Good day, and welcome to the Nabors Industries Ltd. Fourth Quarter 2024 Earnings Conference Call. All participants should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note that this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Investor Relations. Please go ahead. Good morning, everyone.

Thank you for joining Nabors Industries Ltd.'s fourth 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 Industries Ltd. 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 Industries Ltd. 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…

Our early rig awards are now progressing into deployments. In 2024, we activated a total of ten international rigs. For 2025, we previously announced nine startups. In addition, we expect to reactivate a recently idled rig in Colombia, so another ten deployments this year. On top of this total, we have a strong pipeline of additional tenders. These opportunities are in markets which meet our financial thresholds and are also in key geographies for oil and gas production. We are optimistic for incremental rig awards this year that would deploy in 2026. Turning to the US market, the weekly industry rig count masks an elevated level of rig churn. Even so, leading-edge pricing for high-performance rigs remained relatively stable. Daily rig margins in the fourth quarter remained at attractive levels, in line with our guidance. Our global average rig count declined slightly compared to the previous quarter. This decrease was almost entirely due to a reduction in our lower 48 rig count. Our technology-focused businesses, NDS and Rig Tech, generated combined EBITDA of more than $43 million. Together, their total EBITDA grew from the previous quarter.

A key element of our strategy is to grow the contribution from these capex-light segments. In the fourth quarter, contribution increased to 19.5% of the company's consolidated EBITDA. Now I will make some comments on the key drivers of our results. I will start with our international drilling business. Across multiple international markets, we see a large number of opportunities and tenders for additional rigs. This favorable backdrop offers the prospect to redeploy several currently idle rigs. At the same time, the broad market strength enables us to focus on prospects that recognize the value Nabors Industries Ltd. can deliver. Now I'll summarize the recent developments in our international drilling business. In the fourth quarter, we deployed two rigs in Argentina. These are part of the three rigs awarded last year. We are utilizing idle rigs in the US to meet this demand for unconventional development in Argentina. We are also providing a significant amount of NDS content on these rigs. In Kuwait, we expect the first of the three previously announced rigs to deploy later in the first quarter. The second and third rigs are scheduled to commence operations in the second quarter.

We see a considerable number of opportunities for additional rigs. They are spread across geographies, including Asia, MENA, and Latin America. Operators in these markets are collectively seeking more than fifty rigs. This number of additional opportunities supports our own rig count progression and pricing improvements in the international markets. We will maintain a disciplined approach to these opportunities to ensure we meet our 2025 free cash flow target. In Saudi Arabia, SANAD deployed its ninth new build during the fourth quarter. Another five are scheduled for 2025, with two of those in the first quarter. And one more should start at the beginning of 2026. That will bring the total working to fifteen. On top of these fifteen deployments, SANAD expects to receive awards this year for another five new builds. Upon award, construction on all five of these rigs will commence. I would like to make a few more comments on SANAD. Specifically, I'll address the new build rig program. This program, as you know, calls for fifty rigs built in the kingdom over a ten-year period. SANAD only places orders for rigs from the manufacturer when SANAD receives an award from the operator, Saudi Aramco. The rigs work under six-year initial term contracts. That contract is structured to ensure a return on invested capital in five years. The initial contract finishes, it is normally followed by a four-year renewal. That's at least ten years of firm utilization. SANAD is now entering the fourth year of the program. As the operator, Aramco continues to push ahead toward the total of fifty. As these rigs are deployed, each rig contributes significant EBITDA to SANAD. Early units generate more than $10 million per year. We expect the more recent ones to produce approximately $30 million annually. This increase primarily reflects…

Thank you, Tony. Good morning, everyone, and thank you for joining us today. Before commenting on the financial results for the quarter, I would like to make some general remarks on our global markets. In the Middle East and North Africa, we deployed one more mobile rig in Saudi Arabia, which was offset by the three rig suspension we previously announced. We are preparing for six more new builds in that market and for the start-up of three rigs in Kuwait. We believe that in Saudi Arabia, natural gas activity on land will continue to expand both in traditional basins and for the more recent unconventional projects. We also expect to benefit from more natural gas opportunities in the MENA market during 2025. This regional expansion should benefit all our segments over the coming year. In Latin America, we recently deployed two rigs in Argentina and expect to add one more during 2025. This market should benefit from the ongoing expansion in the Vaca Muerta Basin as new pipelines and export facilities are underway. In addition, the current government continues to take action favorable to the business environment. We believe Argentina will provide a natural destination for more of the idle lower 48 rigs over the next couple of years. And our progress in drilling solutions should also continue. In Colombia, one of our rigs had downtime between contracts during the fourth quarter but is resuming operations in the first quarter. That market is expected to remain at current levels, with the government in effect limiting activity by our largest customer. In Mexico, Pemex has announced reduced activity for 2025, reflecting budgetary challenges. It's not clear at this point when the government will loosen restraints on our customer, but we expect this decreased investment to have some effect on our…

I will now conclude this morning with a few remarks on our industry and Nabors Industries Ltd. in particular. As you know, our industry is characterized by short-term, often sharp fluctuations in demand and economics. These occur against the backdrop of sustained longer-term transformation and innovation. At Nabors Industries Ltd., our objective is to manage near-term volatility while we develop and deploy enabling technology. In this environment, we are positioning Nabors Industries Ltd. for the future. With our joint venture in Saudi Arabia, we have a unique large-scale opportunity in one of the industry's most important markets. SANAD is currently in its investment phase, already generating long-term value. We are working towards completing the merger with Parker. Parker's drilling rig business dovetails neatly with our existing footprint, offering meaningful synergy potential. This addition widens our casing running business and expands our drilling solutions portfolio. It also adds a high-performance tubular rental business. As the growth of wellbore laterals increases demand for drill pipe, Parker should be immediately accretive to our free cash flow and have the potential to generate significant synergies. Thinking about Nabors Industries Ltd., we have a very good lower 48 business. On its own, it generates significant free cash flow. At the same time, we are investing in growth in Saudi Arabia, which has its own dynamics. We are deploying new assets there on top of the very large existing operation that generates considerable cash flow. Nabors Industries Ltd.'s consolidated free cash flow today masks the strength of our company away from SANAD. In 2025, without the EBITDA from new builds scheduled to deploy, or the CapEx for rigs under construction, we estimate our free cash flow to be more than $320 million higher. That's the real power of the existing business. This also shows our Saudi Arabia operation, without additional new investment, already generating substantial cash flow in excess of $200 million. And keep in mind, this number is expanding at about $50 million per year. Given the clear profitability and the inherent cash generation potential of the Saudi operation, we are reinvesting all sets of cash flow to continue to build for the future. This investment supports the long-term contracted growth plan that our partner, the largest operator in the world, is committed to deliver. So wrapped inside our company, we have a singular growth story which already has great value. SANAD also has a clear path to continued growth. Notwithstanding short-term pressure on our consolidated free cash flow, we believe this investment for growth creates significant long-term value for our shareholders. To summarize, we are positioning Nabors Industries Ltd. to not only capitalize on the future but also to drive it. I look forward to reporting our progress. Thank you for your time and attention. With that, we will take your questions.

We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, and your first question today will come from Kurt Hallead with Benchmark. Please go ahead.

Hey. Good morning, everybody. Appreciate all that intel and info, especially on the SANAD front. Very helpful.

Hey. I guess I wanted to get a little bit more clarity around the commentary that you made in the press release and then again here in your conference call. Around free cash flow. And I think, William, the comment was we expect to be free cash flow positive and substantially reduce gross debt. So can you help assist me, you know, kind of ring fence what you mean by substantially reducing gross debt?

So, Kurt, you know, we have a few pieces within the company. One of them is SANAD, which, of course, is a little bit ring-fenced. And in fact, most of the cash flow from that piece is going to be used for the growth program over the coming years. So in 2025, because we're spending about $360 million in CapEx in SANAD, we're going to be in the red about $150 million in terms of free cash flow generation within SANAD. Right? So you know, that means the fleet is generating about over $200 million, the current fleet, and EBITDA, but then we're spending $360 million on the growth going forward. So what that implies, though, is that outside the SANAD legal entity, all our other legal entities are going to be generating roughly $150 million of free cash. Because we're forecasting a little bit over breakeven for the full year on a consolidated basis. So that money is usable for Nabors Industries Ltd. for whatever you want to do with it, and we're going to allocate that to reducing debt. So I would expect to see our gross debt next year in 2025 be reduced by approximately the $150 million that we're going to generate outside SANAD.

That's great. Thanks. That's great color. And then maybe just kind of, again, follow-up on the international outlook, right, is it your read with respect to Saudi that their overall reduction, the rig count is complete, and, you know, there is no expectation of any more additional kind of rig releases, you know, outside of SANAD as the year goes on?

With respect to the market as a whole, I think it could well be that there may be some other releases coming. But as you can see, how we were treated very well by Aramco the past year. And we didn't bear the big brunt of what others had hit. I think it's important, Kurt, to understand the big picture here. The big picture is the same person taking down rigs, the same person building rigs with the driveway with Nabors Industries Ltd. And that's the biggest oil company in the world who has the best long-term view of the market and the short-term view of the market out there. And so they've decided with us that they want to continue the new build program notwithstanding the rig coming down in the short term. Now whether that's because they believe long-term these rigs are going to be the preferred rigs, that they believe long-term there's going to be an uplift in the market, I can't answer that. But there's absolute commitment by them to maintain the current pace of the new build program. So you got the guy who's deciding whose rigs come down, how many rigs there are, telling us they want to continue investing, and we think they're a great partner. We think we're privileged to have this partner. And so we're in with them supporting them to do that. If I had my druthers, would I like to take a break for a year in a new building, take that $360 million and take my share and pay down some debt? I would. But the absolute opportunity here is unique in the industry. Other people have announced deals where they have eight-year payouts. On an EBITDA basis, which look like maybe ten to twelve-year payouts on a free cash flow basis, this deal with these new builds are five-year payouts with ten-year contracts. It's unparalleled, and I don't think people really understand what's going on. If you look at the SANAD cash flow and we stopped the new builds, just with where we were at today, and you do any valuation metrics, using the stuff in the region, which you know what the multiples are either on a cash flow basis or an EBITDA enterprise basis, you'll get numbers anywhere from two and a half to three, three and a half billion dollars for SANAD today. So I think people don't appreciate the strategic importance of what's happening here and Aramco's guiding hand. They're basically guiding us on what they want to do.

I hope that gives you some understanding of why we think we're making the right decision. We understand the short-term pressure. And like I said, but given the unique opportunity, we think it's compelling. I think the good news also is given what's happening, not just there but elsewhere, you've seen from our announcements with the other deployments, ten rigs for 2025, including rigs outside Saudi, we've had good success in Latin America and Argentina and Colombia. That was standing Colombia's negative comments. You know, we refer to them. And you saw from our press release, maybe it wasn't clear in the remarks, that we've announced that we have three additional rigs going on term contracts in Argentina. One of them is a current rig that's working in 2025. It's going to be relocated, two additional ones in 2026. And the pipeline for additional opportunities is pretty robust both in MENA and in Latin America and a few in Asia as well. So I think all this stuff actually is supporting pricing and supporting a growth story. The other thing is if you look at NDS, NDS has actually increased its share of EBITDA from 35% to 45% coming from international. Again, reflecting the fact that we're seeing this growth happening. And some of these new projects we're getting, people are realizing the value of putting things like MPD with the rig, which Nabors Industries Ltd. has as part of the portfolio. So I think all in all, we feel very comfortable about the international story.

Kurt, I lied to Tony's comment on Saudi Arabia. Specifically, we're very bullish on international, of course, but in Saudi Arabia, the focus of the government and Aramco is to improve and increase production of natural gas. Our fleet in Saudi Arabia is predominantly drilling for natural gas. And that's part of the reason we've been treated favorably by our client in terms of how many rigs have fallen down. So we don't expect a lot of movement on any further reductions in rig count. Of course, this is our opinion and our assessment, but again, the fact that most of our rigs and almost all of our rigs are now drilling for natural gas is really very helpful.

That's great. And, like, if you don't mind, just one more additional follow-up to probably international. I appreciate you guys also kind of laying out how you think the year is going to evolve. So I'm not a mathematical whiz by any stretch, but you're starting the year with international cash margin at seventeen and averaging over seventeen and a half. Is that kind of a steady progression, or is there going to be kind of a stair-step function in any one particular quarter to kind of get you that average run rate for the year?

I think since we're adding ten rigs and they're coming in at various times in the year, and prices are improving in the international markets, so our new rigs coming in are better priced than our average. We are going to see a gradual progression over the year. Yes.

Awesome. That's great, caller. Really appreciate it. Thank you.

Thanks, Kurt. And your next question today will come from Scott Gruber with Citigroup. Please go ahead.

Yes. Good morning. And appreciate all the color. William, one for you, what's your outlook for working capital and cash taxes that's embedded in the breakeven, free cash guide, pre-Parker, and did you incorporate Mexican collections? You know, is there a catch-up or continued delays? How are you thinking about it?

Three-part question. Right? Okay. Throw it all out there. I'll start with the Mexico collections. We think those are going to be sorted out, but we've been told that will happen in the first quarter. But knowing Mexico, I would say, more like the first half. So it's going to be a catch if the government is working on it. They're still working also on the budgetary issues to see if they can maintain activity. But again, we are being cautious in our forecast and assuming some reduction in Mexico. Part of that's part of our assumptions and our guidance that we gave. If it doesn't happen, then we'll have a little bit of an upside there. But again, Mexico is always, you know, they always pay and they always deliver, but sometimes it takes a while. In terms of the working capital for 2025, we ended the year at kind of a high-ish DSO. And partially because of Mexico, so we think this year, since overall revenue is not going to go up a very large amount given the sort of trajectory in the US, there is some higher revenue, but we believe that DSO will go down a few days. And that including the Mexico impact. And that will help us keep working capital under control for the full year. So we don't expect huge growth in working capital. And then what was the third piece again?

Oh, just the cash taxes.

Yeah. So it'll be a similar level to this year, you know, somewhere in the range of $50 million or so.

Okay. And just a quick follow-up, you know, the business climate in Argentina is obviously improving, and obviously, they have a large resource base. The cash extraction, you know, has been an issue historically. Is that improving, or how are you guys addressing that going forward as you add assets down country?

Yeah. We have a new operating model there where we actually can extract the cash and the profits denominated in US dollars. And that's one of the reasons why we've been able to put our foot on the pedal a bit in Argentina because we have that in place and it's working very well so far. And we've had pretty good customer reception to using this model. And that's what's in place already. We do have that big split contracts for the new rigs that are coming in, which helps with not getting cash trapped in the country. And secondly, the government has made some changes to the central control to the exchange control rule that allow us a little bit more flexibility in transferring money out using our leasing mechanisms. So all those things are converging and helping us pay your cash much quicker than in the past.

Got it. Appreciate the call. Thank you.

Thank you. Your next question today will come from Dan Cutts with Morgan Stanley. Please go ahead.

Hey. Thanks. Good afternoon. Hey. Good day. So just wanted to see if you could help me put the pieces together on the full-year 2025 guidance that you gave. So I guess I'm at this from one of two angles. If I just assume that kind of US and international G&A and the other reconciling EBITDA line item is flat year over year, that will give me the ballpark of $900 million of Nabors Industries Ltd.'s standalone EBITDA this year. So wondering if it's if you guys would endorse that or alternatively, if there's anything you could share on the G&A and, you know, the reconciling line item outlook for full-year 2025. Thanks.

That's a great question. Dan, listen. I mean, we gave a lot of the pieces to try to get to the number next year, and I'm sure you're doing your homework. In terms of the SG&A, and R&D, and some of those items, we are working diligently trying to become more efficient and find ways to reduce those costs. You could assume those could be somewhat lower in 2025 than they were in 2024. And in terms of the rest, I think we're going to be, alright. We have a lot of confidence that we're going to be higher than in 2024, all the operational pieces. Obviously, with ups and downs. Reduction in the US, improvements in NDS and international. And Rig Tech. So all in all, you can assume that we're going to be, yeah, 2024 by some margin.

Great. That's really helpful. Thank you. And then on the SANAD new build budget, and sorry if I missed this, but could you guys comment on whether that's the $360 million is for five rigs or six rigs or somewhere in between. Just trying to kind of triangulate where new build cost per rigs are now and the other part was you made the comment about $13 million of EBITDA for the recent new builds, and that mix was a factor there. That in said a gas versus oil comment, like, are the gas-directed new builds higher margin versus the oil rigs or yeah. Just to see what you meant by the mix comment.

Stuart. So I'm glad you're listening. So the $360 million number includes milestones or is a milestone number. So it's not in sync with the five rig count. Actually, the total for five rigs is actually $310 million. And that's one of the issues that's the reason why we had this strain on cash flow, like, in the fourth quarter because milestones don't necessarily equate with numbers of rigs you're committed to just because of the way the sequencing works. And when that sequencing accelerates, that's what causes the shortfall you would have accepted in the fourth quarter under the mission of getting these rigs out according to an overall schedule. The number's more close to $310 million, which is higher than the initial when the initial deal was done was originally done for $500 to $250 million. In the meantime, there's been two changes. One, some changes to specs to account for, like you were talking about gas rigs and other issues that technical issues with the rigs and number two, cost inflation. But the important point is here, that Aramco approves this, that Aramco was behind it, and Aramco is paying for it because when these numbers adjust, it's part of the deal that all the contracts and paybacks adjust, which again is an unheard-of deal. No one else has ever had such a deal. But at Aramco, because they're the ones deciding numbers of rigs, the planning, etcetera, they're actually, you know, supporting it all. So that's why we're still strongly that, you know, supporting them in their efforts makes more great sense for Nabors Industries Ltd. because those numbers with a five-year return and a ten-year contract, I think those kinds of deals are unheard of in the sector.

And by the way, we're pretty happy with the performance of our rig supplier, which is a joint venture of NOV. They have been improving enormously the performance on delivering those milestones. Which means that rigs are being now delivered in time. They're meeting milestones. And so we're pretty happy about that in the sense that, you know, we're going to get five rigs delivered in 2025, one in 2024, it was only four rigs. But again, the calculation of the $360 million is not five rig stems. It's all the milestones that are going to be completed next year. Because NOV is catching up on some of those milestones, as they improve their performance on deliveries, you know, we saw the big numbers. So we would expect the number to go down somewhat in 2026, more of a real run rate for five rigs year in, year out. Which will be more a number in the low $300 million.

Great. That's all helpful. And then sorry. Just on the mix comment as it relates to EBITDA. Rig, I think, $13 million what you guys cited. What was that also a factor of interest?

Factor of just the calculation. If the rigs cost more, we get paid more. The day rate is higher. To guarantee that five-year return? On the investment. So as the cost goes up on the rig because we're doing more 3,000 horsepower rigs or whatever, the reason is. We recovered in the rate and the EBITDA goes up.

Great. All makes perfect sense. Thanks a lot. I'll turn it back.

Thank you. And your next question today will come from Keith Mackey with RBC. Please go ahead.

Hey. Thanks. Maybe just to start out on a continue along the SANAD line of questioning. I think you said you expected could likely break even on a free cash basis in 2027 or 2028. Would that effectively assume a five-rig new build cadence continues? So you spend roughly that $310 million a year for the next couple of years and grow the EBITDA commensurately.

Correct. You got that right. What happens is once you reach a certain base load number of cumulative rigs, and your numbers at that cadence level, then the existing rigs then fund stuff and then you get excess cash flow going forward. So the quest here is to try to get to that breakeven number and that's why I think Aramco wants to continue with the pace we're doing it right now.

Got it. And just to follow-up on that, like, what are sort of the decision points in terms of those five rigs getting awarded? Like, when do you know about the next five and the five after that? It sounds like you think they're likely going to happen, but just curious for a little more comment on that if you can.

So typically, because these rigs take about maybe nine months, ten months to construct, or maybe even twelve in some cases depending on how big the rig is. We would expect sometime in the first half of this year to get the awards for the next batch of rigs. Right. And as soon as we get those awards, we'll let our investors know.

Got it. Okay. And maybe just one last one for me. Roughly, how many rigs do you have operating in Mexico, and sort of what is the cushion that you kind of have baked into that year-end rig count that you talked about?

Okay. So at twelve because we did disclose that on the I'll be fairly transparent on that. We do have four rigs operating. These are big needle movers. These are big rigs. Offshore platforms. And so the EBITDA in Mexico is considerable. If we are dialing in about a $13 million reduction in our 2025 EBITDA versus the number if the four rigs were operating the full year at full pace. Right? So we are assuming some reduction. And that reduction is $13, $14 million or so.

Got it. Okay. Appreciate the comments. Thanks very much.

Your next question today will come from Arun Jayaram with JPMorgan. Please go ahead.

Yeah. First question is just regarding the SANAD new build program in 2026. You mentioned that you'd expect $200 million of EBITDA from the fifteen rigs. So is that fair that the run rate will be about $13 million per rig for the new builds, or does the $200 million include additional EBITDA from the next call tranche of five rigs?

No. Listen. We're not operating fifteen rigs. We're operating nine right now.

No. I'm just talking about 2026. Pardon me.

I want to say anything about 2026. But fifteen rigs, you know, the average will be somewhere in the $12 million range per rig if you want to use that.

Okay. Okay. I heard that the SANAD new build program could generate around $200 million of EBITDA in 2026. That was in 2024. But remember, every year we're adding more.

Understood. Understood. Okay. Thanks for the clarification. And just for the follow-up would be you've guided to a little over $700 million of CapEx. $360 million for the SANAD program. New build program. It's a little bit of a breakdown for the remaining, call it, $350 million of CapEx, the buckets where that's going to?

So we guided the midpoint is about $715 million, so $355 million would be the remainder of CapEx at the midpoint? Excluding those $360 million. And we have somewhere in the range of about $280-$285 million in sustaining CapEx for the year. That includes some category four recertification. So it's going to be a little bit higher than the prior year. But not terribly so. Then we have some international contracts in Kuwait and Argentina that require CapEx, that's going to be about $56 million. And then the rest is just tricks directs and drafts, NDS, only requires about $5 million. So that's indeed very CapEx light. And then corporate, so that's, like, IT licenses and R&D prototypes, maybe even a little bit on all that is about $9 million. That's what you get to the $715 million. Last year, we spent $339 million outside the in-kingdom investment. That number goes to $355 million this year. So it's about $15 million up. And that's mainly because of the category fours I mentioned before.

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

Thank you, everyone, for joining us today. If you care to follow up, please reach out to us in IR here at Nabors Industries Ltd. And Nick, with that, we'll conclude the call.

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