Borr Drilling (BORR) Q2 2025: Active Rig Count Jumps 38%, Setting Up Coverage Surge
Borr Drilling’s Q2 activity ramp signals an operational inflection, as active rigs leap from 16 to 22, driving a renewed push for 2025-2026 contract coverage. Management’s decision to suspend the dividend underscores a pivot to balance sheet fortification amid macro volatility and customer payment risk. The company’s operational execution, especially in Mexico, and its ability to secure premium day rates, will be critical levers as the jack-up market navigates mixed signals from global energy demand and OPEC+ actions.
Summary
- Activity Resurgence: Rig redeployments and new contracts propel fleet utilization, with 22 of 24 rigs now active.
- Coverage Expansion: Commercial focus shifts to 2026 as backlog and day rate quality remain central to strategy.
- Capital Discipline: Dividend suspension signals management’s cautious stance on liquidity and macro risk management.
Performance Analysis
Borr Drilling’s first quarter was marked by a sharp contraction in revenue and profitability, with total operating revenue falling $46.5 million sequentially, driven by temporary rig suspensions and contract transitions. Only 16 of the company’s 24 jack-up rigs, specialized shallow water drilling platforms, were active on average during the quarter, compressing day rate and variable charter revenues. Notably, technical and economic utilization remained above 97%, underscoring operational efficiency even amid idling.
On the cost side, operating expenses fell $5.1 million quarter over quarter, primarily reflecting lower rig activity, though stacking costs for suspended rigs in Mexico and Arabia offset some of these savings. Liquidity improved materially as Borr collected $120 million in overdue Mexican receivables and $10 million in mobilization fees, boosting the cash position to $170 million and total available liquidity to $320 million. Subsequent to quarter end, an additional $35 million in mobilization fees further strengthened the balance sheet. The net result was a $16.9 million net loss for the quarter, reflecting the earnings drag from underutilization and contract transitions.
- Revenue Drag from Suspensions: Temporary idling of rigs in Mexico and the Middle East drove most of the revenue decline.
- Utilization Outperformance: Technical utilization at 99.2% and economic utilization at 97.9% demonstrate operational reliability.
- Cash Collection Turnaround: Receivables inflows from Mexico and mobilization fees provided a critical liquidity boost, reducing immediate funding risk.
With three Mexican rigs and two new contracts coming online in Q2, Borr’s active fleet has surged to 22 rigs, setting up a stronger financial trajectory for the second half of the year.
Executive Commentary
"Our first quarter results were largely as expected, reflecting the impact of temporary rig suspensions and preparatory work for upcoming contracts... our operating rig count has now increased to 22, laying the foundation for stronger financial performance in the quarters ahead."
Patrick Schorn, CEO
"Our free cash position at the end of Q1 was 170 million... Net cash from operating activities was $138.7 million, which included approximately $120 million in outstanding receivables from customers in Mexico and $10 million in mobilization fees received for the valley."
Magnus Fahler, CFO
Strategic Positioning
1. Commercial Coverage and Backlog Quality
Borr’s contract coverage for 2025 now stands at 79% with an average day rate of $147,000, reflecting a disciplined focus on backlog quality and premium rig deployment. Management aims to push coverage to the 80%–85% range in the coming months, with three rigs representing the gap. 2026 coverage has already climbed to 35%, up 12 points since the last update, as advanced negotiations and customer extensions progress.
2. Mexico as a Strategic Anchor
Mexico remains a core market, both as a source of revenue and as a test of Borr’s operational reputation. The resumption of three previously suspended rigs and new private investment projects have restored the company’s full Mexican fleet to operation, directly supporting Pemex’s production goals. Management expects Mexico to represent a significant portion of available rig days in 2026 and beyond, with contract renewal discussions underway and a history of cost-efficient well delivery strengthening Borr’s negotiating hand.
3. Market Dynamics and Asset Positioning
The global jack-up market remains tight for modern rigs, with utilization around 90% even after adjusting for Aramco suspensions. Customer preference for high-specification rigs, those with advanced technical features, is driving a bifurcation in contracting opportunities, with older rigs seeing increased retirements and limited new builds in the pipeline. Borr’s modern fleet and incumbent status position it well to capture future demand, especially as shallow water brownfield projects, lower-risk field upgrades, remain resilient even amid commodity price volatility.
4. Capital Allocation Shift
The board’s decision to suspend the dividend reflects a strategic pivot toward liquidity preservation and balance sheet reinforcement, in response to macro uncertainty and episodic customer payment delays. Management emphasized that all capital allocation options—including debt reduction and potential share buybacks—remain on the table, but will be evaluated with a focus on long-term value creation and risk management.
5. Cost Flexibility and Stacking Strategy
Borr’s approach to rig stacking—keeping rigs “warm” and ready for redeployment at moderate daily costs— provides cost flexibility and allows for rapid response to market opportunities. Stacking costs for most rigs are in the mid $20,000s per day, with newbuilds like VAR even lower. This operational discipline supports margin protection during periods of idle time and enhances Borr’s ability to quickly capitalize on contract wins.
Key Considerations
This quarter underscores Borr’s transition from a period of underutilization to renewed fleet activity and strategic backlog building. The company’s ability to convert operational momentum into sustainable earnings growth hinges on several interrelated factors:
Key Considerations:
- Contract Renewal Leverage in Mexico: Borr’s performance track record positions it favorably for upcoming Pemex extensions, but political and payment risks remain.
- Day Rate Discipline vs. Coverage Maximization: Management is balancing the push for premium rates on high-spec rigs with the need to secure utilization as competitive intensity persists.
- Customer Payment Reliability: The recent improvement in Mexican receivables is positive, but ongoing vigilance is needed, as delays have historically impacted liquidity.
- Dividend and Buyback Optionality: The suspension of the dividend signals caution, but management keeps all capital allocation levers open, providing flexibility as conditions evolve.
- Cost Control During Idle Periods: Efficient stacking and rapid redeployment are critical to protecting margins and cash flow during market lulls.
Risks
Macro volatility—particularly from OPEC+ production decisions, oil price swings, and trade policy shifts—remains a material risk to rig demand and contract stability. Customer payment delays, especially in Mexico, could reemerge and strain liquidity despite recent improvements. Competitive pressure may force trade-offs between day rate quality and utilization, potentially impacting margin structure. While Borr’s backlog is largely protected by termination-for-convenience clauses with payout provisions, sudden commodity price shocks or regulatory changes could still trigger contract renegotiations or delays.
Forward Outlook
For Q2 and the remainder of 2025, Borr Drilling expects:
- Operating rig count to remain at 22, supporting higher revenue and EBITDA run rates.
- Contract coverage to rise toward 80%–85% for 2025, with incremental backlog targeted at premium day rates.
For full-year 2025, management reaffirmed comfort with Bloomberg consensus adjusted EBITDA of approximately $460 million, but withheld formal guidance due to market uncertainty. Management cited:
- Ongoing commercial efforts to build 2026 coverage, now at 35% and rising.
- Continued focus on liquidity, with all capital allocation options under review as the macro environment evolves.
Takeaways
Borr Drilling’s operational rebound and backlog expansion mark a strategic inflection, but execution risks and macro headwinds require vigilance.
- Fleet Utilization Surge: The redeployment of six rigs since Q1 signals a return to full activity and positions Borr for margin recovery, provided customer payments remain timely.
- Commercial Momentum in Key Markets: Strong contract wins and extensions in Mexico and Asia reinforce Borr’s premium fleet positioning, but sustaining day rate discipline will be tested as competition intensifies.
- Balance Sheet Focus: The move to suspend the dividend and prioritize liquidity reflects prudent risk management, but also highlights the sector’s ongoing sensitivity to external shocks and payment cycles.
Conclusion
Borr Drilling enters the back half of 2025 with a revitalized operating base and a backlog-building agenda, but must navigate persistent macro uncertainty and customer reliability challenges. The company’s capital discipline and operational execution will be decisive as it seeks to convert improved utilization into durable earnings and long-term shareholder value.
Industry Read-Through
Borr’s Q2 results highlight a broader trend in the offshore drilling sector: modern, high-specification jack-up rigs are capturing the bulk of new contracts and extensions, while legacy assets face accelerated retirement. The ability to secure premium day rates and maintain high utilization is increasingly tied to operational reputation and customer relationships, especially in markets like Mexico and Southeast Asia. Liquidity management and capital allocation discipline are front and center as operators weigh dividend payouts against balance sheet fortification. Investors should watch for further signs of contract discipline, payment reliability, and the impact of OPEC+ decisions on shallow water drilling demand across the sector.