Offshore Industry and Borr Drilling: Poised for Cyclical Revaluation

Simon Caufield of SIM Limited presented his in-depth investment thesis on Borr Drilling (Norway: BDRILL) at European Investing Summit 2018.

Thesis Summary:

Borr Drilling was formed two years ago by former Seadrill executives to take advantage of the depressed market environment. The company purchased modern jack-up rigs (early-cycle play) at depressed prices. Schlumberger owns 14% of Borr, while management owns another 14%. The oil industry E&P spending downturn since 2014 has been the worst in more than 35 years, driving down offshore drilling activity, rig utilization, and day rates. Driller stock prices are up to 90% below their 2007-2008 peaks, driven by the effects of operating and financial leverage on earnings and Mr. Market’s manic depressive attitude to the prospects for recovery. There are numerous early signs that the cycle might be turning, including contract tendering and industry sentiment. Recent valuations and prior cycles suggest potential trough-to-peak gains of 6x. Tor Olav Troim, Borr’s Chairman, helped billionaire John Fredriksen set up Seadrill in 2005 and make it the world’s biggest offshore driller in less than a decade before the two men fell out in 2014. He never thought he would get into offshore rigs again, but the opportunity proved “irresistible” when the market crashed with oil’s collapse and he was offered two initial rigs for a quarter of their construction price.

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About the instructor:

Simon Caufield is Managing Director at SIM Limited, a UK-based investment firm. Simon founded the firm in 2007 after selling his stake in Nomis Solutions, a B2B enterprise software company he founded in 2002. Previously, Simon was a management consultant for more than a decade, including at Mercer Management Consulting. He also writes the “True Value” investment newsletter for MoneyWeek, a UK financial magazine. Simon has an MA in Engineering from Cambridge University.