Regulatory Risks Will Constrain Jack-Up Operations With Modest Rebound

Key Takeaways

• Strong industry position and modern fleet provide revenue stability, but high debt and exposure to regulatory, ESG, and energy transition risks threaten long-term growth.
  
• Operational improvements and key contract wins help stabilize revenue, yet rapid policy shifts or environmental costs may undermine profitability and earnings resilience.
  
• Macroeconomic uncertainty, client concentration risks, energy transition pressures, and balance sheet leverage all threaten future stability, growth prospects, and financial flexibility for Borr Drilling.

Catalysts

Operates as an offshore shallow-water drilling contractor to the oil and gas industry in the United States, the Middle East, South East Asia, Europe, Latin America, and West Africa.

• Although Borr Drilling is well-positioned to benefit from persistent global energy demand and gradual underinvestment in conventional oil production-which together support stronger dayrates and increase revenue visibility-the company remains exposed to significant regulatory uncertainty and ongoing pressure from global decarbonization efforts, which may drive up future compliance costs and constrain long-term growth.
  
• While slow adoption of renewables is preserving a key role for offshore hydrocarbon production, Borr's heavy concentration in premium jack-up rigs leaves it vulnerable to shifts in technology or energy policy that could accelerate the transition away from offshore oil, risking lower utilization rates and impacting earnings stability.
  
• Even with improving operational leverage through higher contract backlog and increasing utilization-evident in 22 rigs now active and solid progress on 2026 coverage-the company's financial flexibility is still threatened by high leverage and its reliance on dayrate recovery, which may not fully materialize if global energy transition policies take hold more rapidly than expected, weighing on net profit margins and return on capital.
  
• Despite the long-term retirement of older rigs tightening supply and supporting dayrates for Borr's modern fleet, growing regulatory and investor scrutiny over carbon emissions and ESG standards could curb access to capital, increase financing costs, and limit the company's ability to sustain competitive buybacks or shareholder distributions, hampering future earnings growth.
  
• Although Borr's disciplined focus on safety, operational excellence, and customer retention has resulted in key contract wins and extensions-helping to stabilize revenue-its sectoral exposure means that any meaningful increase in carbon pricing, or policy-driven reduction in offshore drilling, could outweigh these operational gains and erode both top-line growth and cash flow resilience over the coming years.

Borr Drilling Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Borr Drilling compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Borr Drilling's revenue will decrease by 1.2% annually over the next 3 years.
• The bearish analysts are not forecasting that Borr Drilling will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Borr Drilling's profit margin will increase from 5.1% to the average US Energy Services industry of 7.4% in 3 years.
• If Borr Drilling's profit margin were to converge on the industry average, you could expect earnings to reach $70.5 million (and earnings per share of $0.31) by about August 2028, up from $50.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, up from 9.9x today. This future PE is lower than the current PE for the US Energy Services industry at 11.7x.
• Analysts expect the number of shares outstanding to decline by 4.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Borr Drilling Future Earnings Per Share Growth

Risks

• The suspension of the dividend due to uncertain market conditions highlights management's caution about the macro environment, with concerns over oil price volatility and customer hesitancy potentially weighing on future revenues and cash flows.
  
• Heavy customer concentration and payment delays in Mexico, particularly with Pemex, expose the company to significant counterpart risk and cash flow unpredictability, which may strain liquidity and impact net margins if receivable collections falter again.
  
• The offshore drilling sector faces secular pressures from the accelerating transition to renewables and rising regulatory demands for decarbonization, which could reduce long-term demand for Borr Drilling's services, limiting revenue growth and compressing valuation multiples.
  
• The company's high dependency on modern jack-up rigs creates vulnerability should market demand for these rigs soften, resulting in idle assets and reduced utilization rates, which could undermine earnings and lead to asset impairments.
  
• Borr Drilling's improved but still leveraged balance sheet, combined with no immediate growth capex requirements, means that any failure to maintain high contract coverage or achieve premium dayrates could hinder deleveraging efforts and suppress net income through persistent interest expenses.

Valuation

• The assumed bearish price target for Borr Drilling is $2.2, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Borr Drilling's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.59, and the most bearish reporting a price target of just $2.2.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $958.7 million, earnings will come to $70.5 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 11.6%.
  
• Given the current share price of $1.88, the bearish analyst price target of $2.2 is 14.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.