Good day and welcome to the Nabors First Quarter 2019 Earnings Release Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Denny Smith, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining Nabors First Quarter 2019 Earnings Conference Call. 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 their perspectives on the quarter's results along with insights into our markets and how we expect Nabors to perform in these markets. In support of these remarks, a slide deck is available both as a download within the webcast and in the Investor Relations section of nabors.com. Instructions for the replay of this call are posted on the website as well. With us today, in addition to Tony, William and myself are various other members of the senior management team. Since much of our commentary today will include our forward expectations, they may constitute forward-looking statements within the meaning of the Securities 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 our 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. All references to EBITDA made by either Tony or William during their presentations whether qualified by the word adjusted or otherwise mean adjusted EBITDA as that term is defined in our website and in our earnings release. We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measures. Now I will turn the call over to Tony to begin.

Good morning, thank you for joining us as we review our results for the first quarter of 2019. Before discussing those results, I will offer some comments on the macro factors that worked during the quarter. These factors understandably had a stronger influence on our customer's activity and forward planning. The first quarter began with two notable events. WTI was trading below $46 that was down more than 33% just during the fourth quarter. Second, capital markets were severely limited for energy issuers at the end of the year. This backdrop weighed heavily on our customers as they completed their budgeting and planning cycles during the first quarter. The result was a mixed bag of outcomes. In some cases their processes were delayed. Others reduced their planned activity, some maintained their prior intention to increase drilling and we saw all that play out during the first quarter. The net impact to the industry during the quarter was a decline of 74 rigs. In the phase of an uncertain though improving environment, our operations performed well during the first quarter. Adjusted EBITDA totaled $197 million, down modestly from the fourth quarter. Once again, our U.S. Drilling segment and the Lower 48 in particular performed admirably. Average daily margins in our Lower 48 business exceeded $10,000 for the first time since late 2015. Our quarterly rig count in the quarter was up slightly, outperforming the broader market. Beyond the Lower 48, in the first quarter, we had more rigs working in Alaska and the Gulf of Mexico combined than in any quarter over the past three years. Now let me discuss our view of the market. The Lower 48 average rig count during the first quarter was 1,011 rigs. More recently, last week, the rig counts stood at 960 that was down…

Good morning. The net loss from continuing operations attributable to Nabors of $172 million represented a loss of $0.36 per share. The first quarter results compared to a loss of $188 million or $0.55 per share in the fourth quarter of 2018. Results in the fourth quarter included $52 million or $0.15 per share after tax in net impairments and other charges, primarily related to our legacy rig fleet and other obsolete assets. Results also included a $52 million or $0.15 per share tax charge related to the establishment of a noncash deferred income tax valuation allowance in Canada. Revenue from operations for the first quarter was $800 million, up $18 million from the fourth quarter. U.S. Drilling and Rig Technologies drove the sequential increase in total revenue while Canada and International decreased sequentially. U.S. Drilling revenue of $320 million grew by $16 million, a 5% increase driven by higher average pricing in the Lower 48 and strong seasonal expansion in Alaska. International drilling declined by $8 million or 2% reflecting market related and operational issues in Argentina and Venezuela. In addition, we have served the last of our negotiated pricing concessions on contract rollovers in the Eastern Hemisphere. Canada Drilling revenue fell by $4 million or 13% while the highly seasonal Canada market typically increases in the first quarter, our rig count declined due to weak market conditions. Drilling Solutions revenue of $65.4 million declined by $1.4 million versus the previous quarter reflecting high fourth quarter revenue for newly acquired PetroMar business. Offsetting this sequential reduction was a $1 million revenue increase in drilling performance software. Revenue in our Rig Technologies segment increased by $10 million or 17% to $71.7 million. This increase was driven by improved sales of capital equipment and replacement part as well as higher volumes…

Thank you, William. I will conclude my remarks this morning with the following: During the first quarter, volatility in the energy markets declined and commodity prices increased significantly. Through this period, our drilling business in the U.S. performed exceedingly well. Our financial performance in the first quarter exceeded our internal expectation. Our focused on expense control is unwavering. We remain committed to maximizing the value in our existing asset base. In the Lower 48 market, this recent volatility has tested our strategy. Our financial performance during this period demonstrate that we are bringing the best rig to the industry's most demanding customers. Our working percentage of super spec rigs is among the highest in the industry. Our field performance measured across KPIs is top notch and the customer base is taking notice. With recent attractive upgrade deployments pending this quarter, we have visibility to further growth. U.S. offshore business accounts for more than 10% of total EBITDA. Our platform rig designs are best in class. We are well positioned for any upturn here. Internationally, our land rig franchise is unmatched in the industry. We hold significant share in major markets across the globe. We have more deployment scheduled as we moved through 2019 through our discussions for even more rigs under way. We believe the first quarter marks the bottom in financial performance and we expect to show improvement as we move through 2019. In our technology businesses, we believe that we are entering the commercial stage. Our recent market success and robotics is encouraging. Meanwhile, our entire portfolio performance software, tubular running services, downhole tools as well as drilling in rig automation is unique, and customers' adoption is growing. At our analyst meeting in 2016, we unveiled our vision to change the way wells are drilled. At that time, we suggested that existing AC rigs can soon become legacy rigs. We defined thepad-optimal super spec rig, which has now become the generally accepted standard. We also outlined our belief in the industries need to embrace process automation and robotics and to use the rig as a platform to deliver services around the well while generating superior return. We have been hard at work since then executing on our vision. The merits of that vision have largely been validated by events since that time, including by the number of service providers now trying to replicate similar objectives. We believe our current rig designs are second to none, and we have the sectors most robust portfolio performance software and tools which utilize the rig as the delivery platform. We are focused on exploring this portfolio to drive superior performance for our customers and enhance returns for shareholders. I fully expect to report improvement on both fronts as we move through the year. That concludes my remarks this morning. Thank you for your time and attention. With that, we will take your questions.

[Operator Instructions] The first question comes from Kurt Hallead of RBC. Please go ahead.

Hi, good morning.

Good Morning.

Hey, thanks for all that insight and detail and maybe Tony want to start off a question for you, you mentioned in the 2016 analysts day at that point in time you kind of a part of your vision you outlined on drilling solutions, you had a target of getting to about $250 million at blink of annualized EBITDA by the end of 2020, it looks like your commentary regarding the exit rate for 2019 will get you halfway there and just give us some insights on some of the uptake and the drive to commercialization and kind of where you think Nabors fit in getting the industry to adopt these processes?

Sure. As I said in my opening remarks, I think that the – the move that we've had has been embraced by many of our customers. Everyone realizes that to get to a new level of efficiency, we have to change the way we did things in the past, which means changing workflows at the rig site. Typically the way the operators lowered their cost historically has been basically counting on each individual, vendor and getting cost reductions, but that has the law of diminishing returns. So if operators are truly interested in getting to a better level of BOE costs more efficient, I think you have to put on the table by doing all of the change of workflows and that was the strategy we outlined in 2016 with NDS. Today I think quarter-on-quarter, I think – basically we have about 46% of the rigs in the Lower 48 now running about five NDS services which is up a 2% from last quarter. The reason why NDS services in this quarter was down a little bit was because of churn, as you know in this market there is a lot of the churn that was going on and you've got to realize NDS service about – almost 30% of it actually performance on third-party rig. So that's another point that affects our churn, where the churn is probably a little greater on third-party rigs than it’s for Nabors rig for the other reasons we outlined. In terms of our plan, I think as I said the portfolio we feel very good about the performance tools, I think our ROCKit product has been known in the industry, industry leader for oscillation and we're building on that with wellbore placement products. We think that's a real growth market today more than…

That's great. That's great color. Thanks Tony. Maybe one, one follow-up for William, in the context that you mentioned $200 million in net reduction targets for this year and then I believe you said $600 million to $700 million in 2020, so first along those lines, is the $600 million to $700 million in 2020 is that a cumulative effect? And then separately, I think the investor base is really been wanting to see some consistent level of free cash flow generation, so I wonder if you can give us some general sense on – I guess the forward predictabilities of free cash flow generation?

Sure, Kurt. Yes. The $600 million to $700 million is combined for 2019 and 2020. But we won't stop there, I mean, the end objective as Tony and I have repeatedly stated is that we want to get to the low $2 billion mark in terms of net debt, but we still have a ways to go. So, in the first quarter, I mean as you have seen in prior years, our cash flow for the course is fairly seasonal. Last year in the first quarter we had about over $200 million of net debt increase. This year, we paired that to about $100 million. In the first quarter, we do have a significant amount of expenses that don't recur in the remainder of the year as I stated in my prepared remarks. If we take out in the second quarter the $80 million of interest expense, $80 million of dividend, reduction in CapEx, the absence of those one-time events in the first quarter plus the improved, EBITDA, we think just those things give us an improvement of $200 million over the first quarter. And then we also are accounting and targeting some working capital reductions, where we have made some efforts to reduce our receivables, we saw some of that in the first quarter, but we expect to get much more in the second quarter. So all that together means, that we feel that we'd be in very good position in mid-year basically on the plus side, that is reducing net debt by somewhat versus the end of last year. And then in the second half, we expect a very strong cash flow as our results continue to improve. And again we expect a very strong quarter like we did last year. If we compare this first quarter to last year's first quarter, just to give you an idea of the progress we've made Kurt, our operating cash flow from the cash flow statement, as you will see in the Q is about $150 million better than last year. We did spend a little bit more of CapEx this year than the first quarter of last year, maybe some $50 million, but again that's just related to our plans for the year where we had targeted about seven to eight – or total of nine operations in the first half of the year and none [ph] in the second half of the year. So you'll see the second quarter have a very, very strong cash flow generation and we expect to deliver for the full year. Again, the fact that our interest payments are semiannual in first and third quarter, it doesn't really allow us to have like smooth quarter-on-quarter cash flow generation. But again, if you take that into account, you'll see that our operating cash flow is progressing and should be stronger by the end of the year.

That's great. Thanks William, appreciate that.

Our next question will come from Marshall Adkins of Raymond James, please go ahead.

Good morning guys. And again, thank you for the detailed guidance here. I do want to hone down on the U.S. guidance a little bit more, what I heard was that you have – you're going to hold up pretty well in the second quarter despite your customer survey, that kind of echoing what we've heard from other of your peers, that Q2 is going to see a reduction. But your full year guidance suggests maybe you are seeing modest improvement in your fleet through the rest of the year. So give me a little more color on that, I presume obviously, you have some contracted rigs coming online it's customer mix in Q2, that's causing you to outperform peers, but just making sure that I heard that right? And could you comment a little bit on your thoughts on the second half of the year?

Sure. So today as we said, the rig count is 115 that we're at. And we're still in the process of deploying the three additional contracted rigs on top of that. So that gives us some confidence that the rig count is going to be quarter-to-quarter up three to four rigs with the first quarter. And if you look at our fleet, the contracted fleet there's probably about 20 rigs in the fleet, they have superspec rigs that are still on old day rates that are rolling and so that gives us the ability to move them to market. As we said, we don't see the leading-edge markets moving up right now, but because we have 20 rigs that can be re-priced to current rate, it also gives us some potential of some additional margin improvement. So that combination, I think that's what it's giving us some comfort and looking towards the end of the year, I think we still believe that, we should be able to exit about close to 120 on the rig count. Obviously, it becomes difficult as people turn more and more and the pressure [indiscernible]. Right now we're feeling pretty good about that Marshall. So as I said, in the next quarter you will see an increase in average rig count, we think, it also will be encouraged by slight increase in daily margin as well.

Right. Thank you. And William, shifting gears to international, we're looking at uptake in the international, could you help us bridge the improvement in EBITDA how much of that’s kind of pricing versus utilization versus like costs going away, stuff like that.

In the next quarter, Marshall, in reality we just have a couple more rigs coming on that should add some incremental margin, but a lot of that where we experienced in the first quarter was related to interruptions on and off, start and stop in Venezuela where we had to keep our resources waiting for the activity to resume. And we also had some temporary reductions in rig activity in Argentina as well that we had to cope with, that was pretty significant. So we had some extra costs in there that we have addressed in those two specific markets. So we feel comfortable that this coming quarter we should beat that or meet that guidance that we gave. So it’s a couple of items I would say that, again, one is rig count and the other one is just taking care of some costs in Latin America given the volatility that we've seen in activity.

And looking out little longer Marshall, I think what gives us some comfort here as why we think we are in an upward trend from where we are today is, as we said before we have visibility on additional seven rigs to go to work in international. Those are in – that includes second – later part of the second half of the year, two platform brings in Mexico, we have rigs in Argentina, Algeria, Russia and Italy also go to work. And so we have some visibility right now in the pipeline and as we also commented in the remarks, the renewals that we are actually depressing margins are basically been all now receptive market, that's kind of overhanging behind us. And finally, the commodity price environment, as you all know is definitely better than where it was. So you put all that together, that's why we feel we’ve got some good visibility and confidence in some of the growth from where we are today.

Thanks guys.

The next question will come from Chase Mulvehill of Bank of America. Please go ahead.

Hey, good morning. I guess I want to follow up on Kurt’s question about the net debt reduction is there any divestitures that are included in that net debt reduction?

None.

None.

Okay. So sounds like that you've got a pretty positive outlook for free cash flow next year. So I guess maybe also kind of help us understand what kind of CapEx is kind of implied in that target number of net debt?

We're targeting around $400 million for 2019 and in 2020 slightly higher number than that.

Okay. All right. And then if we come to Lower 48 and think about your cash margin, and the performance of cash margins, you've had some good performance there. Can you maybe talk to how much digital or software app revenue you have flowing through there, and then what kind of adoption rate you're getting at some of that?

The thing you have to understand about our numbers is, with NDS, we totally separated out those two segments. So in other words, our rig margins are pure rig margin only. It doesn't include any performance software. It doesn't include any tubular services like some of other competitors. That's subsidizing our rig margins, a standalone. All that margin for software and other applications is all in NDS. So if you really wanted to get apples to apples, you have to take the NDS numbers divide it by rigs and then add it to the U.S. margin to really understand compare it to some other people and you'll see how well the company is actually doing. But it's important to understand that our rig margins do not include any of those of our revenues.

Okay, thanks for that clarification. And then, so just maybe on the software app side, could you maybe just quantify, how much revenue that you're generating from the digital and software apps and then what kind of penetration you have across the fleet?

Well, in terms of penetration, we have a 97%, 98% of all of Nabors rigs have one of the software products – at least one of the software products today. So we have great penetration of Nabors rigs. We have a new version of the software that actually will work on – it actually works on third-party rigs with Canrig or TESCO top drives. We now have a version of software that works on third-party rigs with NOV top drives and that's being making some headways into that market as well. So we're pursuing that third party market as well. In terms of overall value, we don't disclose the breakout, but it's substantial. I will say it's substantial. What I could say on an average basis in the Lower 48 maybe it's about a thousand bucks per rig per day.

Okay. Alright. That's helpful color.

Not the new software, we haven't followed anything yet. That's just the legacy software.

Got It. Okay. Appreciate the color. I'll turn it back over.

Our next question will come from Sean Meakim of J.P. Morgan. Please go ahead.

Thanks. Hey, good morning.

Good morning.

So I guess, I appreciate all the detail, the feedback around the progression that you see at International. As we think about the second quarter and going beyond, given that the contract overhangs in the past, as Tony said we're on an upward trend generally from an activity perspective, just give us a little bit funkier parts of the portfolio that a little bit harder for us to see on the outside thing like Venezuela. How confident are you in being able to call 1Q bottom then for International margins? Are we highly confident and what are the caveats that you would put to that you've put to that? Any kind of parameters or numbers you can put around that, I think it would be helpful.

Do you want my first one year, what do you want? I mean look, calling a bottom, everyone's always reluctant to call the bottom. So I can just give you context. The context is that, for all the reasons I mentioned before, which is increasing visibility, the fact that we think we've killed whatever fires there were some of these operational one-off issues as well and the commodity price environment and the fact that the burden of resetting contract is, for all those reasons, it looks like it's a bottom. Can I guarantee that Venezuela's definitely not going to blow up by the third quarter, obviously not. And obviously some NOCs that we have large exposure to which is good exposure, good upside, have their own drivers and that that's the problem with International business where you're subject to NOCs and what – and their own timetables now they do things. So when you look at Mexico for example, they could decide for cash flow reasons or budget reasons or something that defer project a quarter or two. I think – but – I think the main point here you have to look at it is the direction. I think the direction is all heading in the right direction here and all the factors that support that they're heading in the right direction. The fact is unlike the U.S. where there's excess capacity of rigs internationally as you know, you've heard this before from other people in the Middle East for example, incremental gas rigs, there is no, it was very little excess capacity. So the market is pretty tight and if there's an uptick that should have an effect on pricing and you'll start to see pricing increased as well. So those are the reasons why, but I can't give you my firstborn, I'm sorry.

Right. Happy to have your firstborn…

Sean, if you put a gun to my head and I would have to say something. Yes, I would say that this is a bottom. But again, like Tony said, there is exposure in Venezuela.

You guys have really raised the stakes for this call just now, both of you. I guess – that's helpful. I think really Tony, what I'm looking for is the context. And so, is there more – how much sizable risk is there in Venezuela? And I think the other piece that I think we have trouble from the outside is how mixed shift among the rigs – active rigs on a margin basis can have an influence quarter-over-quarter? Those are the points that I think our shareholders want to get better understanding around.

Sure. I think you miss something when you look at rig margin internationally because the mix shift can move even though the EBITDA can go up. So I wouldn't get and that's why we've been very clear in what we said that we think we're going to be the low 90s, and but I would not necessarily focus on average margin for that reason. The large platform rigs are coming in and out of the fleet have a big effect on margin. And because disparity of large gas rigs compared to conventional 1,500 horsepower rigs, there's also deltas there. So I wouldn't get hung up on the margins. But each of the markets internationally is basically a separate market. There's like 15 different markets with their own drivers. So you have to look – you have to put in a higher level than that. And I'm saying when you cut through it all on balance we see that, yes. Then there are headwinds in places like the countries I just mentioned, but I'm balanced we still think directionally it's going in the right direction.

Right. Okay. That's all fair. We talked a lot about cash and your expectations there. William, how about on the balance sheet? If we're able to execute in terms of the cash generation next several quarters, what are the latest thoughts around the maturity cadence, beginning in 2020 and how do you look to address that over time?

So, obviously ideally, we'd like to refinance some of that using the capital markets and going to the bond market and we are very focused on those markets and monitoring those to make sure that we don't miss an opportunity. Frankly, right now, even though our yields have fallen down by over 400 basis points from the beginning of the year. And we've made a lot of progress in that sense. I don't think the markets all of them are open, I wouldn't classify them as attractive right now. So, but we will keep on monitoring and making sure that we don't miss an opportunity for refinancing. In the meantime, well, we have been pairing down those early maturities using our cash balances and cash generated by the company. And we will continue to do so whenever we get surplus cash we will apply to those early maturities. And once we see an opportunity in the bond markets we'll probably go into the bond markets and refinance some of those early maturity.

Got it. Great. Thank you very much.

My next question will come from Taylor Zurcher of Tudor Pickering and Holt. Please go ahead.

Hey, good morning.

Good morning.

Not to beat the International margin question into the ground, but just to follow up on Sean's question, if we think about the seven or so rig deployments that you have visibility toward over the back half of the year Q2 and beyond. I know the Mexico platforms would be accretive to mid $12,000 a day margin that you're doing now, but fair to assume those other five or so rigs would also be accretive to that mid $12,000 a day run rate?

The average of those, yes, it would be accretive.

Okay. And then follow up just on the robotic business and clearly that you're having some success with that technology in the North Sea. Is there any way to frame for us what sort of EBITDA or cash flow potential that business might have moving forward? I know it's a small piece today, but maybe on a upper installation from a per installation perspective, how much EBITDA potential is that business is going to amount for you moving forward?

I think it's too early to do that right now. I think let us get one of these out and installed and this will have to get a better idea of what our cost structures, et cetera. But obviously if this concept is viable, I think, it gives people in the industry a new choice to move their redoing of their drill floors to a new level. And you could just put historically wherein we were charged for those kinds of packages, you have to be at least at that order of magnitude level or more because of the value the stuff creates. But the market is fairly substantial if it's successful in the offshore market.

Got it. Thanks. That's it for me.

Allison, let's take one more question since we're about to run out of time here, please.

All right. And thank you, sir. Our next question will come from [indiscernible] of Howard Weil. Please go ahead.

Hey, good morning and thank you for taking my question. So I just want to make sure a few things on the cash flow. So the way – if I think about, EBITDA to free cash flow, basically what you – if I'm not mistaken, what you guys are saying is, let's say, I take $205 million of EBITDA. There's no interest payment. There's maybe $100 million of CapEx, $5 million of dividend and whatever is remaining that you go towards reducing that, is that clear way of thinking about it?

Yes. I mean, the way we look at it though is we look at the last quarter and we have lined up in my script and other comments that roughly $200 million worth of improvements versus the cash flow of the first quarter. And in addition to that, we have some working capital target, reduction target. So that's where we're coming from. We think we are going to be just on the items that I mentioned some $200 million better than the first quarter. And then the remainder will come with some of the working cash flow improvements, which I didn't quantify but we have some targets for the second quarter.

Okay. And anything that I need to think about SANAD, how that goes into or helps you guys from a cash flow perspective?

Again, SANAD right now, it's sort of imbalanced but we have some significant commitments, which is part of the reason we're being very disciplined in terms of CapEx outside of Saudi Arabia, because a lot of our CapEx commitments going forward are going to go towards ramping up our fleet in Saudi Arabia, which means we have to be more disciplined in other countries in the area. So SANAD is just part of our targets of the $400 million, $500 million of CapEx that we have. And we think SANAD will be nicely self funding, despite the big ramp up of rigs that we expect to see in Saudi Arabia over the next 10 years. And then over time and I think of, but it won't be before – I would say 2022, then we'll start seeing significant cash flow – outflows being generated by SANAD.

Okay. And last one, if I may, Schlumberger’s announcement with Arabian Drilling Company, how does that play vis-à-vis kind of is there any impact, any color that you can provide? How should we think about that?

The transaction is consistent with the trend we've seen in the region of several rig fleets changing hands. We don't see an immediate impact on SANAD since – Schlumberger’s rigs were in the region but not in the kingdom. It does change ADC though, these rings are not new to the market, but we don’t really compete with ADC, of course with SANAD and we don't compete or IPM contracts with Schlumberger either. So we don't really run into them much. So I wouldn't say there's much of an effect at all.

That's very helpful. And thank you for taking my questions.

Allison, with that we’ll wind up the call.

Yes, sir. Thank you.

We want to thank everybody for participating and if we didn't get your question, feel free to call us or email us. Allison, you want to go ahead and close it out, please?

Yes, sir. Thank you. The conference has now concluded and we thank everyone for attending today's presentation. You may all now disconnect your lines.