Good day, and welcome to Nabors Second Quarter 2019 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 Denny Smith, Senior Vice President of Corporate Development. Please go ahead.

Good morning, everyone. Thank you for joining Nabors' second 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 Siggi Meissner, President of our Global Drilling Organization; and 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 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 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 GAAP financial measures such as net debt, adjusted operating income, adjusted EBITDA and free cash flow after dividends. 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 on our website and in our earnings release. Likewise, unless the context clearly indicates otherwise, reference to cash flow or free cash flow means free cash flow after dividends as that term is defined on 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 second quarter of 2019. Before discussing our quarterly performance, I will offer some comments on the macro factors that worked during the quarter. These factors had a material impact on our customers’ activity and our future plans. The second quarter had a strong start with WTI prices staying above $60 through late May. Probably some concerns about oil demand at the time of the first quarter's conference call, expectations for second half activity remained relatively bullish. Since that time, we have experienced substantial moves in oil pricing with WTI soon dropping to $51. By mid-July, pricing had once again increased to $62 but a sharp drop soon followed with WTI closing at $56 at the end of last week. This volatility together with insistence from investors on the need for E&P company CapEx discipline has had some detrimental impact on Lower 48 customer activity during the past two months. More declines in drilling activity are expected to the remainder of the third quarter. During the second quarter, in particular, the U.S. Lower 48 land industry rig count declined by 44 rigs, a 4.5% reduction. I will have additional thoughts on this topic when I discuss the results for quarterly customer survey in a few minutes. In addition to the above weakness in the Lower 48 market, our Canada, Gulf of Mexico, and Alaska markets entered the usual seasonal downturns. Although North American rig count fell during the second quarter, our operations proved resilient. Adjusted EBITDA totaled $198 million, up from the first quarter. The Lower 48 with three incremental rigs and some price increases provided a strong contribution to our sequential improvement with cyclical highs and average rig count and daily margins. Our rig technology segment…

Good morning. The net loss from continuing operations attributable to Nabors of $208 million represented a loss of $0.61 per share. The second quarter results compared to a loss of a $122 million or $0.36 per share in the prior quarter. Results in the second quarter included $99 million or $0.29 per share and net impairments to tangible assets. These we're partially offset by a nonrecurring tax gain of $31 million or $0.09 per share. Revenue from operations for the second quarter was $771 million versus $800 million in the first quarter, a $29 million reduction. Seasonal declines in Canada, Alaska and the Gulf of Mexico, as well as a one rig reduction in International more than offset another strong quarter in the Lower 48 with better rig count and margins. The combined reductions of Canada, Alaska and the Gulf of Mexico totaled almost $21 million. The U.S. Drilling revenue of $323 million grew by $3 million, driven by a $10 million increase in the Lower 48 that was largely offset by lower activity in Alaska and U.S. offshore. International drilling revenue at $327 million, decline by $10 million or 3% reflecting a one rig reduction in Argentina and lower revenue in Saudi Arabia, primarily due to higher unplanned downtime. The lower rig count in Argentina reflected the award of higher price to multiyear extensions for two rigs. The renewals required refurbishments and upgrades with no revenue between contractual periods. Canada drilling revenue of $11.4 million fell by $14 million or 55%. Rig count fell by nine rigs to 7.4. Drilling Solutions revenue of $64.6 million was essentially flat versus the previous quarter as strong performance software sales offset lower casing running activity. Revenue in our Rig Technologies segment was $1 million higher at $72.7 million. The increase revenue came…

Thank you, William. I will conclude my remarks this morning with the following; during the second quarter, the volatility increased in the energy markets. Notwithstanding this environment, our drilling business in the U.S. once again performed well. We gained share in Lower 48 market while improving profitability. These results confirm that we are running the industry's most capable rigs for its most demanding customers. Internationally, our financial performance is starting to improve. We expect to show additional progress through the balance of 2019. Our performance initiatives are yielding the attractive results on the existing fleet and we have additional rig deployments scheduled as we move through 2019 and into 2020. In Drilling Solutions, our technology suite is gaining traction. Our Robotics business should make impactful contributions to their growth we expect for the balance of 2019. I am very encouraged by the widening acceptance of our leading-edge navigator and pilot directional drilling automation systems. The Drilling Solutions platform is fundamental to our vision to integrate services with the rig, while providing real value to our customers. We remain committed to growing the penetration and profitability of this portfolio and ultimately, enhancing returns for Nabors' shareholders and creating value for our customers. That concludes my remarks this morning. Thank you for your time and attention. With that, we will take your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Connor Lynagh of Morgan Stanley. Please go ahead.

Thanks. Good morning guys.

Good morning.

Good morning.

So, good to see the free cash flow and the commentary around that. I'm wondering if you could help us understand how things looks maybe sort of really framework for next year. With CapEx rolling off as much as it is in the back half, is that a good run rate to start with for 2020? How should we think about that?

I think roughly you have to anticipate somewhere in the range of $250 million for maintenance CapEx. So that would be like the minimum, minimum. And then we are planning for next year to have a similar level to this year, but that of course, would assume doing some more upgrades in the U.S. and so forth. So, that will depend on the market on what the environment looks like. So, we do have some ability to cut CapEx from the $400 million range if we choose to.

Got it. And then you've obviously been pretty proactive on the balance sheet. Can you just discuss how you're thinking about the 2020 and 2021 notes and broadly what your preferences for paying down that right versus refinancing? And what would cost you to come to the market to refinance?

So, we have about $290 million today left of our 2020s which mature in September of next year. So, we have brought that down from somewhere in the $650 million range in the beginning of the year. We expect to generate cash from now to year end or from the end of the second quarter to year end somewhere in the range of $250 million. All of that cash will be allocated to breaking down our 2020s. If we -- of course, if we do have a favorable window during the next couple of quarters, we will go to the market and issue bonds somewhere in the range of $600 million. That has always been in the plans, so obviously the market is not exactly accommodating right now to go into a capital markets transaction, but we expect to have some good windows sometime in the future. In the meantime we will continue to bring down the debt for 2020. We expect to be – to have bought back the whole $290 million left well below before those bonds mature.

Got it. Thanks for the clarification there.

Our next question comes from Praveen Narra of Raymond James. Please go ahead? Q – Praveen Narra: Good morning guys. I guess, it was positive to hear kind of pricing stability you are seeing in the U.S.. But I guess could you expand more on what you're seeing from a competitive dynamic standpoint when we think about superspec day rates? Are you seeing any pressures? Should we expect to see pressures as we go through the remainder of 2019?

Sure. Well let's just talk about the pricing as leading-edge basin holding steady. We've not lowered prices and don't see that the high spec here in the market, where we are focused. Let's look for a moment at the portion of the market. Industry utilization is high probably covering around 90%, from our units available for many driller and their high spec part is very consolidated, the top four drillers account for a large share of it. The new bill -- newbuilds are required a big outlay and so dayrate and margin to support that is not existing right now. So we think that this all answer to support environment for the current high-spec market. As we said on the call, we think we will see a modest improvement in our margin next quarter that results from the fact that about 1/3 of our rigs are on term and there's a bunch of our rigs about 20 of them in our portfolio that are priced under market. We've had great success about moving those -- renewing contracts to market rates. And so we do see a possibility of improved – continue to improve margins during the third quarter and what else? Any other comments?

No, I think what we've seen is since December of last year we've seen stability in our pricing. It has -- we have consistently renewed and deployed rigs above the mid-20 range and we continue to do so. I think there's been a little bit more pressure maybe on the legacy rigs. Today we have about 10 -- well 9 legacy rigs deployed of the 112. And those are mainly in markets that require those types of rigs, so we haven't had an enormous amount of pressure, but we have had anecdotes of some declines in those particular markets as utilization in those particular segments of the industry remain low. But on a superspec where everybody is closer to the 90% range there's no really intent -- no real incentive to reduce pricing. So we continue to see that. We continue to see demand for those rigs. In fact we're getting requests from some clients for incremental upgrades to be deployed early 2020 and we are getting incoming requests from clients for a pickup in activity in the first quarter. So the super spec or the high-spec market is remaining interpretive and we see all indications we have today continue to be positive.

That's great to hear. And then I guess, if we can kind of take the same question to International front. Obviously international is getting better supply/demand balance and you guys talked about testing pricing. Can you help us understand, are you seeing this broadly across the fleet? Are there pockets of strength? And I guess if you could talk about terms on contracts you're starting to see that seems interesting now?

Sure. So, International as we see signaled -- in the third quarter, we expect basically a flat rig count with increase in EBITDA as part of -- really from cost improvement getting rid of a bunch of cost and better performance in downtime things like that. So that growth we see there. We also said in our slide deck, you saw about eight rig that we have committed International next three quarters, two of them are probably going to be in the first quarter of next year. But that's great visibility in terms of what we have in the pipeline. In terms of the market, we do see a pretty broad base of increased tendering activity. It includes Latin America, the Middle East, Russia and Kazakhstan are all pretty active right now. So overall I think we said as well as some of the major companies said that International seems to have hit the bottom in the first quarter, and I think we're seeing ourselves up for a secondary term going into next year. That's the way we see it.

Okay, perfect. Thank you very much guys.

Our next question comes from Taylor Zurcher of Tudor, Pickering, Holt. Please go ahead.

Hey thanks, good morning. Tony, I just wanted to follow-up on some of the comments made about more increase for the Lower 48 drilling activity in the back half of the year. And just part of the question, what sort of operators? Is it one group of operators that may be driving that uptake in inquiries? And secondarily, I mean, do you think that it’s just the function of a near-term budget management or these operators are dropping rigs in the near-term, but fully plan to pick up those same rigs in the latter portion of the year 2020? Is there some sort of other dynamic at play?

I think, you hit on both things. I think first of all, as you know our customer base is heavily weighted -- majors and large independence and so they take a slightly different view of the market. And you can see in our survey, because it's between what have active groups appear to market as a whole. That's point one. Point two is I think, if you look at our churn of our fleet today, we're happy – it’s basically all budget related. Stock price related to our other competitors, thinking off-rate is basically all budget related. So, that has set up the discussions with several of these guys looking at next year and that's a term of the discussion and with that kind of client base.

Okay, that's helpful. And follow-up probably for William is on the cash flow guidance for the back half of the year, I think you're basically guiding to $350 million of incremental net debt reduction over the next few quarters. Do you suspect most of that are large portion coming out of Q4 just given the timing of interest payments. But do you have any guidance or framework, or how to think about net debt reduction in Q3? Basically just how that $250 million step back over the back half of the year?

Listen I'm hoping to surprise in the third quarter with a nice cash flow generation. I guess there won’t be a surprise anymore. But we do think that, although interest expense will be roughly for the senior note in the $70 million range but that keeps falling as we go forward and buyback debt. But the number now is roughly $70 million for the third quarter. But we expected that CapEx by at least $40 million in the third quarter. We won't have the $7 million [ph] we had to pay for the buyback of our senior note. And if we start from a base of roughly in the $80 million that we generated in the second quarter, you can do the math, but you get to a pretty good number. In addition to that we are pushing very hard, our whole team and our clients to improve our working capital and that is -- and we see that paying dividends somewhat already in the second quarter, but we have some initiatives that should bring significant cash flow in the second half of the year with respect to our working capital. So, we think we're in a very good place. We're very pleased with the results of the second quarter in terms of cash flow generation and we want to make sure that our investors are very pleased as well in the third quarter when they see our cash generation numbers.

Understood. Thanks. I'll turn it back.

Our next question comes from Lee Cooperman of Omega. Please go ahead.

Thank you. I have five questions. So, maybe I can just put them out there, you can handle them in any order that you want. And then more big picture questions. Firstly, what price say Brent Crude would be best for us, minimum price? To some degree, I guess, you could argue higher the better, but I realize it becomes destructive at some point. But what's your sweet spot for oil prices for the benefit of our business? Secondly, do you guys keep a track of replacement value of our fleet compared to the enterprise value of the company which is now a little bit under $4 billion, insured value, replacement value, et cetera? Third, if you had to make a guess and if you have to make a guess, how many years you think it's going to take before you have positive earnings per share where we stop talking about EBITDA, but we talk about EPS? Fourth, you talked about total CapEx of near year $400 million, maintenance CapEx of $250 million. I understand the maintenance. What is the hurdle rate on your additional CapEx? When you spend $1 in your CapEx, what kind of returns do you anticipate in that CapEx? And then finally, Tony and Bill, it was nice to see you guys have been purchasing stock personally recently. How do you, kind of, conceptualize your decision? How you look at, if you want to share thinking with the group in an open mic? Those questions if you don't mind. Thank you very much.

Sure. First of all, on the price, I think, constructively your $65 price would be constructive Brent. Second question was value of--

Replacement value.

Replacement value.

Yes. I think the NBV today is a good proxy for replacement value of those rigs. Lee, I think we try to work -- to actively make sure that we impair when appropriate and sell assets that are no longer viable or gets stranded. So, we feel that our NBV fairly reflects the value of those -- of replacement those rigs, obviously, not newer rigs, but as the same age of the rigs. And as far as positive earnings per share, we think we'll be talking about positive earnings per share next year. And finally, our hurdle rates right now for any investment is in the -- at minimum 12% IRR, which is roughly what we think our cost to capital is right now. It's a bit higher that it's been in the past. So we have -- would be much more selective. And by the way even if when it reached 12% that doesn't mean we're going to do all the projects. We have lots of projects with hurdle rates or with a returns that are above that hurdle rates that are not being given the green light because we are restricting our CapEx to the levels that are consistent with our cash flow commitment. And finally, I’ll talk about the purchasing stock. I mean, I just thought that the current prices are basically a steal.

Good. Hi, thank you for your responses, I appreciate and good luck.

Thank you Lee.

This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.