Behind the colorful images of gigantic metal platforms on the sea that illustrate news articles about oil and gas, lies a huge amount of infrastructure work that not every company can carry out. One of them is Borr Drilling, founded in Norway in 2016 and listed on Wall Street. The potential appreciation of your stock between 300% and 400% who recently launched the company’s hedge fund British Granular Capital, its largest shareholder, gives an idea of the opportunity represented by this great “unknown” the drilling rig industry in a world that still desperately needs energy. Offshore oil operations are experiencing a real boom and there are not enough platforms to meet such demand (demand for renewal and new operations). This bottleneck can be a kind of blessing for this business.
As defined on its own website, Borr Drilling Limited is a shallow water drilling contractor dedicated to providing exceptional drilling services to the global oil and gas industry. His experience lies in operating modern jack-up rigs, specifically designed to operate efficiently in shallow waters (up to 400 feet or approximately 121 meters). Its broad range of services covers exploration, production, workover, plugging and abandonment, and carbon capture and storage.
Drilling near the coast in waters less than 120 meters deep requires a special platform that extends to the seashore and keeps the drilling platform above the water. AND 30% of the market for these self-elevating platforms is over 35 years oldexplains Patrick Schorn, CEO of Borr, in an interview collected by Bloomberg. Of the roughly 102 million barrels per day of global oil production, about 20 percent comes from shallow-water drilling, Schorn says. Additionally, many of the new oil discoveries are occurring offshore and these platforms are necessary.
This is what these types of platforms look like
Before continuing to give free rein to this story, it is appropriate to briefly explain the functioning of these “metal islands” which are used to extract the oil. Self-elevating platforms These are mobile structures designed to drill oil or gas wells in shallow water, typically up to 120 meters deep. Their versatile and efficient design makes them a key option for temporary operations at sea.
These platforms consist of a floating base which contains the necessary equipment to drilling, storage of supplies and accommodation of personnel. What sets them apart is the presence of three to six extendable legs, usually made of steel, which can be anchored to the seabed. These legs allow the platform to be raised above sea level, eliminating the impact of waves and ensuring stability even in adverse weather conditions. Additionally, they have a drilling tower that houses the machinery needed to drill the seabed and reach hydrocarbon deposits.
The operational process of jack-up rigs begins with their transportation to the drilling site, where they are towed floating with the legs retracted. Once in position, the extendable legs extend towards the seabed until they reach a firm substrate which guarantees the stability of the structure. Afterwards, The platform is raised using hydraulic or electrical systems that extend the legs (these are long and thin legs like those of herons or stilts, which take advantage of their long limbs to fish in the water while maintaining balance), adjusting the height according to the conditions of the place and the depth of water. Once secured, the drilling rig begins the process of reaching oil or gas deposits. During this stage, certain liquids or fluids are used to maintain the stability of the well, lubricate the machinery and extract the pieces of rock to the surface. If hydrocarbons are found in viable quantities, temporary pipelines are installed to assess quality and flow before deciding to install a permanent production platform.
Jack-up platforms stand out for their mobility, since they can be reused in different locations, making them more economical for exploration and temporary drilling. Its design ensures stability during operations above waves, and its durability allows it to withstand marine environment conditions. In addition to drilling exploratory wells, they can be used for temporary production or maintenance of existing wells. They do have limitations, however, such as their inability to operate in deep water and certain restrictions in extreme weather conditions. HAS Despite these challenges, jack-up platforms represent a very effective solution for the marine oil industry. Borr Drilling is here to take advantage of it.
The Borr Drilling fleet
Well heBorr Drilling’s fleet consists of 24 modern rigs, all built after 2010 and with an age measurement of seven years. Currently, there are seven in North America, seven in Southeast Asia, five in Africa, three in the Middle East, one in Europe (in the North Sea) and one in South America. According to the founder and investment director of Granular, Thiago Mordehachvili, it is in the size and characteristics of this fleet that the company’s potential lies, since both parameters correspond perfectly to what we could call the fundamentals of this market.
The truth is that there hasn’t been any new construction of jack-up rigs in over a decade as environmental, social and governance (ESG) concerns have pushed banks out of the sector drilling, according to Mordehashvili. Furthermore, towards a third of the global rig fleet is nearing or past retirement agewhich suggests a likely reduction in available equipment in the future. “The reserves are practically exhausted,” underlines Mordehashvili. “There have been no new orders in the last decade.” Granular also believes that new rigs are unlikely to be built in the current economic environment due to low single-digit yields, making the existing fleet more valuable and allowing its rigs to be rented more expensively. .
Granular also excludes that the transition to greener energy sources will have a negative impact on Borr in the short and medium term. “We like shallow waters because they are essentially already exploited depositsand hydrocarbons that are much cleaner than elsewhere, also cheaper to extract”, underlines Mordehashvili in a statement to CNBC. “These will be the last fields to be drilled. So we’re talking about being at the lower end of the cost curve.”
The market dynamics have become more complicated for competitors, since the shipyards willing to build this type of ships have also been reduced, the man from Granular also emphasizes. Singapore, where 50% of the world’s jack-up rigs were once built, has largely converted its production capacity to other uses. The few remaining shipyards capable of building these specialized vessels are focusing on renewable energy projects.
The reality is that all this potential is not yet reflected on the hardwood, Borr Drilling currently trades on the New York Stock Exchange at around $4 per share.down about 45% so far this year. Arctic Securities analyst Sebastian Grindheim maintains a $7.50 price target on the stock, representing an 85% upside from current levels, although he acknowledges the more cautious comments made on the company’s prospects during the last quarter due to customer caution regarding the oversupply of oil. .
It is true that Saudi Aramco, a major player in the sector, has postponed its production growth plans by at least 12 months, leading to some contract suspensions. However, Borr also secured three contract extensions, including deals with Exxon Mobil in Malaysia, Valeura Energy in Thailand and Fieldwood Energy in Mexico, providing a revenue horizon until 2026.
New sources of oil spring from the sea
This company and those dedicated to platforms in general have a long way to go because oil extracted from the sea It is the oil of the present and the future. Conventional offshore projects will contribute between 700,000 and one million barrels per day to the increase in non-OPEC+ production expected in 2025, as revealed in the latest report from the International Energy Agency. Crude oil from the sea, extracted using floating platforms and large extraction vessels, is gaining weight in global production, but above all is beginning to dominate “new production”. For every two barrels of new oil in the world (increased supply), one comes from the sea.
When it comes to offshore crude, Brazil will be the largest source of additional offshore capacity next year. Four new FPSOs (floating production, storage and offloading units) are planned to be commissioned throughout 2025, which will add several hundred thousand barrels per day of additional (but not efficient) capacity, specifies the IEA report. In Guyana, a big star of the crude oil market in recent years, the consortium led by ExxonMobil has so far operated the three FPSOs in the Stabroek block with an efficiency of 95%. A fourth unit in the block will come online next year, adding 250,000 barrels per day of capacity.
In the US Gulf of Mexico, capacity is expected to increase by 170,000 barrels per day this year with the start-up of Chevron’s Anchor (70,000 barrels per day) and Beacon Offshore Energy’s Winterfell (20,000 barrels per day) projects. ) in the third quarter of 2024, and with Shell’s Whale project (80,000 barrels per day) which should start in December. Next year, additional growth of 200,000 barrels per day is expected with the launch of Chevron’s Ballymore (80,000 barrels per day), Beacon’s Shenandoah (60,000 barrels per day) and LLOG’s Leon/Castile (60 barrels per day) projects. 000 barrels per day). These six assets will add a combined capacity of 370,000 barrels per day to the region through the end of 2025.
On the other side of the Atlantic, Growth in Norway is driven by the Johan Castberg project, which will add 220,000 barrels per day of capacity in the Barents Sea.. China National Offshore Oil Corporation (CNOOC) is launching a series of new projects that will add 130,000 barrels per day of capacity split between Bohai Bay and the South China Sea, following recent domestic exploration successes that increased their production targets. .
Furthermore, Senegal became a producer in June with the first oil from the Sangomar FPSO, at 100,000 barrels per day. Additional offshore production of 80,000 barrels per day is expected in West Africa following the start-up in 2025 of the CLOV Phase 3 projects in Angola and Baleine Phase 2 in Ivory Coast.
This increase in offshore capacity will add between 700,000 and one million barrels per day in 2025, contributing significantly to non-OPEC+ production growth that year. However, this is the theoretical maximum installed capacity. Actual production will likely be closer to the 500,000 to 700,000 barrels per day of new oil that will come from the sea.
