Borr Drilling Expects Demand for Modern Jack-Up Rigs to Grow


Offshore drilling company Borr Drilling expects growth in demand for modern jack-up drilling rigs, supported by higher oil prices coupled with the need to drill more to counter declines caused by years of underinvestment in the oil and gas industry.

“Oil price has recovered strongly, and the response from US shale has so far been muted. The fact that spot oil prices have moved from the $40/bbl to the $60/bbl, coupled with forward prices now being back at pre-COVID levels is likely to trigger significant demand for incremental jack-up drilling rigs."

Break-evens for shallow-water drilling are generally in the region $20-$40/bbl, the contractor says.

"Years of underinvestment in the oil & gas industry means a catch-up is needed to counter declines, which is likely to occur by several of the NOCs taking back market share, which in turn is benefiting the jack-up drilling demand. NOCs account for ~80% of jack-up demand," Borr Drilling said.

Oslo listed Borr Drilling currently owns 23 “modern” jack-up rigs, out of which 11 rigs are currently active. Five rigs are under construction at Keppel FELS, scheduled for delivery during 2023, after which the fleet will consist of 28 modern rigs all built after 2010.

The company also expects that the jack-up rig supply will drop as older jack-up rigs that go out of contracts and find themselves without employment prospects get retired.

“Several years of downturn in the industry have resulted in a large part of the fleet becoming obsolete. More than 100 rigs are identified as possible scrapping candidates, giving a real supply of below 400 units. This compares to current demand at 340 units and peak demand of 454 units,” Borr Drilling said.

It further said: “A total of 21 rigs were retired in 2020, which brings the total number of rigs retired since 2017 to 111 (20 Modern and 91 Legacy), according to Fearnley Offshore. A further 12 units are confirmed to be retired in the near future, predominantly by international contractors who prefer to retire the older rigs when they come off contract versus 5 stacking them.

“As of February 2021, there are 53 rigs more than 30 years old which are uncontracted. The company maintains its view that a significant number of these will become commercially and technically uncompetitive in the coming years.”

Borr Drilling, which late last year struck a deal with creditors on debt payment delays for liquidity improvement "amounting to $925 million over the next two years," recorded a $46.7 million net loss in the fourth quarter of 2020, with total operating revenues of $60,2 million.

Borr Drilling CEO, Patrick Schorn said: "The fourth quarter financials were impacted by the lower activity at the start of the quarter, and higher expenses related to the COVID pandemic (approximately $6 million for the quarter). However, the activity since the third quarter is increasing, with three previously idle rigs having started new contracts in the fourth quarter, and three more expected to commence operations in the first half of 2021."

According to the 4Q report, Borr Drilling has been awarded eight new contracts/LOAs/LOIs or contract extensions since the start of the fourth quarter 2020 to date. 

Providing some color on the contracting opportunities, Borr Drilling said: ”Borr Drilling’s current visibility in tender and direct negotiations stands at 19. This is up significantly from the levels seen during 2020 and is approaching the late 2019 levels."

The company hopes to benefit from the fact that it has a young fleet, and has again hinted at the need for the industry to further consolidate.

"Borr Drilling has the youngest and most capable jack-up drilling fleet in the industry today – giving us the ability to be a major player in the industry going forward either stand-alone or involved in potential future industry consolidation," the company said.

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