Borr Drilling Ltd

OSE:BORR

Earnings Call Transcript 2021-Q4

[Operator]

Hello, everyone, and welcome to the Borr Drilling Limited Q4 2021 Results Presentation. My name is Stephanie, and I'll be your operator today. [Operator Instructions] I will now hand the call over to your host, Patrick Schorn, CEO of Borr Drilling. Patrick, over to you.

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Good morning, and thank you for participating in the Borr Drilling Q4 2021 Earnings Call. My name is Patrick Schorn, and I'm talking to you from London in the U.K. With me on the call today is Magnus Vaaler, our CFO. Next slide. Covering the essentials first, I would like to remind all participants that some of the statements will be forward-looking. These matters involve risks and uncertainties that could cause actual results to differ materially from those projected in these statements. I, therefore, refer you to our latest public filings. Next slide. The fourth quarter has been a very busy quarter in many aspects. During the quarter, we continued to prepare rigs to be added to our operating fleet to reach the contract of 18 rigs that we currently have on the books. We've also achieved good progress with our discussions with the creditors to extend the debt. Magnus will give you further details on that. During the quarter, we have seen some delay in the start-up of projects that affected our revenue in the quarter, as is shown in the table on the right-hand side. These projects are back on track now. The overall OpEx has been well controlled, and the EBITDA has continued its positive trend throughout the year. I will comment later in the presentation on how we see 2022 from a revenue and EBITDA perspective after Magnus will have discussed the particulars of Q4.Magnus, please go ahead.

[Magnus Vaaler, Chief Financial Officer]

Thank you, Patrick. We are now on the slide, "Key Financials Q4 2021." Q4 2021 revenue came in at $69.1 million in the quarter, a decrease of $3.9 million or 5% compared to Q3 2021. This was the result of $6.2 million less in day rate revenues for our rigs on regular contracts, offset by a $2.3 million increase in related party revenue, which is bareboat earnings from our Mexico joint ventures. This is following a quarter with high economic utilization on the rigs in Mexico. The average number of rigs trading in the quarter for the company in total was between 12 and 13. This number is expected to increase to 18 during the first half of 2022. The rig operating and maintenance expenses for Q4 decreased by $6.9 million or 15% from the previous quarter. The decrease is partially a result of fewer rigs on contract during the quarter, and we also incurred costs for rigs that are being activated and prepared for upcoming contracts, which has been recognized as deferred mobilization and contract preparation costs. General and admin expenses is flat quarter-on-quarter at $7.5 million and is a level that we've now held for 3 quarters in a row. Total financial expenses were $31.4 million in the quarter which is an increase of $4.8 million from Q3. $2.8 million of the variance is explained by the release of the provision in Q3 that did not occur in Q4. The level of financial expenses reflects the relatively low capital cost of the company's debt at an average interest rate of 4.8% for the full year 2021. Our net loss for the quarter was $46.1 million, which is an increase of $13.5 million from Q3. The main reason for the negative development is explained in increase in financial expenses and also an increase in depreciation of $8 million in the quarter as a result of an adjustment recognized in the fourth quarter. Adjusted EBITDA for the quarter was $25 million, an improvement of $5 million from Q3. This is mainly due to a decrease of rig operating and maintenance expenses. We are very pleased to show continued EBITDA improvement throughout 2021, a result of very good marketing and contracting for our rigs, coupled with stringent cost control. Our free cash position at the end of Q4 was $34.9 million, and our restricted cash, $11.1 million. So the total cash decreased by $22.9 million in the quarter. This is a result of cash used in operation of $24.3 million, which includes $29 million payments of interest and downpayments of accrued costs to the shipyards. For the interest payments, they include a regular quarterly interest to the senior secured creditors, and it includes the semiannual coupon of the convertible bonds. And finally, it includes the annual down payment of the accrued cost to the yards, which totaled $12 million in December. Cash from investing activities included cash received of $6.3 million as return of shareholder funding from our Mexico JVs. And also, we spent $5.3 million as additions to jack-up rigs, which relates to activations and CapEx of the rigs. In addition, as mentioned, we have $11.1 million classified as restricted cash, and this is mainly as collateral for performance guarantees for 2 rig contracts. $3.2 million of this will be released in Q1 2022. Total cash received from Mexico in the quarter was $18 million, which is the combination of return of shareholder funding and repayment of variable input. Now let's turn to the next slide. Another highlight from the quarter was reaching an agreement with our 2 shipyards to defer a total of $1.4 billion of debt and deliver installments from 2023 to 2025. This is the first major step towards reaching the company's previously announced targets to address its debt maturities and commitments currently due in 2023. In return for the extensions of maturities with the yards, the company has committed to make certain additional repayment of accrued costs and capitalized interest due in '22 and '23 in addition to start paying regular cash interest from the middle of 2023 on the loans. These agreements with the yards are contingent on the company refinancing its remaining debts within June 2022 and to mature in 2025 or later. The company has agreed to enter into negotiations with the remaining lenders of the remaining facilities and use its best efforts to reach a binding agreement on the refinancing by the 31st of March. This will then provide the company with a complete long-term financing solution. Going over to the next slide on the fleet status. During the course of 2021, the company was awarded 34 new contracts, extensions, exercised options and LOAs and LOIs, representing approximately 8,500 days and $717 million of potential backlog. These calculations include contracts through our JVs on a 100% basis in addition to any mobilization compensation in the contracts. Since the last report, the company has secured new contracts and LOAs for its active rigs for Norve, Prospector 5 and the newbuild rig, Thor, in addition to the warm stacked rig, Ran. This has increased the company's contracted and committed fleet to 18 units where 3 is in West Africa, 3 is in the North Sea, 1 in the Middle East, 6 in Southeast Asia and 5 in Mexico. The added backlog in 2021 represents 23.4 years of backlog, while during the year, our operating rigs have consumed approximately 11.8 years of backlog. This shows our backlog replenishment ratio stands at a multiple of 2, meaning that we added twice as many days of backlog as days consumed during the same period. With this, I would like to give the word back to Patrick.

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Thank you, Magnus. We've commented for a while on the underinvestment in the E&P industry. It's becoming more and more evident that the impact of the multiyear underinvestment has started to erode the spare capacity. Some producers today are not able to fully benefit from the quotas available to them. This has led to inventory draws as can be seen on the graph on the right-hand side, where currently the OECD inventories are running significantly below the 5-year average. The demand, regardless of the pandemic or geopolitical issues, remains very strong, and therefore, activity in the E&P will have to follow suit to ensure sufficient volumes are available. The current oil price has been reflective of the tight supply/demand and is of a level fully justifying increased investment and subsequent activity. Next slide. Many of the public companies as well as some of the national oil companies have released CapEx guidance numbers for the next years, indicating a clear change and significant increase in the investment levels planned for the coming years. On the right-hand side, you see the isolated impact that this will have on the shallow water wells planned to be drilled this year. Practically, a 20% increase in the market that Borr Drilling is participating in. Next slide. Global competitive jack-up rig utilization stood at 84% at the end of the quarter. While this is flattish compared to last quarter, we see a continued increase in the contracted working rigs to 76%, leaving only 30 contracted idle rigs currently. In other words, any increase will require additional rigs to be contracted as the 30 idle rigs are around the historic low as can be seen from the graph on the left-hand side. Now when it comes to contracting, we are currently involved in active tenders and negotiations that combined equal 153 rig years of activity. If comparing that to 1 year ago, we were involved in tenders for about 68 rig years of activity. So the contracting and tendering activity has more than doubled in the last 12 months. Next slide. Looking more into the rigs that are available to cover the upcoming activity, there are a few things to note. Firstly, looking at the graph on the left-hand side, it demonstrates the ability of the industry in the past, where in the period between 2018 and 2020, an additional 70 rigs were contracted. From the current 357 contracted rigs, it only takes 30 more rigs to be at levels that we had prior to the pandemic. On the graph on the right-hand side, it shows that only 28 modern rigs are available currently when we adjust for several factors under which rigs that are cold stacked for over 3 years or are built prior to 2010 and also take out those rigs that have a tainted history due to sanctions and are less marketable because of that and take out those rigs that have less desirable designs, for instance, shorter leg length. This limited rig supply, combined with the anticipated demand of over 30 additional rigs when considering only the national oil companies' requirements makes us very confident in a strong market going forward. Next slide. Based on the 2021 performance and having made some fundamental changes to the business, we are confident we can further grow our business and improve returns in the year ahead of us. On the graph on the left-hand side, you see the quarterly performance in 2021. Now taking into consideration the contracts we have been awarded already and the further development of the market during the year, we are anticipating generating revenues in the range of $375 million to $400 million and an adjusted EBITDA in the range of $115 million to $140 million. It should be noticed that the revenue and earnings will be increasing throughout the year such that the earnings in the fourth quarter of 2022 are expected to be double those of the fourth quarter of 2021. Magnus will give you some further insight of what this means from a cash perspective.

[Magnus Vaaler, Chief Financial Officer]

Thanks, Patrick. Turning to the next slide. One of the most valuable aspects of Borr Drilling is our ability to start generating large amounts of cash once we get all our rigs working. This slide shows the high cash generation potential of the company at various day rate levels. At the current level of our 18 contracted and committed rigs, which we expect to start working in the first half of 2022, an average rate of just $80,000 per day has an EBITDA potential of $170 million annually. This increases by more than $120 million to around $300 million with just a $20,000 per day increase in day rates on average. We've also added examples of the 20-year average day rates of $140,000 per day. And in that instance, 18 rigs can generate $550 million in EBITDA. We have already guided, but we expect to have all our 23 delivered rigs to be contracted and committed by the end of 2022. This adds further to the earnings potential. We feel that this table is quite exciting in combination with what we see in the market developing at the moment. And I'll turn it over back to Patrick.

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Thank you, Magnus. So in conclusion, we have 18 out of the 23 delivered rigs contracted. And during Q4 and into Q1 of this year, our operational team has been very focused getting these rigs activated and operating at tight budgets and within minimum downtime. The market for modern rigs is tight even more so when considering the units that are able to start work within this year. Units that have been cold stacked for several years require a lot of work and investment to get ready. This, in combination with this challenged industry supply chain provides us with our modern young fleet with a significant competitive advantage. As such, we remain confident that we're able to have all the 23 delivered rigs contracted by the end of the year 2022. Together with our main creditors, we are working to construct a long-term capital structure, which would take us well beyond the current Q1 2023 maturities. We have achieved the first milestone with the shipyards and anticipating having a solution with all remaining creditors in the next quarter. For the full year 2022, we expect to be increasing our revenue by approximately 50% versus 2021. And we anticipate the adjusted EBITDA to continue to improve to the extent that Q4 2022 will be double the Q4 2021 adjusted EBITDA. With this, we trust we have given you a clear view of our expectations for 2022, and I hope you share our enthusiasm when it comes to the upside potentials. Ladies and gentlemen, thank you very much. We will now go to Q&A.

[Operator]

[Operator Instructions] Our first question comes from Fredrik Stene at Clarksons Platou Securities.

[Fredrik Stene, Research Analyst]

Congratulations on a new quarter here, strong performance overall, I would have to say. I have 2 questions here. The first thing I would like to just dive a little deeper is in the market dynamics that you're seeing. Obviously, the data that we and the rest of the market has available is kind of limited to what's been reported, but it's no doubt to say that there are a serious amount of tenders now going on. For example, in Saudi, there is some [ NOCs ] in Southeast Asia. So I was wondering if you could give us any color on how you feel like you're positioned to get some awards in those tenders, if you can also provide some color maybe on what you believe are the leading-edge day rates in the contract discussions that you're currently in, that would super helpful.

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Fredrik, so let me try to give you a bit of an idea of what we're up against. So certainly, as you were mentioning, there is a variety of larger tenders and we also have existing contracts rolling over. So the rolling over is happening at this moment continuously at higher rates than we previously had, which is very much a function of the lack of short-term availability, meaning there is not a whole lot of additional rigs that can go to work very quickly. And I think that, that is also one of the things that we start seeing affecting some of the larger tenders because obviously, some of the larger tenders are anticipating a lot of interest. And I think there certainly is from all providers across the market, interest in these tenders. There is, however, very few people that have rigs ready to go and ready to be deployed after a certain contract preparation that they might need. So I think that what you're seeing is that on one side, it is the utilization that starts to drive more and more the day rates going up, but it is in particularly the short-term availability. I think that if you go a year plus out, there is people that could get rigs ready. But the position that we have at this moment with the 5 rigs that are delivered and that we have available for this type of work, plus the 5 that we have sitting at the shipyard, puts us in a very unique position to benefit from the increased activity, and more importantly, be able to deliver rigs at the time that the customers need it. So when it comes to day rate, I can tell you that they are continuously going up. And depending on which area you're talking about, it can be in percentage-wise quite substantial. And obviously, that is on 1 side understandable when you're thinking about where we come from and what has kind of been the average that the jack-up market has been working with. I think most importantly, when you start looking at some of the forward projections of what this business could deliver, I think it is important to realize that day rates over the last, call it, 2 years are not going to be very representative of what we will be seeing going forward. And therefore, I think we need to keep the finger on the pulse and very much we are on track to participate in all the large tenders that we can. And we do think that we have a very credible offering for most of the operators out there. So I would think that you see us taking more and more active rigs into our fleet with the day rate increasing, that may be the best way how I can give you some idea on the market dynamics. And obviously, from a competitive perspective, I don't think you expect me to talk anything about the detailed day rates, how much they have gone up. But I can tell you that on a percentage-wise, across the board, meaning in every region, we start to see increases coming forward.

[Fredrik Stene, Research Analyst]

Well, that's super helpful, and I totally understand that you can't give specifics. Just in terms -- as a follow-up to that, in terms of the -- you're talking about bringing rigs back down and you seem very confident in that. As I was reading your reports, I was wondering if -- and also based on your guidance, you said here at the end that Q4 2022 EBITDA is effectively doubling what you reported now in Q1. So I was wondering what's the, call it, basis for that assumption? Is it that at that point, we'll have all those rigs? Is it a material increase in day rate? Could you just give some color on the calculations there, that would be helpful as well.

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Yes. So firstly, I think it is important to realize that, of course, revenue and EBITDA is going to be increasing throughout the year. And therefore, we wanted to give you a bit of an idea on the exit rate of 2022 versus the exit rate of 2021. And that is why we have chosen to report it to you in this particular manner. The other thing that I think is important to realize that the number of, let's call it, $50 million of EBITDA in Q4 of 2022 is not dependent on having all 22 -- 23 rigs working at their full potential for the full quarter. As you well know, some of our rigs are at the moment on a bareboat charter type of arrangement. So that is actually part of that calculation. So it does anticipate that we have everything contracted and starting to work towards the end of the fourth quarter. But the $50 million is not representative of the full potential of 23 rigs, if I explained that clearly to you. So I think that, that is important in that. The other thing, I think, is good to realize that we have, obviously, at the moment, 18 rigs contracted. So we have a very good idea for a large part of the year on how the year will be shaping up. And if we look at the, call it, the forces in the market right now, then we expect certain revisions going forward, but quite frankly, the revisions that I expect are going to be upward revisions to the numbers that we have shown you and not downward. That's what we see in the market. And I think that from what we have contracts on hand today, we are comfortable giving you this guidance on what the full year is going to bring. But more is obviously possible if things are getting even stronger than we anticipate at this moment.

[Fredrik Stene, Research Analyst]

That's super helpful. So the $50 million is more like a run rate expectation with potential further upside momentum into '23 then if I...

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Yes. I would say, particularly the latter with an upside potential because as I have said, it is not the full potential of 23 rigs in the full quarter at the day rates we expect at that time, which maybe also can -- thinking back about the slide that was presented here on the different day rates. You see how incredibly sensitive it is to the EBITDA generation. And therefore, I would say, look at that and you get a good feel of what is possible.

[Operator]

The next question comes from Karl Pederson at ABG.

[Karl Fredrik Schjøtt-Pedersen]

Regarding and following up on the question on 2022 guidance, can you elaborate on how much of that guidance is linked to either currently contracted or particularly firm tenders that you have participated in and how much is dependent on your market view?

[Patrick Arnold Henk Schorn, Chief Executive Officer]

So obviously, it is very heavily dependent on the contracts that we have in hand, and there is a certain expectation on some additional rigs and work that we anticipate getting. But mostly, it is contracts in hand, and it is less dependent on future contracts going forward. Now having said that, we -- from the numbers that we have presented, it is clear that we have a significant amount of rigs being tendered at this moment. So there is upward potential, but also for us, there is going to be a time frame, what it takes for us to put out another 5 rigs or even more if we wanted to be more aggressive and start taking out some of the additional rigs that are still at the shipyard, which will be much more complicated in time. So what we're having right now and the numbers that we have shown you is heavily dependent on the contracts that we have in hand and the rigs that we have been activating here during the fourth quarter that are getting into operation right now, and to a much lesser extent, future potential in tenders that we're currently participating in.

[Karl Fredrik Schjøtt-Pedersen]

Okay. And any -- I guess, what would be kind of the main uncertainty related to your guidance range? What should we look for as the kind of main mover?

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Well, I think that if there were to be a black swan that is going to significantly upset the worldwide economy, and therefore, change demand, yes, that might change our guidance. But from the way that we are looking at the macro today, and particularly when we look at the supply-demand as it is being projected today, the inventory draws that we have seen that it is very clear that additional capacity will need to be created. And the only way that this can be created is through drilling. So from that perspective, I would say that there is a large certainty that additional work needs to be done, and therefore, we anticipate the overall market to increase for us, and we anticipate E&P expenditure, therefore, to go up. So I would say the only thing that could really change everything if there is a black swan, but I guess for that reason it's a black swan. So I don't think we can plan any further for that. We plan for the things that we know right now and the things that we can control.

[Operator]

The next question comes from Richard Rolnick at BTIG.

[Richard Rolnick]

I wanted to know the -- on your current stack of rigs, what is the average day rate that you're seeing now? And what is the average that you anticipate for 2022? On average on all your contracted rigs at current oil prices, which are closing in on $100, we've seen day rates exceed $100,000 per day back in, I think, 2015 and '16 on average. And why are day rates lagging oil prices today? That's my first question. My second question is on the on the refinancing issue. What -- you said you had some news to say next quarter on negotiations with creditors that includes the bank creditors as well as the convertible bondholders. In terms of the converts, what can you offer convertible bondholders to -- in exchange to extend their maturity? Is there -- the bonds currently are noncallable and maybe -- and very much out of the money. Is there anything you can do there?

[Patrick Arnold Henk Schorn, Chief Executive Officer]

All right. Well, certainly, 2 very different directions, Richard. Let me first start on the day rates. So we don't publicize our average day rates as such. The only thing that we did speak in the past is that we have given an insight into the additional backlog that we created and we have said at that time, it was at around $85,000 per day. I would say that where we are going now is we start to see this increasing rapidly. And where you see that is in 2 things. You see that in the increases in day rates that we are putting in the tenders going forward, but also in the options being higher priced than before and sometimes the absence of options and contracts completely. So you see that it's not only the day rate but the overall [ T&Cs ] are getting much tighter, probably a little bit more in favor of the supplier versus what it previously was. So those are all interesting improvements into the economics for us. So that, I would say, on the day rates specifically. The other thing, as you were mentioning a little bit around the economics for our customers and particularly when you start thinking about $90 to $100 oil, I think it is very interesting to look at some of the production that you see offshore in the shallow water on what average wells are giving you. And then look at even a doubling of the day rates and what kind of impact that has on well cost, and how, if any, this changes the economics for the operator. And you see very quickly that for operators that need to do activity at an oil price of $90 to $100, the day rate is not going to be the point that holds them back. So from that perspective, we are not in the critical path for them or offsetting the economics in any way. I think going forward, what is going to be driving it is that there is capacity that needs to be generated. There is a large variety of companies that are looking to be adding production through drilling at this moment, some of them through some very elaborate and large programs and that is just going to take a lot of the availability, and that is going to drive the oil -- the day rates on the rigs very, very quickly. So from that perspective, I think it is that utilization and the absence of a large fleet that is ready to go. When it comes to the refinancing, I'll ask Magnus to make a few comments regarding that because you were asking specifically around the convertible bonds. Maybe one comment I can make before that is that in this whole process, we obviously have to make sure that we get a solution that is working for everybody in the equation. And on one side, you have our creditors. On the other side, you have the existing shareholders that are very willing and have been very supportive throughout the last few years. But of course, increasingly now with the markets turning to support the company and make sure that any possible dilution is minimized to the absolute maximum. So I think what we did see in the last few weeks is an ever stronger support from the existing shareholder base, which obviously then allows us for many more different options on how we deal in the restructuring of the refinance. But I'll ask Magnus to -- more specific, give you some ideas of what is being worked on.

[Magnus Vaaler, Chief Financial Officer]

Yes. Thanks, Patrick. I think obviously there's discussions we're having with our creditors that are not public. I can't go into too many details of it. But what I can say, and what we've said in the press release, too, is that we have had already dialogue with the other creditor parties. First of all, because they had to accept the agreement that we have made with the shipyards. And secondly, because they are also an important part of creating this long-term financing structure of the company. So our priority is to continue those -- that dialogue and also to reach an agreement that all parties can live with and do that through collaboration with the parties.

[Richard Rolnick]

On a follow-up to that, is something -- so given this illustrative cash flow potential, which is interesting and exciting for the company and shareholders, it's very conceivable at day rates in excess of $100,000 a day migrating towards $150,000 a day that the company can actually grow into their highly levered capital structure, which would seem improbable only a year ago. Given that's the case, shareholders would benefit immensely from that scenario, which is why they've been so supportive, which is fantastic for the company in order to effectuate this refinancing. I'm wondering if convertible bondholders, which are deeply out of the money, although not by maturity, but by participation in the equity upside if that can -- if those terms can be amended such that they participate in the equity upside as well without severely diluting current shareholders.

[Magnus Vaaler, Chief Financial Officer]

Yes. I totally agree that, as you said, with day rate levels going up into $100,000 plus, and as we have emphasized several times that in those day rate environments, managing the debt levels that we have, have not, at least historically, been too high and also currently with our low capital cost on the debt as well being just below 5% on average, the capital cash costs on the debt, interests being low and there is no amortization, which is especially important on our cash flow, that is a pretty good capital structure, as you said, for the stakeholders when -- in an upturning market. So we just have to then figure out together with the share -- with the bondholders and the other creditors, what kind of solution we can reach in order for -- you've seen from our previous refinancings, we want to make a deal that's overall good for creditors and also shareholders and focus on all the parties and avoid massive dilutions. So that's definitely something we will have to bring into the negotiations with them.

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Yes. So maybe one point to add to that, Richard, is the -- clearly, because you were talking about having the bondholder share in the equity upside. I think that if you look at the performance of the different instruments, then probably the equity holders today would like to participate in their own equity upside first a little bit, which has been lagging in every metric that you want to look at. So I would say that there is likely, if something needs to be done with the convertible bonds, I would think that there is a tremendous support from the equity holders today to be dealing with that through cash and making sure that the equity upside remains at the side of the balance of the equity holders, right? So that's what I would expect. But listen, it is a bit premature to try to talk here about the solution when we're in the midst of the discussions. And clearly, you understand very well where the different values lie. And we just want to make sure that what we end up is a workable solution for the company. We definitely see constructive and willingness on every site that we are dealing with. And we hope that we get this wrapped up relatively quickly. And as soon as we do, we obviously will be out talking to you again and informing the market.

[Operator]

The final question comes from Kim Uggedal at SEB.

[Kim André Uggedal]

This is Kim from SEB. If I start with a question on your guidance. As you're going from 18 to 23 active rigs, what's the associated cost with those reactivations? And is that pure CapEx? Or is some of that included in your EBITDA guidance?

[Magnus Vaaler, Chief Financial Officer]

So what we are previously guided on is an activation of a new build rig so it typically cost between $12 million to $14 million, and that cost is still relevant and valid. However, we have been looking at various solutions when offering our rigs to customers where they participate in the upfront costs or cover the whole upfront costs on potential new contracts and that we offer the newbuild rigs that we have also on a basis that another party would operate them and take the whole upgrade job prior to the rigs commencing the contracts. So that would obviously be a great help on financing the activation of the newbuild rigs that are in the yards.

[Kim André Uggedal]

And a follow-up, if I start with kind of the top end of your EBITDA range, so $140 million, and we adjust for the cash interest that you're having and the deferred payments you have to make to your creditors or yards and assume kind of around $12 million to $15 million per rig in reactivation costs received or get your kind of a negative free cash flow also for '22. So I guess the questions are, do you agree that there is still negative free cash flow in '22? And how comfortable are you with your liquidity position given this outlook or given your own guidance, I guess?

[Patrick Arnold Henk Schorn, Chief Executive Officer]

Yes. So let me take the first part of that. I mean it is absolutely clear, and we have dealt with the liquidity here over the last, I would say, 6, 7 quarters. So that is not something that is disappearing one to the other day. So that is something that we will continue to deal with and we activate at the speed that we can, obviously, also limited in certain aspects by the liquidity and the cash that is available to do so. Now it is very clear that in the refinancing that we're doing, we are also creating some liquidity to making sure that we have the funds available to activate the rigs during '22 as we need. So it is very clear that some of the activations are going to take some capital over and above what we can generate, but put us in a position where we can generate significant revenues going forward in '23 and beyond. So from a company perspective, it's the right time in the market to do it. And therefore, we have made the provisions for that in the discussions that we are having with the creditors to actually create the space that we can properly do that and get the best out of the asset fleet that we have. So your logic is fully valid, and we are fully prepared to deal with that. So with that being the last question, maybe let me, in conclusion, say a few things around the rates and the guidance we have given. The guidance has been there because we do think that there is that many significant changes in the market that we feel we needed to give you an indication of where we see the market going, and we are preferring to be a precise communicator, and therefore, have given you this level of insight with the understanding that we rather be precise than overpromise and underdeliver. And therefore, as the market will change, we will update you further on our revenues and EBITDA. But based on our current outlook, I would expect that these updates are going to be upward revisions. So the rig rates across the board are increasing, driven by utilization, large tenders that are likely to drain the market from the available capacity and the lack of already short-term availability. The day rates over the past 2 years are not the ones we'll see going forward. It will go up, and we expect that to be relatively fast. Our not yet contracted fleet of 5 delivered rigs plus another 5 sitting in the shipyard is a tremendous competitive advantage, which allows us to meet customer demand very efficiently and faster than most of our competitors will be able to do. We expect this competitive advantage to be a major differentiator in the performance of Borr Drilling going forward. Ladies and gentlemen, thank you very much.

[Operator]

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.