Borr Drilling and Pemex making changes to rig JVs
Offshore drilling contractor Borr Drilling has made changes to the structure of its joint ventures in Mexico by exiting the integrated services JVs and becoming a majority owner in the drilling services JVs, which will continue to earn day rates, providing the company with sufficient liquidity.
Borr Drilling has five rigs working for joint ventures which are jointly owned with its Mexican partner, providing integrated well services for Pemex. The services started in May 2019 and have provided Pemex with an incremental production of approximately 125,000 barrels of oil per day from 21 wells drilled so far.
Borr entered a new business in Mexico in 2019 by participating in four joint ventures (JVs) with a 49 per cent ownership. The rigs operating in Mexico under the JVs include Grid, Gersemi, Odin, Galar, and Njord.
Two of the JVs provide Integrated Well Services (IWS) and the other two Joint Ventures provide contract drilling services to the IWS business on fixed day rates. IWS in turn provides integrated well services to Pemex.
As previously reported, Borr had been in a challenging financial situation in 4Q amid a difficult market environment combined with payment delays for its rigs working for Pemex. The rig owner has been working with the Mexican operator since then to resolve a slowdown in payments for the rigs.
In May 2021, Pemex awarded an incremental work scope to the five Borr rigs with an end date for all rigs being in December 2022.
In an update on Tuesday Borr said that the integrated well services joint ventures have received a request for extension of this program, which in turn is expected to employ the five Borr Drilling rigs until the end of 2022.
In connection with this extension, Borr and its Mexican partner have entered into a Memorandum of Understanding (MoU) to make certain changes in the structures of the joint ventures, where its Mexican partner will buy Borr Drilling’s 49 per cent stake of the integrated services JVs Opex and Akal (the IWS JVs).
The transaction is expected to free up a gross amount of $28 million for Borr Drilling, representing historic profits in the IWS JVs and some settlements of other payables, which is incremental to the day rate earnings resulting from the provision of drilling services.
Simultaneously, Borr Drilling will acquire an incremental 2 per cent stake of the joint ventures performing drilling services (the Drilling JVs) from the Mexican partner, and by that hold a 51 per cent majority ownership position. The Drilling JVs will continue to earn day rates from its main customers Opex and Akal through regular drilling contracts.
As explained by Borr, this will streamline the company’s Mexican operation, reduce risk, and over time lead to a more stable cash-flow. The company expects to close the transaction within the third quarter of 2021.
As of the end of 1Q 2021, Borr Drilling reported a receivable balance of $30.3 million from its related parties, mainly representing bareboat revenue and other earnings due from the Drilling JVs. In addition, the Drilling JVs have a positive working capital balance and retained profits attributable to Borr Drilling. The $28 million gross settlement for the transaction is in addition to this amount.
The cash generated by the company’s 13 operating rigs is expected to cover the finance, stacking, and G&A cash cost for the third quarter 2021.
Additionally, with improved regularity in payments from Pemex, continued operation of Borr Drilling’s rigs in Mexico until 2022, the proceeds from the sale of the IWS JVs, and overall activity for the company in excess of 13 rigs should provide the company with sufficient liquidity runway until the current debt maturities in 2023.
The company is also optimistic about re-activations of additional warm stacked rigs due to improved market conditions.