Borr Drilling positioned to capitalize on tight jack-up rig market despite sector re-rating

The offshore drilling industry has a quiet corner that most investors overlook, and that oversight has created an opening for those paying attention. While deep-water operations grab headlines and capital, the real work of extracting oil happens in shallower waters—depths under 500 feet—where jack-up rigs do the job. These are mobile platforms with legs that can be lowered to the seabed, anchoring the rig in place, then raised again when it's time to move. For years, this market was left for dead.

The collapse started in 2014 when U.S. shale production upended the global oil supply picture. As demand for offshore drilling cratered, shipyards kept building. By 2015, the order book for new jack-up rigs had swollen to 140 percent of the entire existing fleet—a glut with no end in sight. The recovery, when it came, was glacial. Offshore projects operate on long timelines; they take years to generate returns, so demand doesn't snap back quickly when prices move. There was always the risk that shale would ramp up again before offshore projects could even break even.

But the math has shifted. U.S. shale production is approaching its peak, and most analysts now expect oil demand to keep rising over the next decade, with shallow-water resources providing the bulk of new supply. These shallow-water fields are economical—breakeven prices hover just above $20 per barrel—making them the next frontier after the onshore reserves of the Middle East. Demand is responding. The Middle East has increased its contracted jack-ups by over 40 percent since 2014, from 127 rigs to 179. That surge has tightened the global market. Utilization now sits at 94 percent, with only 26 spare rigs out of a fleet of 429. Day rates—the daily rental price operators pay to use a rig—have been climbing steadily.

Borr Drilling, a publicly traded operator, has positioned itself at the center of this tightening. The company owns 24 premium jack-ups, with an average age of just six years—the youngest fleet among its competitors. Premium rigs command higher rates because they're newer, more efficient, and meet stricter customer specifications. They also hold up better when markets soften. Over the past year, Borr's stock has risen 60 percent as the sector has re-rated upward, but the analyst case for further gains rests on a simple observation: the easy money may have been made, but the structural tailwinds are still blowing.

The tightness in the market is unlikely to ease soon. Building a new jack-up rig takes more than three years, and shipyard capacity is constrained by competing orders in other shipping segments. Inflation has pushed construction costs higher. Meanwhile, the global fleet is aging—over 30 percent of rigs are older than 30 years—which means retirements will further reduce supply. Contracts are long-term, typically lasting around 1.7 years at Borr, providing visibility into future revenue. The company has already locked in 84 percent of its 2024 work at an average of $132,000 per day, 60 percent of 2025 at $135,000 per day, and 8 percent of 2026 at $134,000 per day. New contracts are being signed at $161,000 per day, and rates are expected to keep rising.

Historically, when utilization approaches 100 percent, day rates have climbed as high as $250,000 per day in inflation-adjusted terms. Current rates around $160,000 per day suggest meaningful room to run. If rates do reach $250,000 by 2026 and Borr maintains its current operating margins and uptime of 99.1 percent, the company could generate roughly $1 billion in annual EBITDA. At a market capitalization of $1.8 billion and $2 billion in debt, that would value the company at less than 4 times forward EBITDA—a multiple that looks compressed if the bull case holds.

The company recently refinanced its debt, pushing major maturities out to 2028 and beyond, which removes a near-term pressure point. Management has stated an intention to reduce total debt below 1.5 times EBITDA, using cash flow to deleverage first. Once that's accomplished, the focus will shift to returning cash to shareholders through higher dividends—currently 5 cents per share—and share buybacks. The structural case is straightforward: a tight market for a commodity service, a fleet positioned to capture premium pricing, and a balance sheet that can absorb the upside without breaking. Whether that translates to stock returns depends on how much of this story is already baked into the current price.