Good day, and welcome to the Q2 2024 Nabors Industries Ltd. Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining Nabors second quarter 2024 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 me are 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 adjusted 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 website and in our earnings release. Likewise unless the context clearly indicates otherwise references to cash flow mean adjusted free cash flow as that non-GAAP measure is defined 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. With that I will turn the call over to Tony to begin.

Good afternoon. Thank you for joining us today. Before I begin, I would like to acknowledge the challenging conditions impacting the communities in hurricane Beryl's path, a number of Nabors employees have suffered damage to their homes. It is a strong testament to our staff that we have been able to maintain operational continuity. I want to thank all of our employees, especially those facing difficult personal situations for their efforts during this time. Now, I'll start with our results and outlook. Total adjusted EBITDA in the second quarter exceeded our expectations. Daily margins in the US Lower 48 remained strong. Margins in our international segment were essentially in line with the first quarter. Demonstrating its broad reach, our Drilling Solutions segment outperformed the industry rig count in the Lower 48. I'll begin my detailed remarks with comments on the international markets. The strength of the international expansion is evident when looking at the considerable number of incremental rig awards and deployments. Nabors has been successful capitalizing on this environment. We've seen this in our own international rig count and our roster of pending deployments. In summary, as I'll detail in a few moments, we expect to deploy five more incremental rigs over the remainder of 2024. Lower 48 industry activity once again declined. The Lower 48 industry land rig count declined by 37 rigs or 6% during the second quarter. The average Lower 48 industry rig count decreased by approximately 4%. Notwithstanding the Lower 48 industry rig count performance, leading edge pricing for high performance rigs remains stable. Current pricing continues to support our daily rig margins at near record levels. Nabors total adjusted EBITDA reached $218 million in the second quarter. Our global average rig count was essentially in line with the previous quarter. Our average international rig…

Thank you, Tony, and good morning, everyone. Overall, the second quarter financial EBITDA was slightly below our first quarter results as increases in our International Drilling segment, as well as Drilling Solutions and Rig Technologies were offset by the [indiscernible] decline in the U.S drilling segment. In general, international activity for all of our segments, almost compensated for the reduction in the Lower 48 markets. We are encouraged by the strength of our international activity and its future growth prospects, as well as by the recent stability in our Lower 48 rig count and by the resilience of our pricing in this market. Revenue from operations for the second quarter was $735 million compared to $734 million in the prior quarter. Our U.S drilling segment decreased by $12.3 million or 4.5%, primarily due to rig count reductions in the Lower 48 market. Lower 48 decreased by 4.9% as the current market conditions drove a sequential three rig reduction. That being said, pricing held up well. Our daily revenue for the fleet came in at $35,334, only $134 below the first quarter. Revenue from our International segment increased by $7.4 million or 2.1% for the quarter. This improvement was primarily driven by our operations in Algeria with a startup of one more rig and by Argentina as a result of adjustments in our pricing. The impact of the deployment of an additional rig in Saudi Arabia was mitigated by the previously announced downtime linked to recertification work during the quarter. Revenue from our Drilling Solutions segment also grew by $7.4 million in the second quarter, a 10% improvement. This increase was driven by wellbore placement in the U.S and by international growth in casing running and managed pressure drilling services. Performance [indiscernible] revenue in the U.S was hurt by our decreased…

Thank you, William. I will now conclude my remarks this afternoon, as we look ahead, we see significant opportunities. From today, we expect five international rig startups over the remainder of 2024. These will all be working on multi-year contracts. In addition, we have visibility for an additional 10 total deployments in 2025 and 2026. Their economics should generate attractive financial returns. With these, we have secured a well-defined path to a significant growth in our international business and its free cash flow. Looking ahead, this market presents us with opportunities for even more rigs. Additionally, both our Drilling Solutions and Rig Technologies businesses are poised to capitalize on this environment. I'm looking forward to reporting on our progress. That concludes my remarks today. Thank you for your time and attention. With that, we will take your questions.

[Operator Instructions] And the first question today comes from Kurt Hallead with Benchmark.

Hey, good morning guys.

Good morning, Kurt.

Good morning. How are you doing Kurt?

Hey, you guys laid everything out quite clearly. I think the one thing that really caught my attention, the commentary about the prospects for your U.S rig count to modestly increase throughout the year, and this is in particular, I guess positive contrast to the commentary that you provided related to that survey you did of E&P company. So kind of curious as to what are the dynamics that are driving the demand for your rigs, say relative to the overall market?

Well, let's put some context on the thing. Obviously the U.S market has very -- been very challenged. In the last quarter you saw the rig count go down almost 40 rigs. And our goal as you can see from our results has been trying to maintain profitability in the pricing. So -- and I think we've done a real good job of that. We haven't chased market share and we don't intend to. What we've really focused on is operational excellence and following the needs of the customer. I think there's been a lot of talk about the downside of customer consolidation, but there is a lot of upsides of customer consolidation. One, of course is that the consolidation makes the industry have a life to it. I mean, it provides viability for investors to see that there is -- our [indiscernible] industry isn't the end of 2030, which a lot of the ET people keep talking about. So -- and it's also good for larger contractors given who the players are. And I think what's happening is that this rationalization occurs and as they get digested over the course of the year, we think that'll create opportunities for us to really have a wider audience for our technology and our type of rig. And we've put a lot of effort into that as you know, and we think as the market tries to capitalize on making these new prospects even more profitable, what's going to happen is that the large operators also going to focus on new solutions. And we have a pretty robust portfolio of other things behind us that we think also have good follow on. So I think in the short-term there's obviously ups and downs. We've said our number we're expecting for this quarter is that's based on conversations that are in place right now. It's definitely a challenge and it's also a challenge to do that, while trying to maintain the results you've seen. But I think we've done a pretty good job so far and that's what we're targeting for this quarter.

Okay, that's great. Great color. And maybe one for William on free cash flow. It looks like you reaffirmed what you said last quarter about $100 million to $200 million free cash flow, obviously and then you have the debt dynamic where you're going to basically take out the [indiscernible]. Now coming back full circle, maybe William in the context of the prospect, how do you think about the dynamics related to absolute debt reduction?

So, Kurt, that the plans are to use all the cash and the proceeds that we got from the bond obviously to pay down the debt. So that will reduce the actual total debt. But all the cash that's going to be generated is going to be applied to reducing total debt. We're not going to leave the cash on the balance sheet, we're going to be paying down debt as we go forward.

Okay. That's awesome. Appreciate that color. Thank you.

Thank you. And the next question comes from Dan [indiscernible] with Morgan Stanley.

Hey, thanks. Good morning. Just wanted to ask -- so you guys have kind of reported somewhere in the ballpark of $220 million of adjusted EBITDA in the first half, in each quarter and the first half of the year. And then the guidance is in that same ballpark for the third quarter. I guess if I was thinking about the fourth quarter before your comments on this call, I would've thought maybe there could be some seasonality and maybe some budget [indiscernible] in the Lower 48 that could be offset by some international growth. And maybe the third quarter might be a good EBITDA [indiscernible] about for the fourth quarter. But it sounds like maybe the earnings could be growing sequentially from the third to the fourth quarter. So I was just wondering if you could help us think about some of the puts and takes just directionally heading into the fourth quarter of this year across the segments and into that consolidated EBITDA line. Thanks.

Just from the schedule of rigs internationally, as I've articulated, the second half has five rigs. Of those five, four are taking place in the fourth quarter. So vis-à-vis international, obviously there's a ramp occurring in international that's back -- that's loaded toward the latter part of 2024. I'll let William add more color to your comment though.

Yes, I mean, it's a good comment and there's a lot of focus on the fourth quarter because of the budget and seasonality. On the rig business, land drilling business, Drilling Rig business, we don't really see that seasonality like some other businesses like fracking called tubing and so forth, because the contracts tend to be longer term and we don't experience that seasonality. So in the U.S in fact, Tony explained the reasons why he thinks we'll have more rigs through the fourth quarter, but this is based also on concrete awards that we expect and discussions and negotiations we're having with some of the larger clients, what we think will benefit. So, we don't expect to see a drop off in the Lower 48. If anything, we expect activity to pick up with a little bit of erosion on the gross margin. So the U.S will hold up well. And then of course, as Tony mentioned, internationally is going to expand very significantly.

Got it. Super helpful. I guess -- fine if you don't want to comment, but could the full year adjusted EBITDA line have a nine handle on it.

We are comfortable with the consensus.

And then just a quick follow-up. Wondering if you could maybe break down some of the components of your CapEx budget outside of what you do explicitly give us, which is the SANAD newbuild component. But just wondering if you could talk through some of kind of like the maintenance CapEx assumptions across the other segments that feed into that $590 million number this year so that we could maybe --might help us dial in our extrapolations in -- into the forward years. Just anything on maintenance CapEx across the segments, any growth investments, maybe in NDS or Rig Tech. But yes, anything outside of the SANAD newbuild CapEx that you could help us with, would be great.

We have said that U.S rigs requires somewhere between $1.2 million, $1.3 million a year in maintenance CapEx, and international rigs a bit more maybe in the $1.5 million range or so. So you -- I mean, if you take our average rigs, you can do the math for that. Obviously this year we do have some growth CapEx as we have said before, due to the tremendous expansion we have experienced in international markets. As you start the new contracts, there are some costs that range anywhere between $4 million to $10 million, I would say, to get these rigs ready. So basically again, you could do the math based on the 10 rigs that Tony mentioned.

Got it. Super helpful. All right. Thanks a lot. I will turn it back.

Thank you. And the next question comes on Derek Podhaizer with Barclays.

Hey, good morning. I wanted to go back to the Lower 48 comments talking about your rig count to grow for the balance of the year versus your survey, which seemed like that was more flat to down. Can you provide more color on what you're seeing, whether it's the privates versus the public, oil versus gas, big different basins, like where do you see the most offset [ph]? I know you talked in your release about the Western region seeing some additional activity, but if you can give us a little more detail as far as where we can see some of these rig additions you're expecting in the back half of the year.

Sure. Well just make clear the rig addition we're talking is, it's a modest increase between first and second quarter here that we're, I mean, for the next quarter, second and third quarter that we're talking about. But to give you some more color, so roughly in our customer mix over the course of the past year, it's definitely shifted to more of the public operators. To give you an idea, back in 2023, it was roughly 60%. Now it's almost three quarters. So that's a pretty good shift and that plays into the theme I just talked about.

The other point is that there is a continued high-level of churn that we're facing. And so as William referred to, there's a rig count increase, but also there is some pricing margin erosion because of churn. And churn it applies across all the basins. To give you an idea, West Texas, I would say is modestly up in churn compared to where we were in the first quarter. South Texas has actually improved, the environment improved a little bit, which also should have an effect on activity. East Texas, churn is up and Northeast and North Dakota, I'd say they're relatively flat. So, right now our gas figs [ph] are at 13% and obviously that's not something that we're focused on, but I think the target market is the large operators I referred to, which is the fat part of the market and you can look at the consolidations that occurred. I think you -- we would -- we're obviously trying to play to our strengths and promote our solutions in the -- with the post-merger companies and hopefully that will be recognized. And based on our track record and performance, we hope that's going to translate into what I've talked about is actually slightly increasing rig count as we're moving forward throughout the year.

I'll make a comment on that. I mean, the privates have also been a source of some positive -- we -- I've seen a lot of new clients on the client list that I hadn't seen before, and some of the smaller clients are providing a little bit of stability to our rig count. So we are happy to see some of those trends with the private clients. But as Tony mentioned, I mean a lot of the -- most of the increases that we're going to see, and again, we’re -- this is not going to be more than a handful of rigs at most. But those are coming from some of the consolidation where we think that we have some advantages with some of those clients that have been the big buyers. So, we feel good about our prospects in the second half.

Got it. That's all. Really helpful color. Maybe on contract duration trends, are you starting to see some of your customers willing to sign up for year -- multi-year agreements, or is -- are we still on more of that like 6 months lots of well contracting? Just maybe some color around your conversations and where you're seeing trends as far as contract terms right now?

I think as these consolidations occur, I think it's causing each of the players to reassess their entire portfolio. And there are a bunch of initiatives by several of them to look at the issue of terming out things given where the market is and giving their aspirations of [indiscernible] and their new programs. And so the answer is yes. I think the market is becoming more amenable to some term contracts and we are looking at that as well.

Great. Appreciate all color. I'll turn it back.

Thank you. And the next question comes from Waqar Syed with ATB Capital Markets.

Thanks for taking my question. When do you expect U.S drilling margins to bottom out?

My goodness!

Always a difficult one.

Well, I think if you look at -- if you look at our average right now, it's about 35,300. And I think our leading edge probably averages around 33, 34 revenue per day. So there's still some room to fall. However, we're getting pretty close to convergence and the stability we've seen in pricing and in rig count actually to tell you the truth, gives us hope that we will continue to maintain our leading edge pricing where it is today. So, we still could drop, I would say towards the 15k level. But I would expect that to be the low point.

Great. Very helpful.

And when before year end.

Okay. So you think most of the drop is going to be this year and then it kind of stabilizes into next year?

Well, yes, we think so. I mean -- and keep in mind that not everything changes at the same time. So it's like a progressive …

Right.

… rolling into new contracts. And we're starting to get longer term contracts by the way, which we would be happy to sign longer term contracts because we are still very close to record all-time margins for Nabors in the Lower 48.

Right. Now, William, on the debt side, good to see that you would like to reduce the overall total debt number. So at Q2 end, total debt was $2.5 billion. Where do you expect the debt number to be, let's say by the end of this year and then perhaps by the end of next year?

So you're working back into the free cash flow, right, Waqar. Well, I did provide guidance. So if we hit the midpoint of the guidance, I think we could reduce our total debt this year by somewhere in the range of a $100 million plus.

Okay.

And the next year, I have said before that we expect to do significantly better in free cash than this year. And again, that -- all that extra cash generation will be applied essentially to reduce our debt. The intention is not to leave the cash on the balance sheet. So we're going to use it to reduce debt as we have done in the past.

Okay, great. Well, thank you very much. Appreciate your comments.

Thank you, Waqar.

Thank you. And the next question comes from Keith MacKey with RBC Capital.

Hi, good morning. Thanks for all the color on the international rig additions. You've certainly laid out pretty clearly all the rigs you expect to add across the geographies. Just curious though, are there any notable expiries or churn that could come up in the next, 18 months that might provide a headwind against the getting to 102 rigs by the end of next year?

I mean, all these contracts are on 3 to 5-year deals and there is maturity. I think in Saudi, we've renewed it, like we said on the last call, many of our oil rigs recently, so that -- that's comforting. But, obviously in this market, depending on the macro, we're not immune even with these contracts to something occurring. But I think right now we feel pretty good. In Kuwait, we're going to have a hiatus of a rig during the time period from now to the startup period as we onboard the new rigs. So that -- that's like a little setback, but that's in the normal course. And when these rigs expire and they move on, there's always a gap. And that's one of the things about international compared to U.S where those gaps are a little more pronounced, a little longer than in the U.S. But having said that directionally, we're very comfortable with the direction, given the macro. And just to give you an idea of scale, one of the things you should be aware of, I think I gave some numbers on the last call, but now given what I just said today, just so you understand what the visibility is for these contracts in place now for Argentine [ph], when you add the backlog of the Argentine rigs and the Saudi rigs, the Argentine rigs were being represented about $300 million in backlog and denied Saudi rigs for 24, 25 represent about 1.2 billion, and the rigs equate about 230 million. So altogether that's the backlog of about $1.7 billion, which is pretty breathtaking, okay? So just to give you an idea of what we're talking about here.

And, Keith, to your question about the 102 rigs, keep in mind that, if you look at our presentation, three of those rigs haven't been secured yet. So we have discussions with about nine more rigs, and we estimate that we probably get three of those, but we haven't secured those. So right now and based on the stuff that we have secured, we're looking more like at a 99 rigs right now at the end of the year, 2025.

Got it. No, that's super helpful. And for Q3, I must admit I was a little bit optimistic on the international daily cash margin. You're projecting to be about 16.2. to 16.3 per day. Can you just maybe give us a little bit more help on how we should be thinking about that number through '24 and '25 as you’ve fold in some of these new rig contracts?

So, when I -- when the team forecast the additions of the rigs, we always layer in a little bit of downtime because based on experience we see that happen with a new rig startup. So, so there is some underlying costs, or downtime forecasting those numbers. And in addition, we did mention that we're doing -- going through a recertification process given all the extensions we've had in Saudi Arabia. So I would say there's right now some $300 to $400 per day in underlying forecasting for these events. So at the end, you add that on top of what we said for the third quarter, the underlying profitability is somewhat higher than that 16.2, 16.3 that we're guiding for the third quarter. And we said before, Tony has said it, I said it that we expect in the fourth quarter to be approaching towards the $17,000 per day margin in the international markets, whether we hit it in November or December, as the new Saudi rigs come in. But that's sort of our expectation. And then going forward, that 17k should be sustainable for 2025.

Got it. Okay. That's very helpful. Thanks very much.

Thanks, Keith.

Thank you. And the next question comes from Arun Jayaram with J.P. Morgan.

Yes, good morning. Tony, I was wondering if you could go through kind of the competitive balance in Saudi Arabia. Obviously one of your peers in the U.S has kind of entered the Saudi Arabian onshore rig market. Nabors or SANAD JV has scheduled to deploy 15 total newbuilds as part of that up to 50 rig program. Maybe talk to us about the prospects of signing up more newbuilds beyond the 15?

Yes. Well, as we've previously spoken about, the newbuild program is a part of a policy that was embarked upon several years ago by Aramco and MBS to industrialize the [technical difficulty]. And it's a long-term plan to add 50 rigs of newbuilds. So, we're seven -- we have seven working now, there's 43 to go. And we've talked about the ones that are in process for '25 and '26. But we fully expect that right now that those plans will continue unabated because they're part of a macro policy. Now of course, there's always the vagaries of industrial policy and things can get temporarily suspended, et cetera, but as far as we understand that commitments there, and you should be aware that the seven newbuilds have been delivered are all working in gas rigs today. And as I've spoken about before, the story on the rig count is such that that is continued to be a high priority for Aramco. So there's about 218 rigs in the Kingdom [ph] today. 31 of them are working on conventional, about 15% of the market. And as I mentioned, eight more than 80% of all SANAD rigs, they are gas directed and the newbuilds are going to be focused on gas. So we think we're in a really good relative position there. And we think we have -- we're aligned with the country's objectives and I think all the stars are aligned. So I can't say that we're not going to be immune from market conditions. Aramco does adjust rig count to marketing conditions. There may well be some other ones out there that they're going to embark on, but I should say that for all those reasons, we think any adjustment will be tempered and temporary.

Great, great. And then just my follow-up, you guys have announced some rig awards in both Argentina and Kuwait. Obviously, Kuwait has been maybe a long-term disappointment in terms of global spending trends. Tony, what -- what's your thoughts? Have you been down to Argentina recently about maybe some highlights on what's going on in the Vaca Muerta [ph] and just thoughts on Kuwait -- incremental demand from Kuwait?

As you correctly observed, from my point of view, both are really key long-term [technical difficulty] our point of view. Kuwait for many years on conference calls, we talked about the, the [indiscernible] 14 rig tender [ph] that was going to be coming out. And every time that thing is just rolled over and rolled over and bit of disappointment. We're very happy we finally got this kind of award here that we're cementing and we think it should be the beginning of some additional upside. Just by way of parenthetical comment, we should also be aware that we're not just [indiscernible] rig award there actually canned rig, our rig manufacturing businesses getting awards in this latest round for top drives and wrenches on competitor rigs in the Kingdom. So there is additional upside to Nabors from Kuwait, and that makes it a core market for us in terms of equipment supplying as well. Argentina, obviously, what's really happened there, the story is, it's always been a good resource, but the political and financial situation in the country has always been a big encumbrance. But given the changes that have occurred there, particularly on the currency side now, I think, that that's really helped us out. And one of the things that, as I've mentioned is with respect to the rigs that are going down there, we're getting a double benefit in the sense that we're redeploying rigs from the U.S market down there making rig use of idle capacity. And the rig contracts are, in fact variable compared to historical prices with U.S dollar components.

Paid [indiscernible].

Yes. And then lastly, the one of the great surprises to me is how fast our NDS thesis is taking hold down there. And NDS content, the Nabors working rigs has really increased to the point where they're doing a lot of stuff as robustly as they are in the U.S., in fact, manage pressure drilling and casing services on those rigs. I think we have a great reputation right now and that's more upside in that. And as that basin matures, those kinds of services will become more useful. And I think there's a good upside path for us. So that's why we're working on both countries.

Thank you. And the next question comes from John Daniel with Daniel Energy Partners.

Hey, good morning, guys. Thank you for including me. I just have one. It's the comment you guys made in the press release about the four mile lateral in the Delaware, I'm curious if that's a one-off with the customer, or how many more would be behind that and what the outlook for that would be just for next year?

I’m going to let Travis Purvis to answer that for you.

Yes. Good morning, John. Good question. I don't think it's -- that's not a one-off, for sure. A couple of things to comment. Customers with large acreage positions are the ones that are going to probably deploy that well design more often. It proved that it has some real deficiencies to be gained and have [indiscernible] some real value. Secondly, our rigs are well-positioned in terms of our top drives our sigma top drives is the amount of torque we can deliver to generate and deliver those four mile lateral. So it's a space that we're -- I think we're in the pole position. And we're going to see more of those four mile laterals, and some that are even longer than that. So more to comp, but that's certainly not a one-off.

Okay. That's all I have. Thank you.

Thanks, John.

Thank you. And this concludes our question-and-answer session. I would like to turn the call back over to William Conroy for any closing comments.

Thank you, everyone, for joining us this morning. If you have any additional questions, please follow-up with us. Keith, we'll wrap up the call there. Thank you.

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