(Idea) Borr Drilling

By: Jon Costello

Borr Drilling (BORR) owns a fleet of 24 jackup rigs. Jackups rest on the seabed and operate in shallow water at depths up to 500 feet. Jackups are smaller, less capital-intensive, and less costly to build and activate than deepwater vessels.

Borr’s fleet is high-quality, featuring younger, more technologically advanced vessels. As such, its jackups command premium dayrates relative to older vessels.

Borr’s Bull Thesis

The Borr bull thesis starts with the fact that jackups are the least discretionary drilling rigs used by large oil companies for offshore drilling. Their demand is therefore more stable.

Projects using larger rigs, such as platform rigs, submersible, semisubmersible, and floating rigs, are larger, costlier, more logistically complex, and involve greater risks. They also require time commitments stretching multiple years. As such, projects using larger rigs are more likely to be postponed or cancelled if the oil market outlook deteriorates. Their markets tend to be more heavily cyclical as a result.

By contrast, jackups’ lower cost renders their contracts less sensitive to the long-term oil market outlook. The projects for which they’re used feature a relatively short cycle between initial investment, first oil production, and cash flow. Short-cycle projects can last anywhere from months to multiple years.

Another attribute that makes jackups less discretionary than larger rigs is that jackups are used for more routine drilling functions in all oil-price regimes. They’re needed for maintenance and infill drilling in shallow-water projects, so they’re more insulated from oil price volatility and the oil market outlook than deepwater rigs.

Jackups are heavily used by national oil companies that prioritize energy security and domestically sourced production. These companies’ capex plans tend to be less sensitive to oil price swings. As a result, jackups will continue to operate even when a deteriorating oil price outlook causes international oil companies to postpone offshore projects that require larger rigs.

Jackups tend to be employed in more mature basins in places like the Gulf of America, the Arabian Gulf, and the North Sea and Norwegian continental shelf areas. These projects have been developed over decades. Their geology is well known, so they tend to be less complicated than new deepwater projects.

Lastly, jackups don’t require a long-term outlook for higher oil prices to see their demand increase in a sustainable manner. By contrast, many deepwater projects require relatively high oil prices to be economically viable. Demand for deepwater rigs responds more strongly than jackups to a long-term outlook for higher oil prices.