Nabors Industries Ltd. (NBR) Q4 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Nabors Industries Fourth Quarter Earnings Release Conference Call. All participants will be in listen-only mode [Operator instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to William Conroy. Please go ahead.

Good afternoon, everyone. Thank you for joining Nabors' fourth quarter 2020 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 Web site 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 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 vary 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 net debt, adjusted operating income, adjusted EBITDA and free cash flow. 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 Web site and in our earnings release. Likewise, unless the context clearly indicates otherwise, references to cash flow mean free cash flow, as that non-GAAP measure is defined in our earnings release. 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 to GAAP measures. With that, I'll turn the call over to Tony for his remarks.

Good afternoon. Thank you for joining us as we review our results for the fourth quarter of 2020. Before I begin, I would like to express our thoughts and concern for the members of our community who are affected by the severe weather and the related power and water outages. Our rig operations in Texas were essentially unaffected. Turning to our results. I will begin with overview comments. Then I will follow with a discussion of the markets and highlights from the quarter. William will discuss our financial results. I will make some concluding remarks before opening up for your questions. First of all, as we closed the books on 2020, I want to recognize the entire Nabors’ team for its outstanding performance in these extraordinary circumstances. Our company's staff confronted the impacts of COVID and the depressed drilling market head on with perseverance and ingenuity. Those efforts across all of our segments and functional areas reinforced our leadership in our markets. At the same time, we managed to improve our financial strength. We are emerging from the pandemic as a stronger company. Nabors is well positioned to capitalize on the upturn. Our financial discipline paid off in 2020. For the full year, we reduced overhead spending by 24%. This effort began in the second quarter. Our run rate in the fourth quarter represents nearly 27% drop over the 2019 quarterly average. We also made further progress on our twin priorities, namely, generate free cash flow and reduce net debt. We began the year at just under $2.9 billion in net debt. We delevered by nearly $400 million fueled in part by free cash flow generation of $184 million. We ended 2020 with net debt less than $2.5 billion. We achieved this in the face of very difficult market conditions. Our results demonstrate the earnings power and resiliency of our unique portfolio of premium assets with geographical diversification. Notwithstanding the most adverse industry and macro conditions in decades, we maintained our position as the preferred drilling contractor and reset our cost structure. Our operational strength has supported our financial performance. Outside of North America, we remained the largest and most profitable land drilling contractor. And in the lower 48, we continued to deliver the highest daily gross margins among our peers. Based on the strength of our performance drilling our offerings and our digital infrastructure, we increased the penetration of innovative drilling contracts. These contracts generate incremental margin based on value sharing. In the fourth quarter, the combined gross margin from our lower 48 drilling rigs and our US drilling solutions significantly exceeded those of our peers. Our investments in performance, technology, safety and importantly, human capital and sustainability are driving this success. We are positioned well for continued growth. I am looking forward to reporting further progress in 2021. Next, I would like to spend a few moments on the macroenvironment. After briefly testing the upper 30s in late October, the price of near month WTI increased by 35% through the end of the year. Since the beginning of 2021. The price has risen further. Recently WTI was trading above $61. Brent, which is also important to our global client base, made a similar move. It was recently priced above $64. Global oil demand continued to recover in the fourth quarter. The EIA reports consumption increased by more than 2% versus the third quarter. In part, this contributed to a global inventory draw of over 200 million barrels. In early January, the OPEC Plus group agreed to keep its production essentially flat. That announcement was followed almost immediately by Saudi Arabia's reported reduction in output. The resulting higher prices, which I detailed earlier, are generally supportive of increased oilfield activity across all markets. Comparing the fourth quarter and third quarter averages, the Baker Hughes Lower 48 land rig count increased by 23%. Our own working rig count increased by a similar percentage as we added rigs with several customers. These additions more than offset the reduction of our rigs stacked on rate. From the beginning of the fourth quarter through the end, the Anvers Lower 48 rig count increased by nearly 30%. The growth rate among larger clients was approximately equal to the growth in the smaller operators. It should be noted that more than half of the increase among the larger operators was driven by a single client, and most of that client's increase was the reactivation of just one drilling contractor’s rigs, which were stacked on rate. Once again, we surveyed the largest Lower 48 clients. This group accounts for approximately 35% of the working rig count. Our review of these clients shows a modest pickup in activity planned for the balance of 2021. It is the smaller and medium sized operators which appear more responsive to the recent strength in commodity prices. In our international market, we have recently start to see demand increase in selective geographies as measured by the number of active rigs. This trend extends across major markets in Latin America and in Saudi Arabia. To summarize our view of the markets, global oil demand continues to rebound from the pandemic low. Oil inventories, which expanded considerably in early 2020 are dropping. The resulting increase in commodity prices has improved operator economics. We see their response in the recent growth in rig count. Overall, assuming the worst of the pandemic is behind us, the market environment is poised to support higher levels of activity. Now I will comment on our fourth quarter results. Total adjusted EBITDA was $108 million in the quarter. These results reflect activity, which was somewhat better than anticipated. Our Lower 48 operation and our International and Drilling Solutions segments exceeded our expectations. With this adjusted EBITDA performance, we generated approximately $66 million in free cash flow after funding $41 million in capital spending. Our global rig count for the fourth quarter was essentially stable at 131 rigs. Growth in the Lower 48 in Canada largely offset the decline in international. In our Lower 48 business, our reported daily rig margin of $9,541 exceeded our guidance and remained in line with the third quarter. For the International segment, adjusted EBITDA for the quarter was higher than our expectations. Daily margin outperformed driven mainly by strong operational performance in Saudi Arabia and by revenue from early terminations. These items more than offset the decline in rig count. Our industry leading fleet capabilities, outstanding operational and safety performance and expense and CapEx discipline, all drove this accomplishment. Next, I would like to mention some specific highlights of the quarter. During the fourth quarter, we completed a series of debt exchange transactions. In the aggregate, these reduced our outstanding debt obligations by $284 million. Adjusted EBITDA in our Drilling Solutions segment increased sequentially by 44%. The adjusted EBITDA margin in NDS widened to 32% in the fourth quarter. This compares very favorably to 24% margins in the prior quarter. In NDS, we increased the penetration of our RigCLOUD platform for digital operations. In the fourth quarter, RigCLOUD was running on nearly all of our working rigs in the Lower 48. We are now in the early stage of growing on third party rigs. We saw continued growth in our SmartSLIDE and SmartNAV apps. SmartSLIDE is our directional steering control system, which automates slide drilling. SmartNAV is our automated directional guidance system. Our cumulative footage growth for these apps working together increased by 11% in the fourth quarter. Our cumulative well count was up by 12%. Our portfolio of automation applications in NDS is second to none in terms of capabilities. We developed these products around our SmartROS, or rig operating system. SmartROS was conceived from the ground up to collaborate with customer workflows while optimizing rig operations. We believe we now have the broadest, most advanced and most profitable automation solutions in the market today. Our focus on ESG is increasingly reflected in our ISS ESG quality scores. In the fourth quarter, our ISS environmental score improved significantly, and the ISS social score improved again. We continue to reinforce our commitment to ESG, and I look forward to reporting on that progress. More recently, Nabors has signed on to the science based targets initiative. We have committed to setting science based GHG emissions targets. We are the only land drilling contractor to do so. The use of alternative power on our rigs is an excellent illustration of our efforts in ESG. I will cover this topic in more detail in a few moments. In addition to these highlights, I would like to discuss one of our smart apps in particular. Back in the second quarter of 2020, we released an improved version of SmartDRILL, our automated drilling software. SmartDRILL digitizes an operator’s well plan with optimal task sequences as defined with the operator. Essentially, it executes virtually every task that the driller performs from the chair and it compiles automated sequences of those tasks. It is the only automated drilling solution in the market that enables ad hoc changes to the sequence. By digitizing best practices, SmartDRILL improves consistency and reduces the potential for human error. For example, we are able to minimize the risk of damage and reduce loss time. Tangible benefits of SmartDRILL include an increase in single run laterals, a decrease in unplanned trips and improved and consistent connection times. We are excited about SmartDRILL. Our pricing models for this app reflect the measurable value that it generates for customers. I look forward to reporting on its progress and on other apps in our portfolio in the future. I will also make some comments on Nabors' positioning in the energy transition. Our plan, as we embark on the transition, consist of two parallel tracks. Most immediately, we are examining alternatives to improve Nabors' own carbon footprint. We actually started down this track several years ago when we introduced the fuel tool. Fuel tool is a system that monitors and optimizes rig engine usage. It was targeted to reduce fuel consumption. Now we are evaluating technologies aimed at carbon capture, emissions minimization and power management. We have an inventory of 40 dual fuel packages to satisfy market needs in the Lower 48. Approximately 15% of our operating rigs in the Lower 48 are currently running on either high line power or bi-fuel. In addition, we have introduced our advanced energy management system on one of our rigs. This system yields a significant improvement in the rig's carbon footprint. We are also running 12 rigs in Canada with bi-fuel capability. Globally I expect the use of these technologies to increase in the future. The parallel track includes opportunities which are relevant beyond our own rig fleet. These prospects could include other drillers’ rigs, or scale beyond the traditional markets in the oilfields. Our energy transition initiatives are still in the early stages. We expect to make tangible progress going forward. I look forward to reporting further on this area. Before turning the call over to William, I will discuss our view of the market in some more detail. The Lower 48 industry has added 151 rigs or 67% since its low in August. Looking forward, we see the current commodity price environment supporting increased activity as the year progresses. We expect our own rig count to increase each quarter throughout the year. We are also starting to see some modest improvements in spot day rates. In our international markets, since the third quarter, we have seen our own activity increase further in Latin America. Our working rig count in the region rose more than 50% during the quarter. Accordingly, versus the fourth quarter of 2019, pre-pandemic, we have gained significant market share in both Argentina and Colombia. In addition, several customers in Latin America with temporary COVID pricing adjustments have returned to full day rates. Notwithstanding the macro challenges, the operation in Saudi Arabia performed exceedingly well. In addition, the expected rig restarts in the Kingdom have begun. Since the beginning of the year, eight of the idle rigs have returned to work. Our working rig count in Saudi Arabia now stands at 38. This leaves five expected to return over the next 12 months. These reactivations are consistent with the expectations we laid out last quarter. I would like to take a moment here to express our appreciation to our SANAD CEO and the members of the SANAD Board, especially the directors from Saudi Aramco. The Aramco Board members have been tireless in supporting the management team in delivering best in class operational performance. That concludes my remarks on our fourth quarter results highlights in the market. I wish to reiterate that our primary concern remains the health and well being of the extended Nabors community. On behalf of the company, we extend our heartfelt thoughts to those affected by the pandemic. Now let me turn the call over to William who will discuss our financial results and guidance.

Thank you, Tony, and good afternoon, everyone. The net loss from continuing operations of $112 million in the fourth quarter represented a loss of $16.46 per share. The fourth quarter included $162 million of pretax gains from debt exchanges and repurchases, partially offset by charges of $71 million mainly from asset impairments for a net after tax gain of $52 million. Fourth quarter results compared to a loss of $161 million or $23.42 per share in the third quarter. The third quarter included net after tax gains of $6 million related to gains from debt repurchases, asset impairments and severance costs. Revenue from operations for the fourth quarter was $443 million, a sequential gain of 1%. Revenue improved in most segments with only International and Rig Tech partially offsetting those increases. In the Lower 48, despite some deterioration in the average pricing for our fleet, drilling revenue of $103 million increased by $6.9 million or 7% as our rig count improved by 11%. Lower 48 rig count at 53.6 was up sequentially by 5.4 rigs, which is 2.4 rigs more than we had anticipated. Daily rig revenue in the Lower 48 at $20,950 decreased by about $800 as we continue to sign contracts at current market rates that are lower than the average for our fleet. In aggregate, revenue in our other US markets decreased by $3 million, reflecting a reduction in our offshore activity as one of our rigs finalized its contract in the prior quarter. Fourth quarter revenue fell with a lower rig count as well as with the absence of the demobilization revenue we invoiced in the third quarter. International drilling revenue at $245 million decreased by $3.3 million or 1%. This decrease was primarily related to declines in activity across several markets, as rig count fell by almost nine rigs or 12%. This rig count reduction was higher than anticipated. Saudi rig count decreased by five rigs, two more than expected due to temporary suspensions as Saudi Aramco adjusted its drilling activity towards the end of the year. Kazakhstan and Colombia each had a one rig termination, both of which we did not anticipate. In addition, Algeria and Kuwait had contracts expiring late in the third quarter that were not renewed. The softer rig count was offset by approximately $4 million in revenue from early terminations and from the restoration of full day rates for customers with negotiated COVID rates. Canada drilling revenue was $14.8 million, an increase of $4.1 million or 38%. Rig count increased by 2.3 rigs on the usual seasonal ramp up in activity. The quarter also benefited from $700 increase in revenue per day. Nabors' Drilling Solutions revenue of $32 million, up $2.7 million or 9% primarily reflected strong increases in our high margin performance drilling offerings as well as our RigCLOUD installations. During the quarter, we continued to increase the penetration of these services with Nabors and third party rigs, while also benefiting from the higher lower 48 rig count. Rig Technologies revenue decreased by $1.1 million or 4% as several clients delayed deliveries beyond the end of the year. Total adjusted EBITDA for the quarter was $108 million compared to $114 million in the third quarter. The decrease was driven by $7.4 million reduction in our International segment and a more modest reduction in Rig Technologies. These were partially compensated by improvement in NDS as well as U.S. and Canada Drilling. U.S. Drilling adjusted EBITDA of $62.2 million was up by $1.6 million or 3.1% sequentially. The Lower 48 performance came in better than expected on the stronger rig count and on higher margins. Daily rig margin of $9,541 was about $500 above the high end of our previous guidance and in line with the third quarter level. Decreased costs, mainly a reduction of property tax expenses, offset the pricing deterioration we experienced in the fourth quarter. Cost control efforts continue to be a strong focus as we bring rigs back to work. As an example, we have improved our rig stacking and reactivation procedures, and the related costs are significantly better than in the last cycle. For the first quarter, we expect daily rig margins of approximately $8,500, driven mainly by the repricing of renewals as rigs continue to roll off pre pandemic contracts and by the return to more normal levels of property taxes, with an adverse impact of approximately $600 per day. We forecast a two to three rig increase for the first quarter of 2021. Our current rig count in the Lower 48 is 57 rigs. International adjusted EBITDA decreased by $7.4 million to $64.5 million in the fourth quarter or 10% sequentially. The lower rig count was somewhat offset by early termination revenue and return to full day rates from several customers. Average international rig count was 62.6, a reduction of 8.7 rigs or 12%. Daily gross margin for the quarter was $13,500 as compared to $12,700 for the prior quarter. The fourth quarter included approximately $800 per day in early termination revenue. Turning to the first quarter. We expect an international rig count increase of two to three rigs as several Saudi rigs returned to work progressively during the quarter, and for gross margin per day to settle between $12,500 and $13,000 per day. Our current rig count in the International segment is 67 rigs. Canada adjusted EBITDA of $3.5 million increased by $1.4 million. Rig count at 9.7 rigs was 2.3 higher sequentially. Gross margins per day of $4,633 also increased due to the higher activity level. We expect both rig count and daily margins to improve again in the first quarter by three rigs and $500 respectively. We currently have 14 rigs operating in Canada. Drilling Solutions posted adjusted EBITDA of $10.3 million, up from $7.1 million in the third quarter or 44%. The improvement reflected mainly the higher revenues from performance drilling offerings and RigCLOUD infrastructure. In addition, a shift in our US casing running services from manual to integrated materially improved the profitability of that business line. We expect adjusted EBITDA in the first quarter to be in line with the strong fourth quarter. Rig Technologies reported adjusted EBITDA of $0.5 million in the fourth quarter, a decrease of $800,000. The first quarter EBITDA should be similar to the fourth quarter. Now let me review our liquidity and cash generation. Looking back at 2020, it was a challenging year. Nevertheless, we maintain our focus on improving liquidity and leverage, and we made significant headway. The capital and cost discipline actions we announced earlier, including cost cuts to corporate and operations overhead, salaries, dividends and capital expenses, were fully executed. These actions were instrumental in helping Nabors deliver $184 million in free cash flow for the full year. In 2020, we reduced overhead spend by 24%. These reductions began in the second quarter and translated into cash savings of approximately $90 million over the last nine months of the year. Our run rate in the fourth quarter represents a nearly 28% reduction over the 2019 quarterly average. The decrease in overhead, combined with CapEx reductions of $170 million and dividend cuts of $7 million, translate into total cash savings of approximately $267 million versus our initial plan for 2020. Despite the substantial drop in activity and consequent EBITDA shortfall, Nabors delivered free cash flow almost in line with our initial pre COVID target. In the fourth quarter, net debt declined by $290 million to $2.49 billion. This reduction was driven by positive free cash flow and by several debt exchanges we completed during the quarter. Free cash flow, defined as net cash from operating activities less net cash used for investing activities, totaled $66 million. This compares to free cash flow of approximately $9 million in the prior quarter. The fourth quarter included minimal interest payments as compared to semiannual interest payments of approximately $80 million in the third quarter. During the fourth quarter, we experienced a slowdown in collections from a significant number of our customers. While our quarterly free cash flow was affected by some $30 million, we expect this situation to prove temporary. For the first quarter, we anticipate breakeven cash flow. Please keep in mind that semiannual interest payments for all our senior notes are paid in the first and third quarters. In addition, the first quarter has an unusually high number of onetime annual payments, such as property taxes and bonus payments to our workforce. These payments and other onetime annual outflows in the first quarter typically amount to about $30 million. Offsetting these negative impacts on our cash flow, we anticipate a strong recovery in our quarterly collections. We have already experienced an increase in collections during the month of January. During the fourth quarter, we completed a public debt exchange and various private exchanges. These transactions reduced our total debt obligations by $284 million and reduced our near term maturities. During 2020, we reduced through repayments, buybacks or exchanges, near term notes with maturities in or before 2023 by an aggregate amount of $1.5 billion. Subsequent to year end, we further addressed our capital structure by completing additional debt exchanges and open market purchases of our notes. These transactions reduced our debt obligations by an additional $22 million. Let me continue with a comment on capital expenses. Capital spending in the fourth quarter was $41 million compared to $39 million in the prior quarter. For all of 2020, CapEx totaled $190 million, $10 million less than we had planned. We are targeting CapEx of $50 million for the first quarter and of $200 million for the full year 2021, excluding Saudi newbuilds for SANAD. At this point, SANAD has been awarded three drilling contracts by Saudi Aramco, and we have issued one purchase order for the first rig. We do not expect that any newbuilds we delivered in 2021. Nonetheless, CapEx for SANAD newbuilds, if any, would be paid out of SANAD funds. The final comment, it is worth mentioning that we determined together with our SANAD management team and with our JV partner, Saudi Aramco, that at year end 2020, SANAD held cash balances beyond its future needs. Consequently, a cash payment of roughly $50 million to each partner was approved. This payment was executed in the month of January. With that, I will turn the call back to Tony for his concluding remarks.

Thank you, William. I will now conclude my remarks this afternoon with the following. As you are aware, Nabors' strategy focuses on three key themes; first, operating premium fit for purpose assets in diversified geographies; second, expanding services at the well site using the rig as a platform; and finally, using technology to unlock value and drive future growth. This past year's results demonstrate the value of this strategy. With regard to our assets, we continue to produce leading margins in both the Lower 48 and international markets. This performance reflects the quality of our assets and the competency of our crews. Our safety record, which has outperformed our competitors, also confirms that our fleet is second to none. In particular, utilization of our innovative pad optimal PACE-X rig remained high throughout 2020. Utilization of the X rig as well as our other advanced Lower 48 models has increased suddenly since last summer. And in geographies as diverse as the Gulf of Mexico and the Middle East desert, our rig utilization has held up better than most. We predicted in late 2016 that the drilling industry could not count on an ever increasing rig count to grow EBITDA. In response, we created NDS. Its mission was to grow by using the rig as a platform. NDS delivers integrated well site services in a more efficient manner, which unlocks value for operators and generates growth for us. Today, NDS is one of the most robust and sizable software offerings. Market challenges since 2016, notwithstanding, we have demonstrated that this is a value creating strategy. Finally, with respect to technology, we have maintained our investment in R&D even throughout the downturns. Those investments have fueled our premium assets and NDS offerings. They yielded the first software, automated directional drilling and fit for purpose downhole tools. We strongly believe that the next wave of value will be created through process automation, including robotics and digitization. ESG and efficiency reasons alone will push operators to resolve the red zone management issue and remove employees from the rig floor. We believe we are uniquely positioned to meet that challenge. We have an unmatched portfolio of assets, technology, geographic mix and people that positions us well for the future. We remain convinced that our portfolio will deliver tangible value to clients and ultimately, back to Nabors' shareholders. That concludes my remarks this afternoon. Thank you for your time and attention. With that, we will take your questions.

[Operator Instructions] And the first question comes from Connor Lynagh with Morgan Stanley.

I was interested to see the cash payment out of SANAD, I think there's historically been some concern about your ability to extract cash from that. So could you help us understand, should we think of this as sort of onetime and maybe there's not going to be more of these as you start to embark on the newbuild program? Or what sort of generally you're thinking about the ability to continue to pull some cash out of that asset?

I think that we have not been concerned at all about the distribution of cash. I don't know where that's coming from, we've been very clear that excess cash is to be distributed. And we have a mechanism to forecast and decide whether we have excess cash or not. And the only reason this distribution was made is because of that process. And by the way, that was driven by our partner, Saudi Aramco. We did not ask for it. We didn't really need the cash right now. But Saudi Aramco, obviously, tracks that very closely, and they felt a payment of $100 million, $50 million to each partner was appropriate. I think that demonstrates their, obviously, appetite for making sure that SANAD doesn't really sit on cash it doesn't need. Our forecast, and I've been clear on that before is that we weren't expecting to get any cash from SANAD before 2023, 2024 in that time frame because we're going to be building a significant amount of rigs, which are going to be funded from SANAD cash holdings and their own cash flow. We don't expect to fund any of that. So that hasn't changed. I don't believe we will have significant distributions before 2023. But I'll put a caveat on that, that's unless Saudi Aramco slows down the pace of awards of new rigs to be constructed in Kingdom. So if that happens then we would have excess cash that would need to be distributed before that time frame. Does that answer your question, Connor?

Yes, I think so. And just to be clear, that was a market level concern, not your concern I was referring to, certainly some pushback on. So I guess the question then is, if you could just update us on the sort of thinking? I mean, I guess I think you said you had three awards for contracts. Can you remind me, was it five per year cadence or 10 per year cadence that there was supposed to be? And then basically the question is, is three per year, maybe a better baseline expectation or do you think that's not indicative of anything longer term?

Well, I think the cadence is pro forma five per year, but obviously, Aramco has to review its own plans and its own budget allocations, and it's really up to a Aramco to figure out how they want to optimize it. As we mentioned, there's three have been indicated, only one has made it to a PO so far, but the idea is to do five pro forma, that was the original contemplation. The other thing I'd like to mention here is, these awards are a high class problem in the sense that these are the best use of capital in the world in our sector. I mean all these contracts are against full payout contracts. I think we've indicated they're six year contracts with a four year renewal and in the most important development market in the world, and they're all long term and with a great customer who supports the operation. And the size of these things are such that it's very meaningful. And therefore, if and when Aramco decides to do it, we're fully supportive of it and we're happy to be part of the team. And our mission is to help them execute this well and help them build their own programs. That's our role.

Maybe just one more here, just there have been some sort of conflicting reports around offshore activity broadly in the Middle East, maybe being slow or some suspensions out there. It seems like you have a lot of confidence that your activity is going to be trending higher. I guess, can you confirm that? And then just one other question, which is, is there any sort of major pricing reset we need to think about either on the upside or the downside as we think about sort of your major middle eastern market?

Well, with respect to Aramco in particular, the pricing is actually determined by the contract. So as I said, these contracts are full payout contracts, so we don't really have that kind of concern. I think the concern will be, Aramco has to decide whether these newbuilds make sense in the overall plans. And if they decide to go, the economics are already agreed between the parties. So with respect to that, I don't really think that's an issue.

And let me make a comment on that also, Connor, just to add on what Tony said. We've already renegotiated and reset prices for all of our rigs going forward, and that was already embedded in the fourth quarter. So we don't expect any more resets. In fact, we have already brought back eight of the rigs that were suspended already today, and we expect another five to come back. So we're at 38 right now, we expect to get back to 43. Three more of those rigs are coming in the second half and then we have two more that are coming in January. And Aramco provides us that information on a regular basis. They provided that information at year end 2020 and they basically met those internal plans that they have to bring back our rigs. So we understand, yes, that Aramco has tweaked some of their drilling activity and that affected us a little bit in the fourth quarter, and that they're working on the offshore production and drilling activity. But for the land activity and particularly SANAD, we have been exactly treated like Aramco said they would.

The next question comes from Karl Blunden with Goldman Sachs.

You've outlined a lot of good work that you've done on your balance sheet over the last year or so. I think when folks take a look at it now and you have a little bit of that increase in liquidity available to you from SANAD, you do have a clearer runway ahead of you. But when you think about the revolver, I'd be interested in what kind of strategies you can use to address that revolver draw and ultimately extend that and give yourself more runway.

Karl, yes, you've basically hit it on the nail. I do think our liquidity is not really an issue. At this point, we've done a lot to address that. As I mentioned before, we've cut our near term maturities in our notes by $1.5 billion, and we certainly only have about $86 million worth of maturities in 2021. And the next year is 2023 where we have still about $150 million worth of maturity remaining on our notes for that year. So liquidity itself is quite manageable but there's a couple of things that we need to look at. One of them is our total leverage. And of course, we are still going to be working hard on bringing leverage down, basically mostly through internal cash generation. But if we can find other ways to improve our balance sheet, we will. Part of the issue we have to look at as well is obviously the revolver, which expires in 2023. Good practices, best practices, means that we are going to be working on that in the first half of 2022 to get an extension on or a new revolver with a five year term. That is our strategy. Obviously, before we get to that period, we will have improved our leverage very materially in terms of net debt to EBITDA. As you may know, we finished the year at 4.4 times. If you look at Schlumberger and Halliburton, we're in the same range. Obviously, I'm not comparing Nabors to those two powerhouses, but that tells you that the leverage is on a trailing basis is quite good. And we plan to bring this number down quite materially. Tony's and our objectives, which we have committed to, had been that we would bring it down to the low $2 billion range in terms of net debt. We think that we're almost there, so we think that's no longer appropriate. The environment has changed somewhat in terms of cost of capital and so forth. So we think that number is now clearly now a bit high. We want to get it well below the $2 billion mark. So we think that's achievable over the next two to three years. So again, the plan is in the early 2021 to potentially issue new debt. Remember, we do have available still $230 million of the senior priority guaranteed notes that we could issue, and those are trading today in the 8% range. We also have $500 million of the 2026, 2028 junior guaranteed level, $500 million of those. So those two pockets would allow us to bring down the revolving credit facility. And based on the strength of better leverage and improving our maturity profile, we think we can negotiate favorable terms for our revolver in 2022.

Your next question comes from Chris Voie with Wells Fargo.

Maybe in the Lower 48, I guess, I think you have about 110 super spec rigs. Your market share has lagged a bit in the last couple of quarters or certainly the guidance for 1Q. Just curious if that's driven by higher pricing discipline versus peers, and whether you expect that to flip as we go through the rest of 2021? I know you mentioned expecting the rig count to grow throughout the year. So just curious how to think about market share for you guys as the year progresses.

Obviously, our priority is not share growth but profitable growth. And I think I would note that our daily margins and our revenue per rig are higher than our peers. And if you add NDS content, it's higher still. So what we're interested in is profitable growth and showing that discipline. I would note that the market in general has been disciplined so far, and there's good signs that -- of a deliberate growth pattern as we indicated in the prepared remarks, the tier one kind of customers are looking at single digit. As far as we can tell, currently single digit growth right now for the remainder of the year. Obviously, what can happen given the commodity price moves is there's still budget cycle status openings, and we've used given the commodity price, but that's where we see things. Obviously, in the tier two and tier three the activity is more and so there are opportunities for us to expand. We are sending out 50 more rigs, which I think are the best or second to none, I should say, in the marketplace. And we want to deploy them but we want to do it on a deliver fashion to make sure that the margins on the cover, working capital, the expense of bringing it out, all that kind of good stuff and that's our mission. And so far, we've done a pretty good job, I think, coming out of the downturn, adding to which we have. We're at 57 today, we'll exit the quarter at 60, and we'll take it from there in terms of seeing how fast we ramp up.

I think until third quarter, though, we outperformed. In the last two quarters, we saw, obviously, our peers getting a bit more aggressive given the ground they lost up through the third quarter. So what Tony mentioned that we want to be profitable. So how do we look at this? We look at this that, if we can't get a pricing for a rig, that gives us a margin that pays within the year for the cost to bring the rigs back and the working capital, then we're not going to do it. So basically, we are being selective. And we're focusing more on clients that want to add incremental revenue on the solutions side that are willing to do performance contracts. So we're not chasing pricing or just any rig out there or any customer, we are focusing on trying to generate cash in the next 12 months with a contract. Anything that doesn't do that, we just don't go for it.

That makes sense and good to see the discipline. As you mentioned, the guidance for $8,500 a day. Just curious if you could give a little color on maybe the mix of pre-COVID rigs in that, and how leading edge now compares to that guidance in 1Q, if there's going to be a further decline expected in 2Q and maybe just some sense of the magnitude?

So obviously, our average day rate this last quarter was about $21,000. I think in the last call we said that we're seeing rates in the high teens. I think the good news is, given what I just said about rig count, is we are starting to see the trend of crossing the $20,000 threshold in terms of pricing. So the gap for us between the average current rig count and the spot price is actually narrowing pretty dramatically. And I'll leave it to you to figure out how soon those things can cross given the progression as the rig count goes forward. Obviously, there's a bunch of estimates out there where rig counts ended up at the end of the year. Anything north of $4.25, $4.50, there will be pretty dramatic price escalation, I think, there. In the meantime, of course, we are benefiting from the backlog of current contracts we do have which have higher margins in them. So to the extent we continue to add rigs at even this spot rate, there is going to be margin degradation a bit. So that will continue.

And to add to Tony, the $21,000 does include about $1,000 of reimbursable revenue which doesn't contribute to the margin. So if you look at high teens, which we're seeing, anywhere from $17,000 to $19,000 per day that means $18,000 to $20,000 per day in terms of revenue per day, and that compares to the only $1,000 that Tony mentioned earlier. So we are converging. And we expect to see -- we could even see convergence and inflection sometime this year in terms of revenue per day.

[Operator Instructions] The next question comes from Sean Meakim with JP Morgan.

So maybe first just a follow-on to that discussion, but thinking about potential sensitivity in terms of activity in the back half of the year. In the Lower 48, I think one of the big open questions is how your customers will react later this year if oil prices can hold near current levels. So what's your expectation in terms of potential upside to rig activity in the back half? And do you expect your customers to remain disciplined, or do you expect them to react to the relatively strong oil prices much stronger than what’s in their price [decks]? And if you could distinguish that between the majors, largest small public and private EMPs, I think that would be helpful as well.

Sean, if I knew the answer to that question accurately, I'll play the futures market and I'll quit my job. I mean like I said, the party lines thus far from the tier one customers is to abide by the commitments that people making their free cash flow. And therefore, the steps that we've taken for whatever value you want to put on, it has been today to only see delivered growth in the single digits. And that obviously does not take into account a big change in the commodity price. But we haven't yet seen people. We haven't seen that mirror crack yet, Sean. I'm not going to say it won't crack, and history has as it does crack, but that's in the Lexicon of language today. With respect to second and third tier operators, yes, they are being more aggressive, and there is the prospect of more activity in that group of people, because they respond up and down, as you know, quite much faster. So that's the way I would look at it.

And then maybe a little more on free cash flow. Last quarter, you guided $21 million free cash, if I recall correctly, to be in the tens of millions, or I guess to be interpreted anywhere between $10 million and $99 million. So in William's comments earlier, he noted the slip of some collections in 4Q. It sounds like those are being recouped in the first quarter. Some other moving parts in 1Q, so let's say, neutral on cash. But how do we see free cash progressing in the balance of the quarters? And if you have an updated guide on the full year for '21, I think that will be useful.

So I'll give you an updated guide. I mean I think I'm comfortable doing that based on the strength of our performance, Sean. I'm usually a company's harshest critic, even harsher than you, if you believe that. But I mean at least I'm accused of that. But this quarter and this year, I really have very little things to criticize about. I think we had a great quarter. Our operations guys really delivered. I'm much more optimistic on NDS and our performance offerings. And our total cash flow generation actually -- and by the way, this is the last time I will say this to the team that's sitting around here, because, obviously, it's not my job to be cheer leading. But based on that performance and what I'm seeing and what I'm seeing already in the first quarter, I think I'm more confident of our free cash flow this year. Obviously, the $30 million from last year helps because we believe that will be collected this year. And as the year progresses, and our clients are a little bit less scrambling for cash themselves, we feel this year end will not be as impactful negatively as this one was. A lot of our NOCs were sitting on their hands at the end of the year and not affecting the payments that were due. So I think I said before tens of million. I think I'm comfortable saying now between $50 million and $100 million. So there you go, I narrowed the the forecast.

This concludes our question-and-answer session. I would now like to turn the conference back over to William Conroy for any closing remarks.

Thank you, Tom. We'll wrap up the call there. Thank you, ladies and gentlemen, for joining us this afternoon. If you have any questions, please give us a call or e-mail us.

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