Borr Drilling Limited (BORR) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Borr Drilling Limited Q2 2026 Results Presentation Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Bruno Morand, CEO. Please go ahead.

Good morning, and thank you for participating in Borr Drilling's second quarter earnings call. I'm Bruno Morand, and with me here today is Magnus Vaaler, our Chief Financial Officer. Before we begin, I would like to remind all participants that certain statements made on this call are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those projected in these statements. For further details, I please refer you to our latest public filings. Before I begin, I'd like to recognize our teams around the world for their commitment to safety and reliable operations. During the quarter, several rigs achieved multiple safety milestones across the fleet. The Groa and Gersemi each reached 7 years LTI-free, while the Ran and Skald achieved 6 and 5 years LTI-free, respectively. Additionally, rig Hild, Galar, Natt, Arabia III and Grid also achieved multiyear LTI and recordable free milestones. I would like to thank our employees for their commitment to safety as well as our customers and stakeholders who partner with us in fostering a culture where safety remains our highest priority. Our operational performance in the second quarter of 2026 resulted in technical utilization of 98.4% and economic utilization of 96.4%. Revenues for the period were negatively affected by the decline in average number of rigs operating in the quarter. Second quarter adjusted EBITDA was $43.8 million, a decline of $44.7 million compared with Q1. The sequential decrease was primarily driven by 4 factors. First, we incurred additional preparation work and regulatory approval activities for the Odin ahead of its contract in the U.S. with a $22.5 million of operating expenses during the quarter, an $11.1 million quarter-on-quarter increase. Second, 6 rigs were transitioned between contracts during the quarter, leading to reduced revenue. However, this impact is now largely behind us as these rigs have commenced their contracts. Third, the conflict in the Middle East led to higher insurance and fuel costs, contributing a $7.3 million quarter-on-quarter increase in rig operating expenses. The increase in fuel expenses was primarily driven by a higher number of rigs transitioned between contracts during the quarter, a period during which we are generally responsible for fuel costs. And finally, we also recognized $10.8 million of credit loss related to a former customer in West Africa. Following this additional provision, we carry net zero receivables from this customer in our balance sheet. Looking at the Odin, contract preparations took longer than anticipated with regulatory approvals received in mid-July. In light of the operational constraints resulting from the hurricane season, in collaboration with our customers, we agreed to revise the rig deployment sequence to improve overall operating efficiency. The Odin is currently preparing to mobilize its first location where it will commence the previously announced two-well firm contract with an undisclosed customer. Upon its completion, the rig will expect to transition directly to Cantium. We are disappointed with the delays for the Odin and the initial start-up requirements were greater than we have typically expected when entering a new market. This results in higher costs and delay in revenue. We're taking the learnings from these events very seriously. That being said, our entry into U.S. Gulf was a strategic decision to provide customers with access to one of the most capable rigs in its class. Discussions with our customers leaves us optimistic about the demand for this rig in the region. The Odin's current contract provides firm work into mid-2027 with additional options that could extend this contract well into 2029. The elevated rig transition activity experienced during Q2 is now substantially completed. The rigs Idun, Gunnlod, Skald, Sif, Natt and Prospector 5, which were transitioned into and between contracts during the quarter are now fully operational. Together, with the soon-to-commence Odin contract, we expect Q3 to average approximately 23 active rigs and hence, adjusted EBITDA to improve significantly from second quarter. Since the last earnings report, we have secured 8 contract commitments, representing over 2,100 days of additional work. This includes new contracts in Asia, West Africa, North Sea and Americas. Notably, the rig Galar and Gersemi in Mexico had their contract extended by 2 years each and are contracted into 2030. During the quarter, we also successfully refinanced substantially all of our debt while also upsizing our RCF. These transactions extended our maturity, reduced financing costs and further strength our liquidity runway, which Magnus will discuss next. In July, our 50/50 joint venture with our long-term Mexican well construction partner completed the purchase of 5 premium jack-ups from Fontis at an attractive valuation and with limited equity commitment. Currently, 3 of these rigs are contracted with 2 of them operating and a third expected to commence operation later in the quarter. Our focus now is deploying the remaining rigs and converting the opportunity pipeline into contracted work. I'll walk you through the market in more color later in the call, but now I'll hand the call to Magnus to discuss the second quarter financial results.

Thank you, Bruno. I will now go through some details of the financials for the second quarter. Total operating revenues for Q2 were $232.3 million, a decrease of $14.7 million or 6% compared to Q1. The total operating revenues consisted of $187.7 million in dayrate revenue, $32.9 million in bareboat charter revenue and $11.7 million in management contract revenue. The overall decrease was primarily driven by $21.8 million reduction in dayrate revenue, mainly due to fewer operating days and lower average dayrates for the rigs Idun, Gunnlod and Skald, lower recognition of mobilization and demobilization revenue for the Vali and fewer operating days for Groa. These decreases were partly offset by increased recognition of mobilization and demobilization revenue for the Grid. The decrease in dayrate revenue was partially offset by a $6.3 million increase in bareboat charter revenue due to an increase in operating days. The total operating expenses were $232.1 million, an increase of $31.1 million compared to Q1. The increase was primarily due to $30.4 million increase in rig operating and maintenance expenses. The largest driver of the overall increase was the Odin, which incurred $22.5 million of costs during the quarter, an increase of $11.1 million compared to Q1. The costs were primarily related to the preparations for its upcoming contract in the U.S. Gulf, including significant repair and maintenance activities. We expect regular rig OpEx once the rig is fully operational to be approximately in the mid $70,000 per day range. However, we anticipate some additional incremental operating expenses also in the third quarter related to the preparations of between $6 million to $9 million. In addition to the Odin, the increase in operating expenses were driven by overall costs associated with a higher number of operating days for the Grid, including amortization of deferred costs, expenses related to the 5 rigs acquired in January from Noble and an increase in the provision for credit losses. We recognized $10.8 million of credit losses related to a former customer in West Africa, an increase of $4.8 million compared to Q1. Following this additional provision, the receivable from this customer was fully provided for, resulting in a net zero receivable balance as of June 30. The total operating expenses also included a $5.1 million increase in fuel costs due to higher fuel prices and rigs transitioning between contracts and a $2.2 million increase in insurance costs related to the ongoing conflict in the Middle East. Moving to other nonoperating income in Q2 was $6 million related to compensation received to remove certain operating restrictions associated with the sale of a rig in the prior period with no comparable income in Q1. Total financial expenses net were $236.5 million, an increase of $173.8 million compared to Q1, and this increase was primarily related to our refinancing during the quarter as we recognized $176.3 million loss on the extinguishment of the senior secured notes due 2028 and 2030 and the partial extinguishment of our convertible bonds due 2028. The loss on debt extinguishment consisted of $123.7 million in redemption premium payments and $52.6 million from the derecognition of the unamortized portion of deferred finance charges associated with the repaid facilities. Net loss for Q2 was $241.4 million, an increase in loss of $212.4 million compared to Q1. And adjusted EBITDA was $43.8 million, a decrease of $44.7 million compared to Q1. Turning to liquidity. Cash and cash equivalents as of June 30 were $223.6 million, a decrease of $22.4 million from March 31. In addition, we had $250 million of undrawn available borrowings under our revolving credit facility, resulting in total liquidity of $473.6 million at the end of the quarter. Net cash used in operating activities for Q2 was $21.8 million. This includes $115.8 million of cash interest payments and $15.1 million of income taxes paid. Net cash used in investing activities was $2.3 million, which related to $8.3 million spent on additions to jack-up rigs, primarily long-term maintenance costs and capital additions, partially offset by the $6 million proceeds received, as noted earlier, in nonoperating income. Net cash provided by financing activities was $1.8 million. This was the result of net debt proceeds from new issuances, offset by the cash used for repayment of the original notes due 2028 and 2030 and the 2028 convertible bonds. Before giving the word back to Bruno, I will also touch on some recent transactions that we have completed. In July, we completed the previously announced Fontis Acquisition of 5 premium jack-up rigs located in Mexico through our 50/50 joint venture with our long-term well construction partner in Mexico. The total purchase price was $287 million and was financed through a $237 million nonrecourse seller credit in the joint venture and $25 million equity contributions from each partner. In addition to this, we expect to fund approximately $15 million of working capital in the third quarter for the acquired rigs through a shareholder loan. Turning to the next page and the refinancing activity completed during the quarter. This was a significant step in extending our maturity profile and strengthening our liquidity position. In April, we issued $300 million of 3.5% convertible notes due in 2033 and used part of the proceeds to repurchase and cancel $195.2 million of our 2028 convertible bonds. In June, we completed the issuance of $2.035 billion of senior secured notes in 2 series, $1.1 billion of 8.75% in notes due 2032 and $935 million of 9% notes due in 2034. The new notes amortized at 5% per annum, equating to $101.75 million on a full year basis. Amortization is payable semi-annually and beginning July 2027 at a price of 102.5%. The proceeds from the new senior secured notes were primarily used to redeem and purchase the 2028 and 2030 senior secured notes in full. Overall, these transactions extend maturities significantly and reduce our financing costs going forward. In addition, we amended and restated our super senior secured revolving credit facility during the quarter, increasing the commitments to $250 million, reducing the base margin to 3% per annum and extending the maturity to 2031. Now with this, I will pass the word back to Bruno.

Thank you, Magnus. Today, 24 of our 29 rigs are either contracted or committed. As previously mentioned during the quarter, several rigs were transitioning between contracts or preparing for new contracts. The Gunnlod completed its contract with Hoang Long in April and started work for Thang Long in May. The rig has seen secured follow-on work with PVEP-NCS through April 2027. The Natt commenced operations with Shell in Nigeria in April. The Prospector 5 completed its contract with ENI Congo in May and began operations with BW Energy in Gabon in July following its SPS. The Skald completed its contract in Thailand in April and started work for Vestigo Petroleum in Malaysia in May following its SPS. The Idun also completed its long-term contract in Thailand in April and commenced operations in Vietnam in July. And lastly Sif, one of our newly acquired rigs mobilized to Suriname for PETRONAS in June and commenced operations in July. Overall, this was a demanding quarter across our operation, and I'm proud of how the team has safely executed multiple contract transitions, mobilizations and start-ups. So far this year, we have secured 21 contract commitments, adding approximately 4,350 days and $541 million of dayrate equipment backlog. This has resulted in a positive book-to-bill ratio in 2026, both in backlog days and value. Now let me walk you through our new commitments. In Southeast Asia, the Idun received 2 separate awards. First, a one-well contract in Vietnam, which started in July '26 with an estimated duration of 60 days. Second, a one-well commitment with Hong Long JOC with an estimated duration of 30 days to commence in direct continuation. Based on the current engagements, we remain positive around the prospects for the rig to continue to work in Vietnam in the near term. The Mist received a binding letter award from Shell Sarawak in Malaysia. The campaign is expected to commence in October 2026 and has an estimated duration of 45 days. Additionally, the Gunnlod secured contracts with PVEP-NCS in Vietnam. The six-well firm campaign is expected to commence this month and has an estimated duration of 8 months. The contract also includes two one-well unpriced options that could keep the rig committed until Q3 2027. In West Africa, the Gerd received a one-well extension from Foxtrot in Ivory Coast and is now expected to remain committed until March 2027. In Europe, the Prospector 1 received a two-well contract extension from ONE-Dyas for an estimated duration of approximately 7 months, keeping the rig committed into April 2027. The contract includes options that could extend it until Q3 2027 -- Q4 2027. And as highlighted earlier, in Mexico, our rig Galar and Gersemi had their contract extended into 2030. Moving forward, following recent awards, our 2026 contract coverage is now at 73% at an average dayrate of approximately $134,000 a day, with coverage in the second half of the year at 70%. We're actively pursuing multiple opportunities to add further coverage to our available fleet and have advanced discussions ongoing for multiple rigs for work scopes feeding open space both this year and into 2027. Looking across our core markets, we continue to see steady demand for modern jack-ups, although the pace of contracting remains uneven by region. Globally, market utilization for modern jack-ups has remained resilient at approximately 90%. In the Middle East, the prolonged conflict and lack of clarity around its resolution have continued to delay tendering and contracting activity. Positively, across Saudi and the UAE, where several rigs were suspended at the onset of the conflict, the recent gradual resumption of operations despite lingering uncertainties demonstrate our customer commitments to their shallow water portfolio. According to data from S&P Global, backlog additions in the region during the first half of the year reached the lowest levels in more than 25 years. For context, the first half of 2026 saw more contracts awarded in the North Sea than in the Middle East, both by count and contract days added. Our broad views remain unchanged. The region still has substantial underlying demand, which was close to materializing prior to the onset of the conflict, and we believe this delayed activity should reenter the market once conditions stabilize. In Southeast Asia, contract awards, both by count and backlog days have accelerated meaningfully over the last 2 quarters, reaching the high level seen in late 2023. While a slight overhang in the region continues to apply pricing pressure on short- and long-term opportunities, this is a region where pricing has historically responded quickly to market tightening. Our team has done well filling our near-term open space and strategically positioning rigs for continued deployment. In Americas, we're encouraged to see previously rigs suspended returning to work for Pemex and absorbing regional supply. Mexican oil production remained below the government stated targets and the recent contract resumptions reinforce our view that jack-up demand should increase further to achieve this target. In addition, multiple IOCs are active in the procurement process where we expect conclusion in the coming months for work commencing late 2026 and 2027. We believe our global relationship with IOCs present in the region, coupled with our strong collaboration with our partners in Mexico, provides a strong position in the region that has capacity to grow with rig demand. In the North Sea, we have discussed in the past, operators continue to address permitting challenges, which drive uncertainty and lack of visibility for new meaningful commitments. Despite these hurdles on the back of our strong operational performance, we continue to work closely with our customers to meet their drilling requirements as evidenced by our recent Prospector 1 extension. In West Africa, contract activity has remained robust, bringing the contract jack-up count in the region to levels less achieved more than a decade ago. In Nigeria, in particular, we've seen a return of activity from IOCs and a notable influx of demand from indigenous operators. Additionally, in the region, investment activities and interest in Angola shallow water has gained momentum, and we're pleased to be part of one of the recently announced successful step-up exploration wells drilled by Halliburton, Sonangol and their partners. In the big picture, while the ongoing conflict has caused near-term disruption, we remain constructive on the medium- to long-term outlook for the jack-up market once certainty returns to the Middle East, where large tenders remain outstanding. With that context, I would like to close with 3 key takeaways. First, Q2 adjusted EBITDA was impacted by the delayed start-up of the Odin and elevated number of rigs transitioning contracts. As these rigs resume operation, we expect to average 23 active rigs during Q3, which should support a significant improvement to our Q3 adjusted EBITDA. Second, the Middle East conflict has reduced near-term visibility, delaying tenders and the region's recovery underway. This uncertainty is also affecting several other markets, though not all, making it difficult to provide a crisp outlook for our near-term activity. What is clear, however, is that the prolonged disruption in the Strait of Hormuz has impacted oil supply and driven global inventories to exceptionally low levels. Rebuilding those inventories even under moderate demand outlook will require sustained drilling activity. We believe short cycle, low-cost shallow water barrels, exactly what our modern jack-up fleet is due to access will be significantly irrelevant in restocking process. And third, our priorities remain clear, leverage our expanded fleet of premium jack-ups to navigate near-term uncertainty and capture greater earnings and shareholder value as the cycle improves. With that, I'll now turn the call over to Q&A.

[Operator Instructions] We will now take our first question from the line of Scott Gruber from Citigroup.

I appreciate all the color on the moving pieces in 2Q that created an EBITDA headwind. But Bruno, 3Q does sound better. Is there a way to provide just a range for us in terms of where EBITDA could land based upon having 23 active rigs and seeing the mobilization and start-up costs at least fade, maybe not completely go away, but reduce? Any color on just kind of where things could land even if it's a decently wide range?

Yes. No, for sure, Scott. And listen, you're right. I think Odin, we now seem to have a clear pathway to see that rig starting work. So that's positive. And then consequently, we will see normalization of the cost on that rig. When we look at Q3, obviously, the Odin starting contract is a key component of our results for the quarter, and it's something that we are working very focusedly to make sure we put behind us in the very near term. As I mentioned in the earlier remarks, all going well. We are anticipating to average approximately 23 rigs in the quarter, which if you look in context versus Q1, I think we're talking about similar ballpark. So I'll come shy of giving you a number for Q3. But with activity levels kind of resuming to that run rate of Q1, I think we will see a quite substantial increase on sequential results in Q3, Scott. That's probably where I would leave that.

That's fine. And then turning to the latest acquisition. So 2 out of the 5 rigs are working, the third is contracted. Just any color on -- do you have line of sight to putting the other 2 rigs to work?

No, indeed, Scott. And see, the transaction closed quite recently. So we're just now having a chance to put our hands around it and start kind of driving some of those conversations. As we understand prior to the completion of the transaction, there were already some ongoing discussions, including with Pemex and Fontis. We are now kind of starting to look at that and trying to see how we move forward. Three rigs should be working during the quarter now. So we have 2 left. One rig is being stacked, and I think that there's a likelihood that rig stays stacked for a bit longer. But based on ongoing market surveys and tenders in Mexico, I do see that there's a pathway to potentially have a fourth rig resuming operations sometime this year, maybe into very early next year. And I think looking at the transaction, looking at valuation and our execution strategies, I think as long as we have 3 to 4 of those rigs operating near term, I think that silo is generating interesting -- could be generating interesting cash and give us in a good position. Beyond that, let's see what happens to the fifth rig that is currently idle. I think we're looking at all kinds of opportunities for that. But we will need a bit more time. The transaction only closed a couple of weeks ago. We are very active in now looking to define a pipeline of opportunity for those units.

We will now take the next question from the line of Doug Becker from Capital One.

Bruno, Magnus, really appreciate the transparency you provided on the second quarter. So just echoing Scott's comments. Turning to the third quarter, you're expecting operating rigs -- average operating rigs to be up around 8%. Just wanted to get a little more color around the assumptions there. Hurricane season does tend to peak around September. And I want just to see the base case. And is it reasonable to think revenue is up just a little bit quarter-over-quarter given that growth in average operating rigs?

Thanks, Doug. Thanks for joining. I'm not sure if I fully caught your question. I think you referred to hurricane season. Is your question specific on the outlook for the Odin?

Ultimately, the assumptions behind the 23 average operating rigs. And just one of the key variables there is the Odin and hurricane season.

Yes. No. So the outlook for the 23 is largely based on contracts that we already have in place. So I think that there is a pretty decent amount of certainty in terms of that. Obviously, we still have a few rigs that would eventually be moving contracts. So we maintained a high focus on the execution of these contract transitions. In relation to the Odin, we changed the operational sequence, as I mentioned in the early remarks, we changed the operational sequence of the customers to make sure that we could maintain the rig utilized during hurricane season. So the rig will be in a location that -- where we have approvals to stay basically year-round. So we don't expect the hurricane season, at least to this value right now to impact that. And our focus is really putting that rig to work. We've achieved the regulatory approvals for the rig in July. We have been since working on customer-specific preparation work. The rig as we speak right now, should have the tugs connected today. And hopefully, all weather permitting, we should be pushing away from the quayside tomorrow. So we're progressing in the right direction with these things. Obviously, the -- so that's what is giving us the confidence on these 23 rigs in Q3. But certainly, we need to focus -- we need to maintain our focus on the execution.

Fair enough. And then as we think about O&M costs in the third quarter, just any thoughts on fuel and insurance? Is that going to be pretty stable? Or is there maybe potential for that to decline a little bit?

Yes. So let me provide a bit of color and then Magnus can kind of chip in as required. But in terms of fuel, I believe that in Q2, we had a bit of a disproportional impact of the higher fuel costs, primarily due to the fact that we had several rigs transitioning contract, Doug. Generally speaking, during these contract transitions, we've at times become accountable or responsible to provide fuel cost and the burn during those process and the daily burn of fuel during those process of remobilization tends to be pretty high as the rig is kind of fully staffed and preparing to work. So that has resulted in a, say, overweight impact during Q2. As we go into Q3 because we have less rigs transitioning contract and even the contract transitions that we had in Q3 are kind of near field transitions. I expect that, that will soften a little bit the impact of the fuel cost. Yes, for the rigs that we have idle, we still have a fuel burn that we see obviously an increase due to the higher commodity price. But I think comparable to Q2, I think that you should expect that number to come down pretty significantly as we move forward. In relation to insurance, it's been largely driven by the impact of the events in the Middle East. So it's kind of difficult to precise when we'll see that coming down. Obviously, the insurance companies and us are monitoring the situation in the Middle East. Until the resolution for the conflict is ahead of us, I think we should expect that, that cost will linger a bit longer.

We will now take the next question from the line of Fredrik Stene from Clarksons Securities.

I wanted to touch a bit more on the outlook maybe for [ Q3. ] The third quarter has been discussed in detail already. But I think maybe based on your commentary on the second -- sorry, in the report and also my own assessment, a lot of the key to an accelerated movement in rates and utilization lies in the Middle East. So while I'm aware that nobody knows when the conflict will end, I would be very happy to kind of hear your updated view on how you think that market will unwind when it does in terms of tendering and contracting possibilities, et cetera. And maybe in the context of how you think that unwinding may happen, are you able to share similar rig average rig activity per quarter numbers for the fourth and the first quarter next year based on the visibility that you have at the moment?

Thanks for joining, Fredrik. And I think your assessment is something that we share. Indeed, if you look at the Middle East alone and even prior to the conflict, there was already a significant demand in the region. With the conflict, the timing of that demand materializing has become a bit more fluid. But positively, all the tenders, the meaningful tenders that we saw in the region are still ongoing. They haven't disappeared from the pipeline. And I think as a matter of fact, we have seen even as recent as the last couple of weeks, some indications of potential increase in size of some of the tenders, including the KJO discussions, for example. Inevitably, the Middle East is the engine of the jack-up sector and a meaningful rebound in the Middle East can very quickly rebalance things around the globe, and that will provide a very interesting context for us if it happens. Indeed, anticipating the timeline of that is very difficult in current environment. What I can share is that in discussions with our customers, it does look like they remain committed to go through with the customer -- with the tenders. Aramco tender is still due at the end of this month. And if nothing else, I think combined with the ongoing resumption of activity that we've seen over the last couple of weeks, I think that it provides a bit of an opportunistic or optimistic outlook that some of that demand is going to start materializing rather soon when there's a bad wait for the complete resolution. Now if you were to take a view of the conflict not getting resolved in the near term, Fredrik, and we've all been talking, I'm not going to pretend here to be the oracle of the broad commodity environment, but it's hard to believe that more activity is not going to be needed across other regions. We have been talking to a lot of customers. I think there's a lot of interest. There's a lot of discussion. I think just as us, they are still puzzled by the situation and the development in the Middle East and how to think about it. That said, I do think as we approach the year-end and these customers start working through their budgeting processes, their approval processes, some more visibility will be attained from other regions. As long as the Middle East is closed and the Strait is kind of out of bounds, obviously, whatever overhang may exist currently in that region stays within the region. And then very quickly, you're only dealing with kind of any particular excess that you have in the other regions. So that's not how we think about it. Timing, as I said in my earlier remarks, I think it's still something that we're trying to -- we're monitoring and trying to understand what happens. I think in the near term, that impacts our visibility of the outlook and our ability to provide a more precise view on active rig count in the coming months. Now I think as you look a bit beyond that, it's difficult to imagine that in a world where reserves are at such a low level that more drilling is not going to be required. And as I said before, and I really remain optimistic about it. Shallow water rigs provide low-cost barrels, short-cycle barrels at moments where security of commodity or access to the commodity is key, it's hard to believe that we will not have a big part in helping the world through this rebalancing.

All right. Really appreciate that, Bruno. Comprehensive comments. Just a quick one. I know that Fontis was touched upon in the first question, I believe, with now 3 rigs instead of 1, I think, which many database reports having contracts. So very good to see that. But is that now enough to fund this joint venture organically going forward, even if you have one stacked rig and a fourth rig that could get the contract, but might also face idle time? Or do you think there's a chance that you would have to kind of put more into it than the purchase price itself?

Yes. No, I think Magnus covered some of those comments early on, Fredrik. At this stage, as we stand further than the working capital contributions that we had upon closing, we don't anticipate any further meaningful working capital requirements for the year. I think as we get to Q4, there's some interest payments due under the vendor facility that obviously we hope that entity will generate the cash to provide. But I think that you shouldn't think about any significant working capital contributions into that silo for the remainder of the year, except in the event that we have line of sight to further work for one of the stacked rigs that we need to do reactivation. When we looked at the case, the business case to acquire that entity or that business, we were looking to maybe 3 to 4 of those rigs being operating. We have 3 right now, as I said earlier, some of the ongoing discussions in the region, including discussions with Pemex give us line of sight for the fourth rig as we kind of get closer to the end of the year. And I think at that point in time, we feel pretty confident that, that silo will be self-funded.

We will now take our next question from the line of Ben Sommers from [ U.S. Bancorp ] BTIG.

So I wanted to ask on Asia. It seems like we've seen some strong progress in Vietnam and Malaysia in terms of contracting activity. So Bruno, you called out this region as one that tends to respond quickly to market conditions. Would you say this activity has been largely driven by the Middle East conflict and the increased focus on energy security? And then just kind of any longer-term color on that market.

Thanks, Ben. No, indeed, we were expecting activity levels to remain fairly elevated in Asia. As I mentioned in earlier calls, I think an area that we were surprised or maybe disappointed with was Sarawak in Malaysia because of some of the ongoing government disputes in that region. We've now entered into an agreement with Shell for work in Sarawak. So that gives us bit of a positive indication that maybe the demand there is kind of returning to a normality. So that's quite encouraging. In Vietnam, specifically, we have a long-standing relationship with a local operator in Vietnam that continues to give us a bit of an edge in securing work for the rig. We see pretty robust demand across Vietnam and the government seems have been quite ambitious increase in activity levels. So that should give us line of sight to maintain our rigs in that country kind of extended into 2027. Indeed, Asia is a net important region. We can see that the government have been trying to react and respond to make sure they have a bit more self-sufficient in terms of resources. I do think, as I mentioned earlier in a prior question that the longer the conflict lingers, the more that urgency in kind of securing our own supply becomes -- kind of comes to the forefront. And I expect that, that will continue to drive activity levels. I'm fairly encouraged. I think it's a region where a lot of the contracts are short term in nature. So you have this constant grind, if you would, in kind of maintaining the rigs contracted. But we've been very successful in that region for many years. We have very well-established partnerships with local players as well as customers. And I feel quite optimistic that we'll continue to roll those rigs through.

Super helpful. And then a lot of progress on the balance sheet improvements. And now with Fontis' closure. I just kind of wanted to ask if there's anything kind of left to do there balance sheet-wise and just kind of thinking about how we plan to manage the balance sheet moving forward and potentially looking at other bolt-on M&A opportunities.

Yes. Ben, I think balance sheet-wise, we feel pretty happy with what we achieved so far this year. I think not only maturities have been pushed forward and give us a good runway, I think we managed to rationalize financing costs. So I think we've done well. We achieved what we wanted to achieve. We said it before, I think at the moment, M&A is not really in the forefront of our focus here. Obviously, we had some negative executional surprises in Q2. So our focus remains very, very heavily in kind of resuming kind of the operational focus and operational execution. So that's obviously quite important for us together with that. And then I mentioned obviously the lack of visibility in our -- kind of the more uncertain visibility in short term. So we're looking to how we kind of keep our costs under control to preserve liquidity while we navigate these periods of uncertainty. But I don't see an immediate need or a near-term need for any kind of balance sheet transactions. And certainly, as I said, M&A is things that obviously we look over time, but it's not in the forefront of our strategic priorities.

We will now take the next question from the line of Dan Kutz from Morgan Stanley.

So I wanted to ask, as you kind of think about the medium to longer term, you guys flagged that despite the Middle East conflict and ongoing activity headwinds there that global modern rig utilization at the market level has stayed resilient at 90%. And then if you look back over the last 3 or 4 years or so, despite Borr having outsized exposure to Mexico, which was a substantial headwind and also being exposed to the Middle East where you had the Saudi suspensions and then more recently, the Middle East conflict, still Borr's fleet utilization was at least in line and frequently outperforming market level utilization. So I guess the question is, as you look ahead, do you think -- do you [ expect or is your ] target level of utilization across the fleet that at least keeps up with or potentially outperforms the market.

Very good, Dan. And just for context, I think there's often a bit of a confusion in metrics. I think when we talk about market utilization levels, that is what we call contracted market utilization levels. So it kind of blends a mixture of rigs that are currently working at any given time as well as rigs that are contracted for future work. So when we then report our coverage and we're looking into how much of our days are committed during the year, that's really days that are under contract, days that we're earning revenue. So there's generally a bit of a disconnect between these 2 metrics that sometimes create a bit of a confusion. I think overall, when we look at our coverage and what we've been executing for the last couple of years, we have consistently leveraged our premium fleet and our kind of operational execution to deliver better than the peer group. And I think we have consistently done that. Obviously, in the current environment, maintaining these higher coverage levels and utilization levels comes out of the tremendous focus on the contract execution. And we've done it several times. I think this is not the first time that we see moments uncertain in the period. And our contracting group generally excels during those periods. I think we have very confident guys very well connected with the customers that enable us to kind of have very strong line of sight and visibility of what's happening and strategically maneuver through the opportunities available in the market. So that's kind of where things are. 90% market utilization of where we have been, I don't think it's an unhealthy number. As we said before, it only takes probably about a dozen of new contracts before you start pushing into a place where pricing power returns in favor of the contractors. That all said, we discussed before, I think Middle East recovery would very quickly help us to improve that market balance and bring a bit more pricing power in favor of the contractors. I think if that doesn't happen in the near term because of the uncertainty in the Middle East, inevitably, incremental demand across other regions will have to start materializing as we move forward and bring them to a better place. It's difficult to provide a very precise answer. I think, as I said before, near term, I think the outlook is a bit uncertain because of all of these events happening. Medium, long term, I think if you look at the bad debt, I do think that the outlook for the sector is quite healthy.

Great. That's really helpful. And I appreciate the clarification that the 90% number that's kind of contracted plus committed divided by marketed fleets, not specifically contracted divided by marketed. So understood there, and that's a lot more in line with our understanding. Then just maybe quickly, as you think about your current geographic footprint, where your assets are located and you compare that to your activity outlook at the market level, do you feel pretty good about your kind of current geographic footprint? Or do you think that over time, it could make economic sense for Borr and for customers to potentially relocate rigs to different markets? Just how you're thinking about your geographic footprint today versus your activity outlook would be great.

Yes. No, I am. I'm quite comfortable. I think we've built a very interesting global footprint over the years. I mentioned earlier, I think Mexico is a market where we have very strong partnerships locally, who position us quite well to navigate the demands of Pemex and the IOCs across the region. So we're pretty happy. I think the acquisition of the Fontis units recently will continue to strengthen that in a context where I do think that Pemex activity level will continue to rise as kind of marked by the recent resumptions. Asia, indeed, I think we have very specific assets, very competent assets for the demands of our customers in that region. We've navigated that region and that demand outlook for that region quite well over the years. We feel definitely quite pleased. In West Africa, we've continued to secure very interesting fixtures, leveraging on the fact that we are one of the very few players in the region with a capacity of 400-foot capable rig, kind of larger sized rigs in that region. So happy with that. Obviously, when we look at the Middle East, at the moment, we have 4 rigs in that region, 2 of them working, 1 still under a BBC with Noble. We'll have to see. I think with the demand outlook to grow in that region as kind of these tenders continue to materialize, it could create an opportunity for us to have a higher focus in that region. I think some of the rigs that we acquired from Noble are very competent for particularly the gas work outlook demand that needs in that region. So we have to think about. I think the Middle East is probably one of the areas where we have to look over time depending on how these tenders materialize. But beyond that, I'm quite comfortable how the fleet is spread out. I think we've done tremendously well and worked really hard over the years to have the right assets in the right place. So I don't think we should be looking to any kind of material meaningful rig mobilization around the world in near term.

We will now take our final question from the line of Gregg Brody from Bank of America.

Just as we looked at the rest of this year, you mentioned that there was an opportunity to maybe add some activity to this year's backlog. But how -- realistically, how much activity do you think you could potentially add?

Yes. Thanks for the question, Gregg. If I look at Q4, where we have a bit more of our exposure in the near term, I think Q3 seems to be pretty well settled right now. When you look at Q4, we had few rigs that have still ongoing exposure in Q4. For all of the rigs that we have working and rolling off contract in Q4, we have ongoing discussions, and we were speaking to customers about opportunities for those rigs. So -- and that's a really focus, just to name a few. We have the Norve that will soon be finishing contract in West Africa. We have the Bestla in the North Sea that has a contract with ENI that will be finishing or rolling off towards the end of the year. So we have one of the rigs with ENI in Mexico to run. So we've been progressing quite well in the discussions we have with our customers, either the current customers or customers in many of those regions. That's what gives us a bit of a positive outlook that we will have Q4 that kind of stays a bit of steady-state activity level what we have in Q3. Now there's obviously risk in execution of those contracts. The team continues to be extremely focused on bringing those contracts home, and that's kind of how we're tackling that.

And just when you think about contract in '27, do you think the -- what's the lead time we should be thinking about today as to how long from an agreement to having the rig go to work? Is there a way to think about that?

Yes. And Gregg, I think some of the uncertainty that we mentioned earlier in the call certainly affect us, but I acknowledge that it does affect the customers. And what we've seen in recent months is that the turnaround time or the lead time that the customers have been looking into these awards has been quite short. I think that people are trying to preserve a bit of optionality, wait until the last minute, which obviously creates some complexities. But we have seen quite a few. And if I look at Asia, for example, we have seen quite a few contracts where contracts are announced and the rigs actually go to work literally just a couple of weeks after that, right? So the customers have been keeping a quite short leash on those announcements, which obviously creates a lot of complexities for us. But at the same time, I think kind of provides a bit of a visibility that if a rig is soon to get idle, it doesn't necessarily mean that it's too late. I think there's opportunities that the customers are trying to tackle at the last minute and act opportunistically to navigate that.

Got it. And then just shifting to the Fontis Acquisition. Can you just remind us how we should be thinking about what's the run rate contribution to the consolidated company from that? And I think you mentioned there was -- you had -- there was a shareholder loan from Borr to Fontis for working capital. Should we think about any other additional capital contributions to Fontis?

Thanks, Gregg. Yes, as you mentioned, I think -- I mean, the goal here is obviously that this structure is self-sufficient and will operate by itself. Now when we have 3 rigs operating, it should get into that territory that there shouldn't be a lot of fundings needed from us. But as [ Bruno ] touched on and I mentioned previously in the call, we have approximately $15 million that we will fund into the JV in Q3 as working capital now initially to help on operating costs and also start-ups for the 2 rigs that are starting up now in Q3. But obviously, going forward, the target here is to get these contracted and have limited funding needs into this structure.

Got it. Can you just remind us of the CapEx for the rest of the year at Borr?

So the general guidance there we have said in the past is around $2 million to $2.5 million per rig per year, I would say, in an average year. So with 29 rigs, it's typically between $60 million to $70 million, some years with higher SPSs, there should be -- there could be more, this year is not the year with high SPS. So that would be the area we're looking at currently.

And then just last one for you. Congrats on all the refinancings during the quarter. Obviously, your liquidity position is very strong now. How do you think about deleveraging today? And have your targets at all changed? Just a refresher for us just as you've completed so many transactions for refinancing last quarter.

Yes, true. So deleveraging is obviously still a focus for us. We are in the new notes, we continue to have an amortizing element like we had in the previous notes. So approximately $100 million per annum is debt repayments under the new notes. So that is definitely on the agenda and is structurally baked into the bonds going forward as well.

Thank you. There are no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.