The first quarter earnings call for Borr Drilling was, for the most part, a predictable affair. Strong operational performance, a healthy backlog, and a doubled dividend – all good news for investors. But tucked away in the transcript, almost like a whispered secret, lies a detail that has the potential to shake up the entire offshore drilling market.

Borr Drilling, a specialist in shallow-water jack-up rigs, announced their first-ever contract exceeding $200,000 per day on a clean-day rate basis. This landmark achievement, amidst recent Aramco suspensions in Saudi Arabia, sent shockwaves through the industry, signaling a robust demand for jack-up services despite earlier concerns. But the real intrigue lies in Borr's strategic ambiguity regarding the specifics of this contract.

The company, in a move that reeks of calculated secrecy, has deliberately chosen to withhold information about the client, the region, and even the rig assigned to this lucrative contract. Patrick Schorn, Borr's CEO, justified this opacity as necessary to “safeguard their commercial strategy by customer and region.” But this begs the question: what exactly are they safeguarding?

Here's where the numbers get truly fascinating. Let's do a little back-of-the-envelope calculation. Borr's full-year adjusted EBITDA guidance is between $500 million to $550 million for 2024. With a 93% fleet coverage for the year, the remaining 7% represents a potential revenue upside of approximately $36 million to $39 million. Assuming a generous 50% EBITDA margin on this additional revenue, we are looking at a potential EBITDA contribution of roughly $18 million to $20 million from those unassigned rigs.

But the mystery contract, with its $200,000+ day rate, could single-handedly blow this figure out of the water. Let's assume, conservatively, that this contract is for a minimum duration of one year. A simple calculation reveals a staggering potential revenue of over $73 million. Again, assuming a 50% EBITDA margin, this contract alone could contribute $36.5 million to the company's EBITDA for 2024.

This figure dwarfs the potential contribution from the rest of the unassigned fleet, hinting at a hidden powerhouse within Borr's portfolio. It begs the question: are they deliberately downplaying the impact of this mystery contract, perhaps to avoid rocking the market boat?

Adding to the intrigue, Borr is expecting the delivery of two newbuild rigs, Vali and Var, later this year. While the Vali is earmarked for immediate deployment on a newly contracted work scope, the future of the Var remains intriguingly ambiguous. Could this be the rig destined for the high-paying mystery contract? Is Borr holding back on announcing the full scope of this contract until the Var is ready to sail?

The implications of this scenario are significant. A multi-year contract at $200,000+ per day would lock in a substantial revenue stream for Borr, effectively turbocharging their growth trajectory. Furthermore, it would send a powerful signal to the market, demonstrating that the appetite for high-specification jack-ups is far greater than previously anticipated.

Potential EBITDA Contribution

The following chart visualizes the potential EBITDA contribution from the mystery contract compared to the remaining unassigned fleet. This is based on the assumptions outlined above.

Of course, this is all speculation. Borr, true to their tight-lipped strategy, has offered no confirmation of these hypotheses. But the numbers don't lie. The potential upside from the mystery contract is enormous, and its impact on Borr's financials and the broader market could be nothing short of transformative. The Saudi mystery, it seems, is just beginning to unfold.

"Fun Fact: Did you know that Borr Drilling's fleet is one of the youngest in the industry, with an average age of less than 5 years? This youthful vigor is a testament to the company's aggressive growth strategy and its commitment to operating modern, high-specification rigs. It also makes them a formidable competitor in the shallow-water drilling space, where efficiency and reliability are paramount."