within the country and other aspects of the oil and gas industries in their countries. In addition, national oil companies may
impose restrictions on the submission of tenders, including eligibility criteria, which effectively require the use of domestically
supplied goods and services or a local partner.
For example, the Nigerian Oil and Gas Industry Content Development Act, 2010 (the “Local Content Act”) was enacted to
provide for the development, implementation and monitoring of Nigerian content in the oil and gas industry and places emphasis
on the promotion of Nigerian content among companies bidding for contracts in the oil and gas industry. The Local Content Act
provides the parameters and minimum level/percentages to be used in determining and measuring Nigerian content in the
composite human and material resources and services applied by operators and contractors in any industry project within Nigeria.
Some foreign governments and/or national oil companies favor or effectively require (i) the awarding of drilling contracts to
local contractors or to drilling rigs owned by their own citizens, (ii) the use of a local agent or (iii) foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. For example, in Mexico, where we have significant activities,
there are no foreign investment restrictions for the operation of jack-up rigs for drilling operations in Mexico but the particular
tender rules or the nature of the contractual obligations may make it necessary or prudent for these activities to be performed with
a Mexican partner. We conduct our activities in Mexico through joint venture entities with a local Mexican partner experienced in
providing services to PEMEX and use local labor and resources in order to comply with the contractual obligations to PEMEX.
These practices may adversely affect our ability to compete in those regions and could result in increased costs and impact our
ability to effectively control and operate our jack-up rigs, which could have a material impact on our earnings, operations and
financial condition in the future.
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As a limited liability company incorporated under Bermuda law with subsidiaries in certain offshore jurisdictions, our
operations are subject to economic substance requirements.
Certain of our subsidiaries may from time to time be organized in other jurisdictions identified by the Code of Conduct Group
for Business Taxation of the European Union (the “COCG”), based on global standards set by the Organization for Economic Co-
operation and Development with the objective of preventing low-tax jurisdictions from attracting profits from certain activities, as
non-cooperative jurisdictions or jurisdictions having tax regimes that facilitate offshore structures that attract profits without real
economic activity.
On December 5, 2017, following an assessment of the tax policies of various countries by the COCG, economic substance
laws and regulations were enacted in these jurisdictions requiring that certain entities carrying out particular activities comply
with an economic substance test whereby the entity must show, for example, that it (i) carries out activities that are of central
importance to the entity from the jurisdiction, (ii) has held an adequate number of its board meetings in the jurisdiction when
judged against the level of decision-making required and (iii) has an adequate (a) amount of operating expenditures, (b) physical
presence and (c) number of full-time employees in the jurisdiction.
If we fail to comply with our obligations under applicable economic substance legislation or any similar law applicable to us
in any other jurisdictions, we could be subject to financial penalties and spontaneous disclosure of information to foreign tax
officials in related jurisdictions and may be struck from the register of companies in that jurisdiction. Any of these actions could
have a material adverse effect on our business, financial condition and results of operations.
The obligations of being a public company, including compliance with the reporting requirements of the Norwegian
Securities Trading Act, the Oslo Stock Exchange Rules, the Exchange Act and NYSE Listed Company Manual, require
certain resources and has caused us to incur additional costs.
We are subject to reporting and other requirements as a result of our listing on the Oslo Børs and on the New York Stock
Exchange, or NYSE. As a result of these listings we incur costs in complying with applicable statutes, regulations and
requirements related to being a public company, which occupies additional time of our Board and management and the listing on
the NYSE has increased our costs and expenses.
As an emerging growth company, we are not currently subject to the requirement of auditor attestation of internal
controls and certain disclosure requirements.
We qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), which
exempts us from including the filing of an auditor’s attestation report regarding the effectiveness of our internal controls on
financial reporting until we are no longer an emerging growth company, or we become a large accelerated filer and have and
intend to continue to take advantage of this exemption. By relying on this exemption, investors will not have the benefit of an
auditor attestation report on our internal controls, which could impact investor confidence and ultimately investors' ability to
evaluate the effectiveness of our internal controls and to identify deficiencies and weaknesses. As an emerging growth company
we are also exempt from certain other disclosure requirements applicable to other SEC reporting companies such as the
requirement for our auditor to disclosure critical audit matters in its audit report, and therefore investors will not benefit from such
disclosures as they would if we were not an emerging growth company.
We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of
doing business.
Our business is subject to international, national and local, environmental and safety laws and regulations, treaties and
conventions in force from time to time including:
•
•
•
the United Nation’s International Maritime Organization, or the “IMO,” International Convention for the Prevention of
Pollution from Ships of 1973, as from time to time amended, or “MARPOL,” including the designation of Emission
Control Areas, or “ECAs” thereunder;
the IMO International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended,
or the “CLC”;
the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the “Bunker Convention”;
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•
•
•
•
•
•
•
•
•
•
•
•
•
the International Convention for the Safety of Life at Sea of 1974, as from time to time amended, or “SOLAS”;
the IMO International Convention on Load Lines, 1966, as from time to time amended;
the International Convention for the Control and Management of Ships’ Ballast Water and Sediments in February
2004, or the “BWM Convention”;
the U.S. Oil Pollution Act of 1990, or the “OPA”;
requirements of the U.S. Coast Guard;
requirements of the U.S. Environmental Protection Agency, or the “EPA”;
the U.S. Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA”;
the U.S. Maritime Transportation Security Act of 2002, or the “MTSA”;
the U.S. Outer Continental Shelf Lands Act, or the “OCSLA”;
the Code for the Construction and Equipment of Mobile Offshore Drilling Units, 2009, or the “MODU Code 2009”;
the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, or the
“Basel Convention”;
the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009, or the
“Hong Kong Convention”; and
certain regulations of the European Union, including Regulation (EC) No 1013/2006 on Shipments of Waste and
Regulation (E.U.) No 1257/2013 on Ship Recycling.
Compliance with applicable laws, regulations and standards may require us to incur capital costs or implement operational
changes and may affect the value or useful life of our jack-up rigs which could have a material adverse effect on our profitability.
A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the
suspension or termination of our operations. Conventions, laws and regulations are often revised and may only apply in certain
jurisdictions with the effect that, we cannot predict the ultimate cost of complying with them or their impact on the value or useful
lives of our rigs. New conventions, laws and regulations may be adopted that could limit our ability to do business or increase the
cost of our doing business and that may materially adversely affect our operations.
Environmental laws often impose strict liability for the remediation of spills and releases of oil and hazardous substances,
which could subject us to liability irrespective of any negligence or fault on our part. Under the US Oil Pollution Act of 1990, for
example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-
mile exclusive economic zone around the United States. If we were to operate in these areas, an oil or chemical spill could result
in us incurring significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages
under other federal, state and local laws, as well as third-party damages, which could have a material adverse effect on our
business, financial condition, results of operations and cash flows. Furthermore, future major environmental incidents involving
the offshore drilling industry, such as the 2010 Deepwater Horizon Incident (to which we were not a party) may result in further
regulation of the offshore industry and modifications to statutory liability schemes, thus exposing us to further potential financial
risk in the event of any such oil or chemical spill in areas in which we operate.
Our jack-up rigs could cause the release of oil or hazardous substances and we are required by various governmental and
quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations, and to satisfy
insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents.
Any releases may be large in quantity, above permitted limits or occur in protected or sensitive areas where public interest groups
or governmental authorities have special interests. Any releases of oil or hazardous substances could result in fines and other costs
to us, such as costs to upgrade our jack-up rigs, clean up the releases, compensate for natural resource damages and comply with
more stringent requirements in our discharge permits. Moreover, such releases may result in our customers or governmental
authorities suspending or terminating our operations in the affected area, which could have a material adverse effect on our
business, results of operations and financial condition.
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Our jack-up rigs are owned by separate single-purpose subsidiaries, but certain obligations of these subsidiaries are and may
in the future be guaranteed by the parent company.
Even if we are able to obtain contractual indemnification from our customers against pollution and environmental damages in
our contracts, such indemnification may not be enforceable in all instances or the customer may not be financially able to comply
with its indemnity obligations in all cases. We do not have full contractual indemnification under our current contracts, and we
may not be able to obtain such indemnification agreements in the future. In addition, a court may decide that certain indemnities
in our current or future contracts are not enforceable.
Although we have insurance to cover certain environmental risks, there can be no assurance that such insurance will respond
and if it does, that the proceeds will be sufficient to cover all such risks or that any claims will not have a material adverse effect
on our business, results of operations, cash flows and financial condition.
In the future, insurance coverage protecting us against damages incurred or fines imposed as a result of our violation of
applicable environmental laws may not be available or we may choose not to obtain such insurance, and this could have a material
adverse effect on our business, results of operations and financial condition.
Future government regulations may adversely affect the offshore drilling industry.
International contract drilling operations are subject to various laws and regulations of the countries in which we operate,
including laws and regulations relating to:
•
•
•
•
•
•
•
the equipping and operation of drilling rigs;
exchange rates or exchange controls;
oil and gas exploration and development;
the taxation of earnings;
the environment and climate change;
the taxation of the earnings of expatriate personnel; and
the use and compensation of local employees and suppliers by foreign contractors.
It is difficult to predict what government regulations may be enacted in the future that could adversely affect the offshore
drilling industry. Failure to comply with applicable laws and regulations, including those relating to sanctions and export
restrictions, may subject us to criminal sanctions or civil remedies, including fines, the denial of export privileges, injunctions or
the seizures of assets.
Data protection and regulations related to privacy, data protection and information security could increase our costs, and
our failure to comply could result in fines, sanctions or other penalties, as well as have an impact on our reputation.
We rely on information technology systems and networks in our operations and administration of our business and are bound
by national and international regulations related to privacy, data protection and information security.
Increasing regulatory enforcement and litigation activity in these areas of privacy, data protection and information security in
the U.S., the European Union and other relevant jurisdictions are increasingly adopting or revising privacy, data protection and
information security laws. For example, the General Data Protection Regulations of the European Union (“GDPR”), which
became enforceable in all 28 E.U. member states as of May 25, 2018, requires us to undertake enhanced data protection
safeguards, with fines for noncompliance up to 4% of global total annual worldwide turnover or €20 million (whichever is
higher), depending on the type and severity of the breach. Compliance with current or future privacy, data protection and
information security laws could significantly impact our current and planned privacy, data protection and information security
related practices, our collection, use, sharing, retention and safeguarding of customer and/or employee information, and some of
our current or planned business activities.
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As our business grows, our compliance costs may increase, particularly in the context of ensuring that adequate data
protection and data transfer mechanisms are in place and adapted to development in the laws and regulations in all of the relevant
jurisdictions. Failure to comply with applicable privacy, data protection and information security laws could affect our results of
operations and overall business, as well as have an impact on our reputation.
Our ability to operate our jack-up rigs in the U.S. Gulf of Mexico could be impaired by governmental regulation and new
regulations adopted in response to the investigation into the 2010 Deepwater Horizon Incident.
In the aftermath of the 2010 Deepwater Horizon Incident (to which we were not a party), new and revised regulations
governing safety and environmental management systems with a focus on operator obligations, were implemented. The guidelines
or regulations that may apply to jack-up rigs may subject us to increased costs and limit the operational capabilities of our jack-up
rigs if, in the future, we decide to have operations in the U.S. Gulf of Mexico region.
A change in tax laws in any country in which we operate could result in higher tax expense.
We conduct our operations through various subsidiaries and branches in countries around the world. Our operations are
subject to tax laws, regulations and treaties which are highly complex, subject to interpretation, frequent changes and have
generally become more stringent over time. Consequently, there is substantial uncertainty with respect to tax laws, regulations,
treaties and the interpretation and enforcement thereof. Tax directives issued by the EU and the base erosion and profit shifting
project established by the Organization for Economic Co-operation and Development (OECD) which generally targeted profits
earned in low tax jurisdictions or transactions between affiliates where payments are made from jurisdictions with high tax rates
to jurisdictions with lower tax rates, called for member states to take action against base erosion and profit shifting. In response to
the OECD recommendations, various countries where we operate have recently introduced changes to their tax laws and it is
possible that further changes will be made in the future which may be applied retroactively. This may have an adverse effect on
our financial position and cash flows.
Effective from 1 January 2020, Mexico enacted a tax reform which has the potential to materially increase our tax expense.
We are continuing to assess and keep track of the implications of this reform. Taxing authorities around the world are increasingly
focused on the effects of the current worldwide pandemic and may increase income tax rates or become aggressive in scrutinizing
tax returns and increasing frequency of audits to generate revenue.
The UK Government announced in its March Budget in 2021 that the rate of Corporation Tax was set to rise from 19% to
25% starting in 2023. Our income tax expense is based on our interpretation of the tax laws in effect in the countries that we
operate in, at the time that the expense was incurred. If a taxing authority successfully challenges our tax structure or if a change
in these tax laws, regulations or treaties, or in the interpretation thereof occurs in a manner that is adverse to our structure, this
could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings. Additionally, due to the
nature of our business and the frequent changes in the taxing jurisdictions of our operations, our consolidated effective income tax
rate may vary from one period to another.
A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the
taxable presence of our subsidiaries in certain countries could result in a higher tax rate on our worldwide earnings,
which could result in a significant negative impact on our earnings and cash flows from operations.
Our income tax returns are subject to review and examination. We do not recognize the benefit of income tax positions we
believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges
positions we have taken in tax filings related to our operational structure, intercompany pricing policies, the taxable presence of
our subsidiaries in certain countries or any other situation, or if the terms of certain income tax treaties are interpreted in a manner
that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings
could increase substantially and our earnings and cash flows from operations could be materially adversely affected.
Climate change and the regulation of greenhouse gases could have a negative impact on our business.
In response to concerns over the risk of climate change, a number of countries and the IMO have adopted, or are considering
the adoption of, regulatory frameworks to reduce greenhouse gas emissions. Currently, the emissions of greenhouse gases from
international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change,
which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to
reduce greenhouse gas emissions or the Paris Agreement, which resulted from the 2015 United Nations Framework Convention
on Climate Change conference in Paris and entered into force on November 4, 2016. As at January 1, 2013, all ships (including
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jack-up rigs) must comply with mandatory requirements adopted by the IMO’s Maritime Environment Protection Committee, or
the “MEPC,” in July 2011 relating to greenhouse gas emissions. A roadmap for a “comprehensive IMO strategy on a reduction of
GHG emissions from ships” was approved by MEPC at its 70th session in October 2016, and in 2018 IMO adopted an initial
strategy designed to reduce the emission of greenhouse gases from ships, including short-term, mid-term and long-term candidate
measures, with a vision of reducing and phasing out greenhouse gas emissions from ships as soon as possible in the 21st Century.
These requirements could cause us to incur additional compliance costs. In May 2019, the MPEC approved a number of measures
aimed at achieving the IMO initial strategy’s objectives.
In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has
adopted regulations to limit greenhouse gas emissions from certain mobile sources and large stationary sources. Although the
mobile source emissions regulations do not apply to greenhouse gas emissions from drilling rigs, such regulation of drilling rigs is
foreseeable, and the EPA has received petitions from the California Attorney General and various environmental groups seeking
such regulation. In the United States, individual states can also enact environmental regulations. For example, California has
introduced caps for greenhouse gas emission and has signaled it might take additional actions regarding climate change.
Compliance with changes in laws, regulations and obligations relating to climate change could increase our costs related to
operating and maintaining our assets, require us to install new emission controls, require us to acquire emission allowances or pay
taxes related to our greenhouse gas emissions, or require us to administer and manage a greenhouse gas emissions program. Any
passage of climate control legislation or other regulatory initiatives by the IMO, the European Union, the United States or other
countries in which we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, which restricts
emissions of greenhouse gases, could require us to make significant financial expenditures that we cannot predict with certainty at
this time.
In addition to regulatory efforts, there have also been efforts in recent years aimed at the investment community, including
investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of
fossil fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with fossil fuel
companies, to promote the divestment of fossil fuel equities and to limit funding to companies engaged in the extraction of fossil
fuels. For example, BlackRock, one of the largest asset managers in the world, recently affirmed its commitment to divest from
investments in fossil fuels due to concerns over climate change. The Church of England also voted for divestment from
investments in fossil fuels in 2018, which was set to begin in 2020. Furthermore, certain state pension funds, including the New
York State pension fund, have started divesting from their investments in fossil fuels. Members of the investment community
have begun to screen companies for sustainability performance, included practices related to greenhouse gasses (GHGs) and
climate change before investing in stock. If we are unable to find economically viable, as well as publicly acceptable, solutions
that reduce our GHG emissions and/or GHG intensity for new and existing projects, to the extent financial markets view climate
change and greenhouse emissions as a financial risk, this could negatively impact our share price and our cost of or access to
capital. Moreover, increased attention regarding the risks of climate change and the emission of GHGs augments the possibility of
litigation or investigations being brought by public and private entities against oil and natural gas companies in connection with
their GHG emissions. Should we be targeted by any such litigation or investigations, we may incur liability, which to the extent
that political or societal pressures or other factors involved, could be imposed without regard to the causation of, or contribution
to, the asserted damage, or to other mitigating factors.
Further, physical effects of climate change, such as increased frequency and severity of storms, floods and other climatic
events, could have a material adverse effect on our operations, particularly given that our rigs may need to curtail damages or may
suffer damages during significant weather events.
Additionally, adverse effects upon the oil and gas industry related to the worldwide social and political environment,
including uncertainty or instability resulting from climate change, changes in political leadership and environmental policies,
changes in geopolitical-social views toward fossil fuels and renewable energy, concern about the environmental impact of climate
change and investors’ expectations regarding environmental, social and governance matters, may also adversely affect demand for
our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the
demand for oil and gas in the future or create greater incentives for the use of alternative energy sources, and, we could
experience additional costs or financial penalties, delayed or cancelled projects, and/or reduced production and reduced demand
for hydrocarbons, which could have a material adverse effect on our earnings, cash flows and financial condition. Any long-term
material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our
business, including capital expenditures to upgrade our jack-up rigs, which we cannot predict with certainty at this time.
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Failure to comply with international anti-corruption legislation, including the U.S. Foreign Corrupt Practices Act of
1977, the U.K. Bribery Act 2010 or the Bermuda Bribery Act 2016, could result in fines, criminal penalties, damage to our
reputation and drilling contract terminations.
We currently operate, and historically have operated, our jack-up rigs in a number of countries throughout the world,
including some with developing economies and some known to have a reputation for corruption. We interact with government
regulators, licensors, port authorities and other government entities and officials. Also, our business interaction with national oil
companies as well as state or government-owned shipbuilding enterprises puts us in contact with persons who may be considered
to be “foreign officials” under the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), and the Bribery Act 2010 of the
United Kingdom (the “U.K. Bribery Act”).
We are committed to doing business in accordance with applicable anti-corruption laws and this is reflected in our Code of
Conduct and our business ethics. There is nevertheless a risk that we, our affiliated entities or our or their respective officers,
directors, employees and agents act in a manner which is found to be in violation of applicable anti-corruption laws, including the
FCPA, the UK Bribery Act and the Bermuda Bribery Act of 2016 (the “ABC Legislation”).
We utilize local agents and/or establish entities with local operators or strategic partners in some jurisdiction and these
activities may involve interaction by our agents with government officials. Some of our agents and partners may not themselves
be subject to any ABC Legislation but they are made aware of our Code of Conduct, our Anti-Bribery and Anti-Corruptions
Policy and Procedures and obligations under applicable ABC Legislation. If, however, our agents or partners should nevertheless
make improper payments to government officials or other persons in connection with engagements or partnerships with us, we
could be investigated and potentially found liable for violations of such ABC Legislation (including the books and records
provisions of the FCPA) and could incur civil and criminal penalties and other sanctions, which could have a material adverse
effect on our business and results of operation.
We are subject to the risk that we or our or their respective officers, directors, employees and agents may take actions
determined to be in violation of ABC Legislation. Any such violation could result in substantial fines, sanctions, civil and/or
criminal penalties and curtailment of operations in certain jurisdictions, and might adversely affect our business, results of
operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business.
Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and
attention of our senior management.
If our jack-up rigs are located in countries that are subject to, or targeted by, economic sanctions, export restrictions or
other operating restrictions imposed by the United States or other governments, our reputation and the market for our
debt and common shares could be adversely affected.
The U.S. and other governments may impose economic sanctions against certain countries, persons and other entities that
restrict or prohibit transactions involving such countries, persons and entities. U.S. sanctions in particular are targeted against
countries (such as Russia, Venezuela, Iran and others) that are heavily involved in the petroleum and petrochemical industries,
which includes drilling activities. U.S. and other economic sanctions change frequently, and enforcement of economic sanctions
worldwide is increasing. Subject to certain limited exceptions, U.S. law continues to restrict U.S.-owned or -controlled entities
from doing business with Iran and Cuba, and various U.S. sanctions have certain other extraterritorial effects that need to be
considered by non-U.S. companies. Moreover, any U.S. persons who serve as officers, directors or employees of our subsidiaries
would be fully subject to U.S. sanctions. It should also be noted that other governments are more frequently implementing and
enforcing sanctions regimes.
From time to time, we may be party to drilling contracts with countries or government-controlled entities that become subject
to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of
terrorism. Even in cases where the investment would not violate U.S. law, potential investors could view any such contracts
negatively, which could adversely affect our reputation and the market for our shares. We do not currently have any drilling
contracts or plans to initiate any drilling contracts involving operations in countries or with government-controlled entities that are
subject to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of
terrorism.
There can be no assurance that we will be in compliance with all applicable economic sanctions and embargo laws and
regulations, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Rapid
changes in the scope of global sanctions may also make it more difficult for us to remain in compliance. Any violation of
applicable economic sanctions could result in civil or criminal penalties, fines, enforcement actions, legal costs, reputational
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damage or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest,
in our shares. Additionally, some investors may decide to divest their interest, or not to invest, in our shares simply because we
may do business with companies that do business in sanctioned countries. Moreover, our drilling contracts may violate applicable
sanctions and embargo laws and regulations as a result of actions that do not involve us, or our jack-up rigs, and those violations
could in turn negatively affect our reputation. Investor perception of the value of our shares may also be adversely affected by the
consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Changing corporate laws and reporting requirements could have an adverse impact on our business.
We may face greater reporting obligations and compliance requirements as a result of changing laws, regulations and
standards such as the UK Modern Slavery Act 2015 and GDPR. We have invested in, and intend to continue to invest in,
reasonable resources to address evolving standards and to maintain high standards of corporate governance and disclosure,
including our Whistleblowing Policy and Procedures. Non-compliance with such regulation could result in governmental or other
regulatory claims or significant fines that could have an adverse effect on our business, financial condition, results of operations,
cash flows, and ability to make distributions.
The United Kingdom’s withdrawal from the European Union will have uncertain effects and could adversely impact the
offshore drilling industry.
In June 2016, the United Kingdom voted to exit from the European Union (commonly referred to as “Brexit”). The U.K.
formally exited the EU on January 31, 2020. On December 24, 2020, the U.K. and the EU entered into a trade and cooperation
agreement (the “Trade and Cooperation Agreement”), which was applied on a provisional basis from January 1, 2021. While the
new economic relationship does not match the relationship that existed during the time the U.K. was a member state of the EU,
the Trade and Cooperation Agreement sets out preferential arrangements in certain areas such as trade in goods and in services,
digital trade and intellectual property. Negotiations between the U.K. and the EU are expected to continue in relation to other
areas which are not covered by the Trade and Cooperation Agreement. The long term effects of Brexit will depend on the effects
of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the
U.K. and EU. Brexit has also given rise to calls for the governments of other EU member states to consider withdrawal.
The terms of the eventual UK/EU relationship have been uncertain for companies doing business both in the United Kingdom
and the broader global economy. There are a number of areas of uncertainty in connection with the future of the United Kingdom
and its relationship with the EU. As a result, it is not currently possible to determine the impact that the United Kingdom’s
departure from the EU and/or any related matters may have on general economic conditions in the United Kingdom or the EU.
The exit of the United Kingdom (or any other country) from the EU or prolonged periods of uncertainty relating to any of these
possibilities could result in significant macroeconomic deterioration, including further decreases in global stock exchange indices,
increased foreign exchange volatility, decreased GDP in the European Union or other markets in which we operate, issues with
cross-border trade, political and regulatory uncertainty and further sovereign credit downgrades.
17% of our total revenues were generated in the United Kingdom for the year ended December 31, 2020. In addition, certain
of our warm stacked jack-up rigs may from time to time be located in the United Kingdom and our remaining jack-up rigs may
from time to time move into territorial waters of the United Kingdom. In September 2019, some of our management team
relocated to the United Kingdom and certain of our on-shore employees may from time to time be employed by Borr Drilling
Management UK, which is based in the United Kingdom. Our business and operations may be impacted by any actions taken by
the United Kingdom after Brexit, including with respect to employee and related persons permits and visas, and other
authorizations required to live, work or operate within the United Kingdom. In particular, the impact of potential changes to the
United Kingdom’s migration policy could adversely impact our employees of non-U.K. nationality that may from time to time be
working in the United Kingdom, as well as have an uncertain impact on cross-border labor. The potential loss of the EU
“passport,” or any other potential restrictions on free travel of United Kingdom citizens to Europe, and vice versa, could adversely
impact the jobs market in general and our operations in Europe. Moreover, our business and operations may be impacted by any
subsequent vote in Scotland to seek independence from the United Kingdom. Brexit, or similar events in other jurisdictions, can
impact global markets, including foreign exchange and securities markets. An extended period of adverse development in the
outlook for the world economy could also reduce the overall demand for oil and gas and for our services. Such changes could
adversely affect our results of operations and cash flows.
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RISK FACTORS RELATED TO OUR COMMON SHARES
The price of our common shares may fluctuate widely in the future, and you could lose all or part of your investment.
The market price of our Shares has fluctuated widely and may continue to do so as a result of many factors, such as actual or
anticipated fluctuations in our operating results, changes in financial estimates by securities analysts, and economic trends. The
following is a non-exhaustive list of factors that could affect our share price:
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our operating and financial performance;
quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and
revenues;
the public reaction to our press releases, our other public announcements and our filings with the SEC;
strategic actions by our competitors;
our failure to meet revenue or earnings estimates by research analysts or other investors;
changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by
equity research analysts;
speculation in the press or investment community;
the failure of research analysts to cover our Shares;
sales of our Shares by us or shareholders, or the perception that such sales may occur;
changes in accounting principles, policies, guidance, interpretations or standards;
additions or departures of key management personnel;
actions by our Shareholders;
general market conditions, including fluctuations in oil and gas prices;
domestic and international economic, legal and regulatory factors unrelated to our performance; and
the realization of any risks described in this section “Item 3.D Risk Factors.”
In addition, the stock markets in general have experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Shares.
If we do not comply with the continued listing requirements of the New York Stock Exchange, our shares may be subject
to delisting from the New York Stock Exchange.
On two occasions in 2020, we received written notice from the New York Stock Exchange (the "NYSE") that we were not in
compliance with the NYSE continued listing standard with respect to the minimum average share price required by the NYSE
because the average closing price of our common shares had fallen below $1.00 per share over a period of 30 consecutive trading
days. With respect to both notifications, we regained compliance with this NYSE listing standard as a result of our shares trading
above $1.00 average stock price for the relevant 30 trading day period.
If in the future we again fail to comply with the NYSE minimum price requirement or other NYSE rules, we could face
delisting by the NYSE. A delisting of our shares from the NYSE could negatively impact us by, among other things, reducing the
liquidity and market price of our shares, reducing the number of investors willing to hold or acquire our shares and limiting our
ability to issue securities or obtain financing in the future.
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We are permitted to follow certain home country practices in relation to our corporate governance instead of certain
NYSE rules, which may afford you less protection.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to our corporate governance
matters that differ significantly from the NYSE corporate governance listing standards. These practices may afford less protection
to shareholders than they would enjoy if we complied fully with corporate governance listing standards.
As an issuer whose shares are listed on the NYSE, we are subject to corporate governance listing standards of the NYSE.
However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country.
Certain corporate governance practices in Bermuda, which is our home country, may differ significantly from NYSE corporate
governance listing standards. We follow certain home country practices instead of the relevant NYSE rules. See the section
entitled “Item 16.G Corporate Governance.” Therefore, our shareholders may be afforded less protection than they otherwise
would have under NYSE corporate governance listing standards applicable to U.S. domestic issuers.
The Call Spread transaction we have entered into in connection with our convertible bonds may affect the value of our
shares.
In connection with the pricing of our convertible bonds, we (i) purchased from Goldman Sachs International call options over
10,453,534 Shares with a strike price of $33.482 and (ii) sold to Goldman Sachs International call options over the same number
of shares with a strike price of $42.6125 (together, the “Call Spread Transactions”). The Call Spread Transactions mitigate the
economic exposure from a potential exercise of the conversion rights embedded in our convertible bonds by improving the
effective conversion premium for the Company in relation to our convertible bonds from 37.5% to 75% over the reference price
of $24.35 per share. The Call Spread Transactions may separately have a dilutive effect on our earnings per share to the extent
that the market price per share of our Shares exceeds the applicable strike price of the options at the time of exercise.
We may modify our initial hedge position by entering into or unwinding various derivatives with respect to our shares and/or
purchasing or selling shares in secondary market transactions. This activity could also affect the number of shares and value of the
consideration that holders of our convertible bonds will receive upon conversion of the convertible bonds, which could impact the
market price of our shares.
Future sales of our equity securities in the public market, or the perception that such sales may occur, could reduce our
share price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your
ownership in us.
We may sell additional equity securities, including additional shares or convertible securities, in subsequent public offerings.
In June 2020 we issued 46,153,846 shares, in September 2020 we issued 51,886,793 and in November 2020 we issued
10,000,000 shares. On January 26, 2021, we issued an additional 54,117,647 shares at a subscription price of $0.85, a premium to
the market price of the Shares at the time. In light of current market conditions, and the trading price of our shares, any issuance
of new equity securities could be at prices that are significantly lower than the purchase price of such Shares by other investors,
thereby resulting in dilution of our existing shareholders.
As of April 13, 2021 we have outstanding 273,526,900 shares, and the Related Parties (as defined below) collectively owned
20,417,451 of our shares or approximately 7.5% of our total outstanding shares. Such shares, as well as shares held by our
employees and others are eligible for sale in the United States under Rule 144 under the Securities Act (“Rule 144”) and are
generally freely tradable on the Oslo Børs.
Future issuances by us and sales of shares by significant shareholders may have a negative impact on the market price of our
shares. In particular, sales of substantial amounts of our shares (including shares issued in connection with an acquisition), or the
perception that such sales could occur, may adversely affect prevailing market prices of our shares.
We depend on directors who are associated with affiliated companies, which may create conflicts of interest.
Our shareholders include Drew Holdings Limited and affiliates thereof, including Magni Partners (Bermuda) Limited
(collectively, the “Related Parties”). We maintain commercial relationships with our Related Parties, including advisory
arrangements that are currently in place and under which services continue to be provided to us. Certain of our Related Parties
have, in the past, provided foundational loans to us, including our initial payment under the Hercules Acquisition (as defined
below). Furthermore, certain Related Parties are required to serve on our Board pursuant to covenants contained in certain of our
financing arrangements.
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The deputy chairman of our Board also serves as a director of one of our Related Parties. These dual positions may conflict
with his duties as one of our directors regarding business dealings and other matters between each of the Related Parties and us.
Our directors owe fiduciary duties to both us and each respective Related Party and may have conflicts of interest in matters
involving or affecting us and our customers. The resolution of these conflicts may not always be in our or shareholders’ best
interests.
Please see the section entitled “Item 7.B Related Party Transactions” for more information, including information on the
commercial arrangements between us and the Related Parties.
If securities or industry analysts do not publish research reports or publish unfavorable research about our business, the
price and trading volume of our common shares could decline.
The trading market for our shares may depend in part on the research reports that securities or industry analysts publish about
us or our business. We may never obtain significant research coverage by securities and industry analysts. If limited securities or
industry analysts continue coverage of us, the trading price for our shares and other securities would be negatively affected. In the
event we obtain significant securities or industry analyst coverage, and one or more of the analysts who covers us downgrades our
securities, the price of our shares would likely decline. If one or more of these analysts ceases to cover us or fails to publish
regular reports on us, interest in the purchase of our shares could decrease, which could cause the price of our common shares and
other securities and their trading volume to decline.
We may not pay dividends in the future.
Under our Bye-Laws, any dividends declared will be in the sole discretion of our Board and will depend upon earnings,
market prospects, current capital expenditure programs and investment opportunities, although the payment of dividends is
restricted by the covenants in certain of our Financing Arrangements. Under Bermuda law, we may not declare or pay a dividend,
or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (a) we are, or would after the
payment be, unable to pay our liabilities as they become due or (b) the realizable value of our assets would thereby be less than
our liabilities. In addition, since we are a holding company with no material assets other than the shares of our subsidiaries
through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries distributing to us their
earnings and cash flow and liquidity. Furthermore, we require the consent of our lenders under certain of our financing
arrangements in order to pay dividends. We cannot predict when, or if, dividends will be paid in the future.
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may
have.
We are incorporated under the laws of Bermuda, and substantially all of our assets are located outside of the United States. In
addition, our directors and officers generally are or will be nonresidents of the United States, and all or a substantial portion of the
assets of these nonresidents are located outside the United States. As a result, it may be difficult or impossible for you to effect
service of process on these individuals in the United States or to enforce in the United States judgments obtained in U.S. courts
against us or our directors and officers based on the civil liability provisions of applicable U.S. securities laws.
In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located
(1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable
U.S. securities laws or (2) would enforce, in original actions, liabilities against us based on those laws.
U.S. tax authorities may treat us as a “passive foreign investment company” for U.S. federal income tax purposes, which
may have adverse tax consequences for U.S. shareholders.
A non-U.S. corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax
purposes for a taxable year if either (1) at least 75% of its gross income for such taxable year consists of certain types of “passive
income” or (2) at least 50% of the average value of the corporation’s assets during such year produce or are held for the
production of those types of “passive income.” For purposes of these tests, a non-U.S. corporation is treated as holding directly
and receiving directly its proportionate share of the assets and income of any other corporation in which it directly or indirectly
owns at least 25% (by value) of such corporation’s stock. Also, for purposes of these tests, “passive income” includes dividends,
interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are
received from unrelated parties in connection with the active conduct of a trade or business but does not include income derived
from the performance of services.
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Based on the current and anticipated valuation of our assets, including goodwill, and composition of our income and assets,
we do not believe we were a PFIC for the taxable year ended December 31, 2020 and we do not anticipate being a PFIC for the
current taxable year or in the foreseeable future. We believe that we will not be treated as a PFIC for any relevant period because
we believe that any income we receive from offshore drilling service contracts should be treated as “services income” rather than
as passive income under the PFIC rules. In addition, the assets we own and utilize to generate this “services income” should not
be considered to be passive assets. Given the lack of authority and highly factual nature of the analysis, no assurance can be given
in this regard. Moreover, we have not sought, and we do not expect to seek, a ruling from the Internal Revenue Service (“IRS”) on
this matter. As a result, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs
in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, the nature of our
operations may change in the future in a manner that causes us to become a PFIC.
If we were treated as a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10.E Additional
Information—Taxation—U.S. Federal Income Tax Considerations—General”) held a common share, certain adverse U.S. federal
income tax consequences could apply to such U.S. Holder. See “Item 10.E Additional Information—Taxation—U.S. Federal
Income Tax Considerations—Passive Foreign Investment Company Considerations” for a more comprehensive discussion.
ITEM 4.
INFORMATION ON THE COMPANY
A.
HISTORY AND DEVELOPMENT OF THE COMPANY
Borr Drilling Limited was incorporated in Bermuda on August 8, 2016, pursuant to the Companies Act 1981 of Bermuda (the
“Companies Act”), as an exempted company limited by shares. On December 19, 2016, our shares were introduced to the
Norwegian OTC market. On August 30, 2017, our shares were listed on the Oslo Børs under the symbol “BDRILL” and on
November 30, 2020 we changed our symbol to "BORR". On July 31, 2019, our shares were listed on the New York Stock
Exchange under the symbol “BORR.”
Our principal executive offices are located at S. E. Pearman Building, 2nd Floor, 9 Par-la-Ville Road, Hamilton HM11,
Bermuda and our telephone number is +1 (441) 737-0152.
For further information on important events in the development of our business, please see the section entitled “—B.
Business Overview—Our Business.” For further information on our principal capital expenditures, including the distribution of
these investments geographically and the method of financing, please see the section entitled “Item 5.B Operating and Financial
Review and Prospects—Liquidity and Capital Resources.” We have not been the subject of any public takeover offers by any
third party.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC, which can be found at http://www.sec.gov. Our internet address is http://
www.borrdrilling.com/. The information contained on our website is not incorporated by reference and does not form part of this
annual report.
B.
BUSINESS OVERVIEW
We are an offshore shallow-water drilling contractor providing worldwide offshore drilling services to the oil and gas
industry. Our primary business is the ownership, contracting and operation of jack-up rigs for operations in shallow-water areas
(i.e., in water depths up to approximately 400 feet), including the provision of related equipment and work crews to conduct oil
and gas drilling and workover operations for exploration and production customers. We currently own 23 rigs with an additional
five jack-up rigs scheduled to be delivered by the end of 2023. Upon delivery of these newbuild jack-up rigs, we will have a fleet
of 28 premium jack-up rigs, which refers to rigs delivered from the yard in 2001 or later.
We are a preferred operator of jack-up rigs within the jack-up drilling market. The shallow-water market is our operational
focus as we expect demand will recover sooner than in the mid- and deepwater segments of the contract drilling market. We
contract our jack-up rigs and offshore employees primarily on a dayrate basis to drill wells for our customers, including integrated
oil companies, state-owned national oil companies and independent oil and gas companies. During 2020, our top five customers
by revenue, including related party revenue were subsidiaries of ExxonMobil, NDC, Spirit Energy, Perfomex and ENI. A dayrate
drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering
a stated term. Our Total Contract Backlog was $132.1 million as of December 31, 2020 and $308.5 million as of December 31,
2019. We currently operate in significant oil-producing geographies throughout the world, including the North Sea, the Middle
46
East, Mexico, West Africa and Southeast Asia. We continue to operate our business with a competitive cost base, driven by a
strong and experienced organizational culture and actively managed capital structure.
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. The following chart illustrates the development in our fleet since
our inception:
Total Fleet as of January 1
Jack-up Rigs Acquired(1)
Newbuild Jack-up Rigs Delivered from Shipyards
Jack-up Rigs Disposed of (1)
Total Fleet as of the end of the Year
Newbuild Jack-up Rigs not yet Delivered as of the end of Period
Total Fleet, including Newbuild Rigs not yet Delivered, as of
the end of Period(2)
As of and For the Year Ended
December 31,
2020
2019
2018
28
—
2
6
24
5
29
27
1
2
2
28
7
35
13
23
9
18
27
9
36
2017
—
12
1
—
13
13
13
(1)
Includes acquisition of one semi-submersible rig in 2018 which was sold in 2020.
(2)
Since December 31, 2020, we have disposed of one jack-up rig, bringing the total fleet of jack-up rigs as of April 13,
2021 to 23. We have 5 new build jack-up rigs not yet delivered as of April 13, 2021. Our total fleet, including
newbuild rigs not yet delivered, as of April 13, 2021 is 28.
Important events in the development of our business include the following.
Acquisition of Hercules Rigs
On December 2, 2016, we agreed to purchase two premium jack-up rigs (the “Hercules Rigs”) from Hercules British
Offshore Limited (“Hercules”). The transaction was completed on January 23, 2017 (the “Hercules Acquisition”). The Hercules
Rigs, named “Frigg” and “Ran,” were acquired for a total price of $130 million. Each rig is a premium jack-up rig.
Acquisition from Transocean
On March 15, 2017, we signed a letter of intent with Transocean Inc. (“Transocean”) for the purchase of all of certain
Transocean subsidiaries owning 10 jack-up rigs and the rights under five newbuilding contracts (the “Transocean Transaction”).
On May 31, 2017, we completed the Transocean Transaction for a total price of $1,240.5 million. Three of the jack-up rigs we
acquired, “Idun,” “Mist” and “Odin,” were, at the time, employed with Chevron for operations in Thailand. Transocean, as the
seller, retained the revenue, expenses and cash flow associated with the three rigs under contract upon closing of the Transocean
Transaction. Since the acquisition closed, two of the rigs under the newbuilding contracts have been delivered, “Saga” and
“Skald,” and an additional three are scheduled to be delivered in 2023. Of the rigs initially delivered at closing, four were standard
jack-up rigs and six were premium jack-up rigs. Since the closing of the Transocean Transaction, we have divested all of the four
standard jack-up rigs and two cold stacked premium jack-up rigs as there was no economic incentive to reactivate these rigs.
Acquisition from PPL
On October 6, 2017, we entered into a master agreement with PPL Shipyard Pte Ltd. (“PPL”) for six premium jack-up
drilling rigs and three premium jack-up drilling rigs under construction at its yard in Singapore (together, the “PPL Rigs”). The
consideration in the transaction with PPL (the “PPL Acquisition”) was approximately $1.3 billion, $55.8 million of this was paid
per rig on October 31, 2017, and we entered into loans for delivery financing for a portion of the purchase price equal to $87.0
million per rig from PPL Shipyard Pte. Ltd. All of the PPL Rigs have been delivered to us as of the date hereof.
47
Acquisition of Paragon
On March 29, 2018, we concluded the Paragon Transaction, subsequently acquiring the majority of the remaining shares in
July 2018. At the closing of the Paragon Transaction, Paragon owned two premium jack-up rigs, 20 standard jack-up rigs (built
before 2001) and one semi-submersible (built in 1979) (the “Paragon Rigs”). The Paragon Transaction provided us with a solid
operational platform which matches the quality of our jack-up fleet. Paragon’s five-year track record has helped position us to win
tenders from key E&P Companies. As part of the acquisition, Paragon became a subsidiary of Borr Drilling. Subsequent to the
acquisition, we divested all standard jack up rigs and the one semi-submersible rig in the Paragon Transaction as there was no
economic incentive to reactivate these rigs.
Acquisition from Keppel
On May 16, 2018, we entered into an agreement to acquire five premium jack-up rigs, three completed and two under
construction from Keppel (the “Keppel Acquisition”). The purchase price for the Keppel Rigs was $742.5 million. We took
delivery of the new jack-up rigs "Hermod", “Heimdal”, and “Hild” in October 2019, January 2020 and April 2020, respectively.
We were due to take delivery of the remaining two jack-up rigs under the agreement in 2020. However the delivery of these rigs
was initially deferred to 2022 then to 2023 following the Company's agreement with Keppel entered into in January 2021.
Acquisition of Keppel’s Hull B378
In March 2019, we entered into an assignment agreement with BOTL Lease Co. Ltd. (the “Original Owner”) for the
assignment of the rights and obligations under a construction contract to take delivery of one KFELS Super B Bigfoot premium
jack-up rig identified as Keppel’s Hull No. B378 from Keppel for a purchase price of $122.1 million. The construction contract
was, at the same time, novated to our subsidiary, Borr Jack-Up XXXII Inc., and amended. We took delivery of the jack-up rig on
May 9, 2019 and the rig was subsequently renamed “Thor.”
To finance the rig purchase we entered into a $120.0 million senior secured term loan facilities agreement, consisting of two
facilities (Facility A and Facility B) of $60.0 million each, which we refer to as our Bridge Facility. The facilities had a maturity
date of September 30, 2019. Following the signing of our Hayfin Facility, Syndicated Senior Secured Credit Facilities and New
Bridge Revolving Credit Facility agreements on June 25, 2019, which collectively provided $645 million in financing, we repaid
the outstanding balance due under our Bridge Facility, which was subsequently cancelled.
Divestments
From time to time we consider opportunities to sell our standard jack-up rigs if it can be achieved in a manner in which such
jack-up rigs are contractually obligated to leave the jack-up drilling market, thereby decreasing the worldwide supply of jack-up
rigs available for contract.
In 2018, we divested 18 jack-up rigs for total proceeds of $37.6 million and recorded a gain of $18.8 million.
In May 2019, we entered into sale agreements for the sale of the “Eir,” “Baug” and “Paragon C20051,” none of which were
operating or on contract, for cash consideration of $3.0 million each. The jack-up rigs have been sold with a contractual obligation
not to be used for drilling purposes and so retired from the international jack-up fleet. The sales of “Baug” and “Paragon C20051”
were completed in May 2019 for total cash consideration of $6.0 million and the sale of “Eir” was completed in October 2020 for
cash consideration of $3.0 million.
In March 2020, we sold “B391” for recycling for total proceeds of $0.8 million, resulting in a loss of $0.4 million. In April
2020, we sold “B152” and “Dhabi II” with associated backlog for total proceeds of $15.8 million, resulting in a gain of $11.7
million. In May 2020, we entered into an agreement to sell the semi-submersible MSS1, built in 1981, for recycling for total
proceeds of $2.3 million, and we had previously recorded an impairment charge of $18.4 million in 2020. In November 2020, we
entered an agreement to sell the "Atla" and "Balder", none of which were operating or on contract. The sale of "Atla" was
completed in December of 2020, and the company received total proceeds of $10.0 million and recognized a gain of $5.0 million
was recorded. The sale of "Balder" was completed in February 2021 and the company received total proceeds of $4.5 million. We
recorded an impairment charge of $58.7 million in 2020 in respect of "Atla" and "Balder".
These divestments bring the total number of jack-up rigs divested by us, and retired from the international jack-up fleet to 26
plus one semi-submersible since the beginning of 2018.
48
The following chart sets forth an overview of the acquisitions and disposals we have made since our formation through
December 31, 2020:
ACQUISITIONS AND DISPOSALS SINCE OUR FORMATION
Acquisition
Hercules Acquisition
Closing Date
January 23, 2017
Transocean
Transaction
May 31, 2017
PPL Acquisition
October 6, 2017
Description of Transaction
Acquisition of two premium jack-up rigs
Acquisition of 10 jack-up rigs and novation
of contracts in respect of five newbuild
premium jack-up rigs(1)
Acquisition of nine newbuild premium
jack-up rigs(2)
Paragon Transaction
March 29, 2018
Acquisition of 22 jack-up rigs and one
semi-submersible(3)
Keppel Acquisition
May 16, 2018
Acquisition of five newbuild premium jack-
up rigs(4)
Keppel Hull
B378 (“Thor”)
Acquisition
March 29, 2019
Acquisition of one newbuild premium jack-
up rig
Transaction
Value
(in $ millions)
130.0
$
Rigs Subsequently
Divested
—
$
$
$
$
$
1,240.5
4 standard and 1
premium jack-up rigs
1,300.0
—
241.3
742.5
122.1
20 standard jack-up
rigs and one semi-
submersible
—
—
(1)
Since December 31, 2020 we completed the sale of the premium jack-up rig "Balder" in February 2021. Six premium
jack-up rigs remain in our fleet from the Transocean Transaction, including two newbuild premium rigs delivered in
2018. Three premium jack-up rigs are due to be delivered in 2023.
(2)
All jack-up rigs acquired in the PPL Acquisition have been delivered.
(3)
As of December 31, 2020, two premium jack-up rigs "Prospector 1" and "Prospector 5" remained from the Paragon
Transaction.
(4)
As of December 31, 2020, three jack-up rigs have been delivered. Two jack-up rigs will be delivered in 2023.
OUR BUSINESS
Our Competitive Strengths
Due to the volatility of oil prices, the current pandemic and ongoing economic crisis our industry is in a degree of instability.
Nevertheless, we believe that our competitive strengths include:
One of the youngest and largest offshore drilling contractors
We have one of the youngest and largest fleets in the jack-up drilling market. All but one of our rigs were built after 2013
and, as of December 31, 2020, the average age of our premium fleet (excluding our newbuilds not yet delivered and Balder sold in
2021) is 3.8 years (implying an average building year of 2018), which we believe is among the lowest average fleet age in the
industry. New and modern rigs that offer technically capable, operationally flexible, safe and reliable contracting are increasingly
preferred by customers. We compete for and secure new drilling contracts from new tenders as well as privately negotiated
transactions, which we estimate represent approximately half of new contract opportunities. We believe, based on our young fleet
and growing operational track record, that we will be better placed to secure new drilling contracts if offshore drilling demand
rises than our competitors who operate older, less modern fleets.
Largely uniform and modern fleet
Because our fleet is one of the youngest and largest and the drilling equipment on, and operating capability of, our jack-up
rigs is largely uniform, we have the capacity to bid for multiple contracts simultaneously, including those requiring active
employment of multiple rigs over the same period, as in the case of our operations for PEMEX in Mexico. We have acquired
49
(including newbuilds not yet delivered) a fleet of premium jack-up rigs from shipyards with a reputation for quality and
reliability. Moreover, due to the uniformity of the jack-up rigs in our fleet, we have been able to achieve operational and
administrative efficiencies.
Commitment to safety and the environment
We are focused on developing a strong quality, health, safety and environment, or QHSE, culture and performance history.
We believe that the combination of quality jack-up rigs and experienced and skilled employees contributes to the safety and
effectiveness of our operations. Since the 2010 Deepwater Horizon Incident (as defined below) (to which we were not a party),
there has been an increased focus on offshore drilling QHSE issues by regulators as well as by the industry. As a result, E&P
Companies have imposed increasingly stringent QHSE rules on their contractors, especially when working on challenging wells
and operations where the QHSE risks are higher. Our commitment to strong QHSE culture and performance is reflected in our
Technical Utilization rate of 99.5% in 2020, and our excellent safety record in the same period. We believe our focus on
providing safe and efficient drilling services will enhance our growth prospects as we work toward becoming one of the preferred
providers in the industry as the market recovers.
Strong and diverse customer relationships
We have strong relationships with our customers rooted in our employees’ expertise, reputation and history in the offshore
drilling industry, as well as our growing operational track record and the quality of our fleet. Our customers are oil and gas
exploration and production companies, including integrated oil companies, state-owned national oil companies and independent
oil and gas companies. For the year ended December 31, 2020, our five largest customers in terms of revenue, including related
party revenue were ExxonMobil NDC, Spirit Energy, Perfomex and ENI. We believe that we are responsive and flexible in
addressing our customers’ specific needs and seek collaborative solutions to achieve customer objectives. We focus on strong
operational performance and close alignment with our customers’ interests, which we believe provides us with a competitive
advantage and will contribute to contracting success and rig utilization.
Management team and Board members with extensive experience in the drilling industry
Our management team and Board have extensive experience in the oil and gas industry in general and in the drilling industry
in particular. In addition, the members of our management team have extensive experience with drilling companies and
companies in the oil and gas industry operating in the jack-up drilling market. The members of our management team and Board
have held leadership positions at prominent offshore drilling and oilfield services companies, including Schlumberger Limited,
Marine Drilling Companies, Inc., Seadrill Limited and North Atlantic Drilling Ltd and have experience which complements one
another and have assisted, and continue to assist, in our development.
Our Business Strategies
Despite the ongoing volatility in our industry, we intend to continue to strive to meet our primary business objective of
becoming a preferred operator in the jack-up drilling market while also maximizing return to our shareholders. To achieve this,
our strategies include the following:
Deploy high-quality rigs to service the industry
We have acquired one of the leading jack-up fleets in the industry with capacity to service existing and future client needs.
We believe that shallow-water drilling, such as that performed by our jack-up rigs, has a shorter lifecycle between exploration and
first oil and lower capital expenditure than other forms of drilling performed by mobile offshore drilling units, such as drillships.
We believe this makes shallow-water drilling more attractive than deep-water projects in the current economic and industry
climates. In addition to tender activity in which we participate through bidding, we also compete for new contract opportunities
through privately negotiated transactions, including private tenders and direct negotiations with customers, which we estimate
represent approximately half of new contract opportunities. We believe our footprint in the industry is growing. Between April 1,
2018, and December 31, 2020, (excluding our Mexican operations) we signed 27 new contracts for drilling services with an
aggregate value of approximately $512.4 million, including 17 with new customers. During this period, we also signed seven
extensions and have had six options exercised. As of April 13, 2021, 13 of our 23 rigs are under contract. We experienced some
early terminations and suspensions of contracts in 2020 in light of the COVID-19 crisis, but we have also been awarded new
contracts since the onset of the pandemic.
50
Become a preferred provider in the industry
We have established strong and long-term relationships with key participants and customers in the offshore drilling industry,
including through our acquisition of Paragon Offshore Limited, the hiring of experienced personnel and contracts signed since our
inception, and we will seek to deepen and strengthen these relationships as part of our strategy. This involves identifying value
add services for our customers (such as integrated well contracts). We also plan to hire employees, when industry conditions
permit, with long track-records in the industry and extensive contacts with potential key customers to further improve customer
relationships. Based on our largely premium and uniform fleet, our experienced team and a solid industry network, we believe
that we are well-positioned to capitalize on improving trends as we seek to establish ourselves as a preferred provider to these
customers.
Establish high-quality, cost-efficient operations
We intend to be a leading offshore shallow-water drilling company by operating with a competitive cost base while
continuing to grow our reputation as a high-quality contractor. Our key objective is to deliver the best operations possible— both
in terms of Technical Utilization and QHSE culture and performance while also maximizing deployment of our rigs and
maintaining a competitive cost structure.
To facilitate our strategy, we have acquired one of the most modern and uniform fleets in the industry, with experienced and
skilled individuals across the organization and on our Board. We expect to have an advantage not only with regard to operating
expenditures as a result of our largely standardized fleet.
Establish and offer integrated services
Through our joint venture in Mexico, we are currently offering integrated drilling/well services together with oil field service
providers, including Schlumberger, and we have been tendering our services on this basis for some contract tenders. Integrated
drilling services offer all services and equipment (and in some cases, material procurement) in a single contract. We believe this
model is economically feasible and thus attractive for smaller E&P Companies operating offshore, as the model could reduce the
number of contracts required for a project from above ten to two or three. Significant cost saving potential is evident in the model.
As a result, project management could become simpler, cheaper and more efficient for customers with integrated drilling services.
Further, this could lead to improved well design, better selection and more efficient operators of rig equipment and technology.
Our Fleet
We believe that we have one of the most modern jack-up fleets in the offshore drilling industry. Our drilling fleet currently
consists of 23 rigs, of which all are premium jack-up rigs. In addition, we have agreed to purchase five additional premium jack-
up rigs to be delivered prior to the end of 2023. 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, 2020, the average age of our fleet (excluding "Balder", which was sold in February
2021 and newbuilds not yet delivered) was 3.8 years. As of the date of the last expected delivery of the newbuild jack-up rigs we
have agreed to purchase, which is in 2023, the average age of our fleet will be 5.8 years (excluding "Balder", consisting entirely
of premium jack-up rigs, which we believe to be 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 seabed. Its hull is then elevated (jacked-up) until it is above the surface of the water. After the completion of
drilling operations at a drill site, the hull is lowered until it rests 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 120 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, 2020, we had 24 total jack-up rigs, of which 12 rigs were “warm stacked,” which means the rigs,
including our newbuild jack-up rigs which have been delivered but not yet been activated, are kept ready for redeployment and
retain a maintenance crew, and one rig was “cold stacked,” which means the rig is stored in a harbor, shipyard or a designated
offshore area and the crew is reassigned to an active rig or dismissed. We entered into an agreement in 2020 to sell our cold
stacked jack-up rig, the “Balder,” and the sale was completed in February 2021. 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
51
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 select contract opportunities when economically viable. Between April 1, 2018 and
December 31, 2020, we signed 27 new contracts for drilling services, including 17 with new customers. Our Technical Utilization
(which reflects our ability to keep our jack-up rigs operational when under contract), for the year ended December 31, 2020 was
99.5%, and the proportion of the potential full contractual dayrate that each contracted jack-up rig actually earned each day, or
Economic Utilization, for the year ended December 31, 2020 was 92.1%. We have experienced early terminations and
suspensions of contracts in 2020 in light of the COVID-19 crisis. For example, in April 2020, one of our clients, ExxonMobil,
served notice to exercise its rights to terminate two contracts in West Africa due to COVID-19 related issues, triggering an
obligation to pay an early termination fee. We also received a notice of termination for “Mist” on its contract from the
independent Australian oil company Roc Oil for work in Malaysia, which had been estimated to start up in May 2020 for an
estimated duration of 210 days. We have also been awarded new contracts since the onset of the pandemic. In April 2020, we
were awarded two contracts in Malaysia for 365 days and 200 days respectively for the rigs “Saga” and “Gunnlod”, which
commenced operations in September 2020.
Each rig in our fleet is certified by ABS, enabling universal recognition of our equipment as qualified for international
operations. The key characteristics of our rigs owned but not under contract which may yield differences in their marketability or
readiness for use include whether such rigs are warm stacked or cold stacked, age of the rig, geographic location and technical
specifications.
52
The following table sets forth additional information concerning our fleet.
Fleet Status Report
As of April 13, 2021
Rig Name
Rig Design
Gyme
Thor
Hermod
Heimdal
Hild
Gerd
Groa
Frigg1
Ran1
Mist
Prospector 11
Norve
Idun
Gunnlod
Saga
Galar
Njord
Gersemi
Grid
Odin
PPL Pacific
Class 400
KFELS Super
B Bigfoot
Class
KFELS B
Class
KFELS B
Class
KFELS Super
B Class
PPL Pacific
Class 400
PPL Pacific
Class 400
KFELS Super
A
KFELS Super
A
KFELS Super
B Bigfoot
Class
F&G,
JU2000E
PPL Pacific
Class 400
KFELS Super
B Bigfoot
PPL Pacific
Class 400
KFELS Super
B Bigfoot
Class
PPL Pacific
Class 400
PPL Pacific
Class 400
PPL Pacific
Class 400
PPL Pacific
Class 400
KFELS Super
B Bigfoot
Class
Rig
Water
Depth
(ft)
400 ft
400 ft
400 ft
400 ft
400 ft
400 ft
400 ft
400 ft
400 ft
Year
Built
Customer/
Status
Contract
Start
Contract
End
Location
Comments
PREMIUM JACK-UP RIGS
2018
2019
2019
2020
2020
2018
2018
2013
2013
Available
Available
Available
Available
Available
Available
Available
Available
Available
Singapore
Singapore
Singapore
Singapore
Singapore
Cameroon
Cameroon
Cameroon
United
Kingdom
Warm
Stacked
Warm
Stacked
Warm
Stacked
Warm
Stacked
Warm
Stacked
Warm
Stacked
Warm
Stacked
Warm
Stacked
Warm
Stacked
350 ft
2013
ROC Oil
October
2020
May 2021
Malaysia
Operating
400 ft
2013
One Dyas October 2020 March 2021
Undisclosed
April 2021
November
2021
Netherlands
North Sea
Operating
with option to
extend
North Sea
LOI
400 ft
2011
BWE
April 2021
July 2021
Gabon
Committed
350 ft
400 ft
2013
2018
Vestigo
March 2021
January 2022
Malaysia
Operating
PTTEP
May 2021
Malaysia
400 ft
2018
PTTEP
Malaysia
400 ft
2017
PEMEX
April 2020
400 ft
2019
PEMEX
June 2020
400 ft
2018
PEMEX
August 2019
400 ft
2018
PEMEX
August 2019
September
2020
September
2020
Operating
with option to
extend
Operating
with option to
extend
Mexico
Operating
Mexico
Operating
Mexico
Operating
Mexico
Operating
October 2021
December
2021
December
2021
December
2021
December
2021
350 ft
2013
PEMEX
March 2020
August 2021
Mexico
Operating
53
Rig Name
Prospector 51
Natt
Skald
Rig Design
F&G,
JU2000E
PPL Pacific
Class 400
KFELS Super
B Bigfoot
Class
Rig
Water
Depth
(ft)
400 ft
Year
Built
2014
Customer/
Status
CNOOC
Contract
Start
November
2020
Contract
End
May 2022
Location
United
Kingdom
400 ft
2018
First E&P
April 2019
April 2021
Nigeria
400 ft
2018
Mobilization
February
May 2021 Singapore
2021
PTTEP
June 2021
November
2024
Thailand
Comments
Operating
with option to
extend
Operating
with option to
extend
Contract
preparation
and
Mobilization
LOA
PREMIUM JACK-UP RIGS UNDER CONSTRUCTION/NOT DELIVERED
Rig Name
Tivar
Vale
Var
Huldra
Heidrun
Rig
Water
Depth
(ft)
400 ft
400 ft
400 ft
400 ft
400 ft
Rig Design
KFELS Super
B Bigfoot
Class
KFELS Super
B Bigfoot
Class
KFELS Super
B Bigfoot
Class
KFELS
Bigfoot B
Class
KFELS
Bigfoot B
Class
Year
Built
Customer/
Status
Under
Construction
Under
Construction
Under
Construction
Under
Construction
Under
Construction
Contract
Start
Contract
End
Location
KFELS
shipyard,
Singapore
KFELS
shipyard,
Singapore
KFELS
shipyard,
Singapore
KFELS
shipyard,
Singapore
KFELS
shipyard,
Singapore
Comments
Rig Delivery
in June 2023
Rig Delivery
in July 2023
Rig Delivery
in September
2023
Rig Delivery
in October
2023
Rig Delivery
in December
2023
Balder2
F&G, JU 2000
400 ft
2003
Cameroon
Not Marketed
COLD STACKED JACK-UP RIGS
1.
2.
HD/HE Capability
Sold
Customer and Contract Backlog
Our customers are oil and gas exploration and production companies, including integrated oil companies, state-owned
national oil companies and independent oil and gas companies. As of December 31, 2020, our largest customers in terms of
revenue, including related party revenue were subsidiaries of ExxonMobil, NDC, Spirit Energy, Perfomex and ENI. We obtain
the majority of our contracts through tenders, market surveys and direct approaches to customers.
Several of our jack-up rigs are contracted to customers for periods between a couple to several months and our contracts
generally range from three to 24 months. Our Total Contract Backlog excluding our Mexican operations was $132.1 million as of
December 31, 2020. As included in this annual report, Total Contract Backlog is not the same measure as the acquired contract
backlog presented in our Consolidated Financial Statements. Please see Notes 2 and 17 to our Consolidated Financial Statements
for further information.
The amount of actual revenues earned and the actual periods during which revenues are earned will be different from the
Total Contract Backlog projections due to various factors. For example, shipyard and maintenance projects, downtime and other
factors may result in lower revenues than our average Total Contract Backlog per day. Downtime, caused by unscheduled repairs,
maintenance, weather and other operating factors, may result in lower applicable daily rates than the full contractual operating
daily rate.
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As of December 31, 2020, excluding our Mexican operations we had nine committed jack-up rigs in total, including four
jack-up rigs in operation in the North Sea, one in West Africa, four in Southeast Asia and one other premium jack-up rig
contracted. The Technical Utilization and Economic Utilization for our drilling fleet was 99.5% and 92.1%, respectively during
2020.
We had experienced early terminations and suspensions of contracts in 2020 in light of the COVID-19 crisis, but we have
also signed new contracts since the onset of the pandemic. A number of our customers have contractual rights in place to suspend
operations in certain circumstances, and we could be subject to further suspension notices in light of market conditions and the
ongoing pandemic.
Contractual Terms
Our drilling contracts are individually negotiated and vary in their terms and provisions. We obtain most of our drilling
contracts through competitive bidding against other contractors and direct negotiations with operators.
Our drilling contracts provide for payment on a dayrate basis, with higher rates for periods while the jack-up rig is operating.
A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or
covering a stated term. We have historically not provided “turnkey” or other risk-based drilling services to customers. The
customer bears substantially all of the ancillary costs of constructing the well and supporting drilling operations, as well as the
economic risk relative to the success of the well. In addition, dayrate contracts may provide for a lump sum amount or dayrate for
mobilizing the rig to the initial operating location, which is usually lower than the contractual dayrate for uptime services, and a
reduced dayrate when drilling operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or
other conditions beyond our control.
Certain of our drilling contracts contain terms which allow them to be terminated at the convenience of the customer, in some
cases upon payment of an early termination fee or compensation for costs incurred up to termination. Any such payments,
however, may not fully compensate us for the loss of the contract. Contracts also customarily provide for either automatic
termination or termination at the option of the customer, typically without any termination payment, in certain circumstances such
as non-performance, in the event of extended downtime or impaired performance caused by equipment or operational issues or
periods of extended downtime due to other conditions beyond our control, of which there are many. A number of our customers
have contractual rights to terminate their contracts with us if performance is prevented for prolonged period due to force majeure
events. We may also be affected by force majeure provisions in contracts between our customers or suppliers and third parties.
We may also face contract suspension due to prevailing market conditions.
The contract term in some instances may be extended by the customer exercising options for the drilling of additional wells
or for an additional term. Our contracts also typically include a provision that allows the customer to extend the contract to finish
drilling a well-in-progress. During periods of depressed market conditions, our customers may seek to renegotiate firm drilling
contracts to reduce the term of their obligations or the average dayrate through term extensions, or may seek to suspend, terminate
or repudiate their contracts. Suspension of drilling contracts will result in the reduction in or loss of dayrate for the period of the
suspension. If our customers cancel some of our contracts and we are unable to secure new contracts on a timely basis and on
substantially similar terms, or if contracts are suspended for an extended period of time or if a number of our contracts are
renegotiated, it could adversely affect our business, financial condition and results of operations. See “Item 5.D Trend
Information” for more information.
Consistent with standard industry practice, our customers generally assume, and indemnify us against, well control and
subsurface risks under dayrate drilling contracts. Under all of our current drilling contracts, our customers, as the operators,
indemnify us for pollution damages in connection with reservoir fluids stemming from operations under the contract and we
indemnify the operator for pollution from substances in our control that originate from the rig, such as diesel used onboard the rig
or other fluids stored onboard the rig and above the water surface. Also, under all of our current drilling contracts, the operator
indemnifies us against damage to the well or reservoir and loss of subsurface oil and gas and the cost of bringing the well under
control. However, our drilling contracts are individually negotiated, and the degree of indemnification we receive from the
operator against the liabilities discussed above can vary from contract to contract, based on market conditions and customer
requirements existing when the contract was negotiated. In some instances, we have contractually agreed upon certain limits to
our indemnification rights and can be responsible for damages up to a specified maximum dollar amount. The nature of our
liability and the prevailing market conditions, among other factors, can influence such contractual terms. In most instances in
which we are indemnified for damages to the well, we have the responsibility to redrill the well at a reduced dayrate as the
customer’s sole and exclusive remedy if such well damages are due to our negligence. Notwithstanding a contractual indemnity
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from a customer, there can be no assurance that our customers will be financially able to indemnify us or will otherwise honor
their contractual indemnity obligations.
Although our drilling contracts are the result of negotiations with our customers, our drilling contracts may also contain,
among other things, the following commercial terms: (i) payment by us of the operating expenses of the drilling rig, including
crew labor and incidental rig supply costs; (ii) provisions entitling us to adjustments of dayrates (or revenue escalation payments)
in accordance with published indices, changes in law or otherwise; (iii) provisions requiring us to provide a performance
guarantee; and (iv) provisions permitting the assignment to a third party with our prior consent, such consent not to be
unreasonably withheld.
Joint Venture and Partner Relationships
In some areas of the world, local content requirements, customs and practice necessitate the formation of joint ventures with
local participation. Local laws or customs or customer requirements in some jurisdictions also effectively mandate establishment
of a relationship with a local agent or partner. For more information regarding certain local content requirements that may be
applicable to our operations from time to time, please see the section entitled “—Regulation—Environmental And Other
Regulations in the Offshore Drilling Industry—Local Content Requirements.” When appropriate in these jurisdictions, we will
enter into agency or other contractual arrangements. We may or may not control these joint ventures. We participate in joint
venture drilling operations in Mexico and may participate in additional joint venture drilling operations. We may also enter into
joint ventures even if not required where we seek to partner with another party.
Mexico
In February 2019, we, along with our local partner in Mexico, CME, successfully tendered for a contract to provide
integrated well services to PEMEX. On March 20, 2019, our subsidiary, Borr Drilling Mexico S. de R.L. de C.V. (“BDM”), and a
CME subsidiary, Opex (together with BDM, the “Contractor”), entered into a contract for the provision of integrated well services
to PEMEX (the “Cluster 2 Contract”). Borr Drilling Limited guarantees the performance of the Contractor’s obligations under the
first PEMEX Contract and our subsidiary, BMV participated as shareholder in the joint venture arrangements in connection with
the Cluster 2 Contract (the “Mexican JVs”). In June 2019, we finalized the Mexican JVs structure and with effect from June 28,
2019, BMV owns a 49% interest in both Opex and a second joint venture entity, Perfomex. CME owns the remaining 51%.
Operations under the first PEMEX Contract commenced in August 2019. The PEMEX Cluster 2 Contract was extended in
December 2019 to include a third rig. In December 2019, we also participated with CME to take an assignment of a second
integrated contract with PEMEX under a similar structure for two further rigs (the “Cluster 3 Contract” and together with the
Cluster 2 Contract, the “PEMEX Contracts”). For the purposes of these additional contracts, two new subsidiaries were
incorporated with the same shareholding interests as Opex and Perfomex: Akal to deliver integrated well services to PEMEX and
Perfomex II to deliver drilling, technical, management and logistics services to Akal. Operations under the Cluster 3 Contract
commenced in March 2020.
Opex and Akal are integrated well services contractors under the PEMEX Contracts and within the structure of the Mexican
JVs. Opex and Akal have entered into contracts with an affiliate of Schlumberger and other third party contractors for the
provision of integrated well services. Perfomex and Perfomex II are the entities subcontracted by Opex and Akal, respectively, to
provide the other services required by Opex and Akal in order to comply with their respective obligations under the PEMEX
Contracts. In connection with the provision of drilling services by Perfomex and Perfomex II, our rigs “Grid”, “Gersemi” and
“Galar” (for the Cluster 2 Contract) and “Odin” and “Njord” (for the Cluster 3 Contract) are chartered to Perfomex and Perfomex
II respectively under bareboat charter agreements. In addition to the rigs, we provide technical and operational management for all
jack-up rigs being operated through the Mexican JVs. The Mexican JVs may be used to provide integrated well and/or drilling
services utilizing other rigs owned by our subsidiaries and/or subsidiaries of CME and, if we enter into further contracts with
PEMEX to provide integrated well and/or drilling services, we may enter into other joint venture structures with CME in order to
provide such services.
Opex and Akal have experienced delays in getting invoices approved and paid by PEMEX, which delays have had a
significant impact on Perfomex' and Perfomex II's liquidity, which in turn has impacted our liquidity at various times in 2020.
One of our Mexican JVs has agreed the terms of a factoring agreement with an international financing entity which allows for $50
million to $150 million of receivables in the JV to be factored, with a variable rate of interest on balances outstanding until
collection. As of the date of this report, no amounts have been factored under this facility.
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Geographical Focus
We bid for contracts globally, however our current geographical focus is the West Africa, South East Asia, Europe, Mexico
and the Middle East. This is based on our current assessment of potential contracting opportunities, including, pre-tender and
tender activity. Several countries within these regions, such as Nigeria, have laws that regulate operations and/or ownership of
rigs operating within their jurisdiction, including local content and/or local partner requirements. In order to comply with these
regulations, and successfully secure contracts to operate in these regions, we have employed personnel with long experience from
securing contracts and operating rigs in countries within these regions. Adapting to the above-mentioned factors is, and will be,
part of our business. The amount of operating revenues earned by each geographical region for the years ended December 31,
2020, 2019 and 2018 was as follows:
(in $ millions)
West Africa
South East Asia
Europe
Mexico
Middle East
Suppliers
Year Ended December 31,
2020
108.1
70.6
52.6
43.2
33.0
2019
102.4
23.8
114.7
50.0
43.2
2018
44.4
4.3
75.1
—
41.1
Our material supply needs include labor agencies, insurance brokers, maintenance providers, shipyard access and drilling
equipment. Our senior management team has extensive experience in the oil and gas industry in general, and in the offshore
drilling industry in particular and has built an extensive industry network. We believe that our relationships with our key suppliers
and service providers is critical as it allows us to benefit from economies of scale in the procurement of goods and services and
sub-contracting work.
We maintain commercial relationships with certain affiliates of Schlumberger. To date, we have been able to obtain the
services, equipment, materials and supplies necessary to support our operations on a timely basis. We believe that we will be able
to make satisfactory alternative arrangements in the event of any interruption in the supply of these services, equipment and/or
materials by any of our suppliers, as we have established alternative vendors for all critical products for our business.
Competition
The shallow-water offshore contract drilling industry is highly competitive. We compete on a worldwide basis and
competition varies by region at any particular time. Our competition ranges from large international companies offering a wide
range of drilling and other oilfield services to smaller, locally owned companies. Some of our competitors’ fleets comprise a
combination of offshore, onshore, shallow, midwater and deepwater rigs. We seek to differentiate our company from most of our
competitors, which have mixed fleets, by exclusively focusing on shallow-water drilling which we believe allows us to optimize
our size and scale and achieve operational efficiency.
Drilling contracts are traditionally awarded on a competitive basis, whether through tender or private negotiations. We
believe that the principal competitive factors in the markets we serve are pricing, technical capability of service and equipment,
condition and age of equipment, rig availability, rig location, safety record, crew quality, operating integrity, reputation, industry
standing and customer relations. We have made significant equity investments in our jack-up rigs and have built a fleet consisting
of premium jack-up rigs with proven design and quality equipment, acquired at what we believe are attractive prices. We believe
we have a fleet of high-quality jack-up rigs, which allow us to competitively bid on industry tenders on the basis of the modern
technical capability, condition and age of our jack-up rigs. In addition, we believe our focus on QHSE performance will
complement our modern fleet, further allowing us to competitively bid for drilling contracts.
Seasonality
In general, seasonal factors do not have a significant direct effect on our business. However, we have operations in certain
parts of the world where weather conditions during parts of the year could adversely impact the operational utilization of the rigs
and our ability to relocate rigs between drilling locations, and as such, limit contract opportunities in the short term. Such adverse
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weather could occur during, among other times, the winter season in the North Sea, hurricane season in the Mexican Gulf and the
monsoon season in Southeast Asia.
Risk of Loss and Insurance
Our operations are subject to hazards inherent in the drilling of oil and gas wells, including blowouts, punch through, loss of
control of the well, abnormal drilling conditions, mechanical or technological failures, seabed cratering, fires and pollution, which
could cause personal injury, suspend drilling operations, or seriously damage or destroy the equipment involved. Offshore drilling
contractors such as us are also subject to hazards particular to marine operations, including capsizing, grounding, collision and
loss or damage from severe weather. Litigation arising from such an event may result in us being named a defendant in lawsuits
asserting large claims.
As is customary in the drilling industry, we attempt to mitigate our exposure to some of these risks through indemnification
arrangements and insurance policies. We carry insurance coverage for our operations in line with industry practice and our
insurance policies provide insurance cover for physical damage to the rigs, loss of income for certain rigs and third-party liability,
including:
Physical Damage Insurance: Hull and Machinery Insurance
We purchase hull and machinery insurance for our entire fleet and all of our fleet equipment to cover the risk of physical
damage to a rig. The level of coverage for each rig reflects its agreed value when the insurance is placed. We effectively self-
insure part of the risk as any claim we make under our insurance will be subject to a deductible. The deductible for each rig
reflects the market value of the rig and is currently a weighted average maximum of approximately $1.1 million per claim.
War Risk Insurance
We maintain war risk insurance for our rigs up to a maximum amount of [$500 million per rig] depending on the value of the
protection and indemnity and hull and machinery insurance policies for each rig and subject to certain coverage limits, deductibles
and exclusions. The terms of our war risk policies include a provision whereby underwriters can, upon service of seven days’
prior written notice to the insured, cancel the policies in the event that the insured has or may have breached sanctions. Further,
the policies will automatically terminate after the outbreak of war, or war-like conditions, between two or more of China, the
United States of America, the United Kingdom, Russia and France.
Loss of Hire Insurance
We maintain loss of hire insurance for certain of our jack-up rigs to cover loss of revenue in the event of extensive downtime
caused by physical damage covered by our hull and machinery insurance policies. Provided such downtime continues for more
than 45 days, the policies will cover an agreed daily rate of hire for such downtime up to a maximum of 180 days, not to exceed
100% of the daily loss of hire for such period. The decision to obtain loss of hire insurance is taken where required by the terms of
our finance agreements in respect and otherwise on a case-by-case basis whenever a rig is contracted for drilling operations. The
amount covered under a loss of hire policy will depend on, among other things, the duration of the contract, the contract rates and
other terms of the relevant drilling contract.
Protection and Indemnity Insurance
We purchase protection and indemnity insurance and excess umbrella liability insurance. Our protection and indemnity
insurance covers third-party liabilities arising from the operation of our rigs, including personal injury or death (for crew and
other third-parties), collisions, damage to fixed and floating objects and statutory liability for oil spills and the release of other
forms of pollution, such as bunkers, and wreck removal. The protection and indemnity insurance policies, together with our
excess umbrella policy, cover claims up to the maximum of the agreed total claim amount, but not exceeding the maximum of
$510 million (for our operational rigs) or $210 million (for our stacked rigs), as applicable, depending on contractual obligations
and area of operation. The excess umbrella insurance policy referred to above covers an additional $100 million to $300 million
per event, in addition to our protection and indemnity insurance policies, as part of our overall combined maximum insurance
coverage. If the aggregate value of a claim against one of our rig-owning subsidiaries under a protection and indemnity insurance
policy exceeds the maximum of $210 million or (for our rigs in Mexico) $310 million, the excess umbrella insurance policy will
cover an additional agreed amount. We are self-insured for costs in excess of the overall combined maximum limit of coverage, or
$210 million for stacked rigs and the agreed aggregate limit between $310 million and $510 million for an operational rig, as
agreed. If the aggregate value of a claim against one of our subsidiaries under a protection and indemnity insurance policy
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exceeds $210 million or $310 million, the excess umbrella policy will for rigs that are not laid-up cover an additional sum
between $100 million and $300 million as agreed for each rig, but maximum $510 million combined, meaning that we are self-
insured for costs in excess of the total combined limit, as agreed. We retain the risk for the deductible of up to $25,000 per claim
relating to protection and indemnity insurance or up to $250,000 for claims made in the United States.
We also maintain insurance policies and excess insurance policies against general liability and public liability for onshore
statutory and contractual risks, mainly related to employment, tenant, warehouses and other on-shore activities. The insured value
under each individual policy is between $1 million and $5 million and is complemented by the excess umbrella policy which
provides for an additional aggregate excess limit of $50 million per annum.
Management's determination of the appropriate level of insurance coverage is made on an individual asset basis taking into
account several factors, including the age, market value, cash flow value and replacement value of our jack-up rigs, their location
and operational status.
LEGAL PROCEEDINGS
We are from time to time involved in civil litigation, and we anticipate that we will be involved in such litigation matters
from time to time in the future. The operating hazards inherent in our business expose us to a wide range of legal claims including
claims arising from personal injury; environmental issues; claims from and against contractual counterparties such as customers,
suppliers, partners and agents; intellectual property litigation; tax or securities claims and maritime claims, including the possible
arrest of our jack-up rigs. Risks associated with litigation include the risk of having to make a payment to satisfy a judgment
against us, legal and other costs associated with asserting our claims or defending lawsuits, and the diversion of management’s
attention to these matters. Even if successful, we may not be able to recover all of our costs.
REGULATION
We are registered under the laws of Bermuda and our principal executive offices are located in Bermuda. The management
headquarters of Borr Drilling Management UK are located in the United Kingdom, while we have business operations in four
regions, Europe, Middle East and Asia, Africa and Americas as well as in various countries where our rigs are operating or
stacked. As a result of this organizational structure and the scope of our operations, we are subject to a variety of laws in different
countries, including those related to the environment, health and safety, personal privacy and data protection, content restrictions,
telecommunications, intellectual property, advertising and marketing, labor, foreign exchange, competition and taxation. These
laws and regulations are constantly evolving and may be interpreted, implemented or amended in a manner that could harm our
business. It also is likely that if our business grows and evolves and our rigs and services are used more globally, we will become
subject to laws and regulations in additional jurisdictions. This section sets forth the summary of material laws and regulations
relevant to our business operations.
Environmental and Other Regulations in the Offshore Drilling Industry
Our operations are subject to numerous QHSE laws and regulations in the form of international treaties and maritime
regimes, flag state requirements, national environmental laws and regulations, navigation and operating permits requirements,
local content requirements, and other national, state and local laws and regulations in force in the jurisdictions in which our jack-
up rigs operate or are registered, which can significantly affect the ownership and operation of our jack-up rigs. See the section
entitled “Item 3.D Risk Factors—Risk Factors Related to Applicable Laws and Regulations—We are subject to complex
environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.”
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Class and Flag State Requirements
Each of our rigs is subject to regulatory requirements of its flag state. Flag state requirements reflect international maritime
requirements and are in some cases further interpolated by the flag state itself. These include engineering, safety and other
requirements related to offshore industries generally. In addition, in order to be permitted to operate, each of our jack-up rigs must
be certified by a classification society as being “in-class,” which provides evidence that the jack-up rig was built, and is
maintained, in accordance with the rules of the relevant classification society and complies with applicable rules and regulations
of the flag state as well as the international conventions to which that country is a party. Maintenance of class certification has a
significant cost and although dry docking is not necessary for the five year special periodic survey or underwater inspections
which are required every thirty months, in each case being required to verify the integrity of our jack-up rigs and maintain
compliance with class requirements, we could be required to take a jack-up rig out of service for repairs or modifications. Our
jack-up rigs are certified as being “in-class” by ABS and we comply with the mandatory requirements of the national authorities
in the countries in which our jack-up rigs operate. In addition, Classification societies are authorized to issue statutory certificates
on the basis of delegated authority from the flag states for some of the internationally required certifications, such as the Code for
the Construction and Equipment of Mobile Offshore Drilling Units certificate.
International Maritime Regimes
Applicable international maritime regime requirements include, but are not limited to, the International Convention for the
Prevention of Pollution from Ships, the International Convention on Civil Liability for Oil Pollution Damage of 1969, the
International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001 (ratified in 2008), the International
Convention for the Safety of Life at Sea of 1974, the Code for the Construction and Equipment of Mobile Offshore Drilling Units,
2009 and the International Convention for the Control and Management of Ships’ Ballast Water and Sediments, effective as of
2017 (the “BWM Convention”). These conventions have been widely adopted by U.N. member countries, and in some
jurisdictions in which we operate, these regulations have been expanded upon. These various conventions regulate air emissions
and other discharges to the environment from our jack-up rigs worldwide, and we may incur costs to comply with these regimes
and continue to comply with these regimes as they may be amended in the future. In addition, these conventions impose liability
for certain discharges, including strict liability in some cases.
Annex VI to MARPOL sets limits on sulfur dioxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate
emissions of ozone depleting substances. Annex VI applies to all ships and, among other things, imposes a global cap on the
sulfur content of fuel oil and allows for specialized areas to be established internationally with even more stringent controls on
sulfur emissions. For vessels 400 gross tons and greater, platforms and drilling rigs, Annex VI imposes various survey and
certification requirements. Moreover, Annex VI regulations impose progressively stricter limitations on sulfur emissions from
ships. Since January 1, 2015, these limitations have required that fuels of vessels in covered ECAs, including the Baltic Sea,
North Sea, North America and United States Caribbean Sea ECAs, contain no more than 0.1% sulfur. For non-ECA-areas, a
global cap on sulphur content of no more than 0.5% entered into force on 1 January, 2020. Annex VI also established new tiers of
stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. All of our rigs are in
compliance with these requirements.
The BWM Convention required for a phased introduction of mandatory ballast water exchange requirements (beginning in
2009), to be replaced in time with a requirement for mandatory ballast water treatment. The BWM Convention entered into force
on September 8, 2017. Under its requirements, for jack-up rigs with a ballast water capacity of more than 5,000 cubic meters that
were constructed in 2011 or before, only ballast water treatment will be accepted by the BWM Convention. All of our jack-up rigs
considered in operational status are in full compliance with the staged implementation of the BWM Convention by IMO
guidelines.
Environmental Laws and Regulations
We are subject to laws which govern discharge of materials into the environment or otherwise relate to environmental
protection, including complying with regulations on the transit and safe recycling of hazardous materials which are relevant when
we retire rigs from the international fleet. In certain circumstances, these laws may impose strict liability, rendering us liable for
environmental and natural resource damages without regard to negligence or fault on our part. Implementation of new
environmental laws or regulations that may apply to jack-up rigs may subject us to increased costs or limit the operational
capabilities of our rigs and could materially and adversely affect our operations and financial condition. Applicable environmental
laws and regulations for our current operations include the Basel Convention, the Hong Kong International Convention for the
Safe and Environmentally Sound Recycling of Ships, 2009 (when it enters into force) as well as European Union regulations,
including the E.U. Directive 2013/30 on the Safety of Offshore Oil and Gas Operations, Regulation (EC) No 1013/2006 on
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Shipments of Waste and Regulation (E.U.) No 1257/2013 on Ship Recycling. Were we to operate in other regions, such as the US
or Brazil, additional environmental laws and regulations would apply to our operations.
Safety Requirements
Our operations are subject to special safety regulations relating to drilling and to the oil and gas industry in many of the
countries where we operate. The United States undertook substantial revision of the safety regulations applicable to our industry
following the Macondo well blowout situation that led to the 2010 Deepwater Horizon Incident (to which we were not a party).
Other countries are also undertaking a review of their safety regulations related to our industry. These safety regulations may
impact our operations and financial results by adding to the costs of exploring for, developing and producing oil and gas in
offshore settings. For instance, in April 2016, BSEE published a final rule that sets more stringent design requirements and
operational procedures for critical well control equipment used in offshore oil and gas drilling. The rule adds new requirements
and amends existing ones to, among other things, set new baseline standards for the design, manufacture, inspection, repair and
maintenance of blowout preventers and the use of double shear rams. The rule contains a number of other requirements, including
third-party verification and certifications, real-time monitoring of deepwater and certain other activities, and sets criteria for safe
drilling margins. In May 2019, BSEE revised the 2016 rule to correct errors and reduce regulatory burdens determined to be
unnecessary. The requirements of these regulations are likely to increase the costs of our operations and may lead our customers
to not pursue certain offshore opportunities because of the increased costs, delays and regulatory risks. In July 2016, BOEM
issued a final Notice to Lessees and Operators substantially revising and making more stringent supplemental bonding procedures
for the decommissioning of offshore wells, platforms, pipelines, and other facilities. In June 2017, BOEM announced that the
implementation timeline would be extended, except in circumstances where there is a substantial risk of nonperformance of such
obligations. In addition, in December 2015, BSEE announced the launch of a pilot risk-based inspection program for offshore
facilities. New requirements resulting from the program may cause us to incur costs and may result in additional downtime for our
jack-up rigs in the U.S. Gulf of Mexico. Also, if material spill events similar to the 2010 Deepwater Horizon Incident (to which
we were not a party) were to occur in the future, the United States or other countries could elect to again issue directives to
temporarily cease drilling activities and, in any event, may from time to time issue additional safety and environmental laws and
regulations regarding offshore oil and gas exploration and development. The E.U. has also undertaken a significant revision of its
safety requirements for offshore oil and gas activity through the issuance of the E.U. Directive 2013/30 on the Safety of Offshore
Oil and Gas Operations.
Navigation and Operating Permit Requirements
Numerous governmental agencies issue regulations to implement and enforce the laws of the applicable jurisdiction, which
often involve lengthy permitting procedures, impose difficult and costly compliance measures, particularly in ecologically
sensitive areas, and subject operators to substantial administrative, civil and criminal penalties or may result in injunctive relief
for failure to comply. Some of these laws contain criminal sanctions in addition to civil penalties.
Local Content Requirements
Governments in some countries have become increasingly active in local content requirements on the ownership of drilling
companies, local content requirements for equipment utilized in operations within the country and other aspects of the oil and gas
industries in their countries. These regulations include requirements for participation of local investors in our local operating
subsidiaries, including in Mexico. Some foreign governments favor or effectively require (i) the awarding of drilling contracts to
local contractors or to drilling rigs owned by their own citizens, (ii) the use of a local agent or (iii) foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. In addition, national oil companies may impose restrictions on the
submission of tenders, including eligibility criteria, which effectively require the use of domestically supplied goods and services
or a local partner.
Data Protection Laws and Regulations
We are subject to rules and regulations governing protection of personal data including the General Data Protection
Regulation (EU) 2016/679 (the “GDPR”), repealing the 1995 European Data Protection Directive (Directive 95/46/EC) and any
national laws within the European Economic Area (“EEA”) supplementing the GDPR. Data protection legislation, including the
GDPR, regulates the manner in which we may hold, use and communicate personal data of our employees, customers, vendors
and other third parties. Data protection is a sector of significant regulatory focus with scrutiny of cybersecurity practices and the
collection, storage, use and sharing of personal data increasing around the world. As a consequence, there is uncertainty
associated with the legal and regulatory environment relating to privacy, e-privacy and data protection laws, which continue to
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develop in ways we cannot predict. Changes in applicable data protection and cybersecurity legislation could materially and
adversely affect our business.
The companies within our Group which are employers are “data controllers” for the purposes of the GDPR, meaning that,
among other obligations, they are required to ensure that personal data collected for instance from our employees is safely stored,
that its accuracy is maintained (meaning that inaccurate data is corrected) and that personal data is only stored for as long as
necessary further to the purpose for which it was collected. With respect to transfers of our employees’ personal data that is
subject to the GDPR, whether externally to third parties or internally within our Group, the GDPR requires that we establish
safeguards to ensure that personal data is safely transferred and that the rights of the data subject are respected and upheld.
The companies within our Group which communicate with vendors and other third parties, in connection with contracts or
otherwise, may be “data controllers” or “data processors” for the purposes of the GDPR and are required to handle any personal
data received from vendors and other third parties in accordance with the provisions of the GDPR.
The GDPR applies primarily to our companies established in the EEA but may also apply to other companies in the Group to
the extent that their business involves personal data of persons located within the EEA. Noncompliance with the GDPR can lead
to the imposition of government enforcement actions and prosecutions, private litigation (including class actions) and
administrative fines, currently up to the greater of €20 million and 4% of our global turnover in the financial year preceding the
imposition of the fine, as well as an obligation to compensate the relevant individual(s) for financial or non-financial damages
claimed under Article 82 of the GDPR. Any such compromise could also result in damage to our reputation and a loss of
confidence in our security and privacy or data protection measures. A breach of the GDPR (or other applicable data protection
legislation) could have a material adverse effect on our business, financial condition and results of operations.
Other Laws and Regulations
In addition to the requirements described above, our international operations in the offshore drilling segment are subject to
various other international conventions and laws and regulations in countries in which we operate, including laws and regulations
relating to the importation of, and operation of, jack-up rigs and equipment, cabotage rules, currency conversions and repatriation,
oil and gas exploration and development, taxation of offshore earnings, taxation of the earnings of expatriate personnel, the use of
local employees and suppliers by foreign contractors, duties on the importation and exportation of our rigs and other equipment,
local community development and social corporate responsibility requirements. There is no assurance that compliance with
current laws and regulations or amended or newly adopted laws and regulations can be maintained in the future or that future
expenditures required to comply with all such laws and regulations in the future will not be material.
INDUSTRY OVERVIEW
We operate in the global offshore contract drilling industry, which is a part of the international oil industry, and within the
global offshore contract drilling industry we predominately operate jack-up rigs in shallow-water. The activity and pricing within
the global offshore contract drilling industry is driven by a multitude of demand and supply factors, including expectations
regarding oil and gas prices, anticipated oil and gas production levels, worldwide demand for oil and gas products, the availability
of quality reservoirs, exploration success, availability of qualified drilling rigs and operating personnel, relative production costs,
the availability of or lead time required for drilling and production equipment, the stage of reservoir development and the political
and regulatory environments.
One fundamental demand driver is the level of investment by E&P Companies and their associated capital expenditures.
Historically, the level of upstream capital expenditures has primarily been driven by future expectations regarding the price of oil
and natural gas. It remains to be seen whether the trends in oil prices will continue and what will be the impact on the offshore
spending of E&P Companies and therefore our business. The impact of the COVID-19 crisis and OPEC and non-OPEC country
production decisions during 2020 has had a significant and adverse impact on our operations, a continuation of the impact of the
COVID-19 pandemic or additional supply cuts as a response to a slow demand recovery could continue to have a disadvantageous
effect on our business. See also “Item 5.D Trend Information.”
Overview of the Global Offshore Contract Drilling Market
The offshore contract drilling industry provides drilling, workover and well construction services to E&P Companies through
the use of Mobile Offshore Drilling Units ("MODUs"). Historically, the offshore drilling industry has been highly cyclical.
Offshore spending by E&P Companies has fluctuated substantially on an annual basis depending on a variety of factors. See
“Item 3.D Risk Factors—Risk Factors Related to Our Industry.”
62
The profitability of the offshore contract drilling industry is largely determined by the balance between supply and demand
for MODUs. Offshore drilling contractors can mobilize MODUs from one region of the world to another, or reactivate stacked/
laid up rigs in order to meet demand in various markets.
Offshore drilling contractors typically operate their MODUs under contracts received either by submitting proposals in
competition with other contractors or following direct negotiations. The rate of compensation specified in each contract depends
on, among other factors, the number of available rigs capable of performing the work, the nature of the operations to be
performed, the duration of work, the amount and type of equipment and services provided, the geographic areas involved and
other variables. Generally, contracts for drilling services specify a daily rate of compensation and can vary significantly in
duration, from weeks to several years. Competitive factors include, among others: price, rig availability, rig operating features,
workforce experience, operating efficiency, condition of equipment, safety record, contractor experience in a specific area,
reputation and customer relationships.
Periods of high demand are typically followed by a shortage of rigs and consequently higher dayrates which, in turn, makes it
advantageous for industry participants to place orders for new rigs. This was the case prior to the oil price decline in 2014, where
several industry participants ordered new rigs in response to the high demand in the market. However, despite the deteriorating
market conditions in the recent downturn, the number of rigs available in the market continued to increase due to both rigs coming
off contract with no follow on work and continued inflow of new rigs (albeit at a slower rate than originally planned). This
increase in spare capacity, when met with reduced demand for services, shifted excess rig demand into an excess supply of rigs
and, consequently reduced dayrates. These conditions continue, although we are starting to see signs of improvement.
The Jack-Up Rig Segment
Jack-up rigs can, in principle, be used to drill (a) exploration wells, i.e. explore for new sources of oil and gas or (b) new
production wells in an area where oil and gas is already produced; the latter activity is referred to as development drilling.
Shallow-water oil and gas production is generally a low-cost production, in terms of cost per barrel of oil. As a result, and due to
the shorter period from investment decision to cash flow, E&P Companies have an inventive to invest in shallow-water
developments over other offshore production categories.
The jack-up drilling market is characterized by a highly competitive and fragmented supplier landscape, with market
participants ranging from large international companies to small, locally owned companies and rigs owned by national oil
companies (“NOCs”) (the latter are referred to as owner-operated rigs). The operations of the largest players are generally
dispersed around the globe due to the high mobility of most MODUs. Although the cost of moving MODUs from one region to
another and/or the availability of rig-moving vessels may cause a short term imbalance between supply and demand in one region,
significant variations between regions do not exist in the long-term due to MODU mobility.
There are several sub-segments within the jack-up drilling segment based on different attributes of the rigs, typically water
depth capability, age, hook load capacity, cantilever reach and environmental conditions a rig can operate in. The sub-segment
classification varies across market participants, third parties (researchers, consultants etc.), classification societies and others. In
this annual report, we have used the following classification of the jack-up sub-segments, which are as follows:
•
•
“modern” or “premium” – rigs delivered in 2001 or later; and
“standard” – rigs delivered prior to 2001.
Recently, the jack-up drilling market has experienced a shift in demand towards modern jack-up rigs. In line with this trend,
several drilling contractors are renewing their fleets through both newbuildings and rig acquisitions.
63
C.
ORGANIZATIONAL STRUCTURE
A full list of our significant management, operating and rig-owning subsidiaries is shown in Exhibit 8.1 to this annual report
and the following diagram depicts our simplified organizational and ownership structure.
*
As more fully described herein, our subsidiary Borr Mexico Ventures Limited also holds a 49% interest in four Mexican
entities and a subsidiary of our local operating partner in Mexico holds the remaining 51% interest.
D.
PROPERTY, PLANTS AND EQUIPMENT
Our principal executive offices are located at S. E. Pearman Building, 2nd Floor, 9 Par-la-Ville Road, Hamilton HM11,
Bermuda. The operational headquarters of Borr Drilling Management UK in London in the United Kingdom and our other
offices, including in Singapore, Aberdeen in the United Kingdom, Beverwijk in the Netherlands, Oslo in Norway, Abu Dhabi in
the United Arab Emirates, Port Gentile in Gabon, Port Harcourt in Nigeria and Bangkok in Thailand are leased.
We own a substantially modern fleet of jack-up rigs. See “—B. Business Overview—Our Business—Our Fleet” for a table
setting forth the jack-up rigs that we own or are under construction as of April 13, 2021.
A number of our rig-owning subsidiaries' shares and assets are pledged to secure loan facilities. See Item 5.B.Liquidity and
Capital Resources - Our Existing Indebtedness - Key Borrowing Facilities" for more information.
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
64
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
our Consolidated Financial Statements and the related notes thereto included elsewhere in this annual report. The discussion and
analysis below contain certain forward-looking statements about our business and operations that are subject to the risks,
uncertainties and other factors described in the section entitled “Item 3.D—Risk Factors,” and elsewhere in this annual report.
These risks, uncertainties and other factors could cause our actual results to differ materially from those expressed in, or implied
by, the forward-looking statements. See the section entitled “Special Note Regarding Forward-Looking Statements.”
Overview of Financial Information Presented
We are an offshore shallow-water drilling contractor providing worldwide offshore drilling services to the oil and gas
industry. Our primary business is the ownership, contracting and operation of jack-up rigs for operations in shallow-water areas
(i.e., in water depths up to approximately 400 feet), including the provision of related equipment and work crews to conduct oil
and gas drilling and workover operations for exploration and production customers.
We are a preferred operator of jack-up rigs within the jack-up drilling market. The shallow-water market is our operational
focus as we expect demand will recover sooner than in the mid and deepwater segments of the contract drilling market. We
contract our jack-up rigs and offshore employees primarily on a dayrate basis to drill wells for our customers, including integrated
oil companies, state-owned national oil companies and independent oil and gas companies. During 2020, our top five customers
by revenue, including related party revenue were subsidiaries of ExxonMobil, NDC, Spirit Energy, Perfomex and ENI. A dayrate
drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering
a stated term. Our Total Contract Backlog (excluding our Mexican operations) was $132.1 million as of December 31, 2020 and
$308.5 million as of December 31, 2019. We currently operate in significant oil-producing geographies throughout the world,
including the North Sea, the Middle East, Mexico, West Africa and Southeast Asia. We intend to operate our business with a
competitive cost base, driven by a strong and experienced organizational culture and a carefully managed capital structure.
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. The following chart illustrates the development in our fleet since
our inception:
Total Fleet as of January 1
Jack-up Rigs Acquired(1)
Newbuild Jack-up Rigs Delivered from Shipyards
Jack-up Rigs Disposed of
Total Fleet as of the end of the Period
Newbuild Jack-up Rigs not yet Delivered as of the end of Period
Total Fleet, including Newbuild Rigs not yet Delivered, as of the end of
Period(2)
As of and For the Year Ended
December 31,
2019
27
1
2
2
28
7
2020
28
—
2
6
24
5
29
35
2018
13
23
9
18
27
9
36
(1)
Includes acquisition of one semi-submersible rig in 2018 which was sold in 2020.
(2)
Since December 31, 2020, we have disposed of one jack-up rig with a total fleet as of April 13, 2021 of 23 jack-up
rigs. We have five new build jack-up rigs not yet delivered as of April 13, 2021. Our total fleet, including newbuild
rigs not yet delivered, as of April 13, 2021 is 28.
How We Evaluate Our Business
We have two operating segments: operations performed under our dayrate model (which includes rig charters and ancillary
services) and operations performed under the IWS model, that are reviewed by the CODM, as an aggregated sum of assets,
liabilities and activities that exist to generate cash flows. We evaluate our business based on a number of operational and financial
measures that we believe are useful in assessing our historical and expected future performance throughout the commodity-price
cycles that have characterized the offshore drilling industry since our inception. These operational and financial measures include
the following:
65
Operational Measures
Total Contract Backlog
Our Total Contract Backlog includes only firm commitments for contract drilling services represented by definitive
agreements.
Total Contract Backlog (in $ millions) is calculated as the maximum contract drilling dayrate revenue that can be earned from
a drilling contract based on the contracted operating dayrate. Total Contract Backlog excludes revenue resulting from
mobilization and demobilization fees, contract preparation, capital or upgrade reimbursement, recharges, bonuses and other
revenue sources and is not adjusted for planned out-of-service periods during the contract period.
Total Contract Backlog (in contracted rig years) is calculated as our total number of contracted rig years based on firm
commitments, which illustrates the time it would take one jack-up rig to perform the obligations under all agreements for all rigs
consecutively.
The contract period excludes additional periods that may result from the future exercise of extension options under our
contracts, and such extension periods are included only when such options are exercised. The contract operating dayrate may
temporarily change due to, among other factors, mobilization, weather or repairs. As used in this annual report, Total Contract
Backlog (in $ millions) is not the same measure as the acquired contract backlog presented in our Consolidated Financial
Statements. Please see Notes 2 and 17 to our Consolidated Financial Statements and the section entitled “Item 4.B Business
Overview—Our Business—Customers and Contract Backlog.”
Our Total Contract Backlog (excluding our Mexican operations), expressed in U.S. dollars and in number of years, as of
December 31, 2020, 2019 and 2018, was as follows:
Total Contract Backlog (in $ millions)(1)
Total Contract Backlog (in contracted rig years)(1)
Year Ended December 31,
2020
132.1 $
3.9
2019
308.5 $
11.8
2018
377.5
14.3
$
(1)
The table assumes no exercise of extension options or renegotiations under our current contracts. Also excludes our
Mexican operations.
Technical Utilization
Technical Utilization is the efficiency with which we perform well operations without stoppage due to mechanical,
procedural or other operational events that result in down, or zero, revenue time. Technical Utilization is calculated as the
technical utilization of each rig in operation for the period, divided by the number of rigs in operation for the period, with the
technical utilization for each rig calculated as the total number of hours during which such rig generated dayrate revenue, divided
by the maximum number of hours during which such rig could have generated dayrate revenue, expressed as a percentage
measured for the period. Technical Utilization is calculated only with respect to rigs in operation for the relevant period and is not
calculated on a fleet-wide basis. Technical Utilization is a measure of efficiency of rigs in operation and is not a measurement of
utilization of our fleet overall.
Economic Utilization
Economic Utilization is the dayrate revenue efficiency of our operational rigs and reflects the proportion of the potential full
contractual dayrate that each jack-up rig actually earns each day. Economic Utilization is affected by reduced rates for standby
time, repair time or other planned out-of-service periods. Economic Utilization is calculated as the economic utilization of each
rig in operation for the period, divided by the number of rigs in operation for the period, with the economic utilization of each rig
calculated as the total revenue, excluding bonuses, as a proportion of the full operating dayrate multiplied by the number of days
on contract in the period. Economic Utilization is calculated only with respect to rigs in operation for the relevant period and is
not calculated on a fleet-wide basis. Economic Utilization is a measure of efficiency of rigs in operation and is not a measurement
of utilization of our fleet overall.
66
Rig Utilization
Rig Utilization is calculated as the weighted average number of operating rigs divided by the weighted average number of
rigs owned for each period.
Total Recordable-Incident Frequency (TRIF)
TRIF is a measure of the rate of recordable workplace injuries. TRIF, as defined by the International Association of Drilling
Contractors, is derived by multiplying the number of recordable injuries during the twelve-month period prior to the specified date
by 1,000,000 and dividing this value by the total hours worked in that period by the total number of employees. An incident is
considered “recordable” if it results in medical treatment over certain defined thresholds (such as receipt of prescription
medication or stitches to close a wound) as well as incidents requiring the injured person to spend time away from work.
Weighted Average Number of Operating Rigs
Weighted Average Number of Operating Rigs describes the number of jack-up rigs operating, which may be compared to our
total available jack-up fleet. We define operating rigs as all of our jack-up rigs that are currently operating on firm commitments
for contract drilling services, represented by definitive agreements. This excludes our jack-up rigs which are stacked, undergoing
reactivation programs and newbuild rigs under construction. The Weighted Average Number of Operating Rigs is the aggregate
number of expected revenue days to be realized during the period from firm commitments for contract drilling services, divided
by the number of days in the applicable period.
Our Technical Utilization, Economic Utilization, Rig Utilization, TRIF and Weighted Average Number of Operating Rigs for
the years ended December 31, 2020, 2019 and 2018 were:
Technical Utilization (in %)
Economic Utilization (in %)
Rig Utilization (in %)
TRIF (number of incidents)
Weighted Average Number of Operating Rigs
Financial Measures
Operating Revenues
Year Ended December 31,
2020
99.5
92.1
48.3
1.66
12.8
2019
99.0
95.9
43.3
2.12
11.9
2018
99.3
97.9
27.3
1.54
7.0
Operating revenues includes the gross revenue generated from jack-up rigs operated by us under our drilling contracts,
including amortization of mobilization revenue received from customers.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure, please refer to Item 3.A Selected Financial Data - for the reconciliation
of Adjusted EBITDA to net loss for the years ended December 31, 2020, 2019 and 2018.
Recent Developments
Completion of Equity Offering
In January 2021, we completed a private placement of 54,117,647 new depositary receipts, representing the beneficial
interests in the same number of our underlying common shares, each at a subscription price of $0.85 per share (equivalent to NOK
7.1655 per share), raising gross proceeds of $46 million. Following completion of this equity offering, our outstanding and issued
share capital increased by to 274,436,351 shares. The increase of the Company’s authorized share capital required for the offering
67
was approved at a special general shareholders’ meeting held on January 8, 2021. Following the special general shareholders’
meeting, our authorized share capital was increased to 290,000,000 common shares of $0.05 par value per share.
Amendments to Financing and Delivery Financing Arrangements
In January 2021, the terms of certain of our Syndicated Credit Facility, Hayfin Facility and the delivery financing
arrangements related to our newbuild rigs were amended. The amendments revised certain specified financial covenants,
including minimum free liquidity, deferred certain interest payments and changed the dates of certain amortization payments
which otherwise would have fallen due in 2021 to 2022. See “—Liquidity and Capital Resources–Our Existing Indebtedness—
Loan amendments and Covenants” for more information.
New Contracts
In March, 2021 we entered into three agreements that potentially add a total of $48 million over approximately 590 days to
the contract backlog.
The rig "Prospector 1" secured a three-well plus option contract with Tulip for operations in the Netherlands. As a result, the
“Prospector 1” is expected to be operating on the Dutch Continental Shelf for the remainder of 2021.
The rig “Gunnlod” secured an optional period extension from PTTEP which is expected to keep the rig operating up to
September 2021. The rig has one further option period.
For the rig “Natt” we received a letter of intent with an undisclosed new operator in Nigeria to commence operations in April
2021 for an estimated duration of 150 days, in continuation of its previous contract.
Key Components of Our Results of Operations
Operating revenues
We earn revenues primarily by performing the following activities: (i) providing our jack-up rigs, work crews, related
equipment and services necessary to operate our jack-up rigs; (ii) providing our jack-up rigs to our Mexican equity method
investments (Perfomex and Perfomex II) under bareboat lease contracts, and providing management and labor under management
agreements to Perfomex and Perfomex II; (iii) delivering our jack-up rigs by mobilizing to and demobilizing from the drill
location; and (iv) performing certain pre-operating activities, including rig preparation activities or equipment modifications
required for our contracts.
We recognize revenues earned under our 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 we perform during the contract. Such dayrate consideration is attributed to the distinct time period to which it relates
within the contract term, and therefore, is recognized as we perform the services. We recognize reimbursement revenues and the
corresponding costs as we provide the customer-requested goods and services, when such reimbursable costs are incurred while
performing drilling operations. Prior to performing drilling operations, we 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 we recognize on a straight-line basis over the estimated firm contract period. We recognize losses related to
contracts as such losses are incurred.
We provide corporate support services, secondment of personnel and management services to our equity method investments
under management and service agreements. The services are based on costs incurred in the period with appropriate margins and
have been recognized under related party revenues in our Statement of Operations, with associated costs included within
Operating Expenses.
We lease rigs on bareboat charters to our equity method investments, Perfomex and Perfomex II. We expect lease revenue
earned under the bareboat charters to be variable over the lease term, as a result of the contractual arrangement which assigns the
bareboat a value over the lease term equivalent to residual cash after payments of operating expenses and other fees. We, as a
lessor, do not recognize a lease asset or liability on our balance sheets at the time of the formation of the entities nor as a result of
the lease. Revenue is recognized when management are able to reasonably predict the expected underlying bareboat rate over the
contract term.
68
Gains on disposals
From time to time we may sell, or otherwise dispose of, our jack-up rigs and/or other fixed assets to external parties or related
parties. In addition, assets, including certain jack-up rigs, may be classified as “held for sale” on our balance sheets when, among
other things, we are committed to a plan to sell such assets and consider a sale probable within twelve months. We may recognize
a gain or loss on any such disposal depending on whether the fair value of the consideration received is higher or lower than the
carrying value of the asset.
Operating expenses
Our operating primarily expenses include jack-up rig operating and maintenance expenses, depreciation and impairment,
amortization of contract backlog, general and administrative expenses and restructuring costs.
Rig operating and maintenance expenses are the costs associated with owning a jack-up rig that may from time to time be
either in operation or stacked, including:
•
•
•
Rig personnel expenses: compensation, transportation, training, as well as catering costs while the crews are on the
jack-up rig. Such expenses vary from country to country and reflect the combination of expatriates and nationals, local
market rates, unionized trade arrangements, local law requirements regarding social security, payroll charges and end
of service benefit payments.
Rig maintenance expenses: expenses related to maintaining our jack-up rigs in operation, including the associated
freight and customs duties, which are not capitalized nor deferred. Such expenses do not directly extend the rig life or
increase the functionality of the rig.
Other rig-related expenses: all remaining operating expenses such as supplies, insurance costs, professional services,
equipment rental and other miscellaneous costs.
Depreciation costs are based on the historical cost of our jack-up rigs. Rigs are recorded at historical cost less accumulated
depreciation. Jack-up rigs acquired as part of asset acquisitions are stated at fair 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, when new, is 30 years. Costs related to periodic surveys and
other major maintenance projects are capitalized as part of drilling units and amortized over the anticipated period covered by the
survey or maintenance project, which is up to five years. These costs are primarily shipyard costs and the costs related to
employees directly involved in the work. Amortization costs for periodic surveys and other major maintenance projects are
included in depreciation and amortization expense.
Amortization of contract backlog is the amortization expense for acquired drilling contracts with above market rates. Where
we acquire an in-progress drilling contract at above market rates through a business combination, we record an intangible asset
equal to its fair value on the date of acquisition. The asset is then amortized on a straight-line basis over its estimated remaining
contract term.
Our general and administrative expenses primarily include all office personnel costs and other miscellaneous expenses
incurred by the operational headquarters of Borr Drilling Management UK in the UK as well as share-based compensation
expenses, fees payable to certain Related Parties under a management agreement for providing business, organizational, strategic,
financial and other advisory services and doubtful debt provisions or releases.
Our restructuring costs related to the Paragon Transaction are as further described below.
Material Factors Affecting Results of Operations
Our results of operations have a number of key components and are primarily affected by the number of jack-up rigs under
contract, the contractual dayrates we earn and the associated operating expenses. Our future results may not be comparable to our
historical results of operations for the periods presented. In addition, when evaluating our historical results of operations and
assessing our prospects in the periods under review, you should consider the following factors:
69
Acquisitions and Disposals
Since our inception in 2016, we have acquired more than 50 jack-up rigs through both the purchase of existing jack-up rigs,
companies owning jack-up rigs and contracts for newbuild jack-up rigs, of which we have sold 26 and one semi-submersible. This
increase in jack-up rigs and related expansion of operations resulting from an increased number of jack-up rigs under contract has
had a significant impact on our results of operations and our balance sheets during the periods presented in our Consolidated
Financial Statements. The key characteristics of our rigs owned but not under contract which may yield differences in their
marketability or readiness for use include whether such rigs are warm stacked or cold stacked, age of the rig, geographic location
and technical specifications; please see our fleet status report in “Item 4.B Business Overview—Our Business—Our Fleet” for
further information concerning these features by rig.
For more information on our acquisitions and disposals, please see the section entitled “Item 4. Information on the
Company.”
Acquisitions and Disposals: The table below sets forth information relating to our acquisitions and disposals since our
formation:
Transaction
(Closing
Date)
Transaction
Value
(in $ millions)
Purchase Price
Allocation
(in $ millions)
Hercules
Acquisition
(January 23, 2017)
$130
(Asset
Acquisition)
N/A
Rig Status at
Acquisition
Rig Status as of
December 31,
2020(1)2
• Warm Stacked: 2 • Warm Stacked: 2
Rigs Purchased
• 2 premium jack-
up rigs
Transocean
Transaction (May
31, 2017)
$1,240.5
(Business
Combination)
• Jack-up Rigs:
$547.7
• Onerous
Contract:
$(223.7)
• Current Assets:
$0.5 Total:
$324.5(2)
• Future Newbuild
Contracts: $916.0
Total: $1,240.5
• 6 premium jack-
up rigs
• 4 standard jack-
up rigs
• Warm Stacked: 7
• Under Legacy
Contract: 3
• 5 contracts for
• Under
newbuild jack-up
rigs
Construction: 5
• Warm Stacked: 3
• Cold Stacked: 1
• Under New
Contract: 3
• Disposed of: 5
• Under
Construction: 3
PPL Acquisition
(October 6, 2017)
$1,300
(Asset
Acquisition)
• N/A
• 9 contracts for
newbuild jack-up
rigs
• Under
Construction: 9
• Warm Stacked:3
• Under New
Contract: 6
Paragon
Transaction
(March 29, 2018)
$241.3
(Business
Combination)
• Jack-up Rigs:
$261.0
• Other Net Assets:
$18.4
• Bargain Gain:
$(38.1)
• Total: $241.3
• 2 premium jack-
up rigs
• 20 standard jack-
up rigs
• 1 semi-
submersible
• Warm Stacked:16
• Under Legacy
Contract: 7
• Under New
Contract: 2
• Disposed of: 21
Keppel Acquisition
(May 16, 2018)
Keppel Hull
B378
Acquisition
(March 29, 2019)
$742.5
(Asset
Acquisition)
$122.1
(Asset
Acquisition)
N/A
N/A
• 5 contracts for
newbuild jack-up
rigs
• Under
Construction: 5
• Under
Construction: 2
• Warm Stacked: 3
• 1 contract for a
newbuild jack-up
rig
• Under
Construction: 1
• Warm Stacked: 1
(1)
(2)
Jack-up rigs “Under New Contract” include those rigs which are being mobilized to, or are otherwise awaiting the
commencement of, drilling operations under the relevant contract.
This is the amount reflected in the balance sheets as a result of purchase accounting.
70
•
•
•
Recent and Future Acquisitions and Disposals: We are contracted to take delivery of the remaining five newbuild jack-
up rigs not yet delivered no later than the end of the 2023. Keppel have the right to cancel these newbuilding contracts if
in receipt of a bone fide offer, which we can match to retain the contracts. We have made and may consider in the future
disposals of jack-up rigs. Acquisitions or disposals of our jack-up rigs are likely to impact our revenue as well as our
operating and maintenance expenses. For details of acquisitions or disposals in 2018, 2019 and 2020 see 'Item 4.B
Business Overview - Divestments,
Restructuring Costs: Following the Paragon Transaction in March 2018, we undertook a rigorous review of the acquired
business and have undertaken steps to reduce headcount, office locations and administrative costs. In 2018, we
recognized $30.7 million of restructuring costs in connection with such cost reduction measures, which also impacted on
our operating and general and administrative costs. We continued to implement our restructuring and integration of the
acquired business during 2019 and 2020, which has affected our operating and general and administrative costs as well
as restructuring costs during these years and future years.
Purchase Price Allocations: In connection with any past or future acquisition accounted for as a business combination,
including the Transocean Transaction and the Paragon Transaction, we use a purchase price allocation so that the value
of the assets acquired reflects the estimates, assumptions and judgments of our management relative to the carrying
values, remaining useful lives and residual values. The estimates, assumptions and judgements involved in accounting
for acquisitions, including the recognition of goodwill, may result in the impairment of certain assets in the future and
have the effect of creating assets and liabilities which directly affect our financial statements and may indirectly affect
our results of operations.
Other Factors Affecting our Financial Statements
In addition to the factors identified above, you should consider the following facts when evaluating our financial statements
and assessing our prospects:
•
•
•
Revenues: Our revenues are primarily affected by the number of jack-up rigs under contract from time to time and the
dayrates we are able to charge our customers, which vary from time to time. To a significant extent, the dayrates we
charge our customers depend on the market cycle of the jack-up drilling market at a given point in time. Historically,
when oil prices decrease, capital spending and drilling activity decline, which leads to an oversupply of drilling rigs and
reduced dayrates. Conversely, higher oil prices, increased capital spending and drilling activity and limited supply of
drilling rigs have historically led to higher dayrates. In addition, the number of jack-up rigs under contract from time to
time is affected by, among other factors, our relationships with new and existing customers and suppliers, which have
grown substantially since our inception in 2016. Going forward, our ability to leverage those relationships into new
contracts and advantageous rates will be critical to our success and prospects for growth. Our revenues may also be
affected by other situations, including when our jack-up rigs cease operations due to technical failures and other
situations where we do not collect revenue from our customers. Our ability to keep our jack-up rigs operational when
under contract is monitored by our Board and management as Technical Utilization statistics.
Nature of Our Operating and General and Administrative Expenses: Our operating expenses in 2019 and 2020 reflect
much higher levels of expenses relating to operating rigs than was the case in prior years. To the extent that the offshore
drilling market recovers, we expect the nature of our operating expenses will shift to include primarily expenses related
to the ongoing operation of our jack-up rigs. In such case, our operating expenses will depend on various factors,
including expenses related to operating our jack-up rigs, maintenance projects, downtime, weather and other operating
factors. In addition, we have incurred and expect to incur direct, incremental general and administrative expenses as a
result of our being a publicly traded company in the United States, including costs associated with hiring personnel for
positions created as a result of our U.S. public company status, publishing annual and interim reports to shareholders
consistent with SEC and NYSE requirements, expenses relating to compliance with the rules and regulations of the SEC,
listing standards of the NYSE and the costs of independent director compensation. These incremental general and
administrative expenses related to being a publicly traded company in the United States are not included in our historical
consolidated results of operations prior to 2019.
Financing Arrangements and Investments in Securities: The financial income and expenses reflected in our Consolidated
Financial Statements may not be indicative of our future financial income and expenses and may, along with other line
items related to our Financing Arrangements and historical financing arrangements detailed in the section entitled “—
Our Existing Indebtedness,” change as the number of our jack-up rigs under contract increases. As we take delivery of
71
the newbuild rigs we have agreed to purchase, we finance a portion of the purchase price and thus our debt levels and
finance expense will increase. The financing arrangements we have had in place historically may not be representative of
the agreements that will be in place in the future or that we had in place during our first two years of operations. For
example, we have amended our Financing Arrangements in 2020 and 2021 and we may amend our existing Financing
Arrangements or enter into new financing arrangements and such new agreements may not be on the same terms as our
current Financing Arrangements. In addition, from time to time, we may make and hold investments in other companies
in our industry that own/operate offshore drilling rigs with similar characteristics to our fleet of jack-up rigs, subject to
compliance with the covenants contained in certain of our Financing Arrangements which restrict such investments. We
also may purchase and hold debt or other securities issued by other companies in the offshore drilling industry from time
to time. The impact of these financial investments will impact our results of operations.
•
•
Interest Rates and Derivative Values: A significant portion of our debt bears floating interest rates. For example, the
interest rates under certain of our Financing Arrangements are determined with reference to LIBOR plus a specified
margin. As such, movements in interest rates, and LIBOR specifically, could have an adverse effect on our results of
operations and cash flows. In addition, in connection with the issuance of our convertible Bonds we entered into the Call
Spread Transactions, which may have a dilutive effect on our earnings per share to the extent that the market price per
share of our shares exceeds the applicable strike price of the options. In future periods, interest expense will depend on,
among other things, our overall level of indebtedness, interest rates and the value of our shares and related-derivative
values.
Income Taxes: Income tax expense reflects current tax and deferred taxes related to the operation of our jack-up rigs and
may vary significantly depending on the jurisdiction(s) of operation of our subsidiaries, the underlying contractual
arrangements and ownership structure and other factors. In most cases, the calculation of tax is based on net income or
deemed income in the jurisdiction(s) where our subsidiaries operate. As we transition our focus to the operation of our
jack-up rigs, our income tax expense will be primarily affected by the number of jack-up rigs under contract from time to
time and the dayrates we are able to charge our customers as well as the expenses we incur which can vary from time to
time. Because taxes are impacted by taxable income of our subsidiaries, our tax expense may not be correlated with our
income on a consolidated basis.
Critical Accounting Policies and Significant Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of
contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is a
reasonable likelihood that materially different amounts could have been reported under different conditions, or if different
assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical
experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates and assumptions used in preparation of our financial statements.
We provide expanded discussion of our more significant accounting policies, estimates and judgments below. We believe that
most of these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial
statements. For a more complete discussion of our accounting policies, see Note 2—“Accounting policies” to our Consolidated
Financial Statements.
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. As of December 31, 2020, 2019 and 2018, the carrying amount of our
jack-up rigs was $2,824.6 million, $2,683.3 million and $2,278.1 million, representing 89.1%, 81.8% and 78.2% of our total
assets, respectively.
Jack-up rigs and related equipment are recorded at historical cost less accumulated depreciation. 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, when new, is 30 years.
72
We determine the carrying values of our jack-up rigs 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, which could materially affect our results of operations.
The useful lives of our jack-up rigs 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 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 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 disposal. 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 results of operations.
Our management has identified certain indicators, among others, that the carrying value of our jack-up rigs 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, fall in market dayrates and contract terminations. We assessed
recoverability of our jack-up rigs by first evaluating the estimated undiscounted future net cash flows based on projected dayrates
and utilization of the rigs. The estimated undiscounted future net cash flows were found to be greater than the carrying value of
our jack-up rigs. As a result at December 31, 2020 we did not need to assess the discounted cash flows of our rigs, and no
impairment charges were recorded
With regard to our non-core jack-up rigs, "MSS1", "Atla" and "Balder" which were impaired during 2020 and have
subsequently been sold, the fair value of these assets were derived by applying a combination of an income approach, using
projected undiscounted cash flows and estimated sale or scrap value. These valuations were based on unobservable inputs that
required significant judgments for which there was limited information, including, in the case of an income approach,
assumptions regarding future day rates, utilization, operating costs and capital requirements.
Equity method investments
We account for our ownership interests in certain Mexican companies, Perfomex, Opex, Akal and Perfomex II, as equity
method investments in accordance with ASC 323, Investments — Equity Method and Joint Ventures and record the investment in
equity method investments in the Consolidated Balance Sheets. The equity method of accounting is applied when the investor has
an ownership interest of less than 50% and/or does not control the entity, but nonetheless has significant influence over the
operating or financial decisions of the investee. Under the equity method, investments are stated at initial cost, in addition,
guarantees issued to the equity method investments and in-substance capital contributions and capital contributions are allocated
to the investment. Our proportionate share of the investees net income (loss) is reflected as a single-line item in the Consolidated
Statement of Operations and as increases or decreases, as applicable, in the carrying value of our investment in the Consolidated
Balance Sheet. In addition, the proportionate share of net income (loss) is reflected as a non-cash activity in operating activities in
the Consolidated Statement of Cash Flows. Contributions increase the carrying value of the investment and are reflected as an
investing activity in the Consolidated Statement of Cash Flows.
Investments in equity method investments are assessed for other-than-temporary impairment whenever changes in the facts
and circumstances indicate an other-than-temporary loss in carrying value has occurred.
73
Accounting for debt modifications
We account for debt modifications in accordance with ASC 470, Debt. A debt modification can be an amendment to the
terms or cash flows of an existing debt instrument, exchanging existing debt for new debt with the same lender, repaying an
existing debt obligation and contemporaneously issuing new debt to the same lender. Although this may be a legal
extinguishment, the transaction may need to be accounted for as a debt modification.
Modification of debt is assessed as either a troubled debt restructuring ("TDR") or as modification or exchange of a term loan
or debt security. A modification is a TDR if (1) the borrower is experiencing financial difficulty, and (2) the lender grants the
borrower a concession. A lender is deemed to grant a concession when the effective borrowing rate on the restructured debt is less
than the effective borrowing rate on the original debt.
An exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a non-troubled
debt situation is deemed to have been accomplished if the exchanged debt instruments are substantially different if the present
value of the cash flows under the terms of the new debt instrument are at least 10 percent different from the present value of the
remaining cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the
cash flow effect on a present value basis is less than 10 percent the change is considered a modification to the debt. If a debt
instrument is restructured more than once in a twelve-month period, the debt terms (e.g., interest rate, prepayment penalties) that
existed just prior to the earliest restructuring in that twelve-month period should be used to apply the 10% test, provided the
restructuring was (or restructurings were) accounted for as a modification.
The effective borrowing rate of the restructured debt is calculated by determining the discount rate that equates to the present
value of the cash flows under the terms of the restructured debt to the current carrying value of the original debt.
Cost associated with debt modifications accounted for as amendments are charged to the income statement. For debt
extinguishments the cost is charged to the balance sheet and any unamortized amount remaining upon the extinguishment is
charge to the income statement.
Our debt modifications throughout 2020 have been assessed as non-troubled debt modifications.
Income Tax Positions
Borr Drilling Limited is a Bermuda company that has a number of subsidiaries, affiliates and branches 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 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 March 31, 2035. Certain subsidiaries, affiliates and branches operate in other
jurisdictions where withholding taxes are imposed. Consequently, income taxes have 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.
74
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 in the
Consolidated Balance Sheets. 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 Consolidated Balance Sheet
date. The impact of tax law changes is recognized in periods when the change is enacted.
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.
75
A.
OPERATING RESULTS
Year ended December 31, 2020 compared to the Year ended December 31, 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Dayrate revenue
Related party revenue
Operating revenues
Gain on disposals
Operating expenses
Operating loss
Income/(loss) from equity method investments
Total financial expenses, net
Income tax expense
Net loss
Other comprehensive income
Total comprehensive loss
Operating Revenues
For the Year Ended
December 31,
2020
(in $ millions)
2019
$
$
$
$
265.2 $
42.3
307.5
19.0
(514.5)
(188.0) $
9.5
(122.9)
(16.2)
(317.6) $
—
(317.6) $
327.6
6.5
334.1
6.4
(491.3)
(150.8)
(9.0)
(128.1)
(11.2)
(299.1)
5.6
(293.5)
Our operating revenues were $307.5 million for the year ended December 31, 2020, compared to $334.1 million for 2019.
The decrease of $26.6 million was primarily due to due to the reduced number of rigs which were operating during the year due to
the economic downturn brought on by the Covid-19 pandemic. As of December 31, 2020, we had 24 jack-up rigs of which 11
were operating at the year end, compared with 28 rigs, including one semi-submersible of which 16 were operating at December
31, 2019. During 2020, we sold six vessels of which five were on contract in 2019 contributing dayrate revenues. In addition, the
rigs "Mist", "Prospector 1" "Norve", "Prospector 5", "Gerd", "Groa" and "Ran" were warm stacked for part of 2020 contributing
less day rate revenue than 2019.
Offsetting this reduced activity was an increase in dayrate revenues generated by the "Natt", "Frigg","Idun", "Saga" and
"Gunnlod".
Gain on Disposals
Our gain on disposals was $19.0 million for the year ended December 31, 2020, compared to $6.4 million for 2019. We
completed the sale of six jack-up rigs in 2020 for total proceeds of $31.4 million. We completed the sale of two jack-up rigs
during 2019, for total proceeds of $6 million.
76
Operating Expenses
Operating expenses include the following items:
Rig operating and maintenance expenses
Depreciation of non-current assets
Impairment of non-current assets
Amortization of acquired contract backlog
General and administrative expenses
Operating expenses
$
$
For the Year Ended
December 31,
2020
(in $ millions)
270.4 $
117.9
77.1
0.0
2019
307.9
101.4
11.4
20.2
49.1
514.5 $
50.4
491.3
Our operating expenses were $514.5 million for the year ended December 31, 2020, compared to $491.3 million for 2019.
The increase of $23.2 million is primarily due to the impairment of non-current assets recorded in 2020 on three jack-up rigs that
were reduced to their expected realizable value.
Our rig operating and maintenance expenses, including stacking costs, were $270.4 million for the year ended December 31,
2020, compared to rig operating and maintenance expenses of $307.9 million for 2019. The decrease in rig operating expenses for
2020 compared to 2019 reflects the reduced number of rigs operating in 2020 compared with 2019 due to the sale of six rigs and
the higher number of rigs warm stacked and not operational. During 2020, the Company took delivery of two newbuild rigs,
which have been warm stacked since delivery.
Our depreciation charge was $117.9 million for the year ended December 31, 2020, compared to $101.4 million for 2019.
The increased depreciation charge was due to delivery of two rigs in January and May 2020 and a full years depreciation on the
three rigs delivered in 2019, partially offset by the sale of six rigs during 2020.
Impairment of non-current assets was $77.1 million for the year ended December 31, 2020, compared to $11.4 million for
2019. The impairment charge in 2020 principally related "Atla" and "Balder" charge of $58.7 million arising from the impairment
review which took place in the second quarter of 2020, the "Atla" was sold in November 2020 and the Balder in February 2021.
In addition an impairment charge of "MSS1" was recorded in the first quarter of 2020 reducing the rig to its agreed sale value, the
vessel was sold in September 2020. The 2019 impairment charge related to “Eir” for which the book value of the rig was reduced
to its agreed sale value and classified as held for sale at December 31, 2019 and sold in October 2020.
Amortization of acquired contract backlog was nil for the year ended December 31, 2020, compared to $20.2 million for
2019 as the contract backlog asset was fully depreciated during 2019.
Our general and administrative expenses were $49.1 million for the year ended December 31, 2020, which was comparable
with $50.4 million for 2019 and reflects our onshore base costs including our corporate offices.
Income/(loss) from equity method investments
Our income from equity method investments was $9.5 million for the year ended December 31, 2020, compared to a loss of
$9.0 million for the year ended 2019. The increase of $18.5 million was as a result of an increase in number of operating rigs
from two in 2019 to five in 2020 in addition to improved operating margins for the integrated well services segment.
77
Total financial expenses, net
Our total financial expenses, net was a loss of $122.9 million for the year ended December 31, 2020 compared to a loss of
$128.1 million for 2019. The main reason for the decrease of financial expenses of $5.2 million in 2020 is a realised gain on
financial instruments of $1.5 million in 2020 compared to a loss on marketable debt securities of $15.4 million in 2019, as in 2020
we settled in full our forward position and took delivery of 4.2 million shares in Valaris plc which we then subsequently sold at a
gain of $1.5 million. In addition, $5.6 million was recorded as loan fees related to settled debt in 2019, with no comparative item
in 2020. This was offset by an increase in interest expense of $87.4 million in 2020 compared to $70.4 million in 2019 driven by
incremental debt increase of $196.4 million as a result of the issuance of $181.8 million of debt as non-cash settlement for
newbuild delivery installments on the Heimdal and Hild rigs.
Income Tax Expense
Our income tax expense for the year ended December 31, 2020 was $16.2 million, compared to $11.2 million for 2019, an
increase of $5.0 million which reflects increased activity in higher tax jurisdictions, specifically in Mexico and Asia.
Year ended December 31, 2019 compared to the Year ended December 31, 2018
The following table summarizes our results of operations for the years ended December 31, 2019 and 2018:
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Operating revenues
Gain from bargain purchase
Gain on disposals
Operating expenses
Operating loss
Income/(loss) from equity method investments
Total financial expenses, net
Income tax expense
Net loss
Other comprehensive income
Total comprehensive loss
Operating Revenues
For the Year Ended
December 31,
2019
(in $ millions)
2018
$
$
$
$
334.1 $
—
6.4
(491.3)
(150.8) $
(9.0)
(128.1)
(11.2)
(299.1) $
5.6
(293.5) $
164.9
38.1
18.8
(353.2)
(131.4)
—
(57.0)
(2.5)
(190.9)
0.6
(190.3)
Our operating revenues were $334.1 million for the year ended December 31, 2019, compared to $164.9 million for 2018.
The increase of $169.2 million was primarily due to an increased number of rigs on contract in 2019 compared to 2018. The
“Odin”, “Gerd”, “Groa”, “Ran”, “Natt” and “Idun” rigs entered into dayrate contracts in 2019. The “Grid” and “Gersemi” rigs
entered into bareboat contracts in September 2019 providing $2.4 million of revenue during the year. There were no rigs on
bareboat contracts in 2018. All of these rigs entering into contracts in 2019 were premium jack-up rigs.
In addition, we had substantially higher reimbursable revenue from rebilling costs in 2019 compared to 2018 with an increase
of $17.5 million coming from reimbursement of logistic services and rebilled management fees coming from our operation in
Mexico alone.
Offsetting this increased activity was a decrease in revenues generated by the “B391”, “C20051” and “B152”, all of which
contributed more dayrate revenue from contracts in 2018 than in 2019. The “B391” and “B152” rigs are non-premium jack-up
rigs and are currently warmed stacked. The “C20051”, along with the “Baug” and the “Eir”, were sold in May 2019. None of
these rigs have been on contract through 2019 or 2018. As of December 31, 2019, the sale of “Eir” had not been concluded so it
was classified within jack-up drilling rigs held for sale. The vessel was sold in October 2020.
78
Gain from Bargain Purchase
Our gain from bargain purchase was $nil million for the year ended December 31, 2019 compared to $38.1 million for 2018
which relates to our acquisition of Paragon Offshore. This represents our determination that the purchase price paid to acquire the
business was lower than the fair value of the assets and liabilities acquired.
Gain on Disposals
Our gain on disposals was $6.4 million for the year ended December 31, 2019, compared to $18.8 million for 2018. We sold
three jack-up rigs in 2019 for total proceeds of $9 million of which $3 million was received in 2020. We sold 18 jack-up rigs
during 2018, 16 of which we acquired in the Paragon Transaction, for total proceeds of $37.6 million.
Operating Expenses
Operating expenses include the following items:
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
Operating expenses
$
$
2018
For the Year Ended
December 31,
2019
(in $ millions)
307.9 $
101.4
11.4
20.2
50.4
—
491.3 $
180.1
79.5
—
24.2
38.7
30.7
353.2
Our operating expenses were $491.3 million for the year ended December 31, 2019, compared to $353.2 million for 2018.
The increase of $138.0 million is primarily due to an incremental increase relating to five additional operating rigs in 2019
compared to 2018, including the “Grid” and “Gersemi” which are not operated by us, but by one of our equity method
investments “Perfomex”. In addition, our overall fleet has increased to 28 rigs as of December 31, 2019 compared to 27 rigs as of
December 31, 2018.
Our rig operating and maintenance expenses, including stacking costs, were $307.9 million for the year ended December 31,
2019, compared to rig operating and maintenance expenses of $180.1 million for 2018.
Our rig operating and maintenance expenses for the year ended December 31, 2019 consisted of $21.4 million in rig
maintenance expenses, which includes stacking costs, and $286.5 million in rig operating expenses. The increase of $127.8
million from 2019 compared to 2018 was primarily driven by increased operational activity relating to the larger operational fleet
offset by cost control measures to reduce daily stacking cost. Our rig operating and maintenance expenses for the year ended
December 31, 2019 also include $22.4 million related to amortization of mobilization costs compared with $12.0 million for
2018. For 2018, rig operating and maintenance expenses consisted of $59.0 million in rig maintenance expenses and $121.1
million in rig operating expenses. The increase in rig operating expenses of $165.4 million for 2019 compared to 2018 reflects the
significantly higher number of jack-up rigs in operation throughout the period.
Our depreciation charge was $101.4 million for the year ended December 31, 2019, compared to $79.5 million for 2018,
which was partially a result of the delivery of five rigs in 2019 compared to 2018, and partially a result of the sale of some older,
fully depreciated assets which were sold during 2019.
Impairment of non-current assets was $11.4 million for the year ended December 31, 2019, whereas we did not take an
impairment charge during 2018. The impairment charge in 2019 related to a rig classified as held for sale, the “Eir” for which the
book value of the rig was reduced to its agreed sale value.
Amortization of acquired contract backlog was $20.2 million for the year ended December 31, 2019, compared to $24.2
million for 2018. The decrease of $4.0 million was the result of contract backlog asset fully depreciating during 2019.
79
Our general and administrative expenses were $50.4 million for the year ended December 31, 2019, compared to $38.7
million for 2018. The increase was a result of increased number of employees, office leases and professional costs due to the
significant growth in operations and contractual activity.
Our restructuring costs were $nil million for the year ended December 31, 2019, compared to $30.7 million for 2018. Costs in
2018 relate 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, which
was completed in 2018.
Income/(loss) from equity method investments
Our loss from equity method investments was $9.0 million for the year ended December 31, 2019, whereas we did not record
any loss or gain for 2018, due to the entry into our Mexican joint venture in 2019.
Total financial expenses, net
Our total financial expenses, net was a loss of $128.1 million for the year ended December 31, 2019 compared to a loss of
$57.0 million for 2018. The main reasons for the increase in loss of $71.1 million in 2019 are interest expense of $70.4 million in
2019 compared to $13.7 million in 2018 driven by incremental debt increase of $535.2 million: an increase in unrealized losses on
forward contracts of $15.0 million, to $29.2 million in 2019 compared to $14.2 million in 2018 and which relates to market to
market adjustments in connection with our investments in shares of Valaris PLC; and realized losses on financial instruments of
$15.4 million compared to $nil million in 2018 relating to our investment in debt securities of Oro Negro. These increased
expenses were partly offset by a decrease in mark to market expenses of $25.2 million related to our call spread derivative.
Income Tax Expense
Our income tax expense for the year ended December 31, 2019 was $11.2 million, compared to $2.5 million for 2018, an
increase of $8.7 million which reflects our increased activity and significant growth in our deployed fleet, especially in West
Africa and Mexico.
B.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Cash Requirements
Historically, we have met our liquidity needs principally from proceeds from equity offerings and our convertible bonds, cash
generated from operations, availability under our Financing Arrangements, including the shipyard delivery Financing
Arrangements related to our newbuild rigs and sale of non-core assets.
Our primary uses of cash during 2020 were operating expenses, investing activities including capital expenditures mainly
related to activations of jack-up rigs, purchase of marketable securities arising from settlement of previously entered into forward
contract for shares, funding into our equity method investments, interest payments and income tax payments.
During 2020 and 2019, our capital expenditures associated with our newbuild rigs, including deferred costs, were $181.8
million and $302.0 million, respectively, of which $181.8 million in 2020 and $177.9 million in 2019 was settled by issuing long
term debt.
Capital expenditures related to contract preparation, purchase and refurbishment of rig equipment, and other investments are
highly dependent on how many jack-up rigs we activate or reactivate, which is dependent on the number of contracts we are able
to secure. We funded our 2020 capital expenditures and deferred costs using available cash and cash flows from operations, and
proceeds from long term debt and from share issuances. We expect our funding sources to be similar in 2021, using available cash
and cash flows from operations as well as potentially debt and equity financings. although there is no assurance we will be able to
complete any necessary financings. During 2020 we raised $60.2 million and in January 2021, we raised a further $46 million in
equity financing.
Our primary commitments for capital expenditures relate to contracts to acquire five newbuild premium jack-up rigs from
Keppel to be delivered in 2023. The total price of these jack-up rigs is $742.5 million.
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Our sources of liquidity consist of cash and cash equivalents excluding restricted cash, plus cash generated from operations
and available amounts under our financing arrangements (if any). As of December 31, 2020 we had $19.2 million in cash and
cash equivalents compared to $59.1 million as of December 31, 2019. In addition, as of December 31, 2020, we had $10 million
and $20 million undrawn under our Syndicated Facility and New Bridge Facility, respectively and which is available only with
the consent from all lenders. (December 31, 2019: $35.0 million in total under our Syndicated Facility and our New Bridge
Facility).
We are dependent on cash generated by our subsidiaries which are subject to legal and contractual restrictions. See the
section entitled "Item 3.D.Risk Factors - Risk Factors related to our business - We are a holding company and are dependent upon
cash flows from subsidiaries and equity method investments to meet our obligations. If our operating subsidiaries or equity
method investments experience sufficiently adverse changes in their financial condition or results of operations, or we otherwise
become unable to arrange further financing to meet our liquidity requirements to satisfy our debt or other obligations as they
become due, we may become subject to insolvency proceedings,
Going Concern assumption
The Company has incurred significant losses since inception and may be dependent on additional financing in order to fund
future losses that may arise in the next 12 months if the Company's rigs are unable to secure continued work or if payments from
its customers, particularly in Mexico, does not improve or deteriorates, and to meet capital expenditure commitments mainly for
activations of newbuild rigs. In addition the Company is experiencing the impact of current unprecedented market conditions and
the global market reaction to the COVID-19 pandemic. At this stage the Company cannot predict with reasonable accuracy the
impact on the Company. In 2020, the Company received early termination notices for three ongoing contracts and one
cancellation of an upcoming contract. The negative cash effects as a result of any future contract terminations further could create
need for additional financing.
This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements included in
this annual report on Form 20-F do not include any adjustments that might result from the outcome of this uncertainty.
To help improve the Company's liquidity situation the company raised new equity of $60.2 million in 2020. We entered into
debt amendments in June (see Borrowing Activities below), with further amendments announced on September 30, 2020, to the
Syndicated Facility and Hayfin Facility, subject to certain conditions including the shipyards agreeing the same. The key
announced amendments were: (i) extend the maturity on the Syndicated Facility and the Hayfin Facility to January 2023, (ii) no
bank debt amortization before maturity, (iii) amending the level of the minimum cash covenant until expiry of the Syndicated
Facility and the Hayfin Facility, (iv) extend the maturity of interest payments due September 30, 2020 and December 31, 2020
with the banks by 12 months, and (v) defer requirement to replenish the minimum restricted liquidity account with Hayfin until
September 30, 2021.
In January 2021, we completed the amendments to the Syndicated Facility and Hayfin Facility described in the preceding
paragraph and in connection with those amendments, we amended certain of our shipyard financing agreements, whereby we are
required to pay $12 million in 2021 and $24 million in 2022, to our shipyards, in order to defer debt amortization, interest
payments and maturity payments (including delivery payments for five newbuild rigs) into 2023. As a condition of these
agreements, we raised a gross amount of $46 million in new equity in January 2021. The completion of admendments to shipyard
agreements and equity raise, satisfied the conditions precedent to the Syndicated Facility and the Hayfin Facility in September
2020 discussed above. All of these amendments were effective on January 30, 2021.
We will continue to explore additional financing opportunities and strategic sale of a limited number of modern jack-ups in
order to further strengthen the liquidity of the Company. While we have confidence that these actions will enable us to better
manage our liquidity position, and we have a track record of delivering additional financing and selling rigs, there is no guarantee
that any additional financing or sale measures will be concluded successfully.
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Cash Flows
Our cash flows for the years ended December 31, 2020, 2019 and 2018 are presented below:
Net Cash Used in Operating Activities
Net Cash Used in Investing Activities
Net Cash Provided by Financing Activities
Net Change in Cash and Cash Equivalents
Cash Flows Used in Operating Activities
For the Year Ended December 31,
2020
2019
(in $ millions)
$
$
(54.8) $
(119.7)
65.2
(109.3) $
(89.0) $
(271.1)
397.3
37.2 $
2018
(135.2)
(560.1)
583.5
(111.8)
Net cash used in operating activities was $54.8 million during the year ended December 31, 2020, compared to $89.0 million
used in operations during the year ended December 31, 2019. The decrease of $34.2 million was primarily due to movements in
working capital. Included within net cash used in operating activities during the year ended December 31, 2020, are interest
payments of $40.1 million, net of capitalized interest and income tax payments of $8.6 million; compared with interest payments,
net of capitalized interest of $69.0 million and $1.3 million used in operations during the year ended December 31, 2019.
Net cash used in operating activities was $89.0 million during the year ended December 31, 2019, compared to $135.2
million used in operations during the year ended December 31, 2018 The decrease of $46.2 million was primarily due to a
reduction in our net loss in the year, reduced by non-cash items and movements in working capital. Included within net cash used
in operating activities during the year ended December 31, 2019, are interest payments of $69.0 million, net of capitalized interest
and income tax payments of $1.3 million compared with interest payments , net of capitalized interest and income tax payments
of $8.6 million and $3.2 million respectively used in operations during the year ended December 31, 2019.
Cash Flows Used in Investing Activities
Net cash used in investing activities was $119.7 million for the year ended December 31, 2020, compared to $271.1 million
for year ended December 31, 2019. Payments in 2020 primarily relate to the purchase of marketable securities to settle forward
contracts of $92.5 million (2019: purchase of marketable securities of $6.9 million), offset by proceeds from sale of marketable
securities of $31.3 million mainly relating to our Oro Negro debt instruments) and $37.4 million payments in respect of jack-up
drilling rigs (2019 : $127.3 million) relating to activation costs of newbuilds. This was offset by higher proceeds from sale of
fixed assets in 2020 of $37.7 million ( 2019: $7.1 million).
Net cash used in investing activities was $271.1 million for the year ended December 31, 2019, compared to $560.1 million
for year ended December 31, 2018. Payments in 2019 primarily relate to payments in respect of jack-up drilling rigs of $142.6
million, payments and costs in respect of jack-up rigs of $127.3 million (mainly relating to activation costs of newbuilds), funding
in respect of our equity method investments in Mexico of $30.8 million and purchase of marketable securities of $6.9 million,
offset by proceeds from sale of marketable securities of $31.3 million mainly relating to our Oro Negro debt investments and
proceeds from sale of fixed assets of $7.1 million. Payments in 2018 primarily related to costs in respect of newbuildings of
$362.4 million, payments to acquire Paragon Offshore, net of cash acquired of $195.1 million, purchase of marketable securities
of $13.0 million, payments and costs in respect of jack-up drilling rigs of $23.4 million and purchase of plant and equipment of
$7.8 million, offset by proceeds from the sale of rigs of $41.6 million.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities was $65.2 million for the year ended December 31, 2020, compared to $397.3
million for the year ended December 31, 2019. Proceeds from share issuance, net of issuance costs were $60.2 million in 2020,
compared with $49.2 million in 2019. Proceeds from issuance of long-term debt, net of deferred loan costs were $5.0 million in
2020. In 2019, proceeds from issuance of long-term debt, net of deferred loan costs were $679.6 million, and proceeds from
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issuance of short-term debt, net of deferred loan costs were $58.5 million offset in 2019 by the repayment of long-term debt of
$390.0 million.
Net cash provided by financing activities was $397.3 million for the year ended December 31, 2019, compared to $583.5
million for the year ended December 31, 2018. Our financing activities in the year ended December 31, 2019 relate to proceeds,
net of deferred loan costs, from issuance of long-term debt of $679.6 million, proceeds, net of deferred loan costs, from issuance
of short-term debt $58.5 million, proceeds from share issuance, net of issuance costs and conversion of shareholders loans of
$49.2 million, offset by repayment of long-term debt $390.0 million. Proceeds from financing activities in 2018 primarily related
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.
Equity Offerings
Set forth below is an overview of key information relating to our equity offerings in 2018 through 2020 and January 2021.
Share issuances post December 31, 2020
On January 22, 2021, we conducted a private placement of $46 million by issuing 54,117,647 new depository receipts at a
subscription price of $0.85 per depository receipt.
Details of shares issuances in 2020 are as follows:
Date of Issue
June 5, 2020
October 5, 2020
November 30, 2020
Totals for 2020
Type of Listing
Private placement
Private placement
Subsequent (repair) offer
Exchange
Oslo
Oslo
Oslo
Shares issued
Price per
share $
46,153,846 $
51,886,793 $
10,000,000 $
108,040,639
0.65
0.53
0.53
Details of Share issuances in 2019 are as follows:
Date of Issue
August 2, 2019
August 2, 2019
Totals for 2019
Type of Listing
Public offering
Public offering
Exchange
New York
New York
Shares issued
Price per
share $
5,000,000 $
750,000 $
5,750,000
9.30
9.30
Gross
Proceeds
(in $
millions)
30.0
27.5
5.3
62.8
Gross
Proceeds
(in $
millions)
46.5
7.0
53.5
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Shares issuances in 2018
On June 21, 2019 the Board of Directors approved a 5-to-1 reverse share split of the Company’s shares. Upon effectiveness
of the Reverse Split, every five shares of the Company’s issued and outstanding ordinary shares, par value $0.01 per share was
combined into one issued and outstanding ordinary share, par value $0.05 per share. Shares issued and price per share reflect this
reverse share split:
Type of Listing
Private placement
Private placement
Exchange
Oslo
Oslo
Shares issued
Price per
share $
9,341,500 $
1,528,065 $
10,869,565
23.00
23.00
Gross
Proceeds
(in $
millions)
211.6
35.2
246.8
Date of Issue
March 23, 2018
May 30, 2018
Totals for 2018
Our Existing Indebtedness
Key Borrowing Facilities
Our loan financing arrangements include our Hayfin Facility, Syndicated Senior Secured Facility and New Bridge Revolving
Facility agreements entered into in June 2019, which collectively provided $745 million in financing, we used to refinance
existing loan facilities. We agreed amendments to our secured facilities with our secured lenders in June 2020 and further
amendments in January 2021. Set forth below is a description of these facilities.
Hayfin Term Loan Facility.
On June 25, 2019, we entered into a $195.0 million senior secured term loan facility agreement with funds managed by
Hayfin Capital Management LLP, as lenders, among others. Our wholly-owned subsidiary, Borr Midgard Assets Ltd., is the
borrower under the Hayfin Facility, which is guaranteed by Borr Drilling Limited and secured by mortgages over three of our
jack-up rigs, pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security
as owners of the mortgaged rigs (collectively the “Ring Fenced Entities”) and general assignments of rig insurances, certain rig
earnings, charters, intra-group loans and management agreements from our related rig-owning subsidiaries. Our Hayfin Facility
originally matured in June 2022. Following amendments to the loan agreements with conditions which were fulfilled in January
2021 the lenders agreed to defer the maturity date to January 2023. The Hayfin Facility agreement includes a make-whole
obligation if repaid during the first twelve months and, thereafter, a fee for early prepayment and final repayment. As of
December 31, 2020, the facility was fully drawn and we had $195.0 million outstanding under our Hayfin Facility. The facility
bears interest at a rate of LIBOR plus a specified margin.
Our Hayfin Facility agreement contains various financial covenants, including, the following covenants which were amended
in June 2020:
Minimum liquidity requirements
Original
three months interest on the facility at times
when the jack-up rigs providing security are
not actively operating under an approved
drilling contract.
June 2020 Amendments
No Minimum Liquidity requirement until
January 1, 2021 when minimum liquidity of
three months interest ($2.4million at the
time) requires replenishment
Value to Loan Ratio*
175% of loan value
175% of loan value
*ratio of market values of assets to the outstanding loan facility amount
The facility also contains various covenants which restrict distributions of cash from Borr Midgard Holding Ltd., Borr
Midgard Assets Ltd. and our related rig-owning subsidiaries to us or our other subsidiaries and the management fees payable to
Borr Midgard Assets Ltd.’s directly-owned subsidiaries. Our Hayfin Facility agreement also contains customary events of default
which include any change of control, 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 Hayfin
Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders
84
under our Hayfin Facility 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. The lenders under our Hayfin Facility may also require replacement or
additional security if the market value of the jack-up rigs over which security is provided is insufficient to meet our market value-
to-loan covenant. On December 30, 2020, the Company received waivers for certain covenants which were applicable both at
December 31, 2020 and up to finalization of the 2021 Amendments (see note 32 of the consolidated financial statements). As part
of the amendments agreed in January 2021, the threshold of the minimum value to loan covenant was lowered from 175% to
140%. Following these amendments being formalized in January 2021, the Company was in compliance with the requirements of
the amended value to loan covenant.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
Syndicated Senior Secured Credit Facilities
On June 25, 2019, we entered into a senior secured credit facilities agreement with DNB Bank ASA, Danske Bank, Citibank
N.A., Jersey Branch and Goldman Sachs Bank USA, as lenders, among others. The senior credit facilities comprised a $230
million credit facility, $50 million newbuild facility (which in 2020 was cancelled), $70 million facility for the issuance of
guarantees and other trade finance instruments as required in the ordinary course of business and a $100 million incremental
facility subject to transferring both secured rigs by the New Bridge Revolving Credit Facility (outlined below). In total
$450 million of commitments, or $400 million following the cancellation of the newbuild facility. This agreement was amended
on September 12, 2019, when Clifford Capital Pte. Ltd. became a new lender with a commitment of $25 million and one rig as
security was transferred from the New Bridge Revolving Credit Facility utilizing $50 million of the incremental facility. On
December 23, 2019 certain financial covenants were amended and again in June 2020 when certain amortization payments due in
2021 were deferred and financial covenants amended as outlined below. Our obligations under our Syndicated Facility are
secured by mortgages over seven of our jack-up rigs, pledges over shares of and related guarantees from certain of our rig-owning
subsidiaries who provide this security as owners of the mortgaged rigs and general assignments of rig insurances, certain rig
earnings, charters, intra-group loans and management agreements from our related rig-owning subsidiaries. The terms of the
facility allow for an additional jack-up rig, Odin, currently secured under the New Bridge Facility, to be transferred to our
Syndicated Facility if there are incremental commitments from other financiers in the Syndicated Facility (in which case the New
Bridge Facility would be repaid at that time).
Our Syndicated Facility originally matured in June 2022. Following amendments to the loan agreement and conditions which
were fulfilled in January 2021 the lenders agreed to defer the maturity date to January 2023. This facility bears interest at a rate of
LIBOR plus a specified margin.
Our Syndicated Facility agreement contains various financial covenants. In June 2020, the lenders agreed to amend the terms
of some of the covenants, and the dates of certain amortization payments which otherwise would have occurred in 2021 to occur
on the original maturity date in the second quarter of 2022. The key covenants are listed below:
Minimum liquidity requirements
Original
From December 31, 2020 greater of $50
million and 3% of net interest-bearing debt
June 2020 Amendments
Cash requirement: $5 million until
December 31, 2020; $10 million from and
including January 1, 2021 to and including
June 30, 2021; $15 million from and including
July 1, 2021 to and including September 30,
2021;$20 million from and including October
1, 2021 to and including December 31, 2021.
Thereafter greater of $30 million and 3% of
net interest-bearing debt
Working Capital
Maintain Positive Working Capital
Maintain Positive Working Capital
Debt service cover ratio
1.25x of our interest and related expenses
Book Equity Ratio
Value to Loan Ratio*
33.3%
175%
1.25x of our interest and related expenses from
January 1, 2022
25% up to December 31, 2021 and 40%
thereafter
175%
*ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the facility.
85
The Syndicated Facility agreement also contains various covenants, including, among others, restrictions on incurring
additional indebtedness and entering into joint ventures; covenants subjecting dividends to certain conditions which, if not met,
would require the approval of our lenders prior to the distribution of any dividend; restrictions on the repurchase of our shares;
restrictions on changing the general nature of our business; and restrictions on Tor Olav Trøim ceasing to serve on our Board.
Furthermore, a change of control results if Mr. Tor Olav Trøim does not maintain ownership of at least six million shares (subject
to adjustment for certain transactions). Our Syndicated Facility agreement also contains customary 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 Syndicated Facility agreement or
security documents or jeopardize the security provided thereunder. If there is an event of default, the lenders 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. The lenders may also require replacement or additional security if the market value of the jack-up rigs over which security is
provided is insufficient to meet our market value-to-loan covenant. In addition, our Syndicated Facility contains a “Most Favored
Nation” clause giving the lenders a right to amend the financial covenants to reflect any more lender-favorable covenants in any
other agreement pursuant to which loan or guarantee facilities are provided to us, including amendments to our Financing
Arrangements.
As of December 31, 2020, we had $270.0 million outstanding under our Syndicated Facility; in addition we have a $70
million guarantee line under the Syndicated Facility, of which $43.3 million has been utilized. As of December 31, 2020, there
was $10 million undrawn under the facility which may only be drawn at the discretion of all lenders. On December 30, 2020, the
Company received waivers for certain covenants which were applicable both at December 31, 2020 and up to finalization of the
2021 Amendments (see note 32 of the consolidated financial statements). As part of the amendments agreed in January 2021, the
threshold of the minimum value to loan covenant was lowered from 175% to 140%. Following these amendments being
formalized in January 2021, the Company was in compliance with the requirements of the amended value to loan covenant.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
New Bridge Revolving Credit Facility
On June 25, 2019, we entered into a $100 million senior secured revolving loan facility agreement with DNB Bank ASA and
Danske Bank, as lenders, originally secured by mortgages over two of our jack-up rigs, assignments of intra-group loans, rig
insurances and certain rig earnings and pledges over shares of and related guarantees from certain of our rig-owning subsidiaries
who provide this security as owners of the mortgaged rigs. In connection with our utilization of the first incremental tranche under
our Syndicated Facility in September 2019, the security over one of the rigs, “Ran”, was released and the facility amount was
reduced to $50 million and $50 million was repaid and transferred into the Syndicated Senior Secured Credit Facilities. Our New
Bridge Facility agreement was amended on October 30, 2019, when certain changes were made to the margin. On December 23,
2019 when certain financial covenants were amended, and some changes were made to the security documents in connection with
an internal sale of the shares in a rig owner and again in June 2020 when certain amortization payments due in 2021 were deferred
and financial covenants were further amended as outline below.
Our New Bridge Facility originally matured in June 2022, with amortization starting in 2021. Following amendments to the
loan agreement and conditions which were fulfilled in January 2021, the lenders agreed to defer the maturity date to January 2023
without amortization.
This facility bears interest at a rate of LIBOR plus a specified margin. As of December 31, 2020, we had $30 million
outstanding under our New Bridge Facility and $20 million was undrawn under our New Bridge Facility, which may be drawn
with the consent of all of the lenders.
Our New Bridge Revolving Credit Facility agreement contains various financial covenants. In June 2020, the lenders agreed
to amend the terms of some of the covenants, and the dates of certain amortization payments which otherwise would have
occurred in 2021 were amended to occur on maturity in the second quarter of 2022. The key covenants are listed below:
86
Minimum liquidity requirements
Original
From December 31, 2020 greater of $50
million and 3% of net interest-bearing debt
June 2020 Amendments
Cash requirement: $5 million until
December 31, 2020; $10 million from and
including January 1, 2021 to and including
June 30, 2021; $15 million from and including
July 1, 2021 to and including September 30,
2021;$20 million from and including October
1, 2021 to and including December 31, 2021.
Thereafter greater of $30 million and 3% of
net interest-bearing debt and ring fenced
liquidity.
Working Capital
Maintain Positive Working Capital
Maintain Positive Working Capital
Debt service cover ratio
1.25x of our interest and related expenses
Book Equity Ratio
Value to Loan Ratio*
33.3%
175%
1.25x of our interest and related expenses from
January 1, 2022
25% up to December 31, 2021 and 40%
thereafter
175%
*ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the facility.
The agreement also contains various covenants, including, among others, restrictions on incurring additional indebtedness
and entering into joint ventures; covenants requiring the approval of our lenders prior to the distribution of any dividends; and
restrictions on the repurchase of our shares; restrictions on changing the general nature of our business; restrictions on Mr. Tor
Olav Trøim ceasing to serve on our Board. Furthermore, a change of control results if Mr. Tor Olav Trøim does not maintain
ownership of at least six million shares (subject to adjustment for certain transactions). Our New Bridge Facility agreement also
contains customary 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 New Bridge Facility agreement or security documents or jeopardize the security provided thereunder. If there is an
event of default, the lenders 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. The lenders may also require replacement or additional security if the
market value of the jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant. In
addition, our New Bridge Facility contains a “Most Favored Nation” clause giving the lenders a right to amend the financial
covenants to reflect any more lender-favorable covenants in any other agreement pursuant to which loan or guarantee facilities are
provided to us, including amendments to our Financing Arrangements. On December 30, 2020, the Company received waivers for
certain covenants which were applicable both at December 31, 2020 and up to finalization of the 2021 Amendments (see note 32
of the consolidated financial statements). As part of the amendments agreed in January 2021, the threshold of the minimum value
to loan covenant was lowered from 175% to 140%. Following these amendments being formalized in January 2021, the Company
was in compliance with the requirements of the amended value to loan covenant.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
Our Delivery Financing Arrangements
In addition to three jack-up rigs which we have taken delivery of against full payment to Keppel, we had contracts with
Keppel to take delivery of five jack-up rigs under construction as of year end 2020. For two of our newbuild jack-up rigs under
construction at Keppel and ten additional jack-up rigs which have been delivered from PPL and Keppel, we have agreed to accept
and accepted, respectively, delivery financing from the yards subject to the terms described below. Additionally, we have the
option to take on delivery financing for four of the jack-up rigs to be delivered from Keppel.
87
PPL Newbuild Financing
In October 2017, we agreed to acquire nine premium “Pacific Class 400” jack-up rigs from PPL (the “PPL Rigs”). All nine
PPL Rigs have been delivered as of the date of this annual report. 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 financing also includes a mechanism for certain fees payable in connection
with increases in the market values of the relevant PPL Rigs above a certain level from October 31, 2017 until the repayment date.
Please see notes 14 and 22 to our Consolidated Financial Statements for more information.
The PPL Financing for each PPL Rig is an interest-bearing secured seller’s credit, with the borrower either being a rig owner,
in which case its obligations are guaranteed by the Company, or the borrower is the Company, with the rig owner as guarantor
and provider of security in its assets. Each seller’s credit originally matured on the date falling 60 months from the delivery date
of the respective PPL Rig (later amended in the January 2021 amendments). The PPL Financing bears interest at 3-month USD
LIBOR plus a variable marginal rate. Interest accrues and is payable quarterly in arrears.
The PPL Financing is cross-collateralized and 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 consider to be customary in a
transaction of this nature. Following amendments in June 2020, cash payments of interest were suspended in relation to these rigs
for the period from the first quarter of 2020 to the fourth quarter of 2021, and accrued interest was deferred and payable in the
first quarter of 2022. Accrued, unpaid interest is guaranteed by an intermediate holding company Borr IHC Limited. The security
for the PPL Financing will also include share security over the owners of the rigs which were delivered by PPL with finance
under the PPL Financing agreements.
As of December 31, 2020, we had $796.1 million outstanding under our shipyard facilities with PPL, which includes a $3.3
million back-end fee per rig payable at maturity, and were in compliance with the covenants and our obligations under the PPL
Financing agreements. We expect to satisfy our obligations under the PPL Financing for each respective PPL Rig with refinancing
of debt when due.
This loan was further amended in January 2021. Please see "loan amendments and covenants" below.
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 H-Rigs”). As of December 31, 2020, two of the Keppel H-Rigs ("Huldra" and "Heidrun") remain to be
delivered. In connection with delivery of the Keppel H-Rigs, Keppel has agreed to provide delivery financing for a portion of the
purchase price equal to $90.9 million for the three delivered jack-up rigs and $77.7 million each for the two undelivered rigs
"Huldra" and "Heidrun" ( together to be referred to as the "H-Rig Financing"). Separately from the H-Rig 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 (which together with the H-Rig Financing will be
referred to as the "Keppel H & V Financing"). We will, prior to delivery of each jack-up rig from Keppel, consider available
alternatives to such financing.
In June 2020, we agreed to defer the delivery of two of the Keppel H-Rigs to the third quarter of 2022 and three of the
newbuild jack-up rigs acquired in connection with the Transocean Transaction to 30 June 2022 (“Tivar”) and the third quarter of
2022 (“Vale” and “Var”). In January 2021, we have agreed with Keppel to further postpone the deliveries to May ("Tivar"), July
("Vale"), and September ("Var"), October ("Huldra") and December ("Heidrun) 2023.
We have agreed to pay certain holding and other costs for each of the five rigs in respect of the period from the original
delivery dates to the revised delivery date. Payments of such costs fall due in quarterly installments from the first quarter of 2021
until delivery.
The H-Rig Financing is an interest-bearing secured facility from Offshore Partners Pte. Ltd (formerly known as Caspian
Rigbuilders Pte. Ltd.) (an affiliate of Keppel), guaranteed by Borr Drilling Limited, which will be made available on delivery of
each rig and matures on the date falling 60 months from the delivery date of each respective rig (later amended in the January
88
2021 amendments). The H-Rig Financing bears interest at 3-month USD LIBOR plus a variable marginal rate, which accrues and
first cash payment of interest is payable beginning on the third anniversary of delivery.
The H-Rig Financing for each respective Keppel Rig is 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 owns each such Keppel Rig. The H-Rig Financing
agreements also contain a loan to value clause requiring that the market value of each Keppel Rig shall at all times cover at least
130% of the loan and also contains various covenants, including, among others, restrictions on incurring additional indebtedness.
Each H-Rig 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 H-Rig Financing agreements or security documents, or jeopardize the security.
As of December 31, 2020, we had three Keppel Financing outstanding and were in compliance with our covenants and
obligations under that Keppel Financing and the pre-drawdown covenants and obligations under the remaining Keppel Financing
agreements. We expect to satisfy our obligations under each H-Rig Financing agreement entered into or to be entered into with
debt refinancing when due.
As of December 31, 2020, we had $272.6 million outstanding under our shipyard facilities with Keppel, including a back-end
fee of $4.5 million per rig. The interest under the facility accrues with no cash payments until the third anniversary of the loan.
This loan was amended in January 2021. Please see "loan amendments and covenants" below.
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Loan amendments and Covenants
Our loan agreements contain certain financial covenants which require us to maintain minimum free liquidity and specified
financial ratios to satisfy financial covenants. Our loan agreements include cross defaults. Failure to comply with any of the
covenants in the loan agreements could result in a default which would permit the lender to accelerate the maturity of the debt and
to foreclose upon any collateral securing the debt.
In January 2021. we agreed with our lenders to amend certain of the terms of the Hayfin Term Loan Facility, Syndicated
Senior Secured Credit Facilities and New Bridge Revolving Credit Facility, the key amendments are as follows:
Maturity dates
Amortizations
Interest Payments
Hayfin Term Loan
Facility
Extended to the first quarter
N/A
N/A
Minimum liquidity requirements
N/A
Restricted cash requirement
No requirement to
September 30, 2021. From
October 1, 2021 - three
months interest payments for
rigs which are not operating
on a contract
Syndicated Senior Secured
Credit Facilities
Extended to January 2023
Extended to January 2023
Q3 2020 and Q4 2020
interest payments deferred
by one year to 2021
New bridge Revolving
Credit Facility
Extended to January 2023
Extended to January 2023
Q3 2020 and Q4 2020
interest payments deferred by
one year to 2021
Cash requirement: $5
million until December 31,
2021; $10 million from and
including January 1, 2022 to
and including June 30,
2022; $15 million from and
including July 1, 2022.
Cash requirement: $5
million until December 31,
2021; $10 million from and
including January 1, 2022 to
and including June 30, 2022;
$15 million from and
including July 1, 2022.
N/A
N/A
Debt service cover ratio
Book Equity Ratio 2021
Book Equity Ratio 2022
Book Equity Ratio 2023
Value to Loan Ratio*
N/A
N/A
N/A
N/A
140%
Waived until final maturity Waived until final maturity
25%
30%
35%
140%
25%
30%
35%
140%
*ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the facility.
In addition, to the above on the Hayfin Term Loan Facility, a purchase option exists for the benefit of Hayfin in respect of the
“Thor” and “Skald” unless the rigs are activated, in order to repay the secured debt on the relevant rig, with the right for the
company to repay/refinance the loan and retain the rig within a certain time period.
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Amendments to Delivery Financing Arrangements
In January 2021, we agreed with our shipyard lenders to amend certain of the terms and covenants of the our delivery
financing arrangements. The key amendments are as follows:
Interim Payments required 2021
PPL Newbuild Financing
$6 million
Keppel H & V Financing
$6 million
Interim payments required 2022
$12 million
Maturity
Date for repayment of the seller's credit on
the rigs are amended to May 2023
Interest payments
Deferred until March 2023
Minimum liquidity requirements
Value to Loan
Cash requirement: $5 million until
December 31, 2021; $10 million from and
including January 1, 2022 to and
including June 30, 2022; $15 million from
and including July 1, 2022.
There is also an requirement to provide
additional security if the value of any rigs
falls below $70 million in 2021, $75
million in 2022 or $80 million thereafter.
$12 million
Three delivered rigs are extended by one
year until 2023
First interest payment date deferred from
third to fourth anniversary of each loan
(Delivered Rigs)
Not amended
Not amended
*Ratio of market values of rig to the aggregate outstanding facility amount and any undrawn uncancelled part of the
facility.
On the PPL facility, in addition to the above a purchase option has been granted for the benefit of PPL in respect of the
“Gyme", unless the rig is activated, in order to repay the secured debt on the relevant rig, with the right for the company to repay/
refinance loan and retain the rig within a certain time period. Capitalized interest is now guaranteed by Borr IHC Limited.
For the Keppel H & V Financing, in addition to the above the delivery dates for the five undelivered rigs were extended to the
following for the Tivar (May 2023), Vale (July 2023), Var (September 2023), Huldra (October 2023) and Heidrun (December
2023). All purchase price installments, holding costs and cost cover payments in respect of the five undelivered rigs are deferred
until 2023 bar the interim payments above in 2021 and 2022. We have also given rights to Keppel to terminate newbuilding
contracts with no refund or other compensation to the rig owner(s) if it receives an offer form a third party, unless Borr purchases
the rigs at the offer price within a certain time period.
Our 3.875% convertible bonds due 2023
In May 2018 we raised $350 million through the issuance of our convertible bonds, which mature in 2023. The initial
conversion price (which is subject to adjustment) is $33.4815 per Share, for a total of 10,453,534 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. As of December 31, 2020 we had $350 million outstanding under our convertible bonds.
Call Spread Transactions
In connection with the pricing of our convertible bonds, we (i) purchased from Goldman Sachs International call options over
10,453,612 shares with a strike price of $33.4815 and (ii) sold to Goldman Sachs International call options over the same number
of shares with a strike price of $42.6125. 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, are cash settled and are subject to customary anti-dilution provisions.
91
The Call Spread Transactions mitigate the economic exposure from a potential exercise of the conversion rights embedded in
our convertible bonds by improving the effective conversion premium for the Company in relation to our convertible bonds from
37.5% to 75% over the reference price of $24.35 per share. The Call Spread Transactions may separately have a dilutive effect on
our earnings per share to the extent that the market price per share of our shares exceeds the applicable strike price of the options
at the time of exercise.
Fair value adjustments related to the Call Spread Transactions resulted in an unrealized loss recognized in Total financial
income (expenses), net, of $2.3 million for the year ended December 31, 2020. See Note 7—“Total other financial income
(expenses), net” to our Consolidated Financial Statements for more information.
Following our equity offerings in 2020 and on January 26, 2021 and in accordance with the loan agreement for the
Company's $350 million 3.875% Senior Unsecured convertible bonds, an adjustment to the conversion price was triggered and
the conversion price of the bond as of the date of filing is $31.7946 per depository receipt listed on the Oslo Stock Exchange.
We may modify our position by entering into further derivative transactions with respect to our shares and/or purchasing our
shares in secondary market transactions. This activity could also cause or avoid an increase or a decrease in the market price of
our shares, which could affect any potential exercise of the conversion rights embedded in our convertible bonds.
Average Interest Rate
The average interest rate for our interest-bearing historical financing arrangements, which consist of LIBOR plus a margin
specified in each such historical financing arrangement (excluding our convertible bonds), was 4.93% for the year ended
December 31, 2020. The average margin of our interest-bearing Financing Arrangements is calculated as the weighted average of
the forecasted outstanding loan balance and margin, and excludes our convertible bonds.
C.
RESEARCH & DEVELOPMENT
We do not undertake any significant expenditure on research and development. Additionally, we have no significant interests
in patents or licenses.
D.
TREND INFORMATION
Throughout 2020, we continued our strategy of putting our premium rigs to work. We brought an additional two rigs into
service in 2020 and divested six to reach a total of eleven on contract by the end of the year, including rigs working for our Joint
Ventures in Mexico. This was down from 16 at the end of 2019.
In contrast to the positive development in 2019, 2020 was impacted by the outbreak of COVID-19 combined with the actions
taken by certain members of OPEC and its partners which resulted in an initial dramatic drop in oil prices and subsequent cuts in
capital expenditure by E&P companies. Our business was in 2020 and continues to be affected by these factors, both through
travel restrictions for crew members and through significant uncertainty around the timing of planned drilling programs.
The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative
impact on the global economy, resulting in an economic downturn that had and is likely to continue to have a material impact on
our business. We expect this volatility in oil prices to continue and if the price of oil declines further and/or remains at a low price
for an extended period there could be a material adverse effect on our business, financial condition, and results of operations.
In January 2021, we raised gross proceeds of $46 million in an equity offering conducted as a private placement on the
Oslo Stock Exchange through the issuance of 54,117,647 shares, at a subscription price of $0.85 per share. Also in January 2021,
we made certain amendments to our secured financing arrangements and yard delivery agreements. The amendments revised
certain financial covenants that we are required to meet, including minimum free liquidity and equity ratio. Furthermore, the
lenders and shipyards under certain of these arrangements agreed to defer certain interest payments from 2022 to 2023, defer
certain amortization payments which otherwise would have fallen due in 2022 to 2023 and to change delivery dates for the
remaining newbuild rigs from 2022 to the second, third and fourth quarters of 2023. See “Item 5.B Operating and Financial
Review and Prospects—Going Concern Assumption" for further information.
In March, 2021 we entered into three agreements that potentially add a total of $48 million over approximately 590 days to
the contract backlog these agreements are summarized below.
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"Prospector 1" secured a three-well plus option contract with Tulip for operations in the Netherlands. As a result, the
“Prospector 1” is expected to be operating on the Dutch Continental Shelf for the rest of 2021.
The rig “Gunnlod” secured an optional period extension from PTTEP which is expected to keep the rig operating up to
September 2021. The rig has one further optional period still to be confirmed.
For the rig “Natt” we received a letter of intent with an undisclosed new operator in Nigeria to commence operations in April
2021 for an estimated duration of 150 days, in direct continuation of its previous contract.
Our Joint Ventures in Mexico have collected $103.7 million from PEMEX through April 13, 2021, enabling increased
settlement of balances from the joint ventures to us and our partner. Timing of collections from PEMEX is uncertain and has been
challenging in 2020. If we continue to face collection delays, it could have a significant impact on our liquidity.
E.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of December 31, 2020, other than commitments in the ordinary course of
business that we are contractually obligated to fulfill with cash under certain circumstances. These commitments include
guarantees in favor of our equity method investment and guarantees towards third parties such as surety performance guarantees
to customers as they relate to our drilling contracts. Obligations under these guarantees are not normally called, as we typically
comply with the underlying performance requirement. As of December 31, 2020, we had not been required to make collateral
deposits with respect to these agreements.
F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
In the ordinary course of business, we enter into various contractual obligations that impact or could impact our liquidity. The
table below reflects our estimated contractual obligations stated at face value as of December 31, 2020 for referenced years:
Long-term debt obligations
Interest obligations (1)
Operating lease obligations (2)
Purchase obligations (3)
Other long-term liabilities
Total
Less
than
1 year
1–3
years
—
51.8
2.6
—
5.9
60.3
1,540.7
190.6
1.2
621.0
3.1
2,356.6
3–5
years
(in $ millions)
359.7
15.8 —
0.7
—
7.9
384.1
More
than
5 years
Total
— $
—
1.1
—
—
1.1
1,900.4
258.2
5.6
621.0
16.9
2,802.1
(1) The estimated interest obligations take into account both contractual interest rates and expected margins.
(2) Operating lease obligations are shown net of 'sub- letting income'.
(3) After the balance sheet date, the agreements to purchase rigs in 2022 has been renegotiated and these will now be
delivered in 2023.
Other Commercial Commitments as of December 31, 2020
We have other commercial commitments that contractually obligate us to settle with cash under certain circumstances. Parent
company guarantees issued by Borr Drilling Limited in favor of certain customers and governmental bodies guarantee our
performance in connection with certain drilling contracts, customs import duties and other obligations in various jurisdictions.
As of December 31, 2020, we had outstanding surety bonds, bank guarantees and performance bonds amounting to $49.2
million (2019: $76.0 million), including performance guarantee to our equity method investments, Opex, of $5.9 million (2019:
$5.9 million).
G.
SAFE HARBOR
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See “Special Note Regarding Forward-Looking Statements.”
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth information regarding our directors and executive officers.
Directors and Executive Officers
Pål Kibsgaard
Tor Olav Trøim
Kate Blankenship
Georgina Sousa
Neil Glass
Patrick Schorn
Magnus Vaaler
Age
53
58
56
70
59
52
37
Position/Title
Director and Chairman of the Board
Director and Deputy Chairman of the Board
Director
Director and Company Secretary
Director
Chief Executive Officer, Borr Drilling Management UK.
Chief Financial Officer, Borr Drilling Management AS.
The business address of the directors and officers is S. E. Pearman Building, 2nd Floor, 9 Par-la-Ville Road, Hamilton HM11,
Bermuda.
Biographies
Certain biographical information about each of our directors, executive officers and key officers is set forth below:
Pål Kibsgaard has served as a Director and Chairman on our Board since October 2019 and serves on our Compensation and
Nominating and Governance Committees. Mr. Kibsgaard has held a variety of global senior management positions at
Schlumberger Limited, including Chairman and CEO, COO, President of the Reservoir Characterization Group, vice-president of
engineering, manufacturing and sustaining and vice-president of human resources. Earlier in his Schlumberger career, Mr.
Kibsgaard was a geomarket manager for the Caspian region after holding various field positions in sales, marketing and customer
support. Mr. Kibsgaard is currently chief executive officer of Katerra, a US construction technology company. Mr. Kibsgaard
holds a Masters degree from the Norwegian Institute of Technology and is a petroleum engineer. Mr. Kibsgaard is a Norwegian
citizen and a resident of the United States of America.
Tor Olav Trøim has served as a Director on our Board since our incorporation and was our founder. He served as the
Chairman of the Board from August 2017 until September 2019. Mr. Trøim is the founder and sole shareholder of Magni
Partners. He is the senior partner (and an employee) of Magni Partners’ subsidiary, Magni Partners Limited, in the U.K. Mr.
Trøim is a beneficiary of the Drew Trust, and the sole shareholder of Drew Holdings Limited. Mr. Trøim has 30 years of
experience in energy related industries in various positions. Before founding Magni Partners in 2014, Mr. Trøim was a director of
Seatankers Management Co. Ltd. From 1995 until September 2014. He was the Chief Executive Officer of DNO AS from 1992 to
1995 and an Equity Portfolio Manager with Storebrand ASA from 1987 to 1990. Mr. Trøim graduated with an MSc degree in
naval architecture from the University of Trondheim, Norway in 1985. Mr. Trøim is a Norwegian citizen and a resident of the
United Kingdom. Other directorships and management positions includes, Magni Partners (Bermuda) Limited (Founding Partner),
Golar LNG Limited (Chairman), Golar LNG Partners LP (Chairman) (until April 15, 2021), Hygo Energy Transition Ltd
(Chairman) (until April 15, 2021), Stolt-Nielsen SA. (Director), Magni Sports AS (Director) and Vålerenga Fotball AS (Director).
Kate Blankenship has served as a Director on our Board and as Chair of our Audit Committee since February 26, 2019. Mrs.
Blankenship also serves on the Compensation Committee Mrs. Blankenship is a member of the Institute of Chartered Accountants
in England and Wales and graduated from the University of Birmingham with a Bachelor of Commerce in 1986. Mrs.
Blankenship joined Frontline Ltd in 1994 and served as its Chief Accounting Officer and Company Secretary until October 2005.
Among other positions, she has served on the board of numerous companies, including as director and audit committee
chairperson of North Atlantic Drilling Ltd. from 2011 to 2018, Archer Limited from 2007 to 2018, Golden Ocean Group Limited
from 2004 to 2018, Frontline Ltd. from August 2003 to 2018, Avance Gas Holding Limited from 2013 to 2018, Ship Finance
International Limited from October 2003 to 2018, Seadrill Limited from 2005 to 2018 and Seadrill Partners LLC from 2012 to
2018. Mrs Blankenship also serves as a Director of 2020 Bulkers Ltd and Diamond S Shipping Inc. Mrs Blankenship is a United
Kingdom citizen and resident.
94
Georgina Sousa has served as a Director on our Board and our Company Secretary since February 2019. Ms. Sousa was
employed by Frontline Ltd. As Head of Corporate Administration from February 2007 until December 2018. She has also served
as a director and company secretary of Golar LNG Limited, Golar LNG Partners LP (until April 15, 2021) and 2020 Bulkers Ltd.,
since 2019. She previously served as a director of Frontline from April 2013 until December 2018, Ship Finance International
Limited from May 2015 until September 2016, North Atlantic Drilling Ltd. from September 2013 until June 2018, Sevan Drilling
Limited from August 2016 until June 2018, Northern Drilling Ltd. from March 2017 until December 2018 and FLEX LNG LTD.
from June 2017 until December 2018. Ms. Sousa also served as a Director of Seadrill Limited from November 2015 until July
2018. Ms. Sousa served as Secretary for all of the above mentioned companies at various times during the period between 2005
and 2018. She served as secretary of Archer Limited from 2011 until December 2018 and Seadrill Partners LLC from 2012 until
2017. Ms. Sousa is a U.K. citizen and a resident of Bermuda.
Neil Glass has served as a Director on our Board since December 2019 and also serves as an Audit Committee Member and
Chairs our Nominating and Governance Committee. Mr. Glass worked for Ernst & Young for 11 years: seven years with the
Edmonton, Canada office and four years with the Bermuda office. In 1994, he became General Manager and in 1997 the sole
owner of WW Management Limited, tasked with overseeing the day-to-day operations of several international companies. Mr.
Glass has over 20 years’ experience as both an executive director and as an independent non-executive director of international
companies. Mr. Glass is a member of both the Chartered Professional Accountants of Bermuda and of Alberta, Canada, and is a
Chartered Director and Fellow of the Institute of Directors. Mr. Glass graduated from the University of Alberta in 1983 with a
degree in Business. Mr. Glass also serves as a Director and Audit Committee Member of 2020 Bulkers Ltd and Golar LNG
Partners LP (until April 15, 2021). Mr. Glass is a Canadian citizen and a resident of Bermuda.
Patrick Schorn Mr. Schorn became CEO of Borr Drilling in September 2020, after serving as a director since January 2018.
Mr. Schorn was previously the Executive Vice President of Wells for Schlumberger Limited. Prior to this role, he held various
global management positions including President of Operations for Schlumberger Limited; President Production Group; President
of Well Services; President of Completions; and GeoMarket Manager Russia. He began his career with Schlumberger in 1991 as a
Stimulation Engineer in Europe and held various management and engineering positions in France, United States, Russia, US
Gulf of Mexico and Latin America. Mr. Schorn holds a Bachelor of Science degree in Oil and Gas Technology from the
University “Noorder Haaks” in Den Helder, the Netherlands.
Magnus Vaaler became CFO of Borr Drilling in December 2020 from the position of VP Investor Relations and Treasury.
Mr. Vaaler has been working in the Company’s Finance department since January 2018 with Treasury, Finance and Investor
relations. Mr. Vaaler brings many years of finance, oil and offshore industry experience from three years as VP Finance at
“Offshore Merchant Partners”, a portfolio company of Hitecvision, and seven years as Treasurer and VP Finance at Frontline
Ltd., listed on NYSE and OSE. Mr. Vaaler holds a Bachelor of Commerce degree from University College Dublin.
Management of the Company
Our Board is responsible for determining the strategic vision and ultimate direction of our business, determining the
principles of our business strategy and policies and promoting our long-term interests. Our Board possesses and exercises
oversight authority over our business and, subject to our governing documents and applicable law, generally delegates day-to-day
management of the Company to our senior management team. Viewed from this perspective, our Board generally oversees risk
management and our senior management team generally manage the material risks that we face. The Board must, however, be
consulted on all matters of material importance and/or of an unusual nature and, for such matters, will provide specific
authorization to personnel in our senior management to act on its behalf.
The senior management team responsible for our day-to-day management has extensive experience in the oil and gas industry
in general and in the offshore drilling area in particular. The Board has defined the scope and terms of the services to be provided
by our senior management. Management services are provided to the Group by Borr Drilling Management UK, Borr Drilling
Management DMCC and Borr Drilling Management AS, all being subsidiaries of the Company and incorporated in England and
Wales, the United Arab Emirates and Norway respectively. For more information on management practice and related parties,
please see the sections entitled “Item 6.C Directors, Senior Management and Employees—Board Practices” and “Item 7.B
Related Party Transactions.”
95
B.
COMPENSATION
During the year ended December 31, 2020, we paid our directors and executive officers aggregate compensation of $4.2
million. In addition for 2020 we also recognized an expense of $0.1 million relating to stock options for shares granted to certain
of our directors and executive officers and $0.07 million in costs related to the provision of pension, retirement or similar benefits
to our directors and executive officers.
On March 18, 2021 the Company issued 550,263 shares to our Directors as part of their 2020 compensation.
No share options were granted to the Company’s directors and executive officers during the financial year ended December
31, 2020.
(1) Long-term Incentive Program
We have adopted a long-term incentive plan and have authorized the issuance of up to 3,494,000 options pursuant to awards
under our long-term incentive program, of which 1,724,000 options remain unallocated for further awards and recruitments. Any
person who is contracted to work at least 20 hours per week in our service, the members of our Board and any person who is a
member of the board of any of our subsidiaries are eligible to participate in our long-term incentive plan. The purpose of our long-
term incentive program is to align the long-term financial interests of our employees and directors with those of our shareholders,
to attract and retain those individuals by providing compensation opportunities that are competitive with other companies, and to
provide incentives to those individuals who contribute significantly to our long-term performance and growth. To accomplish this,
our long-term incentive plan permits the issuance of our shares.
The long-term incentive plan is based on the granting of options to subscribe to new securities. Such options are typically
granted with a term of five years. The Board has the authority to set the subscription price, vesting periods and the terms of the
options. No consideration is paid by the recipients for the options. When an individual ceases to be eligible to retain options, for
example by leaving the group, unvested options lapse. Vested options must, under the same circumstances, be exercised within a
certain period after the termination date. For further details on share options please see Note 26 - Share based compensation of our
Consolidated Financial Statements included therein.
We held 1,459,714 treasury shares as of December 31, 2020, which we may use for issuances under our long-term incentive
program and for other purposes including issuance of shares to Directors as part of their annual compensation. On March 18, we
issued 550,263 treasury shares to our Directors and have 909,451 available for future issue.
C.
BOARD PRACTICES
Our Board currently consists of five directors. A director is not required to hold any shares in our company by way of
qualification. A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our
company is required to declare the nature of the interest at a meeting of our directors. Subject to declaring the interest and any
further disclosure required by the Bermuda Companies Acts, a director may vote in respect of any contract, proposed contract, or
arrangement notwithstanding that he or she may be interested therein, and if he or she does so, their vote shall be counted and may
be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is
considered. The directors may exercise all of our powers to borrow money, mortgage our undertaking, property and uncalled
capital, and issue debentures or other securities whenever money is borrowed or as security for any of our obligations or of any
third party.
Our Board is elected annually by a vote of a majority of the common shares represented at the meeting at which at least two
shareholders, present in person or by proxy, and entitled to vote (whatever the number of shares held by them) constitutes a
quorum. In addition, the maximum and minimum number of directors is determined by a resolution of our shareholders, but no
less than two directors shall serve at any given time. Each director shall hold office until the next annual general meeting
following his or her election or until his or her successor is elected.
The Directors shall, subject to applicable law and the Bye-Laws, hold office until the next annual general meeting following
such Director’s election. The Directors may be re-elected. Directors stand for re-election at each annual general meeting but there
is no limit on the term of office.
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There are no service contracts between us and any member of our Board providing for the accrual of benefits, compensation
or otherwise, upon termination of their employment or service.
Independence of directors
The NYSE requires that a U.S. listed company maintain a majority of independent directors. As a foreign private issuer, we
are exempt from certain rules of the NYSE and are permitted to follow home country practice in lieu of the relevant provisions of
the NYSE Listed Company Manual, including this NYSE requirement. Nonetheless, a majority of the members of our Board are
independent according to the NYSE’s standards for independence.
Board Committees
We have three board committees, being an audit committee, a nominating and governance committee and a compensation
committee.
Audit committee
The NYSE requires, among other things, that a listed U.S. company have an audit committee with a minimum of three
members all of whom must be independent. As a foreign private issuer, we are exempt from certain rules of the NYSE and are
permitted to follow home country practice in lieu of the relevant provisions of the NYSE Listed Company Manual, including the
requirement to have three members of the audit committee. Consistent with our status as a foreign private issuer and the
jurisdiction of our incorporation, our audit committee currently consists of two members, Mrs. Blankenship and Mr. Glass, who
are both independent under the NYSE listing standards and U.S. securities laws relating to audit committees. Under our audit
committee charter, the audit committee is responsible for overseeing the quality and integrity of our Consolidated Financial
Statements and our accounting, auditing and financial reporting practices; reviewing, evaluating and advising the Board
concerning the adequacy of our accounting systems and maintenance of our books and records and our internal controls; our
compliance with legal and regulatory requirements; the independent auditor’s qualifications, independence and performance; and
our internal audit function.
Compensation committee
NYSE rules requires that a listed U.S. company have a compensation committee of independent directors and a committee
charter specifying the purpose, duties and evaluation procedures of the committee. Although as a foreign private issuer we are
exempt from such rules and permitted to follow "home country practice", we have established a compensation committee and the
members are currently Mrs. Blankenship and Mr. Kibsgaard, both of whom are independent directors according to the NYSE's
standards for independence. The compensation committee is responsible for establishing general compensation guidelines and
policies for executive employees. The compensation committee determines the compensation and other terms of employment for
executive employees (including salary, bonus, equity participation, benefits and severance terms) and reviews, from time to time,
our compensation strategy and compensation levels in order to ensure we are able to attract, retain and motivate executives and
other employees. The compensation committee is also responsible for approving any equity incentive plans or arrangements and
any guidelines or policies for the grant of equity incentives thereunder to our employees. It oversees and periodically reviews all
annual bonuses, long-term incentive plans, stock options, employee pension and welfare benefit plans and also reviews and makes
recommendations to the Board regarding the compensation of directors for their services to the Board.
Nominating and governance committee
The NYSE requires that a listed U.S. company have a nominating/corporate governance committee of independent directors
and a committee charter specifying the purpose, duties and evaluation procedures of the committee. Although as a foreign private
issuer we are exempt from such rules and permitted to follow "home country practice", we have established a nominating and
corporate governance committee comprised of Mr. Kibsgaard and Mr. Glass both of whom are independent directors according to
the NYSE’s standards for independence. The nominating and governance committee is appointed by the Board to assist the Board
in (i) identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board, (ii)
recommending to the Board the director nominees to stand for election at the next general meeting of shareholders, (iii)
developing and recommending to the Board a set of corporate governance principles applicable to our directors and employees,
(iv) recommending committee structure, operations and reporting obligations to the Board, (v) recommending committee
assignments for directors to the Board and (vi) overseeing an annual review of Board performance.
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Executive sessions
The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE
also requires that, if such executive sessions include any non-management directors who are not independent, all independent
directors also meet in an executive session at least once a year. All of our directors are non-management and regularly hold
executive sessions without management and our independent directors hold executive sessions when deemed appropriate.
D.
EMPLOYEES
Employees
As of December 31, 2020, we had 418 employees with 311 working offshore and 107 working onshore compared to
December 31, 2019, when we had approximately 694 employees with 543 working offshore and 151 working onshore. In
addition, we engaged 927 contractors, of which 879 worked offshore and 48 worked onshore in 2020 and 1,242 contractors, of
which 1,154 worked offshore and 88 worked onshore in 2019. As of December 31, 2018, we had approximately 593 employees,
with 463 working offshore and 130 working onshore. In addition in 2018, we had 664 contractors, of which 606 worked offshore
and 58 worked onshore in 2018.
These employees and contractors have extensive technical, operational and management experience in the jack-up segment of
the shallow-water offshore drilling industry.
As of December 31, 2020, Borr Drilling Management UK had fourteen full-time employees. In addition, Paragon Offshore
(Land Support) Limited and Paragon Offshore (Nederlands) B.V., in Aberdeen and Beverwijk, had 39 and eight full-time
employees, respectively and Borr Management AS has four full-time employees. In addition, Borr Drilling Eastern Peninsula had
four full-time employees.
Some of our employees and our contracted labor are represented by collective bargaining agreements. As part of the legal
obligations in some of these agreements, we are required to contribute certain amounts to retirement funds and pension plans and
have restricted ability to dismiss employees. In addition, many of these represented individuals are working under agreements that
are subject to salary negotiation. These negotiations could result in higher personnel costs, other increased costs or increased
operating restrictions that could adversely affect our financial performance. We consider our relationships with the various unions
as stable, productive and professional.
The table below presents our employees and contractors by function as of December 31, 2020:
Rig-based
Shore-based
Total
Company
Employees Contractors
879
48
927
311
107
418
Total
1,190
155
1,345
We seek to employ national employees and contractors wherever possible in the markets in which our rigs operate. This
enables us to strengthen customer and governmental relationships, particularly with NOCs, and results in a more competitive cost
base as well as relatively lower employee turnover.
E.
SHARE OWNERSHIP
The following table sets forth information as of April 13, 2021 with respect to the beneficial ownership of our common
shares by:
•
•
each of our directors and executive officers; and
all of our directors and executive officers as a group
The calculations in the table below are based on 273,526,900 common shares outstanding as of April 13, 2021, following the
increase in our share capital as a result of the completion of our equity offering, see “Item 5. Operating and Financial Review and
Prospects—Recent Developments”. All of our shareholders are entitled to one vote for each Share held.
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Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of
shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has
the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any
other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
Name of Officer or Director
Tor Olav Trøim
Pål Kibsgaard
Kate Blankenship
Georgina Sousa
Neil Glass
Patrick Schorn
Magnus Vaaler
Directors and Executive Officers
Common
Shares
Owned(1)
17,557,269
812,500
287,601
—
175,081
1,500,000
85,000
20,417,451
%
6.4%
*
*
*
*
*
*
7.5%
Total
number
of options
—
—
30,000
10,000
—
—
70,000
—
Options
vested
—
—
5,000
2,500
—
—
35,000
—
Exercise
price $
—
—
17.50
17.50
—
—
24.35
—
Expiry date
—
—
March 11, 2024
March 11, 2024
—
—
June 7, 2023
—
1.
Represents shares beneficially owned by Tor Olav Trøim, including those held by Drew Holdings Ltd., Magni Partners
(Bermuda) Ltd and their respective subsidiaries and affiliates, as the context may require.
(*) Represents ownership of less than 1% of our outstanding shares.
See also “—B. Compensation” for information on our long-term incentive plan.
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
MAJOR SHAREHOLDERS
Except as specifically noted, the following table sets forth information as of April 13, 2021 with respect to the beneficial
ownership of our common shares by each person known to us to own beneficially more than 5% of our total common shares.
The calculations in the table below are based on 273,526,900 common shares outstanding as of April 13, 2021, following the
increase in our share capital as a result of the completion of our equity offering, see “Item 5. Operating and Financial Review and
Prospects—Recent Developments”. All of our shareholders are entitled to one vote for each Share held.
Beneficial Owner (Name/Address)
Allan & Gill Gray Foundation (2)
Granular Capital Ltd (3)
Tor Olav Trøim (4)
Schlumberger Oilfield Holdings Limited (5)
Kistefos AS (6)
Common
Shares
Owned (1)
Percentage of
Common
Shares
40,054,453
24,985,888
17,557,269
15,131,700
14,117,647
14.6 %
9.1 %
6.4 %
5.5 %
5.2 %
(1)
(2)
(3)
Our post-Reverse Share Split shares began to trade on the Oslo Børs on June 26, 2019. The table above reflects our
Reverse Share Split.
Based solely on information contained on the Oslo Stock Exchange Mandatory notification filed on January 22, 2021
by Orbis Investment Management Limited ("OIML"). To the best of our knowledge, the Managers are ultimately
controlled by the Allan & Gill Gray Foundation, through its ownership or control, as applicable, of OIML.
This information is based solely on the Oslo Stock Exchange mandatory notification of trades by Granular Capital Ltd
on May 22, 2020.
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(4)
(5)
(6)
Represents shares beneficially owned by Tor Olav Trøim, including those held by Drew Holdings Ltd., Magni Partners
(Bermuda) Ltd and their respective subsidiaries and affiliates, as the context may require.
Based solely on information contained in a Schedule 13G filed on February 12, 2021 by Schlumberger N.V.
(Schlumberger Limited).
This information is based solely on the Oslo Stock Exchange mandatory notification of trades by Kistefos AS on
March 26, 2021. DNB Banks ASA announced on March 26, 2021 it had acquired and sold the 14,117,647 shares under
a forward contract with Kistefos AS with expected delivery under the forward contract on June 28, 2021.
As of April 13, 2021, a total of 273,526,900 shares are held by 2 record holders in the United States, representing 100% of
our total outstanding shares.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. See the
section entitled “Item 10.B Additional Information—Memorandum of Association and Bye-Laws” for historical changes in our
shareholding structure.
B.
RELATED PARTY TRANSACTIONS
The related party transactions that we were party to between January 1, 2020 and December 31, 2020 are described in Note
28 - Related party transactions of our Consolidated Financial Statements included here in.
Other Relationships
Director Participation in Equity Offering
Directors and executive officers of the Company participated in the equity offering that closed on June 5, 2020, October 5,
2020 and January 22, 2021 on the same terms as other participants.
The following directors and executive officers of the Company received shares as compensation for the 2020 year on March
18, 2021
• Mr. Tor Olav Trøim—150,081 shares;
• Mr. Pål Kibsgaard—62,500 shares;
•
Kate Blankenship —187,601shares; and
• Mr. Neil Glass—150,081 shares
For more information on shareholdings held by all directors and executive officers of the Company please see section entitled
“Item 6E. Share Ownership”
For more information on the share-lending agreement entered into by the Company and the managers of the equity offering in
connection with the equity offering, see “Agreements and Other Arrangements with Magni Partners Limited (“Magni”)” in Note
28 - Related party transactions of our Consolidated Financial Statements included here- in.
C.
INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
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ITEM 8.
FINANCIAL INFORMATION
A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Please see the section entitled “Item 18. Financial Statements” for more information on the financial statements filed as a part
of this annual report. Please also see the section entitled “Item 4.B Business Overview—Legal Proceedings” for a discussion of
legal proceedings.
Dividend Policy
We have not paid dividends to our shareholders since incorporation. We aim to distribute a portion of our future earnings
from operations, if any, to our shareholders from time to time as determined by our Board. Any dividends declared in the future
will be at the sole discretion of our Board and will depend upon earnings, market prospects, current capital expenditure programs
and investment opportunities.
B.
SIGNIFICANT CHANGES
Please see the section entitled “Item 5. Operating and Financial Review and Prospects” for more information concerning for
information concerning any significant changes that may have occurred since the date of our annual financial statements.
ITEM 9.
THE OFFER AND LISTING
A.
OFFER AND LISTING DETAILS.
Our shares are listed on the Oslo Børs, our principal host market, and on the New York Stock Exchange under the symbol
“BORR.”.
Please see the section entitled “Item 10.B Additional Information—Memorandum of Association and Bye-Laws” for a
description of the rights attaching to our common shares.
B.
PLAN OF DISTRIBUTION
Not applicable.
C.
MARKETS
Our shares were are listed on the Oslo Børs and New Stock Exchange under the symbol “BORR”
D.
SELLING SHAREHOLDERS
Not applicable.
E.
DILUTION.
Not applicable.
F.
EXPENSES OF THE ISSUE
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
A.
SHARE CAPITAL
Not applicable.
B.
MEMORANDUM OF ASSOCIATION AND BYE-LAWS
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We are an exempted company limited by shares incorporated in Bermuda and our corporate affairs are governed by our
Memorandum and Bye-Laws, the Companies Act and the common law of Bermuda.
Our Memorandum of Association and Bye-Laws
The Memorandum of Association of the Company has previously been filed as Exhibit 3.1 to the Company’s Registration
Statement on Form F-1 filed with the Securities and Exchange Commission on July 10, 2019, and is hereby incorporated by
reference into this Annual Report.
The Bye-Laws of the Company have previously been filed as Exhibit 3.2 to the Company’s Registration Statement on Form
F-1 filed with the Securities and Exchange Commission on July 10, 2019, and are hereby incorporated by reference into this
Annual Report.
The following are summaries of material provisions of our Memorandum and Bye-Laws, insofar as they relate to the material
terms of our shares.
Objects of Our Company
We were incorporated by registration under the Companies Act. Our business objects are unrestricted and we have all the
powers of a natural person.
Common Shares Ownership
Our Memorandum and Bye-Laws do not impose any limitations on the ownership rights of our shareholders. The Bermuda
Monetary Authority has given a general permission for us to issue shares to nonresidents of Bermuda and for the free
transferability of our shares among nonresidents of Bermuda, for so long as our shares are listed on an appointed stock exchange.
There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our common shares.
Dividends
As a Bermuda exempted company limited by shares, we are subject to Bermuda law relating to the payment of dividends. We
may not pay any dividends if, at the time the dividend is declared or at the time the dividend is paid, there are reasonable grounds
for believing that, after giving effect to that payment:
•
•
we will not be able to pay our liabilities as they fall due; or
the realizable value of our assets is less than our liabilities.
In addition, since we are a holding company with no material assets, and conduct our operations through subsidiaries, our
ability to pay any dividends to shareholders will depend on our subsidiaries’ distributing to us their earnings and cash flow. Some
of our loan agreements currently limit or prohibit our subsidiaries’ ability to make distributions to us and our ability to make
distributions to our shareholders.
Voting Rights
Holders of common shares are entitled to one vote per share on all matters submitted to a vote of holders of common shares.
Unless a different majority is required by law or by our Bye-Laws, resolutions to be approved by holders of common shares
require approval by a simple majority of votes cast at a meeting at which a quorum is present.
Majority shareholders do not generally owe any duties to other shareholders to refrain from exercising all of the votes
attached to their shares. There are no deadlines in the Companies Act relating to the time when votes must be exercised. However,
our Bye-Laws provide that where a shareholder or a person representing a shareholder as a proxy wishes to attend and vote at a
meeting of our shareholders, such shareholder or person must give us not less than 48 hours’ notice in writing of their intention to
attend and vote.
The key powers of our shareholders include the power to alter the terms of our Memorandum and to approve and thereby
make effective any alterations to our Bye-Laws made by the directors. Dissenting shareholders holding 20% of our shares may
apply to the court to annul or vary an alteration to our Memorandum. A majority vote against an alteration to our Bye-Laws made
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by the directors will prevent the alteration from becoming effective. Other key powers are to approve the alteration of our capital,
including a reduction in share capital, to approve the removal of a director, to resolve that we will be wound up or discontinued
from Bermuda to another jurisdiction or to enter into an amalgamation, merger or winding up. Under the Companies Act, all of
the foregoing corporate actions require approval by an ordinary resolution (a simple majority of votes cast), except in the case of
an amalgamation or merger transaction, which requires approval by 75% of the votes cast, unless our Bye-Laws provide
otherwise, which our Bye-Laws do. Our Bye-Laws provide that the Board may, with the sanction of a resolution passed by a
simple majority of votes cast at a general meeting with the necessary quorum for such meeting of two persons at least holding or
representing 33.33% of our issued shares (or the class of securities, where applicable), amalgamate or merge us with another
company. In addition, our Bye-Laws confer express power on the Board to reduce its issued share capital selectively with the
authority of an ordinary resolution of the shareholders.
The Companies Act provides that a company shall not be bound to take notice of any trust or other interest in its shares.
There is a presumption that all the rights attaching to shares are held by, and are exercisable by, the registered holder, by virtue of
being registered as a member of the company. Our relationship is with the registered holder of its shares. If the registered holder
of the shares holds the shares for someone else (the beneficial owner), then the beneficial owner is entitled to the shares and may
give instructions to the registered holder on how to vote the shares. The Companies Act provides that the registered holder may
appoint more than one proxy to attend a shareholder meeting, and consequently where rights to shares are held in a chain the
registered holder may appoint the beneficial owner as the registered holder’s proxy.
Meetings of Shareholders
The Companies Act provides that a company must have a general meeting of its shareholders in each calendar year unless
that requirement is waived by resolution of the shareholders. Under our Bye-Laws, annual shareholder meetings will be held in
accordance with the Companies Act at a time and place selected by the Board, provided that no such meetings can be held in
Norway or the United Kingdom. Special general meetings may be called at any time at the discretion of the Board, provided that
no such meetings can be held in Norway or the United Kingdom.
Annual shareholder meetings and special meetings must be called by not less than seven days’ prior written notice specifying
the place, day and time of the meeting. The Board may fix any date as the record date for determining those shareholders eligible
to receive notice of and to vote at the meeting.
The quorum at any annual or general meeting is equal to at least two shareholders, present in person or by proxy, and entitled
to vote (whatever the number of shares held by them). The Companies Act specifically imposes special quorum requirements
where the shareholders are being asked to approve the modification of rights attaching to a particular class of shares (33.33%) or
an amalgamation or merger transaction (33.33%) unless in either case the bye-laws provide otherwise.
The Companies Act provides shareholders holding 10% of a Company’s voting shares the ability to request that the Board
shall convene a meeting of shareholders to consider any business which the shareholders wish to be discussed by the shareholders
including (as noted below) the removal of any director. However, the shareholders are not permitted to pass any resolutions
relating to the management of our business affairs unless there is a pre-existing provision in the company’s bye-laws which
confers such rights on the shareholders. Subject to compliance with the time limits prescribed by the Companies Act, shareholders
holding 5% of the voting shares (or alternatively, 100 shareholders) may also require the directors to circulate a written statement
not exceeding 1,000 words relating to any resolution or other matter proposed to be put before, or otherwise considered during,
the annual general meeting of the company.
Election, Removal and Remuneration of Directors
The Companies Act provides that the directors shall be elected or appointed by the shareholders. A director may be elected
by a simple majority vote of shareholders. A person holding more than 50% of the voting shares of the company will be able to
elect all of the directors, and to prevent the election of any person whom such shareholder does not wish to be elected. There are
no provisions for cumulative voting in the Companies Act or the Bye-Laws. Further, our Bye-Laws do not contain any super-
majority voting requirements relating to the appointment or election of directors. The appointment and removal of directors is
covered by Bye-Laws 97, 98 and 99.
There are procedures for the removal of one or more of the directors by the shareholders before the expiration of his term of
office. Shareholders holding 10% or more of our voting shares may require the Board to convene a shareholder meeting to
consider a resolution for the removal of a director. At least 14 days’ written notice of a resolution to remove a director must be
given to the director affected, and that director must be permitted to speak at the shareholder meeting at which the resolution for
103
his removal is considered by the shareholders. Any vacancy created by such a removal may be filled at the meeting by the election
of another person by the shareholders or in the absence of such election, by the Board.
The Companies Act stipulates that an undischarged bankruptcy of a director (in any country) shall prohibit that director from
acting as a director, directly or indirectly, and taking part in or being concerned with the management of a company, except with
leave of the court. Bye-Law 101 is more restrictive in that it stipulates that the office of a Director shall be vacated upon the
happening of any of the following events:
•
•
•
•
•
If he resigns his office by notice in writing delivered to the registered office or tendered at a meeting of the Board;
If he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health
and the Board resolves that his office is vacated;
If he becomes bankrupt or compounds with his creditors;
If he is prohibited by law from being a Director; or
If he ceases to be a Director by virtue of the Companies Act or is removed from office pursuant to the company’s
bye-laws.
Under our Bye-Laws, the minimum number of directors comprising the Board at any time shall be two. The Board currently
consists of five directors. The minimum and maximum number of directors comprising the Board from time to time shall be
determined by way of an ordinary resolution of our shareholders. The shareholders may, at the annual general meeting by
ordinary resolution, determine that one or more vacancies in the Board be deemed casual vacancies. The Board, so long as a
quorum remains in office, shall have the power to fill such casual vacancies. Our directors are not required to retire because of
their age, and the directors are not required to be holders of our shares. Directors serve for one year terms, and shall serve until re-
elected or until their successors are appointed at the next annual general meeting. Each director will hold office until the next
annual general meeting or until his successor is appointed or elected. There is no requirement for our Directors to hold our shares
to qualify for appointment.
Director Transactions
Our Bye-Laws do not prohibit a director from being a party to, or otherwise having an interest in, any transaction or
arrangement with our Company or in which our Company is otherwise interested. Our Bye-Laws provide that a director who has
an interest in any transaction or arrangement with us and who has complied with the provisions of the Companies Act and with
our Bye-Laws with regard to disclosure of such interest shall be taken into account in ascertaining whether a quorum is present,
and will be entitled to vote in respect of any transaction or arrangement in which he is so interested.
Bye-Law 111 provides our Board the authority to exercise all of our powers to borrow money and to mortgage or charge all
or any part of our property and assets as collateral security for any debt, liability or obligation. However, under the Companies
Act, companies may not lend money to a director or to a person connected to a director who is deemed by the Companies Act to
be a director (a “Connected Person”), or enter into any guarantee or provide any security in relation to any loan made to a director
or a Connected Person without the prior approval of the shareholders of the company holding in aggregate 90% of the total voting
rights in the company.
Our Bye-Laws provide that no director, alternate director, officer, person or member of a committee, if any, resident
representative, or his heirs, executors or administrators, which we refer to collectively as an indemnitee, is liable for the acts,
receipts, neglects or defaults of any other such person or any person involved in our formation, or for any loss or expense incurred
by us through the insufficiency or deficiency of title to any property acquired by us, or for the insufficiency of deficiency of any
security in or upon which any of our monies shall be invested, or for any loss or damage arising from the bankruptcy, insolvency
or tortious act of any person with whom any monies, securities or effects shall be deposited, or for any loss occasioned by any
error of judgment, omission, default or oversight on his part, or for any other loss, damage or other misfortune whatever which
shall happen in relation to the execution of his duties, or supposed duties, to us or otherwise in relation thereto. Each indemnitee
will be indemnified and held harmless out of our funds to the fullest extent permitted by Bermuda law against all liabilities, loss,
damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or
regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him as such director,
alternate director, officer, person or committee member or resident representative (or in his reasonable belief that he is acting as
any of the above). In addition, each indemnitee shall be indemnified against all liabilities incurred in defending any proceedings,
104
whether civil or criminal, in which judgment is given in such indemnitee’s favor, or in which he is acquitted. We are authorized to
purchase insurance to cover any liability it may incur under the indemnification provisions of our Bye-Laws. Each shareholder
has agreed in Bye-Law 166 to waive to the fullest extent permitted by Bermuda law any claim or right of action he might have
whether individually or derivatively in the name of the company against each indemnitee in respect of any action taken by such
indemnitee or the failure by such indemnitee to take any action in the performance of his duties to us.
Liquidation
In the event of our liquidation, dissolution or winding up, the holders of common shares are entitled to share in our assets, if
any, remaining after the payment of all of our debts and liabilities, subject to any liquidation preference on any outstanding
preference shares.
Redemption, Repurchase and Surrender of Shares
Subject to certain balance sheet restrictions, the Companies Act permits a company to purchase its own shares if it is able to
do so without becoming cash flow insolvent as a result. The restrictions are that the par value of the share must be charged against
the company’s issued share capital account or a company fund which is available for dividend or distribution or be paid for out of
the proceeds of a fresh issue of shares. Any premium paid on the repurchase of shares must be charged to the company’s current
share premium account or charged to a company fund which is available for dividend or distribution. The Companies Act does not
impose any requirement that the directors shall make a general offer to all shareholders to purchase their shares pro rata to their
respective shareholdings. Our Bye-Laws do not contain any specific rules regarding the procedures to be followed by us when
purchasing our shares, and consequently the primary source of our obligations to shareholders when we tender for our shares will
be the rules of the listing exchanges on which our shares are listed. Our power to purchase our shares is covered by Bye-Laws 7, 8
and 9.
Issuance of Additional Shares
Bye-Law 3 confers on the directors the right to dispose of any number of unissued shares forming part of our authorized
share capital without any requirement for shareholder approval.
The Companies Act and our Bye-Laws do not confer any pre-emptive, redemption, conversion or sinking fund rights attached
to our common shares. Bye-Law 14 specifically provides that the issuance of more shares ranking pari passu with the shares in
issue shall not constitute a variation of class rights, unless the rights attached to shares in issue state that the issuance of further
shares shall constitute a variation of class rights.
Inspection of Books and Records
The Companies Act provides that a shareholder is entitled to inspect the register of shareholders and the register of directors
and officers of the company. A shareholder is also entitled to inspect the minutes of the meetings of the shareholders of the
company, and the annual financial statements of the company. Our Bye-Laws do not provide shareholders with any additional
rights to information, and our Bye-Laws do not confer any general or specific rights on shareholders to inspect our books and
records.
Implications of Being a Foreign Private Issuer
We are considered a “foreign private issuer.” As a foreign private issuer, we are exempt from certain rules under the
Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under section 14 of
the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing”
profit recovery provisions of section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases
and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as
frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not
required to comply with Regulation FD, which restricts the selective disclosure of material information.
We may take advantage of these exemptions until the first day after we cease to qualify as a foreign private issuer. We would
cease to be a foreign private issuer if, on the last business day of our second fiscal quarter, more than 50.0% of our outstanding
voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive
officers or directors are U.S. citizens or residents, (ii) more than 50.0% of our assets are located in the United States or (iii) our
business is administered principally in the United States. We have taken advantage of certain reduced reporting and other
105
requirements in this annual report. Accordingly, the information contained herein may be different than the information you
receive from other public companies in which you hold equity securities.
Implications of Being an Emerging Growth Company
We are also an “emerging growth company” as defined in the JOBS Act enacted in April 2012. An emerging growth
company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These
provisions include, but are not limited to:
•
•
being permitted to present only two years of audited financial statements and only two years of related disclosure in
“Item 5. Operating and Financial Review and Prospects” in this annual report; and
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
To the extent that we cease to qualify as a foreign private issuer but remain an emerging growth company, we may also take
advantage of (i) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements (if
any) and registration statements and (ii) exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved.
We intend to take advantage of the reduced reporting requirements and exemptions to the extent we cease to qualify as a
foreign private issuer but remain an emerging growth company. Notwithstanding our status as an emerging growth company, we
have not elected to use the extended transition period for complying with any new or revised financial accounting standards and,
in accordance with SEC standards applicable to emerging growth companies, such election is irrevocable. For more information,
please see the section entitled “Item 3.D Risk Factors—Risk Factors Related to Applicable Laws and Regulations—If we fail to
comply with requirements relating to being a public company in the United States when obligated to do so, our business could be
harmed and our Share price could decline.”
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of
the first sale of our common equity securities under an effective registration statement under the Securities Act. However, if
certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our gross
revenues for any fiscal year equal or exceed $1.07 billion (as adjusted for inflation under SEC rules from time to time) or we issue
more than $1.0 billion of nonconvertible debt in any three-year period, we will cease to be an emerging growth company prior to
the end of such five-year period.
Certain Bermuda Company Considerations
Our corporate affairs are governed by our Memorandum and Bye-Laws as described above, the Companies Act and the
common law of Bermuda. You should be aware that the Companies Act differs in certain material respects from the laws
generally applicable to U.S. companies incorporated in the State of Delaware. Accordingly, you may have more difficulty
protecting your interests under Bermuda law in the face of actions by management, directors or controlling shareholders than
would shareholders of a corporation incorporated in a United States jurisdiction, such as the State of Delaware. Please see Exhibit
2.1 to this Annual Report on Form 20-F.
C.
MATERIAL CONTRACTS
For more information concerning our material contracts, see “Item 4. Information on the Company,” “Item 5. Operating and
Financial Review and Prospects and “Item 7. Major Shareholders and Related Party Transactions.”
D.
EXCHANGE CONTROLS
Our common shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business
Act of 2003 and the Exchange Control Act 1972, and related regulations of Bermuda which regulate the sale of securities in
Bermuda. In addition, specific permission is required from the Bermuda Monetary Authority, or the BMA, pursuant to the
provisions of the Exchange Control Act 1972 and related regulations, for all issuances and transfers of securities of Bermuda
companies, other than in cases where the BMA has granted a general permission. The BMA in its policy dated June 1, 2005
provides that where any equity securities of a Bermuda company, including our common shares, are listed on an appointed stock
exchange, general permission is given for the issue and subsequent transfer of any securities of a company from and/or to a
106
nonresident, for as long as any equities securities of such company remain so listed. The NYSE is deemed to be an appointed
stock exchange under Bermuda law.
Although we are incorporated in Bermuda, we are classified as a non-resident of Bermuda for exchange control purposes by
the BMA. Other than transferring Bermuda Dollars out of Bermuda, there are no restrictions on our ability to transfer funds into
and out of Bermuda or to pay dividends in currency other than Bermuda Dollars to U.S. residents (or other non-residents of
Bermuda) who are holders of our common shares.
In accordance with Bermuda law, share certificates may be issued only in the names of corporations, individuals or legal
persons. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the
request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special
capacity, we are not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or
trust. We will take no notice of any trust applicable to any of our shares or other securities whether or not we had notice of such
trust.
E.
TAXATION
The following discussion of the Bermuda and U.S. federal income tax consequences of an investment in our common shares
is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to
change. This summary does not deal with all possible tax consequences relating to an investment in our common shares, such as
the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than Bermuda and the United
States.
Bermuda Taxation
While we are incorporated in Bermuda, we are not subject to taxation under the laws of Bermuda. Distributions we receive
from our subsidiaries also are not subject to any Bermuda tax. There is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax or estate duty or inheritance tax payable by nonresidents of Bermuda in
respect of capital gains realized on a disposition of our shares or in respect of distributions they receive from us with respect to
our shares. This discussion does not, however, apply to the taxation of persons ordinarily resident in Bermuda. Bermuda
shareholders should consult their own tax advisors regarding possible Bermuda taxes with respect to dispositions of, and
distributions on, our shares. We have received from the Minister of Finance under The Exempted Undertaking Tax Protection Act
1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any
capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, the imposition of any such tax shall not be
applicable to us or to any of our operations or shares, debentures or other obligations, until March 31, 2035. This assurance is
subject to the proviso that it is not to be construed to prevent the application of any tax or duty to such persons as are ordinarily
resident in Bermuda or to prevent the application of any tax payable in accordance with the provisions of the Land Tax Act 1967.
The assurance does not exempt us from paying import duty on goods imported into Bermuda. In addition, all entities employing
individuals in Bermuda are required to pay a payroll tax and there are other sundry taxes payable, directly or indirectly, to the
Bermuda government. We and our subsidiaries incorporated in Bermuda pay annual government fees to the Bermuda
government. Bermuda currently has no tax treaties in place with other countries in relation to double-taxation or for the
withholding of tax for foreign tax authorities.
U.S. Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations relating to the ownership and disposition of
our common shares by a U.S. Holder (as defined below) and holding of our shares as “capital assets” (generally, property held for
investment) under the Code. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S.
Treasury regulations promulgated thereunder (“Regulations”), published positions of the IRS, court decisions and other applicable
authorities, all as currently in effect as of the date hereof and all of which are subject to change or differing interpretations
(possibly with retroactive effect). No ruling has been sought from the IRS with respect to any U.S. federal income tax
consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This
discussion does not discuss all aspects of U.S. federal income taxation that may be important to particular investors in light of
their individual investment circumstances, including investors subject to special tax rules (including, for example, banks or other
financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, dealers
in securities or foreign currency, traders in securities that elect mark-to-market treatment, tax-exempt organizations (including
private foundations), entities that are treated as partnerships for U.S. federal income tax purposes (or partners therein), holders
who are not U.S. Holders, U.S. expatriates, holders who own (directly, indirectly or constructively) 10% or more of our stock (by
107
vote or value), holders who acquire their common shares pursuant to any employee share option or otherwise as compensation,
investors that will hold their common shares as part of a straddle, conversion, constructive sale or other integrated transaction for
U.S. federal income tax purposes or investors who have a functional currency other than the U.S. dollar, all of whom may be
subject to tax rules that differ significantly from those discussed below). This discussion, moreover, does not address the U.S.
federal estate and gift tax or alternative minimum tax consequences of the acquisition or ownership of our common shares or the
Medicare tax on net investment income. Each U.S. Holder is urged to consult its tax advisor regarding the U.S. federal, state, local
and non-U.S. income and other tax considerations of an investment in our common shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common shares that is, for U.S. federal income
tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a
corporation for U.S. federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof
or the District of Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes
regardless of its source or (iv) a trust (A) the administration of which is subject to the primary supervision of a U.S. court and
which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has
otherwise validly elected to be treated as a U.S. person under the Code for U.S. federal income tax purposes.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our
common shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the
activities of the partnership. Partnerships holding our common shares and their partners are urged to consult their tax advisors
regarding an investment in our common shares.
Dividends
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” any cash distributions
(including the amount of any tax withheld) paid on our common shares out of our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend
income on the day actually or constructively received by the U.S. Holder. Because we do not intend to determine our earnings and
profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for
U.S. federal income tax purposes. A non-corporate U.S. Holder will be subject to tax on dividend income from a “qualified
foreign corporation” at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary
income; provided that certain holding period and other requirements are met. A non-U.S. corporation (other than a corporation
that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be
considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive tax treaty with the United
States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which
includes an exchange of information program, or (ii) with respect to any dividend it pays on stock which is readily tradable on an
established securities market in the United States. We have listed on the New York Stock Exchange, which is an established
securities market in the United States, the shares are expected to be readily tradable. There can be no assurance that our shares
will continue to be considered readily tradable on an established securities market in later years.
Dividends will generally be treated as income from foreign sources for U.S. foreign tax credit purposes and will generally
constitute passive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be
eligible, subject to a number of complex limitations, to claim a foreign tax credit not in excess of any applicable treaty rate in
respect of any foreign withholding taxes imposed on dividends received on our common shares. A U.S. Holder who does not elect
to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for U.S. federal income tax purposes, in
respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The
rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder’s individual facts
and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax
credit under their particular circumstances.
Sale or Other Disposition of our Shares
Subject to the discussion below under “Passive Foreign Investment Company Considerations,” a U.S. Holder will generally
recognize capital gain or loss upon the sale or other disposition of common shares in an amount equal to the difference between
the amount realized upon the disposition and the holder’s adjusted tax basis in such common shares. Any capital gain or loss will
be long-term if the common shares have been held for more than one year and will generally be U.S. source gain or loss for U.S.
foreign tax credit purposes.
108
Long-term capital gains of non-corporate U.S. Holders are currently eligible for reduced rates of taxation. The deductibility
of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences
if a foreign tax is imposed on a disposition of our common shares, including the availability of the foreign tax credit under their
particular circumstances.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as the Company, will be classified as a passive foreign investment company, or PFIC, for U.S.
federal income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year
consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly
average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose,
cash and assets readily convertible into cash are categorized as a passive asset and the company’s goodwill and other unbooked
intangibles associated with active business activities may generally be classified as active assets. Passive income generally
includes, among other things, dividends, interest, rents, royalties and gains from the disposition of passive assets. However,
passive income does not include income derived from the performance of services. We will be treated as owning a proportionate
share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or
indirectly, at least 25% (by value) of the stock.
Based upon our current and projected income and assets and projections as to the value of our assets, we do not believe we
were a PFIC for the taxable year ended December 31, 2020, and we do not expect to be a PFIC for the current taxable year or in
the foreseeable future. In making this determination, we believe that any income we receive from offshore drilling service
contracts should be treated as “services income” as opposed to passive income under the PFIC rules. In addition, the assets we
own and utilize to generate this “services income” should not be considered passive assets for purposes of the PFIC rules.
However, because these determinations are based on the nature of our income and assets from time to time, as well as involving
the application of complex tax rules, and because our view is not binding on the courts or the IRS, no assurances can be provided
that we will not be considered a PFIC for the current, or any past or future tax year. While we do not expect to be or become a
PFIC in the current or future taxable years, the determination of whether we are or will become a PFIC will depend on our
income, assets and activities in each year. No assurance can be given that the composition of our income or assets will not change
in a manner that could make us a PFIC in the future. Under circumstances where we determine not to deploy significant amounts
of cash for capital expenditures and other general corporate purposes, our risk of becoming classified as a PFIC may substantially
increase.
Because determination of PFIC status is a fact-intensive inquiry made on an annual basis and will depend upon the
composition of our assets and income, and the continued existence of our goodwill at that time, no assurance can be given that we
are not or will not become classified as a PFIC. If we are classified as a PFIC for any year during which a U.S. Holder holds our
common shares, we generally will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years
during which such U.S. Holder holds our common shares, regardless of whether we meet the PFIC tests described above.
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our common shares, and unless the U.S.
Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that
have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder
(which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average
annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the common
shares) and (ii) any gain realized on the sale or other disposition, including an indirect disposition such as a pledge, of common
shares. Under the PFIC rules:
•
•
•
•
the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the common shares;
the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the
first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;
the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest
marginal tax rate in effect for individuals or corporations, as appropriate, for that year; and
the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior
taxable year, other than a pre-PFIC year.
109
If we are a PFIC for any taxable year during which a U.S. Holder holds our common shares and any of our subsidiaries is
also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC
for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the
PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election
with respect to such stock, provided that such stock is regularly traded. For those purposes, our shares are treated as marketable
stock since their listing on the New York Stock Exchange. We anticipate that our shares should qualify as being regularly traded,
but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as
ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of shares held at the end of
the taxable year over the adjusted tax basis of such shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax
basis of the shares over the fair market value of such shares held at the end of the taxable year, but such deduction will only be
allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s
adjusted tax basis in the shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a
U.S. Holder makes a mark-to-market election in respect of our shares and we cease to be classified as a PFIC, such U.S. Holder
will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If
a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our
shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss
will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-
market election.
Because a mark-to-market election can be made only with respect to marketable stock, such election generally will not be
available for any lower-tier PFICs that we may own. Therefore, if we are treated as a PFIC, a U.S. Holder may continue to be
subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an
equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if
available, would result in tax treatment different from the general tax treatment for PFICs described above.
If a U.S. Holder owns our common shares during any taxable year that we are a PFIC, the holder must generally file an
annual IRS Form 8621 or such other form as is required by the U.S. Treasury Department. Each U.S. Holder is advised to consult
its tax advisor regarding the potential tax consequences to such holder if we are or become a PFIC, including the possibility of
making a mark-to-market election.
F.
DIVIDENDS AND PAYING AGENTS
Not applicable.
G.
STATEMENT BY EXPERTS
Not applicable.
H.
DOCUMENTS ON DISPLAY
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign
private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with
the SEC. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov.
Our information filed with or furnished to the SEC is available free of charge through our website (www.borrdrilling.com) or
by calling us at +1 (441) 737-0152 as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the SEC. The information contained on our website is not a part of this annual report.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the
furnishing and content of proxy statements. While we furnish proxy statements to shareholders in accordance with the rules of any
stock exchange on which our common shares may be listed in the future, those proxy statements will not conform to
Schedule 14A of the proxy rules promulgated under the Exchange Act. Our executive officers, directors and principal
shareholders are also exempt from the reporting and short-swing profit recovery provisions contained in section 16 of the
Exchange Act. Although we will not be required under the Exchange Act to file periodic reports and financial statements with the
110
SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, we will furnish
holders of our shares with annual reports containing audited financial statements and a report by our independent registered public
accounting firm and intend to make available quarterly reports containing selected unaudited financial data for the first three
quarters of each fiscal year. The audited financial statements will be prepared in accordance with U.S. GAAP and those reports
will include a “Operating and Financial Review and Prospects” section for the relevant periods.
I.
SUBSIDIARY INFORMATION
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including liquidity risks, interest rate risks, inflation risks, foreign currency risks and
credit risks.
Liquidity Risk
We manage our liquidity risk by maintaining adequate cash reserves and undrawn facilities at banking facilities, by
continuously monitoring our cash forecasts and our actual cash flows and by matching the maturity profiles of financial assets and
liabilities.
Interest Rate Risk
We are exposed to interest rate risk related to floating-rate debt under our Financing Arrangements. Our variable rate debt,
where the interest rate may be adjusted frequently over the life of the debt, exposes us to short-term changes in market interest
rates. We are exposed to changes in long-term market interest rates if and when maturing debt is refinanced with new debt.
Further, we may utilize derivative instruments to manage interest rate risk in the future. We are not engaged in derivative
transactions for speculative or trading purposes.
A change of 100 basis points in interest rates for the year ended December 31, 2020 would have increased/(decreased) our
total other income (expenses), net and loss before income taxes by the amounts shown below. This analysis assumes that all other
variables remain constant. The analysis is performed on the same basis for the year ended December 31, 2018 and 2019.
2020
Year Ended December 31,
2019
(in $ millions)
2018
Sensitivity Analysis – Financial income (expense), net
Increase by 100 basis points
Decrease by 100 basis points
Sensitivity Analysis – Loss before income taxes
Increase by 100 basis points
Decrease by 100 basis points
Inflation Risk
$
$
(14.7) $
14.7
(10.2) $
10.2
(14.7) $
14.7
(10.2) $
10.2
(3.8)
3.8
(3.8)
3.8
Inflation has not had significant impact on operating or other expenses; however our contracts do not generally contain
inflation-adjustment mechanisms and we are subject to risks related to inflation.
We do not consider inflation to be a significant risk to costs in the current and foreseeable future economic environment.
However, should the world economy be affected by inflationary pressures this could result in increased operating and financing
costs.
111
Foreign Currency Risk
Our international operations expose us to currency exchange rate risk, although we believe this risk is low. This risk is
primarily associated with compensation costs of employees, drilling contracts in the North Sea and purchasing costs from non-
U.S. suppliers, which are denominated in currencies other than the U.S. dollar, including Euros, Pounds and Nigerian Naira. We
do not have any non-U.S. dollar debt and thus are not exposed to currency risk related to debt.
Our primary currency exchange rate risk management strategy involves structuring certain customer contracts to provide for
payment from the customer in both U.S. dollars and local currency. The payment portion denominated in local currency is based
on anticipated local currency requirements over the contract term. Due to various factors, including customer acceptance, local
banking laws, other statutory requirements, local currency convertibility and the impact of inflation on local costs, actual local
currency needs may vary from those anticipated in the customer contracts, resulting in partial exposure to currency exchange rate
risk. The currency exchange effect resulting from our international operations has not historically had a material impact on our
operating results.
Further, we may utilize foreign currency forward exchange contracts to manage foreign exchange risk. We are not engaged in
derivative transactions for speculative or trading purposes.
Market Risk
From time to time, we have made and held investments in other companies in our industry that own/operate offshore drilling
rigs with similar characteristics to our fleet of jack-up rigs, subject to compliance with the covenants contained in certain of our
Financing Arrangements which restrict such investments. We have also purchased and held debt securities issued by other
companies in the offshore drilling industry from time to time. Through these investments, we sought to optimize our free-cash
flow through strategic investments where cash may otherwise remain idle. In addition, the Call Spread Transactions expose us to
the risk of fluctuations in the market value of our shares.
As a result of these investments and transactions, we are exposed to the risk of fluctuations in the market values of the
available-for-sale financial assets we hold from time to time (other than changes in interest rates and foreign currencies) and our
shares. We generally do not use any derivative instruments to manage this risk.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
DEBT SECURITIES
Not applicable.
B.
WARRANTS AND RIGHTS
Not applicable.
C.
OTHER SECURITIES
Not applicable.
D.
AMERICAN DEPOSITARY SHARES
None.
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
None
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
112
None
ITEM 15.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed to ensure that information required to be
disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of
achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a
result of the material weaknesses in our internal control over financial reporting described below, the design and operation of our
disclosure controls and procedures were not effective as of December 31, 2020.
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report does not include a report of management’s assessment regarding internal control over financial
reporting or an attestation report of the company’s registered public accounting firm, due to a transition period established by
rules of the SEC for newly public companies. Additionally, our independent registered public accounting firm will not be required
to opine on the effectiveness of our internal control over financial reporting until we are no longer an emerging growth company.
Changes in Internal Control over Financial Reporting
Except as described below, there were no changes in our internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the period covered by this Annual
Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness in Internal Control over Financial Reporting
As previously disclosed in our Registration Statement on Form F-1 (File No. 333-232594), which was declared effective
by the SEC on July 30, 2019, we identified certain control deficiencies in the design and operation of our internal control over
financial reporting in connection with the preparation of our 2018 audited consolidated financial statements that constituted a
material weakness. 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 the company’s annual or interim consolidated
financial statements may not be prevented or detected on a timely basis. The control deficiencies resulted from a lack of a
sufficient number of competent financial reporting and accounting personnel to prepare and review our consolidated financial
statements and related disclosures in accordance with U.S. GAAP.
To remedy our identified material weakness, we disclosed in our Form 20-F for the year ended December 31, 2019
further steps which were taken to strengthen our internal control over financial reporting, which included: (i) engaging external
third parties to assist with the implementation of our new internal control framework; (ii) implementing regular and continuous
U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; and (iii)
hiring more qualified personnel to strengthen the financial reporting function and to improve the financial and systems control
framework, however, the identified material weakness has not been fully remediated.
In 2020, due to the impact of COVID-19 on our operational and financial performance, we were unable to hire additional
qualified personnel to strengthen the financial reporting function and improve the financial and systems control framework
through increased segregation of duties.
Based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations (COSO) of the Treadway Commission we have implemented and continue to implement control
procedures to strengthen our internal control over financial reporting. Specifically, subsequent to December 31, 2020,
Management is in the process of reviewing, and where necessary, modifying controls and procedures throughout the Company
113
and we plan to address deficiencies identified during 2021, subject to the economic uncertainty at this time, the impact of the
COVID-19 pandemic and the constraints on the re-allocation of current resources.
Although we have made enhancements to our control procedures in this area, the material weakness will not be
remediated until the necessary controls have been fully implemented and operating effectively. See Item 3. “Key Information – D.
Risk Factors — Risks Related to Ownership of our common shares — In connection with the audits of our consolidated financial
statements, 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.
ITEM 16.
[RESERVED]
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
Based on the qualifications and relevant experience described in "Item 6.A. Directors and Senior Management", our board of
directors has determined that Kate Blankenship and Neil Glass are “audit committee financial experts” as defined under SEC rule
10A-3 and as defined in Item 16A of Form 20-F under the Exchange Act. Our board of directors has also determined that Kate
Blankenship and Neil Glass satisfy the NYSE’s listed company “independence” requirements and independence requirements
applicable to audit committee members under US securiites laws.
ITEM 16B.
CODE OF ETHICS
Our Board has established a code of business conduct and ethics applicable to our employees, directors and officers. Any
waiver of this code may be made only by our Board and will be promptly disclosed as required by applicable U.S. federal
securities laws and the corporate governance rules of the NYSE. Our code of business conduct and ethics is publicly available on
our website at www.borrdrilling.com and is under review on a yearly basis.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PricewaterhouseCoopers AS (“PwC Norway”) served as our independent registered public accounting firm for the years
ended December 31, 2017 and 2018. At the Annual General Meeting on September 27, 2019, the Company’s shareholders
approved the engagement of PricewaterhouseCoopers LLP, a United Kingdom entity (“PwC UK”), as the Company’s new
independent registered public accounting firm to replace PWC Norway effective immediately.
Fees and services
Our audit committee charter requires that all audit and non-audit services provided by our independent registered public
accounting firm are pre-approved by our audit committee. In particular, pursuant to our audit committee charter, the chairman of
the audit committee shall pre-approve all audit services to be provided to Borr Drilling, whether provided by our independent
registered public accounting firm or other firms, and all other services (review, attest and non-audit) to be provided to Borr
Drilling by the independent registered public accounting firm. Any decision of the chairman of the audit committee to pre-
approve audit or non-audit services shall be presented to the audit committee.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional
services rendered by PwC UK and other member firms within the PwC network for 2020 and 2019 .
Audit Fees1
Audit-Related Fees
Tax Fees2
All Other Fees
Total
114
Year ended December 31,
2020
2019
(in millions of $)
1.0 $
0.1
0.3
—
1.4 $
1.2
1.1
0.3
—
2.6
$
$
(1)
(2)
Includes fees billed or accrued for professional services rendered by the principal accountant, and member firms in their
respective network, for the audit of our annual financial statements, and those of our consolidated subsidiaries, as well as
additional services that are normally provided by the accountant in connection with statutory and regulatory filings or
engagements, except for those not required by statute or regulation.
Tax fees consist of fees for professional services rendered during the fiscal year by the principal accountant mainly for
tax compliance and assistance with tax audits and appeals.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable
ITEM 16G.
CORPORATE GOVERNANCE
Under U.S. federal securities laws we are a “foreign private issuer.” Under NYSE rules, a foreign private issuer may follow
home country corporate governance practices instead of certain of NYSE’s requirements, provided that such foreign private issuer
discloses in its annual report filed with the SEC each requirement that it does not follow and describes the home country practice
followed in lieu of such requirement.
Other than the matters described below, there are no significant differences between our corporate governance practices and
those followed by U.S. domestic companies under NYSE rules.
• Audit Committee. NYSE listing standards require requires, among other things, that a listed U.S. company have an audit
committee with a minimum of three members, all of whom are independent. Our audit committee consists of two independent
members of our Board, Mrs. Kate Blankenship and Mr. Neil Glass. Our audit committee complies with Rule 10A-3 under the
Securities Exchange Act of 1934.
• Shareholder Approval Requirements. NYSE listing standards require that a listed U.S. company obtain prior shareholder
approval for certain issuances of shares or the approval of, and material revisions to, equity compensation plans. As permitted
under Bermuda law and our bye-laws, we do not seek such shareholder approval prior to issuances of authorized stock exceeding
20% of the number of shares of common shares or voting power outstanding or approval for equity compensation plans and to
material revisions thereof.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17.
FINANCIAL STATEMENTS
Please see “Item 18. Financial Statements” below.
ITEM 18.
FINANCIAL STATEMENTS
PART III
The financial statements and the related notes required by this Item 18 are included in this annual report beginning on
page F-1.
115
ITEM 19.
EXHIBITS
Exhibit Number
Description of Document
Index to Exhibits
1.1*
1.2*
2.1**
4.1#**
4.2 #**
4.3*
4.4#*
4.5 **
4.6#**
4.7#**
4.8 **
4.9 **
Memorandum of Association of Borr Drilling (incorporated by reference to Exhibit 3.1 of the Registration
Statement, filed on Form F-1, dated July 10, 2019)
Amended and Restated Bye-Laws adopted on August 25, 2017 (incorporated by reference to Exhibit 3.2
of the Registration Statement, filed on Form F-1, dated July 10, 2019)
Description of Securities Registered under Section 12 of the Exchange Act (incorporated by reference to
Exhibit 2.1 of the Company's Annual Report on Form 20-F for the year ended December 31 ,2019)
Senior Secured Credit Facilities Agreement originally dated as of June 25, 2019 and amended and
restated as of July 7, 2020 between Borr Drilling Limited, DNB Bank ASA, Danske Bank, Citibank N.A.,
Jersey Branch and Goldman Sachs Bank USA, among others.
First Supplemental Agreement to Senior Secured Credit Facilities Agreement dated January 29, 2021
between Borr Drilling Limited, DNB Bank ASA, Danske Bank, Citibank N.A., Jersey Branch and
Goldman Sachs Bank USA, among others
Bond Terms for Borr Drilling Limited $350,000,000 3.875% Senior Unsecured Convertible Bonds
2018/2023 (incorporated by reference to Exhibit 10.2 of the Registration Statement, filed on Form F-1,
dated July 10, 2019)
Master Agreement dated as of October 6, 2017 between PPL Shipyard Pte Ltd. and Borr Drilling Limited
(incorporated by reference to Exhibit 10.3 of Amendment No. 1 to the Registration Statement, filed on
Form F-1, dated July 23, 2019).
Global Amendment Deed dated June 5, 2020 between, among others. PPL Shipyard Pte Ltd. and Borr
Drilling Limited (incorporated by reference to Exhibit 4.5 of the Company's Annual Report on Form 20-F
for the year ended December 31 ,2019)
Second Global Amendment Deed dated January 28, 2021 between, among others. PPL Shipyard Pte Ltd.
and Borr Drilling Limited.
Facility Agreement originally dated as of June 25, 2019 as amended and restated on July 8, 2020 between
funds managed by Hayfin Capital Management LLP, as lenders, and Borr Midgard Assets Ltd., among
others.
Consent and Amendment Letter in respect of the Facility Agreement dated as of January 28, 2021 between
funds managed by Hayfin Capital Management LLP, as lenders, and Borr Midgard Assets Ltd., among
others.
Framework Deed dated June 4, 2020 between, among others, Borr Drilling Limed, Keppel FELS Limited
and Offshore Partners Pte. Ltd. (incorporated by reference to Exhibit 4.10 of the Company's Annual
Report on Form 20-F for the year ended December 31 ,2019).
116
Exhibit Number
4.10#**
Description of Document
Second Framework Deed dated January 27, 2021 between, among others, Borr Drilling Limed, Keppel
FELS Limited and Offshore Partners Pte. Ltd.
8.1**
12.1**
12.2**
13.1**
List of Subsidiaries of Borr Drilling Limited.
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101.INS**
XBRL Instance Document.
101.SCH**
XBRL Taxonomy Extension Schema Document.
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document.
* Previously filed.
** Filed herewith.
Portions of this exhibit have been omitted because such portions are both not material and would be competitively
harmful if publicly disclosed. The omissions have been indicated by Asterisks (“[***]”).
#
117
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Borr Drilling Limited
By:
/s/ Patrick Schorn
Name: Patrick Schorn
Title: Chief Executive Officer
Date: April 29, 2021
118
BORR DRILLING LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Reports of Independent Registered Public Accounting Firm
Consolidated Statement of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statement of Comprehensive Loss for the years ended December 31, 2020, 2019 and 2018
Consolidated Balance Sheet as of December 31, 2020 and 2019
Consolidated Statement of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Notes to the Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-8
F-10
F-11
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Borr Drilling Limited,
Opinion on the Financial Statements
We have audited the accompanying consolidated Balance Sheet of Borr Drilling Limited and its subsidiaries (the “Company”) as
of December 31, 2020 and 2019, and the related consolidated Statement of Operations, Statement of Comprehensive Loss,
Statement of Cash Flows and Statement of Changes in Shareholders’ Equity for the two years ended December 31, 2020,
including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and
2019, and the results of its operations and its cash flows for the year ended December 31, 2020 in conformity with accounting
principles generally accepted in the United States of America.
Substantial Doubt over the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred substantial losses since
inception and will require additional financing within the next 12 months in order to fund expected future losses, to meet its
planned capital expenditure, and to cover the negative cash effects if payments are not received timely from its customers or the
Company is unable to secure continued work as a result of the COVID-19 pandemic. This raises substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Watford, United Kingdom
29 April 2021
We have served as the Company’s auditor since 2019.
F-2
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of Borr Drilling Limited
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Borr Drilling Limited and its subsidiaries (the “Company”) as of December 31,
2018, and the related consolidated statements of operations, consolidated statements of comprehensive loss, consolidated
statements of cash flows and consolidated statements of changes in shareholders’ equity for each of the two years in the period
ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31,
2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern Has Been Removed
Management and we previously concluded there was substantial doubt about the Company’s ability to continue as a going
concern. As discussed in Note 1 (not included herein) to the consolidated financial statements appearing in Amendment No. 2 to
the Company’s filing on Form F-1, management has subsequently taken certain actions, which management and we have
concluded remove that substantial doubt.
/s/ PricewaterhouseCoopers AS
PricewaterhouseCoopers AS
Stavanger, Norway
April 29, 2019, except with respect to the matters that alleviate previous substantial doubt about the Company’s ability to continue
as a going concern and the effects of the reverse stock split discussed in Note 1 (not included herein) to the consolidated financial
statements appearing in Amendment No. 2 to the Company’s filing on Form F-1, as to which the date is July 10, 2019
We served as the Company's auditor from 2016 to 2019.
F-3
BORR DRILLING LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
for the Years ended December 31, 2020, 2019 and 2018
(In $ millions, except per share data)
Notes
2020
2019
2018
Operating revenues
Dayrate revenue
Related party revenue
Total 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
Total operating expenses
Operating loss
Income/(loss) from equity method investments
Financial income (expenses), net
Interest income
Interest expenses, net of amounts capitalized
Other financial expenses, net
Total financial 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
Loss per share
Basic loss per share
Diluted loss per share
Weighted-average shares outstanding
4
28
17
6
13
13
17
3
7
8
25
9
9
9
265.2
42.3
307.5
—
19.0
(270.4)
(117.9)
(77.1)
—
(49.1)
—
(514.5)
(188.0)
9.5
0.2
(87.4)
(35.7)
(122.9)
(301.4)
(16.2)
(317.6)
—
(317.6)
(2.11)
(2.11)
327.6
6.5
334.1
—
6.4
(307.9)
(101.4)
(11.4)
(20.2)
(50.4)
—
(491.3)
(150.8)
(9.0)
1.5
(70.4)
(59.2)
(128.1)
(287.9)
(11.2)
(299.1)
(1.5)
(297.6)
164.9
—
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)
(2.78)
(2.78)
(1.85)
(1.85)
102,877,501
150,354,703 107,478,625
See accompanying notes that are an integral part of these Consolidated Financial Statements
F-4
BORR DRILLING LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
for the Years ended December 31, 2020, 2019 and 2018
(In $ millions)
Notes
2020
2019
2018
Net loss
Unrealized (loss) gain from marketable securities
Unrealized gain from marketable securities reclassified to other
financial income, net in the Statement of Operations
18
Other comprehensive income (loss)
Total comprehensive loss
Comprehensive loss attributable to
Shareholders of Borr Drilling Limited
Non-controlling interest
Total comprehensive loss
(317.6)
—
—
—
(317.6)
(317.6)
—
(317.6)
(299.1)
(6.4)
12.0
5.6
(293.5)
(292.0)
(1.5)
(293.5)
(190.9)
0.6
—
0.6
(190.3)
(189.9)
(0.4)
(190.3)
See accompanying notes that are an integral part of these Consolidated Financial Statements
F-5
BORR DRILLING LIMITED
CONSOLIDATED BALANCE SHEET
as of December 31, 2020 and 2019
(In $ millions, except number of shares)
Notes
2020
2019
Assets
Current Assets
Cash and cash equivalents
Restricted cash
Trade receivables
Jack-up drilling rigs held for sale
Prepaid expenses
Deferred mobilization and contract preparation cost
Accrued revenue
Tax retentions receivable
Due from related parties
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Jack-up drilling rigs
Newbuildings
Deferred mobilization and contract preparation cost
Equity method investments
Other long-term assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Trade payables
Amounts due to related parties
Unrealized loss on forward contracts
Accrued expenses
Onerous contracts
VAT and current taxes payable
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Other liabilities
Long-term accrued interest
Liabilities from equity method investments
Onerous contracts
Total non-current liabilities
Total liabilities
Commitments and contingencies
Stockholders’ Equity
Common shares of par value $0.05 per share: authorized 238,653,846 (2019: 137,500,000) shares, issued
220,318,704 (2019: 112,278,065) shares and outstanding 218,858,990 (2019: 110,818,351) shares
Treasury shares
Additional paid in capital
Accumulated deficit
Equity attributable to the Company
Non-controlling interest
Total equity
Total liabilities and equity
10
11
13
5
28
12
13
14
3
20
28
19
23
21
22
3,7,14
22
3
23
24
30
25
19.2
—
22.9
4.5
6.4
5.7
20.3
10.5
34.9
16.4
59.1
69.4
40.2
3.0
8.1
19.3
31.7
11.6
8.6
26.9
140.8
277.9
5.6
2,824.6
135.5
—
62.7
1.9
3,030.3
3,171.1
20.4
—
—
51.7
—
9.9
14.0
96.0
1,906.2
19.7
41.1
—
71.3
2,038.3
2,134.3
11.0
(26.2)
1,947.2
(895.2)
1,036.8
—
1,036.8
3,171.1
7.3
2,683.3
261.4
3.5
31.4
15.2
3,002.1
3,280.0
14.1
0.4
64.3
62.1
71.3
17.8
19.7
249.7
1,709.8
22.7
—
3.7
—
1,736.2
1,985.9
5.6
(26.2)
1,891.2
(576.7)
1,293.9
0.2
1,294.1
3,280.0
See accompanying notes that are an integral part of these Consolidated Financial Statements
F-6
BORR DRILLING LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the Years ended December 31, 2020, 2019 and 2018
(In $ millions)
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
Gain on disposals
Unrealized loss on financial instruments
(Income)/loss from equity method investments
Non-cash loan fees related to settled debt
Bargain purchase gain
Deferred income tax
Change in other current and non-current assets, net
Change in current and non-current liabilities, net
Net cash used in operating activities
Cash Flows from Investing Activities
Purchase of plant and equipment
Proceeds from sale of fixed assets
Business acquisition, net of cash acquired
Purchase of financial instruments and marketable debt securities
Investments in equity method investments
Proceeds from sale of financial instruments and marketable debt 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
Proceeds, net of deferred loan costs, from issuance of short-term debt
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents and restricted
cash
Cash and cash equivalents and restricted cash at beginning of the period
Cash and cash equivalents and restricted cash at the end of period
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
Non-cash offset in respect of jack-up drilling rigs
Notes
2020
2019
2018
(317.6)
(299.1)
(190.9)
26
13
13
6
7
3
7
17
8
6
17
18,19
3
18,19
14
13
28
30
22
22
0.7
117.9
77.1
—
(19.0)
27.4
(9.5)
—
—
1.1
41.3
25.8
(54.8)
—
37.7
—
(92.5)
(25.5)
3.0
(5.0)
(37.4)
(119.7)
60.2
—
—
—
—
5.0
—
65.2
(109.3)
128.5
19.2
(40.1)
(8.6)
181.8
—
—
3.9
101.4
11.4
20.2
(6.4)
45.1
9.0
5.6
—
1.4
(25.8)
44.3
(89.0)
(1.9)
7.1
—
(6.9)
(30.8)
31.3
(142.6)
(127.3)
(271.1)
49.2
—
—
(390.0)
—
679.6
58.5
397.3
37.2
91.3
128.5
(69.0)
(1.3)
177.9
—
26.8
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)
218.9
27.7
(19.7)
(89.3)
(28.5)
474.4
—
583.5
(111.8)
203.1
91.3
(8.6)
(3.2)
609.0
(27.7)
—
See accompanying notes that are an integral part of these Consolidated Financial Statements
F-7
BORR DRILLING LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
for the Years ended December 31, 2020, 2019 and 2018
(In $ millions, except share and per share data)
Common
shares
Treasury
shares
Additional
paid in
capital
Other
Comprehensive
(Loss)/Income
Accumulated
Deficit
Non-
controlling
interest
Total
equity
(6.2)
(88.8)
Consolidated balance at
January 1, 2018
Issue of common shares
Equity issuance costs
Other transactions:
Stock based compensation
Settlement of directors’ fees
Purchase of treasury shares
Total comprehensive income/
(loss)
Non-controlling interest
Other, net
Consolidated balance at
December 31, 2018
Issue of common shares
Equity issuance costs
Other transactions:
Stock based compensation
Total comprehensive income/
(loss)
Other, net
Number of
outstanding
shares
95,264,500
10,869,565
—
—
14,286
(1,080,000)
—
—
—
105,068,351
5,750,000
—
—
—
—
Consolidated balance at
December 31, 2019
110,818,351
ASU 2016-13 Measurement
of credit losses
Adjusted balance at
January 1, 2020
Issue of common shares
Equity issuance costs
Other transactions:
Stock based compensation
Total comprehensive loss
Other, net
Consolidated balance at
December 31, 2020
—
110,818,351
108,040,639
—
—
—
—
(26.2)
1,837.5
(5.6)
(279.2)
4.8
0.5
—
—
—
—
—
—
—
5.3
0.3
—
—
—
—
5.6
—
5.6
5.4
—
—
—
—
(6.7)
—
—
—
0.2
(19.7)
—
—
—
1,587.8
249.5
(3.4)
3.7
(0.2)
—
—
—
0.1
—
—
—
—
—
53.2
(4.3)
3.9
—
0.9
(26.2)
1,891.2
—
—
(26.2)
1,891.2
—
—
—
—
—
57.4
(2.6)
0.7
—
0.5
—
—
—
—
0.6
—
—
—
—
—
5.6
—
—
—
—
—
—
—
—
—
—
(190.5)
(0.4)
(190.3)
—
—
—
—
0.1
—
—
—
—
(297.6)
0.1
2.0
—
—
—
—
1,492.9
250.0
(3.4)
3.7
—
(19.7)
0.1
—
1.7
—
—
—
(1.5)
—
0.2
0.1
1,533.5
53.5
(4.3)
3.9
(293.5)
1.0
(576.7)
0.2
1,294.1
(2.9)
(579.6)
—
—
—
(317.6)
2.0
—
0.2
—
—
—
—
(0.2)
(2.9)
1,291.2
62.8
(2.6)
0.7
(317.6)
2.3
(895.2)
—
1,036.8
218,858,990
11.0
(26.2)
1,947.2
See accompanying notes that are an integral part of these Consolidated Financial Statements
F-8
BORR DRILLING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General information
Borr Drilling Limited was incorporated in Bermuda on August 8, 2016. We are listed on the Oslo Stock Exchange and since
July 31, 2019, on the New York Stock Exchange under the ticker “BORR”. Borr Drilling Limited is an international offshore
drilling contractor providing services to the oil and gas industry, with the ambition of acquiring and operating modern jack-up
drilling rigs. As of December 31, 2020, we had 24 total jack-up rigs, including 12 rigs “warm stacked” and 1 rig “cold stacked,”
and had agreed to purchase five 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.
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 rights are consolidated
in the 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 Statement of Operations as “Non-controlling interest”. 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.
A variable interest entity (“VIE”) is defined by U.S. GAAP as a legal entity where either (a) the voting rights of some
investors are not proportional to their rights to receive the expected residual returns of the entity, their obligations to absorb the
expected losses of the entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an
investor that has disproportionately few voting rights, or (b) the equity holders have not provided sufficient equity investment to
permit the entity to finance its activities without additional subordinated financial support, or (c) equity interest holders as a group
lack the characteristics of a controlling financial interest, including decision making ability and an interest in the entity’s residual
risks and rewards. The guidance requires a VIE to be consolidated if any of its interest holders are entitled to a majority of the
entity’s residual returns or are exposed to a majority of its expected losses.
Going concern
The Company has incurred significant losses since inception and may be dependent on additional financing in order to fund
future losses that may arise in the next 12 months if the Company's rigs are unable to secure continued work or if payments from
its customers, particularly in Mexico, does not improve or deteriorates, and to meet capital expenditure commitments mainly for
activations of newbuild rigs. In addition to this we are experiencing the impact of current unprecedented market conditions as a
result of the global market reaction to the COVID-19 pandemic, together with uncertainty around the extent and timing for an
economic recovery. Our customers have reacted to this crisis by significantly reducing their spending, which resulted in a
weakened demand combined with pricing pressure for our services. At this stage we cannot predict with reasonable accuracy the
impact of these extreme market conditions on the Company. During the first half of 2020, we received early terminations for three
ongoing contracts and one cancellation of an upcoming contract which we believe pertained to the pandemic, and we have also
experienced incremental costs as a result to safely conduct our operations and to proactively manage our available liquidity. While
our recent renegotiation of credit facilities and newbuild deliveries in January 2021, and concurrent equity raise, have stabilized
our liquidity situation in a base case scenario through 2022, we have limited ability to respond to negative incidents or multiple
F-9
downside scenarios, without additional financing or by raising further capital. Therefore, we have concluded that there exists
substantial doubt over our ability to continue as a Going Concern.
To help manage our downside scenario risk, on September 30, 2020, we announced certain amendments to the Syndicated
Facility and Hayfin Facility, subject to certain conditions including the shipyards agreeing the same. The key announced
amendments were: (i) extend the maturity on the Syndicated Facility and the Hayfin Facility to January 2023, (ii) no bank debt
amortization before maturity, (iii) amending the level of the minimum cash covenant until expiry of the Syndicated Facility and
the Hayfin Facility, (iv) extend the maturity of interest payments due September 30, 2020 and December 31, 2020 with the banks
12 months, and (v) defer requirement to replenish the minimum restricted liquidity account with Hayfin until September 30, 2021.
On September 30, 2020, we announced pricing of an equity offering which closed on October 5, 2020, raising gross proceeds of
$27.5 million. On November 13, 2020, we announced launch of a subsequent offering which settled on November 27, 2020,
raising gross proceeds of $5.3 million. The sale of "Atla" and "Eir" closed in the fourth quarter of 2020, and the sale of "Balder"
closed in February 2021, raising gross proceeds of $17.5 million.
In addition, in January 2021, we amended certain of our shipyard financing agreements, whereby we pay $12 million in 2021
and $24 million in 2022, to our shipyards, in order to defer debt amortisation, interest payments and maturity payments (including
deposits for five newbuild rigs) into 2023. As a condition of these agreements, we raised a gross amount of $46 million in new
equity in January 2021. The shipyard agreements, and new equity, satisfied the conditions precedent to the Syndicated Facility
and the Hayfin Facility in September 2020 discussed above. All of these amendments were effective on January 30, 2021.
We will continue to explore additional financing opportunities and strategic sale of a limited number of modern jack-ups in order
to further strengthen the liquidity of the Company. While we have confidence that these actions will enable us to better manage
our liquidity position, and we have a track record of delivering additional financing and selling rigs, there is no guarantee that any
additional financing or sale measures will be concluded successfully.
Reverse Share Split
On June 21, 2019 the Company’s Board of Directors approved a 5-to-1 reverse share split of the Company’s shares (the
“Reverse Split”). Upon effectiveness of the Reverse Split on June 26, 2019, every five shares of the Company’s issued and
outstanding ordinary shares, par value $0.01 per share was combined into one issued and outstanding ordinary share, par value
$0.05 per share. Unless otherwise indicated, all Share and per Share data in these financial statements is adjusted to give effect to
our Reverse Share Split and is approximate due to rounding.
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.
F-10
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. These activities are not considered
to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall performance
obligation and recognized ratably over the expected term of the related drilling contract. We record a contract liability for
mobilization fees received, which is amortized ratably to dayrate revenue as services are rendered over the initial term of the
related drilling contract.
We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the demobilization of our rigs. Demobilization
revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception
and recognized over the term of the contract. In most of our contracts, there is uncertainty as to the likelihood and amount of
expected demobilization revenue to be received. For example, the amount may vary dependent upon whether or not the rig has
additional contracted work following the contract. Therefore, the estimate for such revenue may be constrained, depending on the
facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past
experience and knowledge of the market conditions.
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.
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.
Related party revenue
We provide corporate support services, secondment of personnel and management services to our equity method investments
under management and service agreements. The services are based on costs incurred in the period with appropriate margins and
have been recognized under related party revenues in our Statement of Operations, with associated costs included within
Operating Expenses.
Related party bareboat revenue
We lease rigs on bareboat charters to our Equity Method Investment, Perforaciones Estratégicas e Integrales Mexicana, S.A.
de C.V. (“Perfomex”) and Perforaciones Estrategicas e Integrales Mexicana II, SA de CV (“Perfomex II”). We expect lease
revenue earned under the bareboat charters to be variable over the lease term, as a result of the contractual arrangement which
assigns the bareboat a value over the lease term equivalent to residual cash after payments of operating expenses and other fees.
We, as a lessor, do not recognize a lease asset or liability on our balance sheet at the time of the formation of the entities nor as a
result of the lease. Revenue is recognized within Related party bareboat revenue in our Statement of Operations when
management are able to reasonably predict the expected underlying bareboat rate over the contract term.
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.
Equity method investments
We account for our ownership interests in certain Mexican companies, Opex, Akal, Perfomex and Perfomex II as equity
method investments in accordance with ASC 323, Investments — Equity Method and Joint Ventures and record the investment in
equity method investments in the Consolidated Balance Sheets. The equity method of accounting is applied when the investor has
an ownership interest of less than 50% and/or does not control the entity, but nonetheless has significant influence over the
operating or financial decisions of the investee. Under the equity method, investments are stated at initial cost, in addition,
guarantees issued to the equity method investments and in-substance capital contributions and capital contributions are allocated
F-11
to the investment. Our proportionate share of the investees net income (loss) is reflected as a single-line item in the Consolidated
Statement of Operations and as increases or decreases, as applicable, in the carrying value of our investment in the Consolidated
Balance Sheet. In addition, the proportionate share of net income (loss) is reflected as a non-cash activity in operating activities in
the Consolidated Statement of Cash Flows. Contributions increase the carrying value of the investment and are reflected as an
investing activity in the Consolidated Statement of Cash Flows.
Investments in equity method investments are assessed for other-than-temporary impairment whenever changes in the facts
and circumstances indicate an other-than-temporary loss in carrying value has occurred.
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 where the dayrate is less than prevailing
market rates at the time of acquisition. Such contracts are 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
a. 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 where the fair value of the rig being constructed is less than the present
value of the remaining contractual commitments for the rig. Such contracts are recorded as a liability at the purchase
date.
b. Office leases: For the year ended December 31, 2019, onerous contracts were 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. Subsequent to adoption of ASU No 2016-02, Topic 842,
Leases, onerous leases related to office leases are classified as lease liabilities in accordance with the new standard.
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 statement of operations is translated using the average exchange rate for the period and the assets and liabilities are
translated using the period end exchange rate.
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.
F-12
Income taxes
Borr Drilling Limited is a Bermuda company that has a number of subsidiaries, affiliates and branches 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 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 March 31, 2035. Certain subsidiaries, affiliates and branches operate in other
jurisdictions where withholding taxes are imposed. Consequently, income taxes have 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 in the
Consolidated 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 Consolidated Balance Sheet
date. The impact of tax law changes is recognized in periods when the change is enacted.
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 the weighted average
shares outstanding used to compute basic earnings per share unless anti-dilutive.
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.
F-13
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 recognized when the right to consideration becomes unconditional based upon contractual billing
schedules. Trade receivables are presented net of allowances for credit losses.
Allowance for losses on certain financial assets
The Company has established an allowance for expected credit losses on financial receivables, namely trade accounts
receivable, in an amount equal to current expected losses. Our accounts receivable represent consideration earned for performing
services in various countries for our customers, including integrated oil companies, government-owned or government-controlled
oil companies and other independent oil companies, the majority of which currently have corporate family investment grade credit
ratings. We established procedures to apply the requirements of the accounting standards update using the loss-rate method by
reviewing our historical credit losses and evaluating future expectations, and we recorded the initial estimated allowance with a
corresponding entry to retained earnings.
The expense associated with the allowance for expected credit losses and recoveries of previous provisions are recorded in rig
operating and maintenance expenses as and when they occur in the Consolidated Statement of Operations.
Contract assets and contract liabilities
Contract asset balances consist primarily of unbilled revenue which has been recognized during the period but is contingent
on management approval of work. Contract liabilities include payments received for mobilization as well as rig preparation and
upgrade activities which are allocated to the overall performance obligation and recognized ratably over the initial term of the
contract.
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.
F-14
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 financial income (expenses), net.
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 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 when new, is 30 years.
We determine the carrying values of our jack-up rigs 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 rig which could materially affect our balance sheet and results of operations.
The useful lives of our jack-up rigs 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 as of and when events occur that may directly impact our assessment of their remaining useful lives. This
includes changes to 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 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 sheets and results of operations.
In 2020, management identified certain indicators, among others, that the carrying value of our jack-up rigs 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 by first evaluating the estimated undiscounted future net cash flows based
on projected dayrates and utilization of the rigs. The estimated undiscounted future net cash flows were found to be greater than
the carrying value of our jack-up rigs with sufficient headroom for our core jack-up rigs. As a result, we did not need to assess the
discounted cashflows of our rigs, and no impairment was recorded.
With regard to non-core jack-up rigs impaired throughout 2020, fair value of these assets were derived by applying a
combination of an income approach, using projected undiscounted cash flows and estimated sale or scrap value. These valuations
were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case
of an income approach, assumptions regarding future day rates, utilization, operating costs and capital requirements.
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.
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
F-15
prepare the assets for its intended use are complete. We do not capitalize amounts beyond the actual interest expense incurred in
the period.
Leases
ASU 842, was adopted on January 1, 2019. We have elected the package of practical expedients that permits us to not
reassess (1) whether previously expired or existing contracts are or contain leases, (2) the lease classification for any expired or
existing leases, and (3) any initial direct costs for any existing leases as of the effective date. In addition, we have elected the
hindsight practical expedient in connection with our adoption of the new lease standard. As lessee, we have made the accounting
policy election to not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less. We recognize
lease payments in the Consolidated Statement of Operations on a straight-line basis over the lease term. We have also elected the
practical expedient to not separate lease and non-lease components.
Many of our leases contain variable non-lease components such as maintenance, taxes, insurance, and similar costs for the
spaces we occupy. For new and amended leases beginning in 2019 and after, we have elected the practical expedient not to
separate these non-lease components of leases for classes of all underlying assets and instead account for them as a single lease
component for all leases. We straight-line the net fixed payments of operating leases over the lease term and expense the variable
lease payments in the period in which we incur the obligation to pay such variable amounts. These variable lease payments are not
included in our calculation of our right-of-use (“ROU”) assets or lease liabilities.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information
available at commencement date in determining the present value of lease payments. Certain of our lease agreements include
options to extend or terminate the lease, which we do not include in our minimum lease terms unless management is reasonably
certain to exercise.
Our third party 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 the non-lease
service of operating our equipment and providing expertise in the drilling of the client’s well is predominant in our drilling
contracts. We have applied the practical expedient to account for the lease and associated non-lease components as a single
component. With the election of the practical expedient, we will continue to present a single performance obligation under the
revenue guidance in Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.”
Interest-bearing debt
Interest-bearing debt is recognized initially at fair value less directly attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings related to Delivery financing are stated at amortized cost.
Accounting for debt modifications
We account for debt modifications in accordance with ASC 470, Debt. A debt modification can be an amendment to the
terms or cash flows of an existing debt instrument, exchanging existing debt for new debt with the same lender, repaying an
existing debt obligation and contemporaneously issuing new debt to the same lender. Although this may be a legal
extinguishment, the transaction may need to be accounted for as a debt modification.
Modification of debt is assessed as either a troubled debt restructuring ("TDR") or as modification or exchange of a term loan
or debt security. A modification is a TDR if (1) the borrower is experiencing financial difficulty, and (2) the lender grants the
borrower a concession. A lender is deemed to grant a concession when the effective borrowing rate on the restructured debt is less
than the effective borrowing rate on the original debt.
An exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a non-troubled
debt situation is deemed to have been accomplished if the exchanged debt instruments are substantially different if the present
value of the cash flows under the terms of the new debt instrument are at least 10 percent different from the present value of the
remaining cash flows under the terms of the original instrument. If the terms of a debt instrument are changed or modified and the
cash flow effect on a present value basis is less than 10 percent the change is considered a modification to the debt. If a debt
instrument is restructured more than once in a twelve-month period, the debt terms (e.g., interest rate, prepayment penalties) that
F-16
existed just prior to the earliest restructuring in that twelve-month period should be used to apply the 10% test, provided the
restructuring was (or restructurings were) accounted for as a modification.
The effective borrowing rate of the restructured debt is calculated by determining the discount rate that equates to the present
value of the cash flows under the terms of the restructured debt to the current carrying value of the original debt.
Cost associated with debt modifications accounted for as amendments are charged to the income statement. For debt
extinguishments the cost is charged to the balance sheet and any unamortized amount remaining upon the extinguishment is
charge to the income statement.
Our debt modifications throughout 2020 have been assessed as non-troubled debt modifications.
Deferred charges
Loan costs, including debt arrangement fees, are capitalized and amortized on a straight-line basis over the term of the
relevant loan. The straight line basis of amortization approximates the effective interest method. Amortization of loan costs is
included in other financial (expenses) income, net. If a loan is repaid early, any unamortized portion of the related deferred
charges is charged against income in the period in which the loan is repaid. The Company has recorded debt issuance costs (i.e.
deferred charges) as a direct deduction from the carrying amount of the related debt.
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.
Derivatives
We had a Call Spread (as defined in note 19) 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 other financial (expenses) income, 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 other financial (expenses) income, net in our Consolidated Statement 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.
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.
F-17
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 receipt or payment of cash.
Our assessment for impairment includes various inputs, including forecast revenue, forecast operating profits, terminal
growth rates, and weighted-average costs of capital. The projected cash flows used in calculating the fair value, using the income
approach, considered historical and estimated future results and general economic and market conditions, as well as the impact of
planned business and operational strategies. In 2020, the Company recorded impairments on three rigs, of which two were sold
during 2020 and one the "Balder" was held for sale and measured at fair value on a nonrecurring basis at December 31, within
Level 3 of the fair value hierarchy.
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 additional paid-in capital,
respectively.
Treasury shares
Treasury shares are recognized at cost as a component of shareholders’ equity.
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 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 under general and administrative
expense in the Consolidated Statement of Operations 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.
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 can reasonably be estimated, based upon the facts known prior to the issuance of the financial statements.
Provisions
A provision is recognized in the Consolidated Balance Sheets 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 disclose contingencies where we have a present legal or constructive obligation as a result of a past event, and it is not
probable that an outflow of economic benefits will be required to settle the obligation and/or a reliable estimate of the amount
cannot 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.
F-18
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.
Adoption of new accounting standards
In June 2016, the Financial Accounting Standards Board (“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 Company adopted this standard effective January 1, 2020 using the modified retrospective approach whereby a cumulative
effect adjustment was made to retained earnings on January 1, 2020 without any retrospective application to prior periods. On
adoption, the Company recognized a cumulative adjustment of $2.9 million to its retained earnings with corresponding decreases
in the carrying value of trade receivables. See note 11 Expected credit losses.
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 guidance was effective on January 1, 2020. Our adoption of this standard did not have a material
effect on our Consolidated Financial Statements.
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 the Company adopted this standard on this
date. Our adoption of the accounting standard did not have a material effect on our Consolidated Financial Statements.
Issued not effective accounting standards
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 believes that the adoption of this
standard will not have a material effect on the Consolidated Financial Statements and related disclosures.
In December 2019 FASB issued ASU No. 2019-12 Income Taxes (Topic 740) - Simplifying the Accounting for Income
Taxes. The amendments removes certain exceptions previously available and provides some additional calculation rules to help
simplify the accounting for income taxes. The amendments are effective for fiscal years ending after December 15, 2020, with
early adoption permitted. This amendment will have no material impact on our Consolidated Financial Statements or related
disclosures, including retained earnings.
In March 2020 and January 2021, the FASB issued ASU No. 2020-04 and ASU 2021-01 in relation to Reference Rate
Reform (Topic 848) The amendments provide temporary optional expedients and exceptions for applying U.S. GAAP to
contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The applicable
expedients for us are in relation to modifications of contracts within the scope of Topics 310, Receivables 470, Debt, and
842,Leases. This optional guidance may be applied prospectively from any date beginning March 12, 2020 and cannot be applied
to contract modifications that occur after December 31, 2022. We are in the process of evaluating the impact of this standard
update on our Consolidated Financial Statements and related disclosures.
F-19
As of April 13, 2021, the FASB have issued several further updates not included above. We do not currently expect any of
these updates to affect our Consolidated Financial Statements and related disclosures either on transition or in future periods.
Note 3 - Equity method investments
During 2019 we entered into a joint venture ("JV") with Proyectos Globales de Energia y Servicos CME, S.A. DE C.V.
(“CME”) to provide integrated well services to Petróleos Mexicanos (“PEMEX”). This involved Borr Mexico Ventures Limited
(“BMV”) subscribing for 49% of the equity of Opex and Akal. CME’s wholly owned subsidiary, Operadora Productora y
Exploradora Mexicana, S.A. de C.V. (“Operadora”) owns 51% of each of Opex and Akal.
We provide five jack-up rigs on bareboat charters to two other joint venture companies, Perfomex and Perfomex II, which are
owned in the same proportion as Opex and Akal. Perfomex and Perfomex II provide the jack-up rigs under traditional dayrate
drilling and technical service agreements to Opex and Akal. Opex and Akal also contract technical support services from BMV,
management services from Operadora and well services from specialist well service contractors (including an affiliate of one of
our former principal shareholders Schlumberger Limited) and logistics and administration services from Logística y Operaciones
OTM, S.A. de C.V, an affiliate of CME. This structure enables Opex and Akal to provide bundled integrated well services to
PEMEX. The potential revenue earned is fixed under each of the PEMEX contracts, while Opex and Akal manage the drilling
services and related costs on a per well basis. We are also obligated, as a 49% shareholder, to fund any capital shortfall in Opex or
Akal where the Board of Opex or Akal make a cash call to the shareholders under the provisions of the Shareholder Agreements.
The below tables sets forth the results from these entities, on a 100% basis, for the year ended December 31, 2020 and for the
period from date of incorporation to December 31, 2019, and their financial position as at December 31, 2020 and December 31,
2019. Opex and Perfomex were incorporated on June 28, 2019, while Akal and Perfomex II were incorporated in the fourth
quarter of 2019.
In $ millions
Revenue
Operating expenses
Net income (loss)
In $ millions
Revenue
Operating expenses
Net income (loss)
Year ended 31 December 2020
Perfomex
Opex
Akal
Perfomex II
134.4
(121.4)
11.8
263.8
(223.9)
10.7
122.4
(123.6)
(3.4)
45.2
(45.6)
0.2
5 months Period ended 31 December 2019
Perfomex
Opex
Akal
Perfomex II
49.8
47.4
1.5
68.1
85.7
(19.8)
—
—
—
—
—
—
Revenue in Opex and Akal is recognized on a percentage of completion basis under the cost input method. The services Opex
and Akal deliver are to a single customer, PEMEX, and involves delivering integrated well services with payment upon the
completion of each well in the contract. Revenue in Perfomex and Perfomex II is recognized on a day rate basis on a contract with
Opex and Akal, consistent with our historical revenue recognition policies, with day rate accruing each day as the service is
performed. We provide rigs and services to Perfomex and Perfomex II for use in their contracts with Opex and Akal, respectively.
As of December 31, 2020, $58.3 million of the receivables from PEMEX were overdue of a total of $97.6 million billed and
$172.0 million of receivables were unbilled. Although management believe the amount currently outstanding is recoverable, the
receipt of these funds are critical to the financial performance of the joint ventures and the cash flow of the Company.
One of our Mexican JVs has agreed terms for a factoring agreement with an international financing entity which allows for
$50 million to $150 million of receivables in the JVs to be factored, with a variable rate of interest on balances outstanding until
collection. At the balance sheet date, no amounts had been factored under this facility. Factoring proceeds will be used in part to
F-20
repay suppliers of the joint venture, including Borr Drilling. The joint venture recognized a provision of $6.3 million in 2020 to
reflect the potential effect of the factoring, representing the midpoint of the cost of the factoring and an amount of $50 million
being factored.
Summarized balance sheets, on a 100% basis of the Company's equity method investees are shown below.
In $ millions
Cash
Total current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Equity
Total liabilities and equity
In $ millions
Cash
Total current assets
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Equity
Total liabilities and equity
As at December 31, 2020
Perfomex
OPEX
Akal
Perfomex II
0.8
152.6
1.8
154.4
140.4
0.7
13.3
154.4
0.2
220.0
—
220.0
207.8
21.3
(9.1)
220.0
3.7
116.5
—
116.5
117.6
2.3
(3.4)
116.5
0.4
41.1
1.7
42.8
42.8
—
—
42.8
As at December 31, 2019
Perfomex
OPEX
Akal
Perfomex II
0.3
77.1
0.9
78.0
76.5
—
1.5
78.0
—
81.3
—
81.3
101.1
—
(19.8)
81.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
We have issued a performance guarantee to Opex for the duration of its contract with PEMEX. We have performed a
valuation exercise to fair value the guarantee given, utilizing the inferred debt market method and subsequently mapping to an
alpha category credit score, adjusting for country risk and default probability. We have subsequently recognized a liability for
$5.9 million within other long-term liabilities and added the $5.9 million to the investment in the Opex joint venture in the
Consolidated Balance Sheet.
F-21
The following present our investments in equity method investments as at December 31, 2020 and December 31, 2019:
In $ millions
Balance at 1 January 2019
Funding provided by shareholder loan
Net gain (loss) 49% basis
Guarantee provided
Balance at 31 December 2019
Funding provided by shareholder loan
Net gain (loss) 49% basis
Balance at 31 December 2020
Perfomex
0.0
30.7
0.7
0.0
31.4
10.8
5.8
48.0
Opex
0.0
0.1
(9.7)
5.9
(3.7)
3.6
5.3
5.2
Akal
0.0
0.0
0.0
0.0
0.0
1.7
(1.7)
0.0
Perfomex II
0.0
0.0
0.0
0.0
0.0
9.4
0.1
9.5
Total
0.0
30.8
(9.0)
5.9
27.7
25.5
9.5
62.7
All line items in the table above are included within our investments in Perfomex, Opex, Perfomex II and Akal
respectively.
Note 4 - Segments
On January 1, 2020, the Company identified Integrated Well Services (IWS) operations performed by our joint venture
entities Opex and Akal (see note 3) as a new reportable segment as the conditions in ASU 280 were achieved, namely that our
Chief Operating Decision Maker (“CODM”), which is our board of directors (the “Board”), began receiving regular operating
reports for the combined entities and the other requirements for identifying a reportable segment were met. The year ended
December 31, 2019 has been presented on the same basis.
A change in reportable segments requires retroactive application; however the year ended December 31, 2018, are not
presented in tabular format as the formation of our joint venture entities were in 2019 and all operating loss pertains to the only
segment at the time, the dayrate segment.
We have two operating segments: operations performed under our dayrate model (which includes rig charters and ancillary
services) and operations performed under the IWS model, that are reviewed by the CODM, as an aggregated sum of assets,
liabilities and activities that exist to generate cash flows.
The following presents information for the year ended December 31, 2020:
(In $ millions)
Revenue
Related Party Revenue
Intersegment revenue
Gain on disposal
Rig operating and maintenance expenses
Intersegment expenses
Depreciation of non-current assets
Impairment of non-current assets
General and administrative expenses
Operating (loss)/income
Income from equity method investments
Income taxes
Total
Dayrate
265.2
42.3
179.6
—
(437.4)
—
(116.0)
(77.1)
—
(143.4)
—
(18.0)
(161.4)
IWS
386.2
—
—
—
(167.9)
(179.6)
—
—
—
38.7
—
(23.6)
15.1
Reconciling
items
(386.2)
—
(179.6)
19.0
334.9
179.6
(1.9)
—
(49.1)
(83.3)
9.5
25.4
(48.4)
Consolidated
total
265.2
42.3
—
19.0
(270.4)
—
(117.9)
(77.1)
(49.1)
(188.0)
9.5
(16.2)
(194.6)
Total assets
3,368.3
336.5
(533.7)
3,171.1
F-22
The following presents information for the year ended December 31, 2019:
(In $ millions)
Revenue
Related Party Revenue
Intersegment revenue
Gain on disposal
Rig operating and maintenance expenses
Intersegment expenses
Depreciation of non-current assets
Impairment of non-current assets
Amortization of acquired contract backlog
General and administrative expenses
Operating (loss)/income
Income from equity method investments
Income taxes
Total
Total assets
Dayrate
327.6
6.5
49.8
—
(355.3)
—
(100.1)
(11.4)
(20.2)
—
(103.1)
—
(11.9)
(115.0)
3,358.0
IWS
68.1
—
—
—
(35.9)
(49.8)
—
—
—
—
(17.6)
—
—
(17.6)
81.3
Reconciling
items
(68.1)
—
(49.8)
6.4
83.3
49.8
(1.3)
—
—
(50.4)
(30.1)
(9.0)
0.7
(38.4)
Consolidated
total
327.6
6.5
—
6.4
(307.9)
—
(101.4)
(11.4)
(20.2)
(50.4)
(150.8)
(9.0)
(11.2)
(171.0)
(159.3)
3,280.0
General and administrative expense, depreciation expense incurred by our corporate office, interest expenses and other
financial expenses, net are not allocated to our operating segments for purposes of measuring segment operating loss (income) and
are included in "Reconciling Items." The full operating results included in note 3 above for our Equity Method Investments are
not included within our consolidated results and thus deducted under "Reconciling Items" and replaced with our Income/(Loss)
from Equity Method Investments. See "Note 3 - Equity Method Investments” for additional information on our Equity Method
Investments.
The majority of the accounting policies of the segments are the same as those described in the summary of significant
accounting policies with revenue and tax being the main exceptions. The Company evaluates performance based on profit or loss
from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses. The
Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices.
Geographic data
Revenues are attributed to geographical location based on the country or region of operations for drilling activities, i.e. the
country or region where the revenues are generated. The following presents our revenues by geographic area:
(In $ millions)
Middle East
Europe
West Africa
Mexico
South East Asia
Total
For the Years Ended December 31,
2018
2019
2020
33.0
52.6
108.1
43.2
70.6
307.5
43.2
114.7
102.4
50.0
23.8
334.1
41.1
75.1
44.4
—
4.3
164.9
F-23
For the years ended December 31, 2020, 2019 and 2018, 100% of our total consolidated operating revenues was attributable
to the Dayrate segment.
The following presents the net book value of our jack-up rigs, all of which are in the Dayrate segment by geographic area as
of December 31, 2020 and 2019:
(In $ millions)
Middle East
Europe
West Africa
South East Asia
Mexico
Total
As of December 31,
2019
2020
—
266.4
587.3
1,277.4
693.5
2,824.6
40.7
297.3
646.1
978.1
721.1
2,683.3
For the years ended December 31, 2020 and 2019, all our jack-up rigs was attributable to the Dayrate segment.
Major customers
In the years ended December 31, 2020, 2019 and 2018, the following customers accounted for more than 10% of our contract
revenues:
(In % of operating revenues)
ExxonMobil
National Drilling Company (ADOC)
Centrica North Sea Limited (Spirit Energy)
BW Energy Gabon S.A.
Total S.A
TAQA Bratani Limited
Pan American Energy
Total
Note 5 - Contracts with customers
Presentation of Contract balances
For the Years Ended December 31,
2020
2019
2018
18%
11%
10%
3%
3%
1%
—%
46%
15%
13%
10%
4%
—%
11%
13%
66%
—%
21%
10%
13%
13%
17%
—%
74%
All Contract assets are classified as current assets. 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.
Significant changes in the remaining performance obligation contract assets balances for the years ended December 31, 2020
and 2019 are as follows:
Contract assets
(In $ millions)
Net balance at January 1,
Additions to accrued revenue
Amortization of acquired contract backlog and billing of accrued revenue
Total contract assets
As of December 31,
2019
2020
31.7
80.7
(92.1)
20.3
39.1
100.4
(107.8)
31.7
F-24
Timing of revenue
The Company derives its revenue from contracts with customers for the transfer of goods and services, from various activities
performed both at a point in time and over time. The split is disclosed in the table below, which is consistent with the revenue
information that is disclosed for each reportable segment in note 4 above.
(In $ millions)
Over time
Point in time
Total
For the years ended December 31,
2020
2019
2018
246.5
18.7
265.2
307.7
19.9
327.6
157.4
7.5
164.9
Revenue on existing contract, where performance obligations are unsatisfied or partially unsatisfied at the balance sheet date, is
expected to be recognized as follows:
As at December 31, 2020
(In $ millions)
Dayrate revenue
Other revenue
Total
As at December 31, 2019
(In $ millions)
Dayrate revenue
Other revenue
Total
For the years ending December 31,
2021
2022
2023 onwards
209.9
—
209.9
17.1
—
17.1
—
—
—
For the years ending December 31,
2020
2021
2022 onwards
230.1
—
230.1
87.4
—
87.4
18.9
—
18.9
F-25
The following table provides information about receivables, contract assets and contract liabilities from our contracts with
customers:
(In $ millions)
Current contract assets
Accrued revenue
Current contract assets
Non-current contract assets
Total contract assets
Current contract liability
Current deferred mobilization and contract preparation revenue*
Current contract liability
Non-current contract liability
Non-current deferred mobilization and contract preparation revenue
Non-current contract liability
Total contract liability
2020
20.3
20.3
—
20.3
(2.6)
(2.6)
—
—
(2.6)
2019
31.7
31.7
—
31.7
(5.6)
(5.6)
—
—
(5.6)
*Current liabilities balances are included in "Other current liabilities" in our consolidated balance sheets.
Significant changes in the contract assets and the contract liabilities balances during the years ended December 31, 2020 and 2019
are as follows:
(In $ millions)
Beginning balance January 1, 2019
Performance obligations satisfied during the reporting period
Amortization of revenue that was included in the beginning contract liability balance
Cash received, excluding amounts recognized as revenue
Cash received against the contract asset balance
Balance as at December 31, 2019 and January 1, 2020
Performance obligations satisfied during the reporting period
Amortization of revenue that was included int he beginning contract liability balance
Cash received, excluding amounts recognized as revenue
Cash received against the contract asset balance
Balance as at December 31, 2020
Contract Costs
Contract assets
Contract liability
39.1
31.7
—
—
(39.1)
31.7
20.3
—
—
(31.7)
20.3
0.8
—
(7.4)
12.2
—
5.6
—
(15.9)
12.9
—
2.6
To obtain contracts with our customers, we incur costs to prepare a rig for contract and deliver or mobilize a rig to the
drilling location. We defer pre‑operating costs, such as contract preparation and mobilization costs, and recognize such costs on a
straight‑line basis, consistent with the general pace of activity, in rig operating and maintenance costs over the estimated firm
period of drilling. Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the
demobilization process. We had $5.7 million and $19.3 million of deferred mobilization and contract preparation costs on our
Consolidated Balance Sheets as at December 31, 2020 and 2019, respectively. $28.9 million of mobilization and contract
preparation costs was amortized in 2020 compared with $22.6 million in 2019.
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,
F-26
including dayrate revenue. The duration of our performance obligations varies by contract.
Note 6 - Gain on disposals
We have recognized the following gains and losses on disposal for the year ended December 31, 2020:
(In $ millions)
Total
Number of
Rigs Sold
Net proceeds /
recoverable
amount
6
33.5
Book value
on disposals
14.5
Gain
19.0
In first quarter of 2020 we sold the “B391” resulting in a loss of $0.4 million and in the second quarter of 2020 we completed
the sale “B152” and “Dhabi II” resulting in a combined gain of $12.8 million. During the third quarter we sold the MSS1 and
recorded no gain or loss on sale, as the rig had previously been impaired to its sale value (see note 13). During the fourth quarter
we sold the Atla for a recorded gain of $5.0 million after the rig had previously been written down to its fair value in the prior
quarter. In addition, in the fourth quarter, we sold the Eir which had been held for sale at December 31, 2019 and recorded no gain
or loss on sale. In 2020, a gain of $1.6 million related to the sale of rig related equipment.
During the third quarter, we entered into a sale agreement to sell the Balder for $4.5 million and received proceeds of
$3.0 million in November 2020, the vessel was held for sale at December 31, 2020 and the sale was completed in February 2021
(see note 32).
We have recognized the following gains on disposal for the year ended December 31, 2019:
(In $ millions)
Total
Number of
Rigs Sold
Net proceeds /
recoverable
amount
2
8.5
Book value
on disposals
2.1
Gain
6.4
In May 2019 we entered into a sale agreement for the “Baug”, “C20051” and “Eir” in May 2019. The sale of “Baug” and
“C20051” closed in May 2019 and we recorded a gain of $3.9 million in connection with the transaction.
An impairment loss of $11.4 million was recognized for the “Eir” in the May 2019 transaction as a result of entering into a
sale agreement, which resulted in us reducing the book value to the expected sale value. As of December 31, 2019, we consider
that the consideration for held for sale presentation continues to be achieved and the “Eir” is classified within jack-up drilling rigs
held for sale. Included in the 2019 gain is a gain of $2.5 million related to sale of rig related equipment.
We have recognized the following gains and losses on disposal for the year ended December 31, 2018:
(In $ millions)
Total
Number of
Rigs sold
Net proceeds /
recoverable
amount
18
37.6
Book value
on disposals
18.8
Gain
18.8
All disposals for the years ended December 31, 2020, 2019 and 2018 are within our dayrate segment and part of our strategy
to dispose of older assets.
F-27
Note 7 - Other financial expenses, net
Other financial (expenses) income, net is comprised of the following:
(In $ millions)
Foreign exchange gain (loss)
Other financial expenses
Expensed loan fees related to settled debt
Loss on forward contracts (note 19)
Realized loss on marketable debt securities (note 18)
Realized gain on financial instruments (note 19)
Change in fair value of Call Spread (note 19)
Total
Note 8 - Taxation
For the Years Ended December 31,
2018
2019
2020
1.5
(9.8)
—
(26.6)
—
1.5
(2.3)
(35.7)
0.7
(9.2)
(5.6)
(29.2)
(15.4)
—
(0.5)
(59.2)
(1.1)
(3.5)
—
(14.2)
—
—
(25.7)
(44.5)
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 March 31, 2035. We operate through various subsidiaries,
affiliates and branches 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, affiliates and branches
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, 2020, our pre-tax loss in 2020 is all attributable to foreign jurisdictions except for $76.4 million loss associated with Bermuda.
For the year ended December 31, 2019, our pre-tax loss in 2019 is all attributable to foreign jurisdictions except for
$390.7 million loss associated with Bermuda. For the year ended December 31, 2018, our pre-tax loss in 2018 is all attributable to
foreign jurisdictions except for$4.0 million associated with Bermuda.
Income tax expense is comprised of the following:
(In $ millions)
Current tax
Change in deferred tax
Total
For the Years Ended December 31,
2018
2019
2020
15.1
1.1
16.2
9.9
1.3
11.2
2.0
0.5
2.5
Our annual effective tax rate for the year ended December 31, 2020 was approximately (5.37%), on a pre-tax loss of $301.4
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
F-28
For the Years Ended December 31,
2018
2019
2020
0 %
(6.49%)
0.00%
1.57%
(0.45%)
(5.37%)
0 %
(2.30%)
0.00%
(1.29%)
(0.30%)
(3.89%)
0 %
(1.95) %
1.17 %
(0.26) %
(0.28) %
(1.32) %
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 asset
Less: Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Deferred tax liabilities
Net deferred tax asset (liabilities)
As of December 31,
2019
2020
44.8
29.7
10.7
85.2
(85.0)
0.2
—
0.2
18.6
66.9
5.4
90.9
(89.7)
1.3
—
1.3
The deferred tax assets related to our net operating losses were primarily 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 in which 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.
The following is a reconciliation of the liabilities related to our uncertain tax positions:
(In $ millions)
Unrecognized tax benefits, excluding interest and penalties, at January 1,
Additions as a result of Paragon acquisition
Additions for tax positions of prior year
Reduction for tax positions of prior years
Unrecognized tax benefits, excluding interest and penalties, at December 31,
Interest and penalties
Unrecognized tax benefits, including interest and penalties, at December 31,
2020
2019
5.3
—
0.9
—
6.2
4.2
10.4
4.8
—
1.3
(0.8)
5.3
3.7
9.0
The liabilities summarized in the table above are presented within other liabilities under non-current liabilities in the
Consolidated Balance Sheets.
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,
$0.3 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
As of December 31, 2020, the liabilities related to our unrecognized tax benefits, including estimated accrued interest and
penalties, totaled $10.4 million, and if recognized, would reduce our income tax provision by $10.4 million. As of December 31,
2019, the liabilities related to our unrecognized tax benefits, including estimated accrued interest and penalties, totaled $9.0
million, and if recognized, would reduce our income tax provision by $9.0 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. Whilst the amounts provided are an estimate and subject to
revision, we are not aware of any circumstances currently that would result in a material increase to the amounts provided for the
risks identified at this time.
F-29
Note 9 - Loss per share
The computation of basic EPS is based on the weighted average number of shares outstanding during the period.
For the Years Ended December 31,
2018
2019
2020
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
(2.11)
(2.11)
(2.78)
(2.78)
220,318,704
150,354,703
112,278,065
107,478,625
(1.85)
(1.85)
106,528,065
102,877,501
Diluted EPS exclude the effect of the assumed conversion of potentially dilutive instruments, which are:
Convertible bonds
2020
2019
2018
10,679,099
10,453,534
10,453,534
Share options
The number of share options that would be considered dilutive under the "if
converted" method
1,770,000
2,357,500
2,615,000
—
—
153,457
Due to the current loss-making position dilutive instruments are deemed to have an anti-dilutive effect on the EPS of the
Company. As of December 31, 2020, the conversion price of our convertible bonds was $32.7743.
All periods presented have been adjusted for our 5 for 1 reverse share split in June 2019.
Note 10 - Restricted cash
Restricted cash is comprised of the following:
(In $ millions)
Opening balance
Transfers to/(from) restricted cash
Total restricted cash
As of December 31,
2019
2020
69.4
(69.4)
—
63.4
6.0
69.4
Restricted cash is classified as a current asset and 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 issued guarantees. During 2020, all
restricted cash was utilized to take delivery of our forward contracts (note 19).
F-30
Note 11 - Expected credit losses
Set forth below is the allowance for expected credit losses as at December 31, 2020:
(In $ millions)
Adoption of ASU 2016-13 - Measurement of credit losses
Expected credit losses at the start of the period
Current-period provision for expected credit losses
Recoveries collected
Total
Trade
Receivables
Other
Current
Assets
Total
1.0
1.2
(1.0)
1.2
1.9
—
—
1.9
2.9
1.2
(1.0)
3.1
Upon adoption of ASU 2016-30, Current Expected Credit Losses, we recorded $2.9 million to retained earnings relating to an
initial estimated allowance for contract losses, encompassing two customers. New provisions and recoveries of previous
provisions are recorded in rig operating and maintenance expenses as and when they occur.
Note 12 - Other current assets
Other current assets are comprised of the following:
(In $ millions)
Client rechargeable
VAT and other tax receivables
Deferred financing fee
Right-of-use lease asset
Other receivables
Total other current assets
Note 13 - Jack-up rigs
Set forth below is the carrying value of our jack-up rigs:
(In $ millions)
Opening balance
Additions
Transfers from newbuildings (note 14)
Depreciation
Disposals (note 6)
Reclassification to asset held for sale
Impairment
Total jack-up rigs
F-31
As of December 31,
2019
2020
4.2
3.7
1.5
0.3
6.7
16.4
5.6
12.2
2.4
0.5
6.2
26.9
As of December 31,
2019
2020
2018
2,683.3
37.4
312.7
(116.0)
(6.5)
(9.2)
(77.1)
2,278.1
100.5
420.9
(99.7)
(2.1)
(3.0)
(11.4)
2,824.6
2,683.3
783.3
307.5
1,275.7
(69.6)
(18.8)
—
—
2,278.1
In addition, the Company recorded a depreciation charge of $1.9 million for the full year ended December 31, 2020 related to
property, plant and equipment ($1.7 million in 2019 and $9.9 million in 2018).
Disposals
For details of disposals see note 6. All disposals are within our dayrate segment and part of our strategy to dispose of older
assets.
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,
2020, 2019 and 2018 and tested recoverable amounts of jack-up drilling rigs.
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 disposal. 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. 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 2021 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 impairment losses for the years ended December 31, 2020, 2019 and 2018, as follows:
(In $ millions)
MSS1
Atla and Balder
Eir
Total
MSS1
2020
2019
2018
18.4
58.7
—
77.1
—
—
11.4
11.4
—
—
—
—
The impairment loss was recognized in the first quarter of 2020 as a result of entering into a sale agreement, which resulted
in us reducing the book value to the expected sale value.
Atla and Balder
During the first half of 2020, the coronavirus global pandemic and the response thereto negatively impacted the macro-
economic environment and global economy. Global oil demand has fallen sharply at the same time global oil supply has increased
as a result of certain oil producers competing for market share, leading to a supply glut. As a consequence, Brent fell from around
$68 per barrel at year-end 2019 to a low point of $19 on April 21, 2020. In response to significantly reduced oil price expectations
for the near term, oil and gas companies reviewed and in most cases lowered significantly, their capital expenditure plans in light
of revised pricing expectations. As a result, we concluded that a triggering event had occurred as at June 30, 2020 and we
performed a fleet-wide impairment assessment. We determined that our estimated undiscounted cash flows were insufficient to
recover the carrying value for two of our cold stacked rigs, "Atla" and "Balder". We measured the fair value of these assets to be
$10.0 million as of June 30, 2020 by applying a combination of an income approach, using projected undiscounted cash flows and
estimated sale or scrap value. These valuations were based on unobservable inputs that require significant judgments for which
there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization,
operating costs and capital requirements. resulting in an impairment loss of $57.9 million which was recorded in the second
quarter of 2020.
F-32
In the third quarter of 2020, a further impairment loss of $0.8 million was recognized for the "Balder", when the rig was
reclassified to held for sale. This impairment charge was a result of an estimated net sale price below carrying value at September
30, 2020. No other impairment indicators were identified during the fourth quarter.
The 2019 impairment related to the “Eir” which was impaired as a result of entering into a sale agreement, which resulted in
us reducing the book value to the expected sale value less cost of sale.
A scenario with a 10% decrease in day rates used when estimating undiscounted cash flows would not result in a shortfall
between the undiscounted cash flow and carrying amount for our jack-up drilling rigs.
Jack-up drilling rigs held for sale
(In $ millions)
Jack-up drilling rigs held for sale
2020
2019
4.5
3.0
During the third q uarter of 2020, the "Atla" and "Balder" were reclassified as held for sale. During the fourth quarter of 2020
the sale of the Atla was completed (see note 6). The sale of the 'Balder was completed in February 2021.
As of December 31, 2019, the sale of the “Eir” was yet to be concluded and was classified as 'Jack-up drilling rigs held for
sale' within current assets. The sale of the "Eir' was completed in October 2020 (see note 6).
Note 14 - Newbuildings
The table below sets forth the carrying value of our newbuildings:
(In $ millions)
Balance at January 1
Additions
Capitalized interest
Transfers to jack-up rigs (note 13)
Total newbuildings
For the Years Ended December 31,
2018
2019
2020
261.4
181.8
5.0
(312.7)
135.5
361.8
302.0
18.5
(420.9)
261.4
642.7
971.4
23.4
(1,275.7)
361.8
F-33
Rig
2020
Heimdal
Hild
Total
2019
Njord
Thor
Hermod
Total
2018
Saga*
Gerd
Gersemi
Grid
Gunnlod
Skald
Groa
Gyme
Natt
Total
156.9
155.8
312.7
145.5
122.1
153.3
420.9
134.9
143.1
143.2
143.2
144.3
134.1
144.1
144.2
144.6
1,275.7
2.7
—
4.8
7.5
0.3
0.3
0.4
0.4
1.5
0.7
1.3
1.4
1.8
8.1
The table below sets forth information regarding our rigs that were delivered during 2020, 2019 and 2018, together with
their final installment and related financing where applicable
Delivery
financing
($ million)
First
instalment
($ million)
Onerous
contract
allocated
Final
instalment
($ million)
Capitalized
cost
Transferred
to
jack-up rigs
Shipyard
Delivery date
January 20
April 20
$
$
90.9 Keppel
90.9 Keppel
$
$
January -19
May - 19
December - 19
87.0 PPL
120.0 Keppel
90.9 Keppel
57.6
57.6
115.2
55.8
—
57.6
113.4
— $
— $
—
90.9 $
90.9 $
181.8
8.4 $
7.3 $
15.7
—
—
—
—
87.0
122.1
90.9
300.0
January – 18
— Keppel
100.1
(38.0)
72.5
January – 18
February – 18
April – 18
June – 18
June – 18
July – 18
September – 18
October – 18
87.0 PPL
87.0 PPL
87.0 PPL
87.0 PPL
— Keppel
87.0 PPL
87.0 PPL
87.0 PPL
55.8
55.8
55.8
55.8
100.1
55.8
55.8
55.8
590.8
—
—
—
—
(39.2)
—
—
—
(77.2)
87.0
87.0
87.0
87.0
72.5
87.0
87.0
87.0
754.0
*The final installment of $72.5 million for “Saga” was paid in December 2017, before taking delivery of the rig in January
2018.
In June 2017, the Company paid $275.0 million to Keppel as a second installment 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
installments as of December 31, 2020, payable on delivery, for the Keppel newbuilds acquired in 2017 are approximately $448.2
million (approximately $448.2 million as of December 31, 2019).
Note 15 - Leases
We have operating leases expiring at various dates, principally for real estate, office space, storage facilities and operating
equipment. For our Houston and Beverwijk office space, we have previously deemed the leases as onerous leases in 2018 as a
result of change in our operating strategy; it is expected that the leases will expire on March 1, 2022 and February 28, 2021,
respectively. For these operating leases, upon adoption (see note 2) of the new standard, we offset the right-of-use asset of the
lease by the existing carrying amount of the onerous lease liability previously recorded on the date of adoption.
F-34
Supplemental balance sheet information related to leases was as follows:
(In $ millions)
Operating leases right-of-use assets
Current operating lease liabilities
Long-term operating lease liabilities
As of December 31, 2020
2020
2019
1.6
3.1
2.9
2.7
3.4
6.5
The current portion of the right of use asset is recognized within other current assets (see note 12) and the non-current portion
is recognized within other long-term assets (see note 20). The current lease liabilities are recognized within other current liabilities
(see note 21) and the non-current lease liabilities are recognized within other liabilities.
Components of lease cost is comprised of the following:
(In $ millions)
Operating lease cost
Short-term lease cost
Total lease cost
Sublease income
Note 16 - Asset acquisitions
Acquisition of Keppel’s Hull B378
For the Years Ended
December 31,
2020
2019
8.7
—
8.7
1.8
21.2
0.5
21.7
0.7
In March 2019, the Company entered into an assignment agreement with the original owner, BOTL Lease Co. Ltd, for the
assignment of the rights and obligations under a construction contract to take delivery of one KFELS Super B Bigfoot premium
jack-up rig identified as Keppel’s Hull No. B378, subsequently renamed to “Thor”, from Keppel for a purchase price of
$122.1 million. The company took delivery of the “Thor” on May 9, 2019 from Keppel Shipyard. The acquisition was partly
funded by a new bridge financing facility from Danske Bank A/S and partly by drawing down on the $160 million Senior secured
revolving loan facility entered into in the first quarter of 2019.
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 installment of $288 million. The pre-delivery installment 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. We took delivery of the new jack-up rigs “Hermod”,
"Heimdal" and "Hild" in October 2019, January 2020 and April 2020, respectively, and we were due to take delivery of the two
remaining rigs, the "Heidrun" and "Huldra" in 2022. Delivery of these rigs was deferred in January 2021, to the fourth quarter of
2023. The remaining contracted installments, payable on delivery, for the Keppel newbuilds acquired in 2018 are approximately
$172.8 million as of December 31, 2020 ($345.6 million as of December 31, 2019).
F-35
Note 17 - Business combinations
Paragon Transaction
The Company announced a binding tender offer agreement (the “Tender Offer Agreement”) on February 21, 2018 to offer
(“the Offer”) to purchase all outstanding shares in Paragon Offshore Limited (“Paragon”). 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.
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 contract backlog of $31.6 million)
Jack-up drilling rigs
Assets held for sale
Property, plant and equipment
Other long-term assets (including 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
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 units, 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 the fair value of
the net assets acquired is higher than the 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.
F-36
Restructuring
The table below sets forth the movements in restructuring provisions as a result of the Paragon transaction:
(In $ millions)
Non-current
Opening balance
Reclassification of onerous lease to lease liability (ASU 842 adoption)
Onerous office lease (ii)
Non-current restructuring provision (a)
Current
Opening balance
Severance (i)
Severance payments (i)
Onerous office lease (ii)
Reclassification of onerous lease to lease liability (ASU 842 adoption)
Lease payments
Current restructuring provision (b)
Total (a+b)
(i)
Severance payment
As of December 31,
2019
2020
2018
—
—
—
—
0.4
—
(0.4)
—
—
—
—
—
7.0
(7.0)
—
—
4.9
1.7
(1.3)
—
(3.2)
—
0.4
0.4
—
—
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 the 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.
(ii)
Office lease
During the year ended December 31, 2018, the Company recognized $7.7 million as restructuring cost for vacating excess
Paragon offices as part of the workforce reduction program. The restructuring expense of $7.7 million relates to future lease
obligations still present after the cease of use date. The Company’s future lease obligation of $10.2 million is recognized
under onerous contracts, whereof $4.5 million was recognized by Paragon before the acquisition as part of Paragon’s own
restructuring plan as of December 31, 2018. All future payments will be recognized against onerous contracts until February
2022 when the lease obligation is settled. The Company expects no additional lease costs to be recognized related to the
Paragon restructuring after the year ended December 31, 2018.
We adopted, topic 842 “Leases”, on a modified retrospective basis, on January 1, 2019. Subsequent to adoption, onerous
lease commitments of $10.2 million were reclassified to lease liability. We have not restated comparative periods (see note
15).
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 period
ended December 31, 2018 give effect to the Paragon acquisition as if it had occurred on January 1, 2017.
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(In $ millions)
Revenue
Net income (loss)
2018
(unaudited)
192.1
(297.5)
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.
Note 18 - Marketable debt securities
Marketable debt securities are marked to market, with other than temporary changes in fair value recognized within “Other
comprehensive income” (“OCI”).
(In $ millions)
Opening balance
Purchase of marketable securities
Sale of marketable securities
Unrealized gain on marketable securities
Realized loss on marketable securities
Total marketable securities
December 31,
2020
2019
—
—
—
—
—
—
35.2
5.9
(31.3)
5.6
(15.4)
—
All marketable debt securities were sold in 2019. An accumulated unrealized loss of $5.6 million recognized in other
comprehensive income for the year ended December 31, 2018 was recycled to the statement of operations during 2019.
Note 19 - Financial instruments
Forward contracts
Table below sets forth movements in forward contracts:
(In $ millions)
Opening balance
Unrealized loss on forward contracts
Realized loss/(gain) on forward contracts
Unrealized loss
December 31,
2020
2019
2018
(64.3)
(26.6)
90.9
—
(35.1)
(29.2)
—
(64.3)
4.4
(14.2)
(25.3)
(35.1)
On April 30, 2020, we purchased our forward contract assets and settled in full our forward contract liability position and
took delivery of 4.2 million shares in Valaris plc. Total cash required to settle the forward liability was $92.5 million, of which
$91.2 million was held as restricted cash at the time of settlement. Total realized loss on expiration of the contracts was
$90.9 million.
Subsequently all $4.2 million shares were sold for total proceeds of $3.0 million, resulting in a gain of $1.5 million.
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The forward contracts are presented net within current liabilities and consist of:
(In $ millions)
Forward contract assets
Forward contract liabilities
Unrealized Loss
Call Spread
December 31,
2020
2019
—
—
—
27.9
(92.2)
(64.3)
On May 16, 2018 the Company issued $350.0 million in convertible bonds due in 2023 (the “convertible bonds”) (see note
22). The Company has purchased from Goldman Sachs International call options over 10,453,612 Borr shares with an exercise
price of $33.4815 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 $42.6125 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 $24.35. 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. The Call Spread is
recorded within other long-term assets (see note 20) and with subsequent fair value adjustments recognized within other financial
expenses, net. Fair value is determined by using the Black and Scholes model for option pricing. Subsequent fair value
adjustments are recognized in the Consolidated Statement of Operations under Other financial income (expenses), net.
We have recognized fair value adjustments in the Consolidated Statement of Operations under Other financial expenses, net
as follows:
(In $ millions)
Change in Fair value of call spread (See note 7)
Note 20 - Other long-term assets
Other long-term assets are comprised of the following:
(In $ millions)
Deferred tax asset
Call Spread (see note 19)
Tax refunds
Right-of-use lease asset, non-current
Prepaid fees
Total other long-term assets
Note 21 - Other current liabilities
Other current liabilities are comprised of the following:
(In $ millions)
Accrued payroll and severance
Operating lease liability, current
Deferred mobilisation revenue
Other current liabilities
Total accruals and other current liabilities
39
For the Years Ended December 31,
2018
2019
2020
(2.3)
(0.5)
(25.7)
As of December 31,
2019
2020
0.2
—
0.4
1.3
—
1.9
1.3
2.3
0.2
2.2
9.2
15.2
As of December 31,
2019
2020
2.1
3.1
2.6
6.2
14.0
6.2
3.4
5.6
4.5
19.7
Note 22 - Long-term debt
Long-term debt is comprised of the following:
(In $ millions)
Hayfin Loan Facility
Syndicated Senior Secured Credit Facilities
New Bridge Revolving Credit Facility
$350 million Convertible bonds
PPL Delivery Financing
Keppel Delivery Financing
Principal Outstanding
Back end fees due to PPL and Keppel on Delivery of vessels.
Effective Interest rate adjustments on PPL and Keppel Delivery Financing
Deferred finance charges
Carrying Value
The scheduled maturities at December 31, 2020 of our principal debt are as follows:
(In $ millions)
2021
2022
2023
2024
2025
Total
Our Revolving and Term Loan Credit Facilities
Hayfin Loan Facility
As of December 31,
2019
2020
195.0
270.0
30.0
350.0
753.3
259.2
1,857.5
42.8
13.4
(7.5)
1,906.2
195.0
270.0
25.0
350.0
753.3
86.4
1,679.7
33.8
8.4
(12.1)
1,709.8
December 31, 2020
—
578.7
935.9
170.1
172.8
1,857.5
On June 25, 2019, we entered into a $195 million senior secured term loan facility agreement with funds managed by Hayfin
Capital Management LLP, as lenders, among others. Our wholly-owned subsidiary, Borr Midgard Assets Ltd., is the borrower
under the Hayfin Facility, which is guaranteed by Borr Drilling Limited and secured by mortgages over three of our jack-up rigs,
pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this security as owners of
the mortgaged rigs and general assignments of rig insurances, certain rig earnings, charters, intra-group loans and management
agreements from our related rig-owning subsidiaries. Our Hayfin Facility originally matured in June 2022 and bears interest at a
rate of LIBOR plus a specified margin. The Hayfin Facility agreement includes a make-whole obligation if repaid during the first
twelve months and, thereafter, a fee for early prepayment and final repayment. As of December 31, 2020 our Hayfin Facility was
fully drawn. Following amendments to the loan agreements with conditions which were fulfilled in January 2021 the lenders
agreed to defer the maturity date to January 2023.
Our Hayfin Facility agreement contains various financial covenants, including requirements that we maintain minimum
liquidity equal to three months interest on the facility when the jack-up rigs providing security are not actively operating under an
approved drilling contract (as defined in the Hayfin Facility agreement). In June 2020, Hayfin agreed to make certain amendments
to the facility, including relaxing some restrictions related to transfer of cash within the ring fenced structure, and allowing the
Company to utilize minimum liquidity equal to three months interest ($2.4 million at the time) in the Ring Fenced Entities to pay
interest under the facility. The restricted cash was required to be replenished on January 1, 2021. Our Hayfin Facility agreement
also contains a loan to value linked to minimum security value clause requiring that the market value of our rigs shall at all times
cover at least 175% of the aggregate outstanding facility amount. The facility also contains various covenants which restrict
40
distributions of cash from Borr Midgard Holding Ltd., Borr Midgard Assets Ltd. and our related rig-owning subsidiaries to us or
our other subsidiaries and the management fees payable to Borr Midgard Assets Ltd.’s directly-owned subsidiaries. Our Hayfin
Facility agreement also contains customary events of default which include any change of control, 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 Hayfin Facility agreement or security documents or jeopardize the security
provided thereunder. If there is an event of default, the lenders under our Hayfin Facility 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. The lenders
under our Hayfin Facility may also require replacement or additional security if the market value of the jack-up rigs over which
security is provided is insufficient to meet our market value-to-loan covenant. On December 30, 2020, the Company received
waivers for certain covenants which were applicable both at December 31, 2020 and up to finalization of the 2021 Amendments
(see note 32). As part of the amendments agreed in January 2021, the threshold of the minimum value to loan covenant was
lowered from 175% to 140% in the Hayfin facility. Following these amendments being formalized in January 2021, the Company
was in compliance with the requirements of the amended value to loan covenant.
As of December 31, 2020, “Saga”, “Skald” and “Thor” were pledged as collateral for the $195 million Hayfin loan facility.
Total book value of the encumbered rigs was $379.1 million as of December 31, 2020. The terms of the Hayfin Loan Facility
were subsequently amended, see note 32.
Syndicated Senior Secured Credit Facilities
On June 25, 2019, we entered into a $450 million senior secured credit facilities agreement with DNB Bank ASA, Danske
Bank, Citibank N.A., Jersey Branch and Goldman Sachs Bank USA, as lenders, among others. The senior credit facilities
(comprised a $230 million credit facility, $50 million newbuild facility (which was cancelled in 2020), $70 million for the
issuance of guarantees and other trade finance instruments as required in the ordinary course of business and, a $100 million
incremental facility), subject to transferring both secured rigs by the New Bridge Revolving Credit Facility (outlined below),(in
total $450 million of commitments, or $400 million following the cancellation of the newbuild facility). This agreement was
amended on September 12, 2019, when Clifford Capital Pte. Ltd. became a new lender with a commitment of $25 million and one
rig as security was transferred from the New Bridge Revolving Credit Facility utilizing $50 million of the incremental facility. On
December 23, 2019 certain financial covenants were amended and again in June 2020 when certain amortization payments due in
2021 were deferred and financial covenants amended as outlined below. Our obligations under our Syndicated facility is secured
by mortgages over seven of our jack-up rigs and pledges over shares of and related guarantees from certain of our rig-owning
subsidiaries who provide this security as owners of the mortgaged rigs and general assignments of rig insurances, certain rig
earnings, charters, intra-group loans and management agreements from our related rig-owning subsidiaries. The terms of the
facility allow for an additional jack-up rig, Odin, currently secured under the New Bridge Facility, to be transferred to our
Syndicated Facility if there are incremental commitments from other financiers in the Syndicated Facility (in which case the New
Bridge Facility would be repaid at that time). Our Syndicated Facility matures in June 2022 and bears interest at a rate of LIBOR
plus a specified margin.
As of December 31, 2020, we had $270.0 million outstanding under our Syndicated Facility; in addition we have a
$70 million guarantee line under the Syndicated Facility, of which $43.3 million has been utilized. As of December 31, 2020,
there was $10 million undrawn under the facility which may only be drawn at the discretion of all lenders.
In June 2020, the lenders agreed to amend the terms of some of the covenants, and the dates of certain amortization payments
which otherwise would have occurred in 2021 to occur on maturity in the second quarter of 2022. The agreements included
requirements that we maintain a minimum book equity ratio until and including December 31, 2021, equal to or higher than 25%;
and thereafter equal to or higher than 40%, a positive working capital balance, a debt service cover ratio in excess of 1.25 of our
interest and related expenses from the start of 2022. Furthermore, the Company was given a requirement to maintain minimum
liquidity equal to the greater of $5 million in cash until December 31, 2020; $10 million in cash from and including January 1,
2021, to and including June 30, 2021; $15 million in cash from and including July 1, 2021 to and including September 30, 2021;
$20 million in cash from and including October, 1 2021, to and including December 31, 2021; and free liquidity including cash
and undrawn revolving credit facilities of the higher of (i) $30 million and (ii) 3% of the aggregate of net interest bearing debt and
certain funds in blocked accounts on or after January 1, 2022.
The Syndicated Facility agreement also contains various covenants, including, among others, restrictions on incurring
additional indebtedness and entering into joint ventures; covenants subjecting dividends to certain conditions which, if not met,
would require the approval of our lenders prior to the distribution of any dividend; restrictions on the repurchase of our shares and
restrictions on changing the general nature of our business. Furthermore, a change of control event occurs if Mr. Tor Olav Trøim
ceases to serve on our board, or Mr. Tor Olav Trøim ceases to maintain ownership of at least six million shares (subject to
F-41
adjustment for certain transactions). Our Syndicated Facility agreement also contains customary 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 Syndicated Facility agreement or security
documents or jeopardize the security provided thereunder. If there is an event of default, the lenders 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. The
lenders may also require replacement or additional security if the market value of the jack-up rigs over which security is provided
is insufficient to meet our market value-to-loan covenant. In addition, our Syndicated Facility contains a “Most Favored Nation”
clause giving the lenders a right to amend the financial covenants to reflect any more lender-favourable covenants in any other
agreement pursuant to which loan or guarantee facilities are provided to us, including amendments to our Financing
Arrangements. On December 30, 2020, the Company received waivers for certain covenants which were applicable both as at
December 31, 2020 and up to the finalization of the 2021 Amendments (see note 32). As part of the amendments agreed in
January 2021, the threshold of the minimum value to loan covenant was lowered from 175% to 140% in the Syndicated Loan
Facility. Following these amendments being formalized in January 2021, the Company was in compliance with the requirements
of the amended value to loan covenant.
As of December 31, 2020, “Frigg”, “Idun”, “Norve”, “Prospector 1”, “Prospector 5”, “Mist” and “Ran” were pledged as
collateral for the Syndicated Senior Secured Credit Facilities. Total book value of the encumbered rigs was $602.8 million as of
December 31, 2020. The terms of the Syndicated Senior Secured Credit Facility were subsequently amended, see note 32.
New Bridge Revolving Credit Facility
On June 25, 2019, we entered into a $100 million senior secured revolving loan facility agreement with DNB Bank ASA and
Danske Bank, as lenders, secured by mortgages over two of our jack-up rigs, assignments of intra-group loans, rig insurances and
certain rig earnings and pledges over shares of and related guarantees from certain of our rig-owning subsidiaries who provide this
security as owners of the mortgaged rigs. In connection with our utilization of the first incremental tranche under our Syndicated
Facility in September 2019, the security over one of the rigs, “Ran”, was released and the facility amount was reduced to
$50 million and $50 million was repaid and transferred into the Syndicated Senior Secured Credit Facilities. Our New Bridge
Facility agreement was amended on October 30, 2019, when certain changes were made to the margin. On December 23, 2019
when certain financial covenants were amended, and some changes were made to the security documents in connection with an
internal sale of the shares in a rig owner and again in June 2020 when certain amortization payments due in 2021 were deferred
and financial covenants were further amended as outlined below.
Our New Bridge Facility originally matured in June 2022 and bears interest at a rate of LIBOR plus a variable margin.
Following amendments to the loan agreement and conditions which were fulfilled in January 2021 the lenders agreed to defer the
maturity date to January 2023. In the third quarter of 2019, the security over one of the rigs, “Ran”, was released and its loan of
$50 million was repaid and transferred into the Syndicated Senior Secured Credit Facility as utilization of the “first incremental
tranche” in the facility. As of December 31, 2020, $20 million remained undrawn under our New Bridge Facility, which may only
be drawn with the consent of all of the lenders.
In June, 2020, the lenders agreed to change the dates of certain facility reductions which otherwise would have occurred in
2021 to occur on maturity and to amend the minimum liquidity covenant levels to: $5 million in cash until December 31, 2020;
$10 million in cash from and including January 1, 2021, to and including June 30, 2021; $15 million in cash from and including
July 1, 2021, to and including September 30, 2021; $20 million in cash from and including October 1, 2021 to and including
December 31, 2021; and free liquidity including cash and undrawn revolving credit facilities of the higher of (i) $30 million and
(ii) 3% of the aggregate of net interest bearing debt and ring fenced liquidity on or after January 1, 2022.
Our New Bridge Facility agreement also contains a loan to value clause requiring that the 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
agreement also contains various covenants, including, among others, restrictions on incurring additional indebtedness and entering
into joint ventures; covenants requiring the approval of our lenders prior to the distribution of any dividends; and restrictions on
the repurchase of our shares and restrictions on changing the general nature of our business. Furthermore, a change of control
event occurs if Mr. Tor Olav Trøim is ceases to serve on our Board or Mr. Tor Olav Trøim ceases to maintain ownership of at
least six million shares (subject to adjustment for certain transactions). Our New Bridge Facility agreement also contains
customary 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 New
Bridge Facility agreement or security documents or jeopardize the security provided thereunder. If there is an event of default, the
lenders 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. The lenders may also require replacement or additional security if the market value of the
F-42
jack-up rigs over which security is provided is insufficient to meet our market value-to-loan covenant. In addition, our New
Bridge Facility contains a “Most Favored Nation” clause giving the lenders a right to amend the financial covenants to reflect any
more lender-favorable covenants in any other agreement pursuant to which loan or guarantee facilities are provided to us,
including amendments to our Financing Arrangements. On December 30, 2020, the Company received waivers for certain
covenants which were applicable both as at December 31, 2020 and up to the finalization of the 2021 Amendments (see note 32.
As part of the amendments agreed in January 2021 (see note 32), the threshold of the minimum value to loan covenant was
lowered from 175% to 140%% in the New Bridge Facility. Following these amendments being formalized in January 2021, the
Company was in compliance with the requirements of the amended value to loan covenant.
As of December 31, 2020, “Odin” was pledged as collateral for the New Bridge Revolving Credit Facility. Total book value
of the encumbered rig was $92.7 million as of December 31, 2020. The terms of the New Bridge Revolving Credit Facility were
subsequently amended (see note 32).
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 $33.4815 per share, for a total of 10,453,612 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 potential effects of a conversion (see note 19).
As of December 31, 2020, we were in compliance with the covenants and our obligations under our convertible bonds.
Our Delivery Financing Arrangements
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 all nine of the PPL Rigs as of December 31, 2020. 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, with the borrower being either a rig owner
in which case its obligations are guaranteed by the Company, or the borrower being the Company, with the rig owner as guarantor
and provider of security in its assets. Each seller’s credit originally matured on the date falling 60 months from the delivery date
of the respective PPL Rig (later amended in the January 2021 amendments). The PPL Financing bears interest at 3-month USD
LIBOR plus a variable marginal rate. Interest accrues and is payable quarterly in arrears.
The PPL Financing is cross-collateralized and 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. In June 2020, a substantial amount of cash payments of interest was suspended in relation to these rigs
for the period from the first quarter of 2020 to the fourth quarter of 2021, and accrued interest becomes payable in the first quarter
of 2022, except for $1 million payable per quarter starting in the first quarter of 2020. Accrued, unpaid interest will be guaranteed
by Borr IHC Limited, an intermediate holding company which was incorporated on June 29, 2020. Borr IHC Limited is a
subsidiary of the Company and has acquired the shares in the Company’s other subsidiaries with the exception of Borr Jack-Up
XVI. The security for the PPL Financing also includes share security over the owners of the rigs which were delivered by PPL
with finance under the PPL Financing agreements.
As of December 31, 2020, we had $753.3 million of principal debt (2019: $753.3 million) of PPL Financing outstanding and
were in compliance with the covenants and our obligations under the PPL Financing agreements.
As of December 31, 2020, Galar, Gerd, Gersemi, Grid, Gunnlod, Groa, Gyme, Natt and Njord were pledged as collateral for
the PPL financing. Total book value for the encumbered rigs was $1,296.3 million as of December 31, 2020. The terms of the
PPL Newbuild Financing were subsequently amended (see note 32).
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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 H-Rigs”). As of December 31, 2020, two Keppel H-Rigs ("Huldra" and "Heidrun") remain to be
delivered. In connection with delivery of the Keppel H-Rigs, Keppel has agreed to extend delivery financing for a portion of the
purchase price equal to $90.9 million for the three delivered jack-up rigs and $77.7 million each for the two undelivered rigs
"Huldra" and "Heidrun" (together to be referred to as the "H-Rig Financing"). Separately from the H-Rigs Financing described
below, we may exercise an option to accept delivery financing from Keppel with respect to two ("Vale" and "Var") of the three
additional newbuild jack-up rigs, acquired in connection with the Transocean Transaction (see note 32). We will, prior to delivery
of each jack-up rig from Keppel, consider available alternatives to such financing.
In June 2020, we agreed to defer the delivery of two of the Keppel Rigs to the third quarter of 2022 and three of the newbuild
jack-up rigs acquired in connection with the Transocean Transaction to 30 June 2022 (“Tivar”) and the third quarter of 2022
(“Vale” and “Var”). We have agreed to pay certain holding and other costs for each of the five rigs in respect of the period from
the original delivery dates to the revised delivery date.
Payments of such costs fall due in quarterly installments from the first quarter of 2021 until delivery. In January 2021, we
have agreed with Keppel to further postpone the deliveries to May ("Tivar"), July ("Vale"), and September ("Var"), October
("Huldra") and December ("Heidrun) 2023.
The H-Rig 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 rig and matures on the date
falling 60 months from the delivery date of each respective Keppel Rig (later amended in the January 2021 amendments).
The H-Rig 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 H-Rig
Financing agreements also contain a loan to value clause requiring that the 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, 2020, we had $259.2 million (2019: $86.4 million) in Keppel principal Financing outstanding and were
in compliance with our covenants and obligations under the Keppel Financing agreements.
As of December 31, 2020, Hermod, Hild and Heimdal were pledged as collateral for the Keppel financing. Total book value
for the encumbered rigs was $451.4 million as of December 31, 2020. The terms of the Keppel Newbuild Financing were
subsequently amended, see note 32.
Interest
The average interest rate for all our interest-bearing debt was 4.93% for the year ended December 31, 2020 (2019: 6.17%).
As of December 31, 2020, payment of $41.1 million of interest expenses and cost cover are extended and will fall due after 12
months as a result of modifications made to our debt agreements throughout 2020.
F-44
Note 23 - Onerous contracts
Onerous contracts are comprised of the following:
(In $ millions)
Onerous rig contract Hull B366 (TBN "Tivar")
Onerous rig contract Hull B367 (TBN "Vale")
Onerous rig contract Hull B368 (TBN "Var")
Total onerous contracts
As of December 31,
2019
2020
16.8
26.9
27.6
71.3
16.8
26.9
27.6
71.3
Onerous contracts for Hull relate to the estimated excess of remaining shipyard installments to be made to Keppel FELS over
the value in use estimate for the jack-up drilling rigs to be delivered.
As a result of amended agreements with Keppel FELS in June 2020, $71.3 million of the onerous rig contract balances
classified as short term as of December 31, 2019 are now reclassified to non-current. "Tivar" was expected to be delivered in the
second quarter of 2022 and "Vale" and "Var in the third quarter of 2022. In January 2021, we amended the delivery contracts with
Keppel FELS, deferring delivery of "Tivar" to the second quarter of 2023 and "Vale" and "Var" to the third quarter of 2023 (see
note 32).
Note 24 - Commitments and contingencies
The Company has the following delivery installment commitments:
(in $ millions)
As at December 31, 2020
Back-end
Delivery
fee
instalment
As at December 31, 2019
Back-end
Delivery
fee
instalment
Delivery installments for jack-up drilling rigs
621.0
9.0
793.8
18.0
The back-end fee is only payable and will be included as part of the cost price if we choose to accept delivery financing from
Keppel as described above in note 22. 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 22).
The following table sets for maturity of our delivery installment commitments as of December 31, 2020
(In $ millions)
Less than 1
year
1–3 years
3–5 years
More than 5
years
Total
Delivery instalments for jack-up rigs
—
621.0
—
—
621.0
Back-end fee is excluded from the maturity table above as it is only payable if we chose to accept the available delivery
financing from Keppel
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 Company has the following guarantee commitments:
F-45
(In $ millions)
Surety bonds, bank guarantees and performance bonds
Performance guarantee to Opex (note 3)
Total
As of December 31,
2019
2020
43.3
5.9
49.2
70.1
5.9
76.0
As of December 31, 2020, these obligations stated in $ equivalent and their expiry dates are as follows:
(In $ millions)
Surety bonds, bank guarantees and performance bonds
Performance guarantee to OPEX (note 3)
Total
Assets pledged as collateral
2021
2022
Total
21.8
5.9
27.7
21.5
—
21.5
43.3
5.9
49.2
(In $ millions)
Book value of jackup rigs pledged as collateral for long-term debt facilities
As of December 31,
2019
2020
2,822.3
2,586.5
Note 25 - Non-controlling interest
Non-controlling interest consisted of a 10% ownership interest in Borr Jack-Up XVI Inc. acquired in late 2017 by Valiant
Offshore Contractors Limited. The Company reacquired the ownership interest of 10% for nil consideration in 2020.
Note 26 - Share based compensation
Share-based payment charges for the year ended:
(In $ millions)
Share-based payment charge
Total shared based compensation
For the Years Ended December 31,
2018
2020
2019
0.7
0.7
3.9
3.9
3.7
3.7
We have adopted a long-term Share Option Scheme ("Borr Scheme"). The Borr Scheme permits the board of directors, at its
discretion, to grant options and to acquire shares in the Company to employees, non-employees and directors of the Company or
its subsidiaries. Options granted under the scheme will vest at a date determined by the board at the date of the grant. The options
granted under the plan to date have five year terms and vest equally over a period of three to four years. The total number of
shares authorized by the Board to be issued under the scheme is 3,494,000.
On June 21, 2019 the Board of Directors approved a 5-to-1 reverse share split of the Company’s shares. Upon effectiveness
of the Reverse Split, every five shares of the Company’s issued and outstanding ordinary shares, par value $0.01 per share was
combined into one issued and outstanding ordinary share, par value $0.05 per share. All grants and strike prices below are
adjusted to reflect the Reverse Split.
Month, number, strike price and share price at date of grant of share options issued during 2019 is as follows:
F-46
Month of grant
March
No of share
options
issued
460,000
Exercise
price
$17.50
Share price
on date of
grant
$14.20
Month, number, strike price and share price at date of grant of share options issued during 2018 is as follows:
Month of grant
January
April
July
September
October
No of share
options
issued
10,000
30,000
1,564,000
20,000
40,000
Exercise
price
$20.00
$21.00
$24.35
$22.95
$22.75
Share price
on date of
grant
$21.75
$22.85
$22.95
$22.80
$22.85
The fair values of the consolidated options issued in 2019 and 2018 were calculated at $1.7 million and $9.9 million,
respectively, and will be charged to the Consolidated Statement of Operations as general and administrative expenses over the
vesting period. No options were granted in 2020.
The fair value of equity settled options are measured at grant date using the Black Scholes option pricing model using the
following input:
Expected future volatility
Expected dividend rate
Risk-free rate
Expected life after vesting
2019
2018
30%
32%
—%
—%
2% 2.1% to 2.9%
2 years
2 years
The 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.
The table below sets forth the number of share options granted and weighted average exercise price during the years ended
December 31, 2020, 2019 and 2018:
2020
2019
2018
Outstanding at January 1
Granted during the year
Forfeited during the year
Outstanding at December 31
Exercisable at December 31
Number
2,357,500
—
(587,500)
1,770,000
1,144,000
Weighted
Average
Exercise
Price
(in $)
20.92
—
20.89
20.93
20.27
Weighted
Average
Exercise
Price
(in $)
22.00
17.50
22.34
20.92
20.04
Number
2,615,000
460,000
(717,500)
2,357,500
810,999
Weighted
Average
Exercise
Price
(in $)
18.00
24.00
18.00
22.00
18.00
Number
1,711,000
1,664,000
(760,000)
2,615,000
333,666
Weighted average remaining life for the vested options at December 31, 2020, 2019 and 2018 were 2.01 years, 2.86 years
and 3.50 years respectively.
F-47
Note 27 - 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
Trade receivables
Tax retentions receivable
Other current assets (excluding deferred costs)
Due from related parties
Forward contracts (note 19)
Liabilities
Long-term debt
Trade payables
Accruals and other current liabilities
Forward contracts (see note 19)
Guarantees issued to equity method investments
(see note 3)
As of December 31, 2020
As of December 31, 2019
Hierarchy
Fair value
Carrying
value
Fair value
Carrying
value
1
1
1
1
1
1
2
2
1
1
2
3
19.2
—
22.9
10.5
14.9
34.9
—
19.2
—
22.9
10.5
14.9
34.9
—
59.1
69.4
40.2
11.6
22.7
8.6
27.9
59.1
69.4
40.2
11.6
22.7
8.6
27.9
1,609.8
20.4
75.6
—
1,906.2
20.4
75.6
—
1,624.0
14.1
99.6
92.2
1,709.8
14.1
99.6
92.2
5.9
5.9
5.9
5.9
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 sheets as of December 31, 2020 and December
31, 2019. Included in “Level 1” are cash and cash equivalents, restricted cash, trade receivables, other current assets (excluding
prepayments and deferred costs), trade payables, accruals and other current liabilities. The carrying value of any accounts
receivable and payables approximates fair value due to the short time to expected payment or receipt of cash.
Included in “Level 3” is guarantees issued to equity method investments. The guarantee has been valued utilizing the inferred
debt market method and subsequently mapped to an alpha category credit score, adjusting for country risk and default probability
(see note 3).
Assets Measured at Fair Value on a Non-Recurring Basis
At June 30, 2020, the Company measured two of their cold stacked rigs "Atla" and "Balder" at fair value of $5.0 million
each, which was determined using level 3 inputs based on a combination of an income approach, using projected discounted cash
flows an estimated sale or scrap value which require significant judgements. The "Atla" was sold in November 2020 and the
"Balder" was classified as held for sale at the year end (see note 13) and sold in February 2021 (see note 32).
Note 28 - Related party transactions
a) Transactions with entities over which we have significant influence
Since 2019, we have provided three rigs on a bareboat basis for Perfomex to service its contract with Opex and two rigs on a
bareboat basis for Perfomex II to service its contract with Akal. All the companies are 49% owned joint venture companies.
Perfomex and Perfomex II provide the jack-up rigs under traditional dayrate drilling and technical service agreements to Opex
and Akal. This structure enables Opex and Akal to provide bundled integrated well services to PEMEX. The potential revenue
earned is fixed under each of the PEMEX contracts, while Opex and Akal manage the drilling services and related costs on a per
well basis. The revenue from these contracts can be found within the Related party revenue line in our Consolidated Statement of
Operations. We are also obligated, as a 49% shareholder, to fund any capital shortfall in Opex or Akal where the Board of Opex
or Akal make a cash call to the shareholders under the provisions of the Shareholder Agreements. See Note 3 'Equity Method
Investments'.
F-48
A summary of leasing revenues earned and management services agreement revenues reported as 'related party revenue' earned
for the year ended December 31, 2020 and for the five month period from the date of incorporation to December 31, 2019 is as
follows:
(In $ millions)
Management Services Agreement
Perfomex
Perfomex II
Opex
Akal
Bareboat Revenue
Perfomex
Perfomex II
Total
2020
2019
10.9
7.5
1.1
—
17.5
5.3
42.3
2.6
0.2
1.3
—
2.4
—
6.5
Funding provided to Mexican Joint Ventures for the year ended December 31, 2020 and for the five month period from the date
of incorporation to December 31, 2019:
(In $ millions)
Funding provided
Perfomex
Perfomex II
Opex
Akal
Total
2020
2019
10.8
9.4
3.6
1.7
25.5
30.7
—
0.1
—
30.8
Receivables: The balances with the Mexican Joint Ventures as of December 31, 2020 and 2019 consisted of the following:
(In $ millions)
Receivables
Perfomex
Perfomex II
Opex
Akal
Total
As of December 31,
2019
2020
25.9
7.1
1.9
—
34.9
6.5
0.2
1.9
—
8.6
In addition, we have provided a guarantee valued at $5.9 million to support Opex’s operations under the contracts with PEMEX.
F-49
b) Transactions with former Chief Executive Officer and Chief Financial Officer
In May, June and August 2019, our chief executive officer and chief financial officer at the time received advance payments
in aggregate amount of approximately $500,000 each to be offset against future bonuses. Such advances were not approved by our
compensation committee or board of directors. Section 13(k) of the U.S. Exchange Act of 1934 (the “Exchange Act”), which
applies to the Company since its initial public offering in the United States in July 2019, prohibits personal loans to a director or
executive officer of a company with shares registered under the Exchange Act. Following disclosure of such advances to our
board of directors, and determination that such advances constituted an inadvertent violation of Section 13(k) of the Exchange
Act, the advances were repaid in full and/or deemed repaid with the advances offset against amounts otherwise payable to them.
b) Transactions with Other related parties
Net Expenses: The transactions with other related parties for the years ended December 31, 2020, 2019 and 2018 are as follows:
(In $ millions)
General and administrative expenses
Magni Partners Limited (ii)
Rig operating and maintenance expenses
Schlumberger Limited (iii)
Total
Payables: The balances with other related parties as of December 31,2020 and 2019
(In $ millions)
Schlumberger Limited (iii)
Total
2020
2019
2018
1.0
1.0
—
6.9
7.9
14.6
15.6
As of December 31,
2019
2020
—
—
8.5
8.5
0.4
0.4
(i) Agreements and other Arrangements with Drew Holdings Limited (“Drew”)
Drew is a trust established for the benefit of Tor Olav Trøim, Deputy Chairman of our Board. Drew is, following its merger
with Taran Holdings Limited (“Taran”) in 2017, a large shareholder in us.
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 1,528,065 new shares allocated in tranche 2 of the
equity offering were validly issued and fully paid and the related liabilities settled.
(ii) Agreements and other Arrangements with Magni Partners Limited (“Magni”)
Mr. Tor Olav Trøim is the Deputy 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 and other such services as the Company wishes to engage, at the
Company's option. There is both a fixed and variable element to the agreement, with the fixed cost element representing the
F-50
reimbursement of Magni’s fixed costs, and any variable element being at the Company’s discretion. This agreement was
originally formalized on March 15, 2017, and was superseded by a revised agreement in August 2020.
(iii) Agreements and other Arrangements with Schlumberger Limited (“Schlumberger”)
Schlumberger is one of our larger shareholders, holding 6.9% at December 31, 2020. Until his appointment as our Chief
Executive Officer, Patrick Schorn, formerly Executive Vice President of Wells at Schlumberger Limited, was a Director on our
Board. Following the resignation of Patrick Schorn from Schlumberger on August 31, 2020, Schlumberger ceased to be a related
party. Purchases from Schlumberger were $6.9 million up to August 31, 2020 and $14.6 million during 2019.
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 provides us with a competitive advantage while tendering for such work.
Commercial Arrangements
We have obtained certain rig and other operating supplies from Schlumberger and may continue to obtain such supplies in the
future.
Other
We have entered into arrangements with companies which are related to our former Chief Financial Officer, Rune Magnus
Lundetræ. Charges during 2019 were $0.03 million, of which $nil was outstanding at the end of 2020 and 2019.
Note 29 - 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, 2020, the Company had $8.1 million (December 31, 2019: $117.6 million) in excess of the Norges Bank insured
limit.
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.
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.
F-51
Note 30 - Common shares
On June 21, 2019 the Board of Directors approved a 5-to-1 reverse share split of the Company’s shares. Upon effectiveness
of the Reverse Split, every five shares of the Company’s issued and outstanding ordinary shares, par value $0.01 per share was
combined into one issued and outstanding ordinary share, par value $0.05 per share.
Authorized share capital
(number of shares of $0.05 each)
Authorized shares: Balance at the start of the year
Increases:
September 27, 2019
June 4, 2020
August 10, 2020
November 11, 2020
Authorized shares: Balance at the end of the year
Issued and Outstanding Share Capital
(number of shares of $0.05 each)
Issued : Balance at the start of the year
Shares issued:
August 2, 2019
August 2, 2019
June 5, 2020
October 5, 2020
November 30, 2020
Issued shares: Balance at the end of the year
Treasury Shares
Outstanding shares: Balance at the end of the year
2020
137,500,000
2019
125,000,000
—
46,153,846
40,000,000
15,000,000
238,653,846
12,500,000
—
—
—
137,500,000
2020
112,278,065
2019
106,528,065
—
—
46,153,846
51,886,793
10,000,000
220,318,704
1,459,714
218,858,990
5,000,000
750,000
—
—
—
112,278,065
1,459,714
110,818,351
As at December 31, 2020, our shares were listed on the Oslo Stock Exchange and the New York Stock Exchange. Details of
shares issued for the years ended December 31, 2020 and December 31, 2019 is as follows:
52
Type of Listing
Public Offering
Public Offering
Exchange
New York
New York
Private placement
Private placement
Private placement
Oslo
Oslo
Oslo
Shares issued
Price per
share $
Gross
Proceeds ($
millions)
5,000,000 $
750,000 $
5,750,000
46,153,846 $
51,886,793 $
10,000,000 $
108,040,639
9.30
9.30
0.65
0.53
0.53
46.5
7.0
53.5
30.0
27.5
5.3
62.8
Date of Issue
August 2, 2019
August 2, 2019
Totals for 2019
June 5, 2020
October 5, 2020
November 30, 2020
Totals for 2020
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, 2020, 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 plans were frozen 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, 2020, 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.
As of December 31, 2020, our pension obligations represented an aggregate liability of $184.0 million and an aggregate asset
of $184.0 million, representing the funded status of the plans. In the year ended December 31, 2020, aggregate periodic benefit
costs showed interest cost of $0.9 million and an expected return on plan assets of $0.9 million. Our defined benefit pension plans
are recorded at fair value. (see note 2).
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
Interest cost
Actuarial loss
Benefits paid
Foreign exchange rate changes
Benefit obligation at end of period
As of December 31,
2019
2020
169.0
0.9
21.8
(1.6)
(6.1)
184.0
140.7
1.9
30.4
(1.5)
(2.5)
169.0
F-53
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
Actual return on plan assets
Employer contribution
Benefits paid
Foreign exchange rate changes
Fair value of plan assets at end of period
As of December 31,
2019
2020
169.3
22.7
(0.3)
(1.6)
(6.1)
184.0
141.0
32.3
—
(1.5)
(2.5)
169.3
F-54
The funded status of the plans is as follows:
(In $ millions)
Funded status
Amounts recognized in the Consolidated Balance Sheet consist of:
(In $ millions)
Other assets – noncurrent
Net pension asset
Net amount recognized
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:
As of December 31,
2019
2020
—
0.3
As of December 31,
2019
2020
—
—
—
0.3
0.3
0.3
For the Years Ended
December 31,
2020
2019
0.9
(0.9)
—
1.9
(1.9)
—
As of December 31,
2019
2020
184.0
184.0
184.0
169.0
169.0
169.3
Weighted Average Assumptions Used to Determine Benefit Obligations
2020
2019
As of December 31,
Discount rate
Rate of compensation increase
(0.09)% to (0.14)%
Not applicable
0.54% to 0.42%
Not applicable
Weighted Average Assumptions Used to Determine Net Periodic Benefit
Cost
2020
2019
For the Years Ended December 31,
Discount rate
(0.09)% to (0.14)%
0.54% to 0.42%
Expected long-term return on plan assets
Rate of compensation increase
(0.09)% to (0.14)%
Not applicable
0.54% to 0.42%
Not applicable
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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.
The assets are based on the surrender value of vested benefits within the National Netherlander contract. This value is based
on the projected future cash flows discounted with a (contractually specified) interest rate term structure (spot rates by term). The
single interest equivalent of this interest rate term structure has been set as the expected return on plan assets.
Defined Benefit Plans – Cash Flows
No contributions were made to the plan in 2020 or 2019.
The following table summarizes the benefit payments at December 31, 2020 estimated to be paid within the next ten years by
the issuer of the guaranteed insurance contract:
Total
2021
2022
2023
2024
2025
Five Years
Thereafter
Payments by Period
Estimated benefit
payments
Note 32 - Subsequent events
26.8
1.6
1.8
2.0
2.3
2.6
16.5
At a Special General Meeting on January 11, 2021, shareholders approved the increase of the Company’s authorized share
capital from $11.9 million divided into 238,653,846 common shares of $0.05 par value each to $14.5 million divided into
290,000,000 common shares of $0.05 par value each by authorizing an additional 51,346,154 common shares of $0.05 par value
each.
On January 22, 2021, we conducted a private placement of $46 million by issuing 54,117,647 new depository receipts at a
subscription price of $0.85 per depository receipt. On January 26, 2021, the January equity offering was settled and the
Company's issued share capital was increased by $2.7 million to $13.7 million, divided into 274,436,351 common shares with a
nominal value of $0.05 per common share.
On January 30, 2021 the Company finalized agreements with Keppel, PPL and the lenders under the Hayfin Facility, the New
Bridge Facility and the Syndicated Facility to amend the terms of the PPL Facilities, the Existing Keppel Facilities and the terms
for delivery of the undelivered rigs from Keppel, the Hayfin facility, the New Bridge Facility and the Syndicated Facility. The
amendments are described in (A)-(E) below and will become effective in 2021.
(A) Keppel
(i) Delivery dates for the five undelivered rigs are extended to the following: for the "Tivar", June 2023, for the "Vale", July
2023, for the "Var", September 2023, for the "Huldra", October 2023, and for the "Heidrun", December 2023. (ii) All purchase
price installments, holding costs and cost cover payments in respect of the five undelivered rigs are deferred until 2023, other than
interim payments totaling $6 million in 2021, and $12 million in 2022. (iii) Maturity dates for the loans of the three delivered rigs
are extended by one year. (iv) Interest payment date in respect of the delivered vessels deferred by one year to the fourth
anniversary of each loan. (v) Limitations on certain payments to other creditors other than certain permitted payments. (vi) Rights
to Keppel to terminate newbuilding contracts with no refund or other compensation to the rig owner(s) if it receives an offer form
a third party, unless Borr purchases the rigs at the contract price within a certain time period.
(B) PPL
(i) Date for repayment of Seller's Credit on the rigs are amended to May 2023. (ii) All interest on the Seller's Credit for the
rigs is deferred until March 2023 and capitalized other than $6 million of interim payments due in 2021 and $12 million of interim
payments due in 2022. (iii) Capitalized interest guaranteed by Borr IHC Limited. (iv) Requirement to provide additional security
if value of any rig falls below $70 million in 2021, $75 million in 2022 or $80 million thereafter. (v) Minimum liquidity
covenants to match the levels in the $450 million Syndicated Senior Secured Credit Facilities. (vi) Purchase option in respect of
the “Gyme” in order to repay the secured debt on the relevant rig, with the right for the company to repay/refinance loan and
retain rig within a certain time period. (vii) Limitations on certain payments to other creditors other than certain permitted
payments. (viii) Certain other undertakings and covenants amended.
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(C) Hayfin
(i) The maturity date for the loans is extended to the first quarter of 2023. (ii) The requirement to replenish the restricted cash
in the minimum liquidity accounts is extended until 1 October 2021. (iii) The value to loan covenant ratio is reduced from 175%
to 140%. (iv) Limitations on certain payments to other creditors other than certain permitted payments. (v) Purchase option for the
benefit of Hayfin in respect of the “Thor” and “Skald” unless the rigs are activated, in order to repay the secured debt on the
relevant rig, with the right for the company to repay/refinance loan and retain rig within a certain time period. (vi) Certain other
undertakings and covenants amended.
(D) Syndicated Senior Secured Credit Facilities
(i) All amortizations and facility reductions including final maturity pushed out to January 2023. (ii) Certain interest
payments due in 2020 deferred by one year into 2021. (iii) Minimum liquidity requirements reduced to the following: Company
to maintain minimum liquidity of at least $5 million in cash during 2021, to be increased to $10 million from year end 2021 and
further to $15 million from end of second quarter of 2022. (iv) Minimum book equity ratio level reduced, and to be equal to at
least 25% in 2021, 30% in 2022 and 35% from 2023. (v) Debt service cover ratio covenant to be waived until final maturity. (vi)
Minimum value to loan covenant level reduced from 175% to 140%. (vii) Certain other covenants amended.
(E) New Bridge Revolving Credit Facility
(i) All principal maturities and facility reductions including final maturity pushed out to January 2023. (ii) Certain interest
payments due in 2020 deferred by one year into 2021. (iii) Minimum liquidity requirements reduced to the following: Company to
maintain minimum liquidity of at least $5 million in cash during 2021, to be stepped up to $10 million from year end 2021 and
further to $15 million from end of second quarter 2022. (iv) Minimum book equity ratio level reduced, and to be at all times equal
to at least 25%. (v) Debt service cover ratio covenant to be waived until final maturity. (vi) Minimum value to loan covenant level
reduced from 175% to 140%. (vii) Certain other covenants amended.
Following our equity offering which closed on January 26, 2021 and in accordance with the loan agreement for the
Company's $350 million 3.875% Senior Unsecured convertible bonds, an adjustment to the conversion price from $32.7743 to
$31.7946 per depository receipt listed on the Oslo Stock Exchange was triggered.
On November 2, 2020, the Company entered into an agreement to sell its cold stacked jack-up rig "Balder" to BW Energy.
The completion of the sale took place in February 2021, and the Company has received a total of $4.5 million in sale proceeds.
On March 18, 2021, the Company issued a total amount of 550,263 treasury shares to Directors relating to 2020
compensation. After issuance of these shares the Company's issued share capital was 274,436,351 common shares, the Company
owned 909,451 treasury shares and the Company's outstanding share capital was 273,526,900 shares of nominal value of $0.05
per common share.
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