Good day, and welcome to the Fourth Quarter 2021 Nabors Industries Limited Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you for joining Nabors' fourth quarter 2021 earnings conference call. Today, we will follow our customary format with Tony Petrello, our Chairman, President and Chief Executive Officer and William Restrepo, our Chief Financial Officer, providing their perspectives on the quarter's results along with insights into our markets and how we expect Nabors to perform in these markets. In support of these remarks a slide deck is available, both as a download within the webcast and in the Investor Relations section of nabors.com. Instructions for the replay of this call are posted on the website as well. With us today, in addition to Tony, William and myself are Siggi Meissner, President of our Energy Transition and Industrial Automation 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 website 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 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 as we review our results for the fourth quarter of 2021. This afternoon we'll follow our usual format. I will begin with some overview comments. Then I will detail the progress we made on our five keys to excellence and follow with a discussion of the markets. William will comment on our financial results. I will make some concluding remarks, and we will then open up for your questions. I am pleased with our strong operating performance in the fourth quarter. Once again, all our segments met or exceeded the outlook we gave on our previous earnings call a quarter ago. We also made further progress on each of the company's five key strategic initiatives. Adjusted EBITDA in the fourth quarter was $132 million. As you can see from this result, we finished the year on a strong note. We maintained our execution at a high level while we grew the overall business. Our global average rig count for the fourth quarter increased by 12 rigs excluding the impact of the sale of our rigs in Canada. This rig count growth was driven by increases in both our U.S. drilling and international activity. Revenue in our advanced technology Drilling Solutions and Rig Technologies segments also increased. Combined sequential EBITDA in these two segments grew more than 25% and accounted for nearly 18% of the company's total. This is a new high watermark for these segments contribution to our EBITDA. In the fourth quarter, we again made progress on our twin priorities to generate free cash flow and reduce net debt. Free cash flow in the quarter totaled $50 million. As I mentioned, our EBITDA generation exceeded our outlook. Looking it another way, EBITDA minus CapEx exceeded our expectations for the quarter and totaled…

Thank you, Tony. The net loss from continuing operations for the quarter was $114 million or $14.60 per share. This compares to a loss of $122 million or $15.79 per share in the prior quarter. The quarterly improvement reflected a sequential increase in EBITDA. Revenue from operations for the fourth quarter was $544 million, a 4% improvement compared to the third quarter. Strong operational results, more than offset the absence of $8 million in third quarter, early termination revenue and the sale of our Canadian assets. Canada generated $6 million in drilling revenue during the prior quarter. Excluding those items, revenue increased by almost 7% with strong contributions from all our segments. Drilling Solutions, Rig Technologies and U.S. Drilling all delivered double-digit percent sequential growth. U.S. drilling and NDS benefited from higher rig count in the Lower 48 market and from an improving pricing environment. Higher activity international markets also drove revenue increases for both Drilling and NDS. Total adjusted EBITDA of $132 million increased by $6 million or 5%. Excluding the impact of early termination revenue and the Canadian sale, EBITDA improved by approximately 14% as compared to the third quarter. On a normalized basis, all of our segments deliver strong growth. U.S. Drilling EBITDA of $69.2 million was up by $7.1 million or 11% sequentially. Our Lower 48 average rig count increased in the fourth quarter to 75 rigs, up 7 rigs. Daily rig margin came in at $7,161, $136 higher than the prior quarter. This improvement reflected a $457 increase in revenue per day offset primarily by higher compensation for our crews. We have adjusted compensation for our rig employees over the last two quarters to ensure we remain competitive in the tighter labor market. Rig count continues to make progress on the strengthening commodity price and…

Thank you, William. I will now conclude my remarks this afternoon with the following: In 2016, we unveiled our strategy in to extending Nabors technology leadership in the global land drilling industry. With our advances and process automation, digitalization, integration and robotization we have achieved our goals. Over the same period, we set out to significantly improve our capital structure and materially de-lever. Our financial results, capped off by the fourth quarter demonstrate material progress on those flows as well. Recognizing these successes, we believe the future holds unprecedented opportunities. Nabors is ideally positioned to help drive the energy transition. At the same time, we are committed to the responsible production of hydrocarbons. We believe this combination opens up a long wide runway for Nabors. As I have said before, the best is yet to come. That concludes my remarks today. Thank you for your time and attention. With that, we will take your questions.

[Operator Instructions] Our first question comes from Connor Lynagh from Morgan Stanley. Please go ahead.

One of the things that stood out to me most in the press release was the $4,000 step up in day rates. I was wondering if you could give a little bit more color how nuanced was that contract signing, was there any special features to the rig, and how realistic would it be to think of the rest of your fleet migrating towards that type of a rate over the year here?

Okay. Well, I guess the color is that we see leading-edge base rates moving pretty quickly here. The fourth quarter average revenue per day as you know was $21,700 and the number you referred to is leading-edge. I wouldn't say every, every we knew at that, but that's pretty applicable to most of the discussions, and it's interesting it applies to almost all the basins, Permian the Haynesville, North Dakota. I think where it may not be as applicable is Marcellus given the fact that that market is suffering a little bit from takeaway capacity limits and operators there hedge. So that puts a little bit for offerings. But generally, I think the market is very hot. In my 30 years, Nabors is probably the hottest in terms of ramping up the ramp up of day rates that's ever been, of course that's off a extremely low point that was also unprecedented, so take it with a grain of salt. I think the other point to note is that even at these higher rates given cost and other points, we're still not at prices where you cannot afford new capital investment. So we're not really earning the kind of return that we really need to keep the industry healthy. But all that said, obviously, it's all very constructive.

That's helpful context. I mean, if we could sort of stay on this point, is it your view that the industry is sort of now out of whatever you want to call it super-spec, pan-optimal capacity, and is there a reason to think that there will be meaningful rig upgrades occurring later this year?

We still think there is some runway to go yet. I mean, we're at 75%. So if things stay on track by the end of the year, then I think you could reassess that question. Right now there's still capacity to absorb and obviously at the numbers we're at, we're at 75% historically as you know, that's when the hockey stick of pricing starts kicking in a little bit. So it's hot, and you can tell that from the operators; operators today want a hot rig and the guys that have rig, even if they have a gap in their program, usually efforts to kind of hold on to the breakeven working out deals with other people to hold on to the rig, because they want to let it loose, all of which are constructive signs. But I think we're still ways yet in calling that we're in new year of inflation pricing for newbuilds, right, or even for significant upgrades because obviously that depends on the long-term curve and what things look like, and I think it's way too early to say that. But in the meantime, it is pretty constructive.

I will make an additional comment Connor, I think we're going to be adding somewhere in the range of 9 to 10 rigs in the first quarter. So by the end of the first quarter we will be in the low 80% kind of utilization, which is really as high as it's been in a long time. And I think we're going to exit the year around the 100 rig mark. So, out of 110 high-spec rigs that we have. So that's how the market is going to be we think.

Yes. That's all helpful context. Maybe just to sneak one more in here. So based on your comments there, it doesn't sound like we should really expect a lot of upgrade capital or anything like that, really be on growth capital, it sounds like it's slated for the year is that it was not program is that a fair summary?

Yes, well, I mean one of the things obviously where we're different is that with our 111 rigs, that we're all have walking capability already, so unlike some of our leading competitors, we don't have that as an issue now. So I don't think for us to get to that 111 number there is significant growth capital. Beyond that, 111 number, then we have to address that issue, but as I said, we're not at that point yet. So the good news is we've got a pretty good runway here, in front of us pretty clear runway and that's we're going to take advantage of.

The next question comes from Waqar Syed from ATB Capital Markets. Please go ahead.

Thank you for taking my question and congrats on a great quarter. William, if you annualize in Q4 EBITDA coming around $525 million. Now \you have a target of $800 million EBITDA for 2023 that you highlighted, could you remind us how you're going to fill up that gap like to $275 million or so gap that exists from annualizing Q4 to getting to $800 million?

We want to go that far out, Waqar.

Yes, just, we got a question, this question again. So I just. I think it will be good for everybody.

I'll just give you a bit of a 10,000-foot analysis, but we think that, keep in mind that our run rate is about and $520 million right now, so let's call it a $300 million gap to get us to the $800 million in 2023. So if you look at the growth, the rigs where we were in the fourth quarter, which was roughly 74 rigs in the Lower 48 and you get us to about 105 average, say in '23, that growth in rigs represents roughly about $110 million of incremental EBITDA. And then you take our margins from $7,000 to $10,000 which we think will be the case by the year 2023, you're looking at another $90 million, so that's $200 million on top of what we had in the fourth quarter annualized. Then if you look at SANAD and we are looking at another $56 million of incremental CapEx from the rig additions that we have on the JV with the newbuilds that are coming out at $10 million EBITDA per year. And then our Drilling Solutions, I can't tell you how optimistic and positive and bullish we are about Nabors Drilling Solutions that's going to be our strongest growing segment overall. I have full confidence that we're going to be giving positive news all the time going forward in Drilling Solutions. I think it's somewhere in the range of $50 million to $60 million growth in that business alone. So that's how we get there.

That's very helpful. Now in terms of you seeing very strong momentum in obviously rig rates, do you see over the next three years or so rig rates getting to levels that would - getting to newbuild type economics in the U.S.? And again, what would be the day rate at which newbuilding would be justified?

Yes, I think at a minimum that be $30,000 plus in terms of the day rate. And again, it depends on the outlook if what the futures curves going to look like, so that people can actually plan quarterly programs that will justify paying those incremental numbers. I think the other question is going to be what those rigs are going to look like, as you know our thesis is that the industry have to move to automated rigs to have a new level of automation and that could help drive that move. But I think it's still too early to say that, and obviously the economics don't support it. But yes, it is a possibility. Again, I think it's too early to call, but you need at least a $30,000 day rate to get there.

The next question comes from Karl Blunden from Goldman Sachs. Please go ahead.

Thanks very much for the time. On the distribution from SANAD, I was wondering if you could provide just a bit more context around that $18 million number in 4Q, I realize it's small, but the context would be helpful. And then just bigger picture, taking a look at the SANAD rig program and newbuild program you have in place, it does look like the JV is positioned to turn cash flow positive in 2024. Just be interested in your expectations around when you would start receiving consistent cash distributions from the JV?

Well, from a initial comment I'd just like to make is, one, this deal was first announced I think there were some concern about our partner's willingness to actually close their re-cash distributions and with the two distribution that made this year, I hope there's concerns have elated, that shows that Aramco is also a partner that's looking at things practically and business like. So I think it's really a testament to the partnership we have that you actually see that, because that was one of the concerns. The other point as you make is, yes there comes a point where the newbuild, once it gets in-stream then it should be self-funding in a way and I'll let William talk about the exact timing of that.

Yes, I'll give you what our forecast and projections are, and by the way, the reason we distributed $59 million to each partner, which is roughly about $120 million out SANAD, this year is because we have - we accumulated some excess cash in SANAD and we still have more. But obviously we didn't want to take too much out of SANAD at this point. So at year-end, we reviewed our forecast, our consumption over the next several years and there is two conclusions. One of the conclusions is that we had a bit too much cash. So we continue to distribute in addition, to the $100 million we did early in the year. And the second one is that we estimate somewhere in the 2024 timeframe, we will reach balance, sometime in that year. So from that point onwards you could expect to see significant cash coming out of SANAD on a yearly basis.

That's very helpful. I also took note of the comments that you made around debt reduction in December and January of the $89 million across the '23s and '25s. I want to know if it's possible to provide more specifics around which of those '25s you took out. And then just some context on addressing more of the '25s. Now, one step at a time, and you did outlined very clearly, you plan to use cash flow through the 2024 bonds, but just thinking around those '25s. It's a bit of a larger maturity, is that I mean that you would plan to address primarily with cash flow for a while or is there a larger plan to just extend that and then not worry about the maturities for some time?

Well, we do have two sets of 2025s, right. We have the exchange notes $218 million of those in the rest of the non-guaranteed, let's call it that way 2025s. So our plans are to first apply free cash flow to the remaining 2023s, 2024s, convertible bonds. And answer to your question about 80% of what we bought was in the 2025s, by the way. So our plans for the wall as you described, it is to start making event also on the 2025s, but at some point when that number, 2025 reaches somewhere in the range of $500 million, I think that could be refinanced with the $1 billion in capacity we have now to issue, no guaranteed debt. So that's more or less the plan. When that will be, at this point, I can't tell you. If our cash flow is a little bit stronger and we can reduce it even more then the refinancing can be delayed, but you know, usually I like to look the company as done that in the past, but somewhere within a 2-year period, we start looking at refinancing opportunities.

That's helpful. And that's a record year.

2-year period of maturity, right. So before maturity, we start looking at opportunities. So that's something you could expect to see in the future.

That's very helpful. We definitely recognize the flexibility you have there with those, the guaranteed capacity. Thanks very much for the time.

Thanks, Karl.

The next question comes from Arun Jayaram from JPMorgan. Please go ahead.

I'd say one of the key called early themes from earnings season has been punchy spending increases for the majors in the U.S. Lower 48 Exxon, Chevron or Conoco. Historically, there has been a pretty important customer group for Nabors. Tony you mentioned more recently that you've kind of been capturing about 15% of some of the incremental rig count additions per what you've reported versus what you're seeing and then I was wondering if you could maybe comment on what you're seeing from the separate customer groups and would they some increases by the majors, what would that mean to Nabors?

So obviously, I think we have a pretty good position with the majors and any increase there, we'll get our fair share hopefully, I think in terms of the move that has occurred so far, however, if you look at our Tier 1 customer group, it's actually the large independents driving that and obviously in the market as a whole. I think the privates have really played a great role in pushing it. So the super majors have not yet stepped up and notwithstanding the prices they haven't yet put the foot on the pedal. I'd also comment, even the large independents, I think the increase have been tempered a little bit, but even by that given the fact that we've seen a large amount of consolidation in the sector obviously Pioneer, Conoco and Devon will done deals, and that when they are digesting those deals as they don't put the foot to the pedal as aggressively either. So whether that will change as they get more integration. That's an open question. But right now at least our customer base to Tier 1s, those Tier 1s have been a bit more of responsible for the charge rather than our historical super-majors.

Great, great and just my follow up, you guided $380 million in CapEx in '22, $150 million for the SANAD JV. So for the $230 million in capital outside of the SANAD JV can you give us a sense of how much of that is maintenance CapEx versus maybe some upgrades in that total, just a little bit more flavor on the CapEx program?

I'll take a whack at that I want. I think I would say virtually all the money that's being spent outside SANAD is for sustaining CapEx, so that includes maintenance, which is most of that, we do have some I would call some CapEx in the budget for bringing rigs back. But again, we had a lot of rigs brought back in 2021 and that was absorbed in our CapEx numbers, we didn't really have huge numbers for that, and we do have some, maybe $9 million goes to our facility in Saudi Arabia, we have a big rig in Papua New Guinea that we signed five years ago, since then, and maybe some $10 million for that, everything else is maintenance/sustaining CapEx, we're going to spend some money, a little bit more money in NDS. But it just doesn't move the needle. I told you multiple times before that NDS is very light, CapEx light, so in reality, what moves the needle on the rigs and the rigs as the fee goes up, there is a certain amount of dollars per rig per year that needs to be spent on the maintenance of those rigs. So that's why you see the increase.

Great. I just had one maybe a quick housekeeping question. In the other long-term asset section of the balance sheet, it moved kind of almost $275 million sequentially from $408 million to $675 million, what is in that? Can you give us some detail on that increase?

That's just the SPAC money.

Okay, got it, got it. Makes sense.

Investment in SPAC. right. So that's what you see there.

[Operator Instructions] Our next question comes from Taylor Zurcher from Tudor Pickering and Holt. Please go ahead.

Hi, Tony, William, thanks for taking my question. My first one is on international pricing, Tony, I think you talked about some tendering opportunities in Latin America for the first half of the year and some Middle East opportunities above and beyond Saudi where you think you might be able to get some pricing in 2022. And I guess I'm just curious for more color on the pricing outlook, just looking at your rig count you are at roughly 70 rigs today and exiting 2019 you were closer to 90. So if we just extrapolate that out, it would suggest that the capacity is not actually super-soaked up right now and maybe there is some mix issues on underneath the surface that I can't really see very well from my seat, but low and away of asking, I'm just curious how you're thinking about international pricing over the course of 2022 outside of Saudi?

Yes, first let me comment on activity. So in terms of activity, obviously we have visibility on the Saudi rigs, which are four for this year. In total, we have good visibility on 8 rigs including Saudi for this year, three in the second quarter and the other five in the back half. And the other rigs will be in Latin America. In terms of bidding activity, I think, Oman, Kuwait or other areas that are out there and there is some activity there as well. Although, we're not yet willing to call actual visibility on it, but it's in our runway. And in terms of pricing, I think it's fair to say that that depends on the type of rigs, if it's oil stuff, then you're not looking at that increases; if it's deep gas, those rigs don't exist today. And even in our fleet, we have to dig deeper in terms of meeting the requirements, because that has a lot of BOPs and heavy pressure equipment, all kinds of stuff and that stuff is not really off the shelf. So if those - if you land on one of those things, those are going to be - they're going to require additional CapEx that has been planned for, but there will also be replacement cost margins because the rigs don't exist. So that is a great opportunity out there to the extent one can get it, and obviously that stuff, we're in the hunt for as well.

Got it. Thanks for that. And a follow-up on free cash flow for 2022. I don't think - I might have missed this in prepared remarks, but question is at the recent Analyst Day presentation, you outlined the plan for $200 million of free cash flow in 2022. I imagine this outlooks only gotten better since then or neutral or worse. But I was just curious if $200 million....

Let me correct that, in the Analyst Day we outlined $300 million for '23.

Yes. I'm talking about $200 million for 2022.

That must be in speculation between numbers, but what, I mean it's early in the year, and at this point is the best I can give is some sort of range. So I'll give you a wide range because it's early in the year. So I think somewhere between $100 million and $200 million, it will be positive, it will be meaningful and of course it will depend on what year-end collections are, that's always a factor. the number. I'll give you an example, in the fourth quarter of this year we had a pricing increase with our largest client, late in the year, and they didn't have the time to put it in the systems, so about $20 million of collections sort of come in the fourth quarter and ended up in the first quarter. So that can happen at year-end. So at this point I can give you a wide range, but my range just tells you the confidence we have that we're going to be meaningfully positive, we will continue using all that money to reduce our net debt.

The next question comes from Keith Mackey from RBC Capital Markets. Please go ahead.

Hi there, and thanks for taking my questions. Just wanted to start off maybe on NDS. And I heard your commentary about the growth implied to get to your 2023 target of $800 million from the corporate and $50 million to $60 million in NDS. Can you just give us a sense of how much third party or additional third-party penetration that implies or is most of that growth on the Nabors kits, on Nabors risk?

Yes, I can't give you the exact breakdown. But it's a 2-step process. One is to go deeper and we were up 75% on five or more services in Nabors rigs and to get, make sure all the high margin stuff is part of that parcel to extract more content for Nabors rigs. And then the second point is to do the third-party and right now the third-party is relatively small, but...

$50 million in revenue.

$50 million in revenue, but we've made a lot of investment this past year in re-architecting our portfolio so that we can more easily put these services on third-party rigs, obviously third-party will not get all the benefits being on the Nabors rig, but we think we have a way now very cost-effectively introduced new services on third-party rigs and we're going to do that, not just in the U.S. but internationally as well. And also, we've also said that we're willing to put them on what you might view as competitive rigs as well that people so normally think of working together. But we're trying to make the value proposition that this helps the customer and it will help you as well. If you do it, as well on this path, we think that genie is out of the bottle on the two automation and so therefore it's in everyone's interest, for example our performance software and performance tools or rig operating system, which I think is unmatched in the industry now with the rig sequencing engine, which you saw the benefits out in the rack and pinion rig that is now available as on every rig, on Nabors rigs as well as third-party rigs will be available as well. If you go to the website, Nabors website today, you'll see under insights on the landing page a video of the rack and pinion rigs, it gives you an idea how automated is, you see it stabbing into a whole without a person on the rig for it. That level of automation is available now to be transported on our competitive rigs as easily; not as easily, but pretty easily. And we're going to try to make that accessible, which helps the operator because this allows the operators well plan to be executed digitally, which is the real value prop. You can't get to automation, you can't get the factory drilling today unless you would have the path of both automation and mechanization and we think that that past it's now been open, that Pandora's box open and we think it's only going to continue. So our position is to try to take advantage of it by exporting some of this technology out to third-party rigs, you have anything to add?

Yes, I guess the key thing that we are focusing on NDS is to target the under-served markets that we have. That technology is really required to lower the cost per foot drilled and the other key market the LSTK markets, so aligning because those customers, which are operating those lump-sum turnkey projects are really looking for a step-change in their performance. So our focus on third-party is focused not just on Lower 48, but also internationally to ensure that we work with the customers to grow the performance levels that are possible today in the Lower 48.

I'll make an additional comment Keith, I think it wasn't missed by our competitors that one of the large independents decided to give us all their work, almost 12 rigs. They were getting good performance from their supplier at the time, but they just wanted to go a step further in technology implementation and using some of the techniques that have been very successful with our clients. So because of that they gave us all the work, and this won't be missed by our competitors. I think this will be something that will allow us to start introducing those technologies with the peers as well.

Got it. Thanks for that. And maybe just one follow-up on that, on that topic, how do you see the economic model changing at all. I know NDS is certainly very high margins as it is, but how do you see maybe the economic model changing as you increase the amount of mechanization on rigs and adding value in the per foot drilled. Is it strictly a day rate model that you're for, or is there a way to get a larger piece of the pie as you prove the benefits?

Obviously, it's a work in process. I mean this has been the age old question in the sector. When you look at NDS today, virtually all the NDS pricing is based on the value pricing. So when you talk - when other operators talk about their performance contracts, to me there's nothing revolutionary about those kinds of contracts. They're just KPIs, you do a KPI that, you give the operator a KPI that you can't perform, I mean that you think you can beat and then you call out a performance contract, that's nothing innovative as far as I can see. What we're trying to do with NDS is deliver a service that he needs on the well-bore but to deliver it with a quality level and in a way that unlocks additional value, and on that additional value, we take a proportionate share. And that's the way the pricing on the NDS products work, which is why they're so - they've been so successful right now, and we intend to continue that and as the rig gets more integrated with this automation stuff, I think there will be more opportunities to do exactly the same thing. And by the way, I think with our automation platform. I think, well, we have this - of using the rig as a platform, it will also be the case that would use the rig as a service where other service providers like the big 3 or big 4 that have technology or apps, they want to run on a rig, we can actually enable that onto our rig, which will allow them to be successful, but also we get our fair share of that pie as well, because we're creating an ecosystem that allows this collaborative sharing, that's part of the mission as well. So in that sense, we are going to change the sector a little bit if we're successful making inroads on that. Subodh, you want to add to that?

Yes, just to complement what Tony said, our approach is to be flexible in commercial terms, but the key thing that we're trying to drive a stickiness that comes either service as a subscription model, platform-as-a-service model. So the idea is to generate continuous revenue streams going forward which helps in meaningful discounted cash flow for today. So I think that's our approach to ensure that what we provide is going to be sticking around for a long period of time.

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

Thank you for joining us this afternoon. If you have any additional questions or wish to follow-up, please contact us. We'll end the call there, Jason. Thank you very much.

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