Good morning, and welcome to the Nabors Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Dennis Smith. Please go ahead.

Good morning everyone, and thank you for joining Nabors' earnings teleconference to review our fourth quarter and full year results. Today we will follow our customary format with Tony Petrello, our Chairman, President and Chief Executive Officer; and William Restrepo, our Chief Financial Officer, providing perspectives on the quarter's results along with some insight into what we are seeing in our markets and how we expect Nabors to perform going forward in these markets. In support of these remarks, we have posted some slides to our Web site, which you can access to follow along with the presentation if you desire. They are accessible in two ways. One, if you are participating by webcast, they are available as a download within the webcast. Alternatively, you can download the slides from the Investor Relations section of nabors.com under the Events Calendar submenu, where you will find them listed in Supporting Materials under the conference call listing. Instructions for the replay are posted on the Web site as well. With us today in addition to Tony, William and myself are Siggi Meissner, President of Global Drilling; Chris Papouras, our President of Nabors Drilling Solutions; John Sanchez, our Chief Operating Officer of Canrig, and other members of our senior management team. Since much of our commentary today will concern our expectations for the future, they may constitute forward-looking statements within the meaning of the Securities and Exchange Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission. As a result of these factors, our actual results may differ materially from those indicated or implied by such forward-looking statements. Also during the call, we may discuss certain non-GAAP financial measures such as adjusted operating income, EBITDA and adjusted EBITDA, operating income loss and free cash flow. We have posted to the Investor Relations Section of our Web site a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measures. I will now turn the call over to Tony for his prepared remarks.

Good morning everyone. Welcome to the call. We appreciate your participation as we review our results for the fourth quarter of 2016. First, I would like to discuss how Nabors is executing on our vision to be the global driller of choice. William will follow with a review of our financial results. I will then wrap up, and we will take your questions. In November, we rolled out our 2020 vision at our analysts' day in Houston. In it we unveiled some exciting new technology. We also detailed our plan to generate growing levels of free cash flow, and dramatically improve returns on capital. While we are a long way from reaching our 2020 goals, we have already achieved several key milestones in the last few months. We are currently on track to meet these ambitious targets with continued focus and execution. First, we have achieved 100% utilization on our industry-leading SmartRigs. These rigs targeted primarily at Lower 48 market go beyond super-spec pad off capabilities. By leveraging the Rigtelligent [ph] operating system they can deliver more efficient, more consistent results for our clients through the benefits of automation. Next, we have made great progress in our Nabors Drilling Solutions division. The fourth quarter set new high watermarks for customer penetration across multiple product lines. Customer acceptance of our technology solutions is increasing every day. I'll share a couple of examples of that later in the call. Finally, we signed one groundbreaking joint venture agreement. Our joint venture with Saudi Aramco will result in a best-in-class drilling company in the region. That joint venture is a robust platform for long-term growth in one of our most important markets. The foundation for its growth prospects is a highly capable national workforce which will also grow over time. The joint venture will…

Good morning and thanks for joining us today. Our fourth quarter performance was driven by several market related factors. Essentially, a continuation of what we've seen in the third quarter. First, a strong sustained recovery in the U.S. Lower 48 with material spot pricing improvements, they are still below the average day rate for a fleet; two, a brisk rebound in Canada at an even faster pace than in the U.S. three, as anticipated a modest reduction in our international rig count into the fourth quarter; finally, increasing market penetration of Nabors Drilling Solutions, with not only sequential revenue improvement, but also an increase over prior year level in the phase of a lower rig count. Now to our financial results, fourth quarter net income from continuing operations was a loss of $331 million or $1.17 per share as compared to a loss of $99 million or $0.35 per share during the third quarter. The fourth quarter loss included $245 million net after tax changers, primarily from asset impairments and other charges related to the strategic initiative. Excluding those charges, the fourth quarter loss was $86 million or $0.30 per share. Revenue from operations for the fourth quarter was $539 million as compared to $520 million in the prior quarter, a nearly 4% improvement, increases of $33 million in U.S. drilling, $6.5 million in Canada, and $4.7 million in rig services more than offset of $20 million decline in international. The U.S. drilling revenue increased by 28% to $149 million, reflecting 29% higher rig count in the Lower 48, along with the full quarter from our CDR-3 rig and generally high revenue in Alaska. The Lower 48 revenues increased by 24%. As the rig count increase was partially mitigated by a $700 reduction in revenue per day. This reduction was…

Thank you, William. I want to conclude my remarks this morning with the following summary. The Lower 48 market has increased dramatically in recent quarters, and our highest spec SmartRigs have reached full 100% utilization. In the international business, we expect our rig count to increase gradually in the first half of the year and begin accelerating higher by mid-year. I also want to note two things. First, we expect average rig margins in the Lower 48 to trough in the first half of 2017. On the average, current spot rates now moving higher remain lower than the average day rate of our fleet. Additionally, the upfront cash required to crew up and bring rigs back to service presents us with the headwind. Nonetheless, it is important to continue placing our rigs into the market while staying short on duration. This preserves our ability to increase prices in the near future as utilization warrants. Second, we're dedicated to providing more value per dollar to our customers even while day rates increase. Our new rig systems and equipment provide higher rates of penetration, enhanced resource recovery and perhaps most importantly increase performance consistency. Despite the discussion of shale drilling, transitioning to a manufacturing process over the last few years, there is still tremendous variation in performance across many aspects of the drilling operation. Our aim is to reduce this variance to then top decile of current performance across all operations and make shell shale drilling a truly predictable, consistent manufacturing process, while we maintain our focus on the execution in this early recovery. We also want to reflect on the lessons of 2016. Our extreme focus on cash generation let us to take many difficult steps, whilst also maintains our financial strength of liquidity. One step we did not take was to shutdown our R&D program for the benefit of short-term cash flow. Rig flow automation and downhole integration are essential to the future of the industry. Drilling contractors who embrace and concurs these challenges, we believe can add tremendous value to their customers and break our legacy per trade by some technology providers. We believe the SmartRig paired with our NDS technology is the key platform to provide the safest, most efficient, most cost effective drilling solutions to our customers. The accomplishments of 2016 and the further initiatives we have underway give us confidence to be on the right pay towards achieving this vision. As always, I look forward to updating you on our continued progress going forward. This concludes my remarks this morning. Thank you for your time and attention. With that, I will take your questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Chase Mulvehill at Wolfe Research.

Hey, good morning.

Good morning.

Good morning, Tony. So I guess, I'll start on international. Could we talk about cash margins a little bit, I think if I heard you right, $17,000 a day is kind of what you expected for cash margins in the first quarter. Could we talk about -- can you confirm that. And then what do you see cash margins as we kind of go into 2Q into the back-half of the year?

I think cash margins, yes, definitely would be above where they were in the fourth quarter. There's a mix in the rig count, in the first quarter it's going to be roughly the same average rig count as in the fourth quarter. We mentioned that we had rigs coming down -- we have rigs coming up this quarter. There's a couple of workover rigs that William alluded to that's coming down, but the mix of change in rigs is actually going to improve. So I think the net is expected is about two-and-a-half to three increase if drilling rigs in the out rig count for first quarter. So, the mix changes, and I think also the margin will improve.

Okay, all right, that's helpful. And then so for the Argentina work over rigs how many of those go down?

Two or three.

Two or three, okay, and you have a total of 12 if I remember correctly, is that right?

That's correct.

Okay, all right. Last one, and then I'll turn it back over. Could you talk about how you're thinking about M&A and acquisitions in this market?

I think they're difficult. I think -- we've looked at a number of other companies, and most of the transactions out there frankly are not accretive in terms of asset acquisitions to where we want to go with our asset quality. And therefore it's hard to justify paying especially for public company deals a premium price to something when the assets you're acquiring are actually less or the price is more than replacement cost. So given our intention of having rigs that really comprises new platform, which we call the SmartRig, it's hard to see what deals can work. But obviously deals that bring synergies or customers, we're always looking at every possibility there. On the other hand, I think the third piece of acquisition opportunity is in things that would fold into the NDS portfolio of services. And we're open to that.

Okay, that's helpful. I'll turn it back over. Thanks, Tony.

Okay, let me just add one further comment. I think it was inspired by your write-up actually. It concerns our press release reading the rate of pricing of the commitments, the new builds. I think the press release said nine out of 10 committed new builds were in the low 20s. I think it's more accurate to say the average rate of those nine were in the low 20s. Two of that group were agreed in 2016 when the market was meaningful for less than 20,000. So I just wanted to clarify that.

Okay, thanks.

Yes.

The next question is from Sean Meakim of JPMorgan.

Hi, good morning.

Good morning.

So we have another step-down in the first quarter for U.S. margins transitioning costs go from negative mix on the day rates. I think you noted in the prepared comments first-half had marked the bottom for margins. Just was curious how confident you could be in a 1Q bottom or another way to put it I guess is, how much risk do you think there is at this point for another material step-down in 2Q or you know, are the two fairly, in your model today fairly similar?

So basically, I mean, it is pretty certain that we'll see a reduction in the first quarter of course. Basically, we have been signing contracts at the end of last year, and early this year in the -- all the way between the $17,000 and $19,000 range, and our average day rate is higher than that. So obviously we expect to see some reduction in average revenue per day in the first quarter, which I'd quantify as roughly $700 per day. We think there're some positive impacts going forward in terms of costs as we utilize the structure a little bit more efficiently when adding rigs. However, in the near-term that's more than offset by bringing in new rigs. Sometimes those rigs need to be moved from certain areas to other areas, and we have to build up the spares inventory, and the rigs, and so forth. So we think that those impacts will hit us in the first quarter, and that's why I brought up those items. I think in the second quarter the erosion in our day rates will be much mitigated. I don't see a huge impact in the second quarter. If anything we will see potentially some improvement. So that's why we think in the second -- we will have troughed in the first quarter. And in the second we expect stable to increasing, improving margins.

Got it, that's helpful. Thank you for clarifying that, William.

Yes, the only thing I would add to his comments is about two-thirds of our rigs are on terms less than six months. So as the market moves to the higher rates we have an opportunity obviously to push them up you know, just with the market. But two-thirds of the portfolio today is less than six months which was literally structured for this environment.

Few of them…

Yes, and many of them are also well-to-well, so that gives us a further opportunity.

Got it. Okay, thank you. And I guess that leads to the next question on the day rates. So the data points you gave us, sounds like leading edge for super-spec you could call like 18.5 to 19, and then you've done some new builds, let's call it in the low 20s roughly. Just curious if you're seeing any significant variance by basin, the customer mix these days in terms of kind of the small folks versus the larger integrated or large independent. Just trying to get a better sense of the mix of what you're seeing out there in terms of what's driving changes in day rates?

Yes, well first of all, just in terms of the driver of that 70, obviously is seeing the biggest change is in the Permian, and South Texas, East Texas, and Mid-con. And interestingly we're now starting to see East Texas and North Dakota as places for incremental activity. I'd make a few comments here, the first one is you're correct about the rates. I think it's also the case that our new SmartRigs should command close to the same numbers of new builds because the SmartRigs are going to be the leading edge rig. And there's really no difference between a SmartRig and a new build today that are being outfitted. And so the way I would describe it in terms of those new builds, I think a rig today that's being -- will go to work in June or so, you're looking at above 20,000 -- 20,000 or above as opposed to the number you're talking about. Rigs today, we are actually obviously said -- prior discussion so there is not so much talk make some sense there. In terms of the delta, I think it's the case of the Mid-con. The Mid-con rates are actually a little higher, and North Dakota is a little higher. Then South Texas, and actually EMEA a little higher than West Texas, so that's where I'd describe it.

That makes sense. Yes, thanks guys, I appreciate it.

The next question is from Marshall Adkins at Raymond James.

Hi guys, thank you all for the helpful comments starting out. Clearly your market share gains in the past even two months have been much faster than the overall markets improving. Is it just because you have more the super-spec rigs available or are there other things playing into that, such as your SmartRig or packaging with the NDS, or something that we can't see from the outside that's driving your utilization up a lot faster than the rest of the industry.

That's a great question. Actually, I'd say it's a multi-pronged answer, Marshall. The first is, I think it's becoming clear that our rig design technology is second to no one. And we actually believe we're setting the pace for the agenda. We've actually had dialogue with customers and uniformly we've been receiving praise for the technology initiatives in terms of rigs that they are drilling. So that's the first point. The second point is I think our crews, we did an excellent job retaining our best crews during the downturn, and they're the nucleus of rigs to work. Even in the downturn we had another record safety year this year for example. And all the exclusives are coming back. I think the customers have complete confidence in Nabors, in the upturn here, in the sense that the nucleus of these rigs are these best-in-class people we left, and they're forming the center of the new crews manning these rigs going up. The third thing I would say is the KPI information, which relates to the information in the new system that you alluded to that we have today. I think our KPIs and information about rig performance that we're making available to operators is unparalleled. I think it's part of our initiative. I'm not hiding the ball, and being proactive on attacking areas of improvement. And we're gaining a lot of momentum in that regard of just building a culture of performance. And that, I think, is really embraced by the operators. And we're telling them things that they really didn't know about, invisible downtime, where it's coming from, et cetera. And that's part of our new systems on the SmartRigs. And then finally I would say the customer attitude about Nabors, I think there is hopefully a mind shift going around Nabors is more of a solutions provider for looking to support customer base that can take advantage of the full range of NDS services I would bring to the table and U.S. as a value-added partner, solution partner as opposed to a commodity rig provider. I think all of those things are combined to make a different proposition that would have been historically. So, it is a multi product strategy, Marshall.

Okay. Well, obvious follow-up for that, you all did, I thought heck of a job in your Analyst Day, showing this -- your version of the rig of the future, we are starting to call it, where do you see the competitive landscape for the type of thing you are doing? Is anyone else who have been close to you in terms of providing that? I just want to understand where the competition stands.

Well, I would assume NOV is out there doing something with upgrading their ideal rig and trying to take their technology and put it into a land rig. I think there is no question that technology that factor is going to exist in this sort of place. We're repackaging it to be cost effective on land. I think it's the key. And I think one of the differentiation of Nabors' strategy is this SmartRig platform that we are creating will be able to be the rig of the future. Each one of these far rigs was designed, as I mentioned at the Analyst Day four years ago with the view that there is the last stage of the last mile completed, the less mile would be -- with the four automations. And so, the rig is also up to accommodate that. So, instantly when we make this available in scale, we would be able to roll it out, and I think no one else has that, and these are our leading service company. It's also high rig of future. Once they design they have to build them, they have to build a hundred of them. Whereas today, we have a hundred rigs and we can just retrofit and the time to market is going to be a lot shorter. So, at that point of view, I think we are in a unique space. I think from a technology point of view, I think we have all the ingredients, and as you saw at Analyst Day we had the prototype of the eye-racker, we are shaking it down, we are actually making some changes to it. We will start in the second half with getting some customer responses of it. And like we said our goal is by the end of the year to really be commercial with this prospectus scale. And on the NDS services side, that aspect of it, again, I don't -- as far as we know, there is not other people thinking about it the way we think about it, I think frankly, the score now for everyone whether this is causing to putting the NDS service in the rig make sense. I think some of our competitors don't believe in it at the strategy, and they don't think operators will be open to it, or it's too hard, et cetera. So, it truly will come to us to make sure the strategy works and to prove it up. I think I am encouraged by the fourth quarter numbers, as you heard, you know, NDS is gaining traction and in terms of penetration on the rigs, we are making progress there. So, we got to make sure we pushed the numbers, and that's what the mission is.

Thank you.

Thank you.

Hey, maybe given the time here, we were a little longer on our prepared remarks than usual. Let's just take one more question and then we will wrap up.

Okay. Our last question is from Blake Hancock of Howard Weil.

Thanks. Good morning, guys.

Good morning.

Tony, last quarter you talked about international EBITDA of at least 500 million, and clearly that seems achievable here given the commentary for 1Q. I wanted to see you would go as far as talk about full year, do you think you can be flat to up with what you did in 2016, let's call it you know, 575 million, does that seem ballpark-ish or achievable given the second half ramp you are discussing?

Yes, I don't want to limb here, but we've noted the comments by other people in the international market space that things are going to be actually down. In our view, right now, if things continue to where we see them, we actually think we will meet that and we will be up.

That's great. I appreciate it. And then also, going back to kind of the daily commentary on the new bills, and what we are seeing in the low $20,000 a day, is it any of that attributable to NDS in that, or is that purely just a rate of the rig?

Well, that's an important point you are making, I'm waiting for that, but the NDS -- that excludes NDS, so rig service is lined up with P&L that we are talking about. So, yes, those numbers aren't in there at all as compared to some of our competitors in their rig day rate, they are good revenue, that sound break stuff and other stuff, or that's separated out. So, it's add-on. It's that $10 million that we said in the fourth -- of run rate in the fourth quarter for EBITDA, NDS in the fourth quarter, and that by the way is after SG&A. So that's all per rig margin, not in our day rate, absolutely.

That's great. I appreciate it, guys.

Thank you.

Amy, that will conclude our call today. Thank you, ladies and gentlemen for participating. I apologize for the short Q&A session. If you have any further questions, just give us a call or send your emails. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.