Good day. And welcome to the Third Quarter 2024 Nabors Industries Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining Nabors third 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 in 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…

Good morning. Thank you for joining us today. Before I comment on Nabors’ results and the outlook, I would like to make a few comments about the acquisition of Parker Wellbore. I have stated that we are excited about the combination of our companies. Parker’s portfolio of businesses and geographic footprint fit neatly into Nabors. We believe the acquisition accelerates our strategy, particularly in our Drilling Solutions segment. We see excellent growth prospects at Parker, especially for Quail Tools. And in economic terms, we think this deal will benefit all Nabors shareholders, including Parker’s current owners, as the market recognizes the transaction’s value and merits. Now, I will discuss our results and outlook. Adjusted EBITDA in the third quarter totaled $222 million. This was in line with our expectations. Margin in our International segment exceeded the $17,000 mark. Daily margins in the U.S. Lower 48 remained above the $15,000 mark. Adjusted EBITDA in our Drilling Solutions segment increased sequentially by 5.7%. This performance was driven primarily by growth in our International business and a positive mix shift in the U.S. I will begin my detailed remarks with comments on the International markets. For Nabors, the International markets remain a source of strong growth. Our prior rig awards are progressing into deployments and incremental EBITDA. I note that we have three more International rigs expected to start by the end of 2024. We also have a considerable number of pending deployments in 2025 and beyond, which I will detail shortly. And the prospect for additional tenders and awards is robust. This provides the opportunity for us to be selective. We will only pursue the most attractive incremental projects. Turning to the U.S. market, I am pleased with our resilience in pricing and rig count. End-to-end, Lower 48 industry activity increased by…

Thank you, Tony, and good morning, everyone. Our third quarter drilling rig activity was stable, both in the U.S. and in International markets. NDS results were strong, reflecting growing International activity, particularly in casing running. Our data and software offerings also increased in the U.S. and International markets. Rig Technology is generally lagged, driven by sluggish sales in the U.S. market. The trends we’ve experienced should continue into the fourth quarter. U.S. Lower 48 drilling rigs should remain stable with similar rig count and pricing and International will continue to expand with three additional rigs deployed in Saudi Arabia and Argentina. SANAD was affected by the drilling reductions in Saudi Arabia. During the quarter, we were notified that three of our 51 rigs were scheduled for 12-month suspension, starting in the fourth quarter. I will point out, though, that the suspended rigs are substantially lower margin performers as compared to the new deployments. There has been no indication of further suspensions and the cadence of newbuild deployments remains unchanged. We expect fourth quarter increases in NDS activity in both U.S. and International markets. Rig Technology is expected to improve as increased deliveries of equipment are forecast for the fourth quarter. Revenue from operations for the third quarter was $732 million, essentially in line with the prior quarter. Our U.S. Drilling segment decreased by $5 million. In terms of activity, Lower 48 revenue days were around the same level as the prior quarter, but as we forecast, revenue per day for the fleet fell as contracts continue to roll into the current rate. Lower 48 revenue decreased by 1.7%. Average daily revenue for the third quarter came in at $34,812, a sequential decrease of $522. Leading-edge pricing held up well. On our latest contract, revenue per day has remained at the…

Thank you, William. I will now conclude my remarks this morning. Our performance in the third quarter met our expectations. We deployed additional rigs in our International markets and our advanced solutions continue to deliver industry-leading performance across the client base. With our pipeline of awards and additional opportunities, we have a clear path to strong expansion in our International segment. We believe this increased growth will drive this segment’s free cash flow significantly higher. With this expansion, the Drilling Solutions business has the potential to grow at a faster rate. NDS’ penetration internationally is accelerating. Operators there are increasingly looking to NDS’ achievements in Lower 48 and see a path to duplicate that success. And as a final thought, the prospect of adding Parker expands the portfolio and essentially doubles the size of NDS. That concludes my remarks today. Thank you for your time and attention. With that, we will take your questions.

[Operator Instructions] And our first question comes from Arun Jayaram with J.P. Morgan. Please go ahead.

Yeah. Good morning.

Good morning.

Tony, I wanted to start with the recent acquisition of Parker Wellbore. I was wondering if you could talk about the businesses and what kind of economic moat do you see in some of the businesses, the surface of the tubulars relative to NDS? And if you could just broadly discuss kind of the capital intensity of that segment as you integrate that with your existing businesses within NDS?

Sure. Well, first of all, I think there’s two principal -- three principal areas. First is to lay up with existing rigs in jurisdictions like Alaska forests [ph], both the O&M contracts for offshore maintenance of offshore rigs. That fits in squarely with what we do today, and obviously, there’s obvious cost synergies that are hopefully easily grabbed. So that’s in the base business. Then the two principal areas are, as you point out, the well construction, which principally right now is casing running. There’s some fishing in that as well. The casing running business, they have presences both in the U.S., Saudi and the UAE, which complement all markets for us as well. And there, as you know, we have a strategy of migrating to an integrated model and so with that active base, we’re hopeful that we’re going to actually get higher margins out of that as we move them to a model where you use less people and more automation in carrying out those services. That’s the upside in that business as well. And combined, I think we’re a pretty significant player when we combine forces. And then the third is Quail, which, as you’ve heard from what we’ve wrote, is a bet, frankly, on the -- first of all, Quail is an industry, I think, kind of a gold-plated company. It has a great reputation in the U.S. It’s been coveted by many people over the years. It’s always competed well against other people in the industry, including with Thumber J.O., Thomas Tools [ph]. I think the guys have an established track record. There’s no question they’re first class. And there -- that’s a bet on the longer laterals, which we see continuing. And you can see from our announcements today about what success we have…

No. You said everything I would have said. But the one question that you answered about the capital intensity, the way we look at it is free cash conversion from EBITDA. And the quality of all of Parker’s EBITDA is quite high. In fact, I must say that given the proportions of what they do, it’s even a little bit better than our global free cash conversion. So, if you look at our legacy rig business, which excludes the newbuilds in Saudi Arabia and NDS, just a drilling rig business, our free cash conversion is about 47%. Quail comes with 60% to 70%. So, on a relative basis, it does improve our free cash conversion for the company as a whole and it does take our NDS footprint from 15% of the total to about 31% of the total, which is one of the objectives that we have longer term. We have said that we wanted to take NDS to about 20% to 25% of our total business for the obvious reasons. It is faster growth, and of course, it brings less CapEx than a traditional drilling rig business. But with Parker, we take that number from 15% to 31%. So, we are pretty happy with our transaction.

Two other follow-up comments on that. First of all, with respect to the number of shares on the transaction, obviously, it was an all-equity transaction. We think that had value to it because it does improve the various metrics, including our leverage, which we think is good. The whole transaction gives us size, which we think will eventually lead us to a path of re-rating us both from an investment bond rating, as well as a multiple rating on the transaction. So, that is the thinking. In terms of free cash flow, though, you should note that when you crank the numbers, the free cash flow per share today, it is accretive to free cash flow per share with the dilution on the transaction. That is number one. So, that, again, was part of our thinking. It does improve our free cash flow per share because of what William just said on the transaction. The other thing I would also tell you, to look at the fact that the deal does have a collar on it, and the collar was meant to protect Nabors shareholders. And in fact, if people do realize the value of Nabors pre-this deal, like they should, because what the thing is going to trade at, if the deal trades at a multiple around what we’ve been trading at now, if you just crank the numbers, the stock price actually should be higher than what the collar price is and the actual number of shares would actually get cut down. So, that’s a protective device that was built into the transaction for the shareholders if they all recognize the value of the transaction. So, hopefully, you guys will do that when you write up an analysis of it. But it does work out that way and that’s another feature of the deal.

Great. Thanks for that additional color. That’s very helpful. Tony, I wanted to follow up on Slide 15 because I have gotten a few buy-side queries on the slide. And the broader context is how do we think about efficiency gains and how does that impact kind of your view of rig demand in 2025, because we’re quite surprised to see the ability to take a third off of well cycle times over the last four quarters. Obviously, it is using some of your technology. But could you give us a sense from a rig or efficiency gain perspective, what kind of drilling efficiency gains are you seeing on a year-over-year basis and what are the implications for Lower 48 demand in 2025, because the numbers are quite remarkable to be taking a third off of well cycle times this late in how mature U.S. shale is today.

Yeah. I do think there is a lot of diminishing returns on existing infrastructure that we have today. So -- and I think we’re approaching that with some operators where we have some very large independents that are first class in extracting all benefits and so they’re pushing the rigs awfully hard, and it’s hard to say that you’re going to see that kind of curve continue to develop. Now, obviously, everyone’s now focused on flat time. Flat time is the area that you want to really improve things on. From our point of view, obviously, the longer laterals and having rigs that can service the longer laterals change the economics of the well. And so, not necessarily meeting less rigs, but it changed the economics of the well, which is positive for us. The other thing I would say is from our point of view, looking forward to create a competitive advantage for Nabors is we’ve invested in some technology stuff to make the drilling process add more value to the overall well construction. By well construction, I mean including completion. So, some of the downhole tools now that we have, we’re hoping that operators are going to realize the potential of using them to help them actually gain information while drilling that will help them not only geosteer better and optimize that, but also help with the completion design. So, that’s the leg we see that’s the next leg to help attack, which is helping the operator realize better economics off the wellbore from the production side, the UR recovery and whatever we can do and put into our rigs to help that happen, if we think will be upside and that’s one of the things that Nabors is focused on a little bit different than other people right now.

Great. Thanks a lot.

I’ll make a comment on that too, Arun, because it’s a great question. I think back in when we had the last peak back in 2014 or so, I think our revenue, our margin per day peaked at $11,000 and I think -- and we -- at the more recent peak, we peaked at $17,000. So, that’s a significant amount of value being delivered by a rig. And on top of that, we had over $3,000 of NDS revenue, which is specifically related to that value creation that Tony was talking about. So, we were comfortably above the $20,000, almost double the margins we’re getting out of our rig platform than we used to get at the last peak. So, I think that shows that, yes, there’s efficiency, but we’re also benefiting from that efficiency ourselves. Because that means that with a lower capital investment, we’re getting a twice or we’re getting a significant amount of return without having to invest in capital and that’s better for Nabors.

Very clear. Thanks a lot.

Thank you.

And our next question comes from Dan Kutz with Morgan Stanley. Please go ahead.

Hey. Thanks. Good morning.

Good morning.

So, I just wanted to ask a question on Saudi pricing. As we’ve been getting this question from some investors and hearing some comments, but you guys had flagged the three 12-month Saudi suspensions and that they were lower margin rigs. But just asking if there’s any chance you could comment on what we’ve been hearing that Saudi is kind of asking for pricing concessions from service companies. And then, I guess, regardless, just more broadly, we’d love to hear your comments on pricing and margin trends that you’re seeing in the International Drilling space? Thanks.

Let me give you some color on Saudi Arabia first. Saudi, about 55 rigs came down year-to-date, I think 28 offshore, 27 on land. And as you noted, I think today there’s around 208 rigs working. And as we know that we had 51 and we have notice of three suspensions and we’re putting back one in the fourth quarter. So, we’re going to have 49. So, on a relative basis, obviously, we’re in a very strong position. And that strong position reflects the fact that today, probably, 80% of our rigs are on gas-directed wells. That’s number one. Number two, that most of our oil rigs are on recently extended four-year contracts. So, in terms of Nabors itself, it’s in a pretty good position. Secondly, obviously, the driver there is the newbuild program, and there has been absolutely no change in rates or cadence of the newbuild program. Aramco is very committed to it and we’re all going to distance on it, which obviously, in this kind of environment is a little bit of an outlier when you’re investing new dollars and that explains in part why our free cash flow is taxed, because we are investing, as William said, $230 million in CapEx in newbuild rigs, in fact, and nobody in the industry is doing that. And why are we doing that? We’re doing that because those rigs have five-year payout contracts with a 10-year to six -- six-year and four-year term to it, so 10-year term contracts with a full payout and it’s an unheard of opportunity. And at the end of the 50-rig-build contract, you’re going to have more than a $500 million incremental need, but that’s why we’re doing it. So, yes, it taxes our free cash flow in the interim, but we think it’s…

So, a couple of comments, I think, on that. I mean, the 27 rigs that have been suspended, it’s a little bit misleading because they’re expanding unconventional. So, they have awarded about 14 rigs in unconventional and they have also awarded, we have six more rigs ahead for us. So, if you add those two numbers, it’s about 20. So, the reduction of 27 rigs on land is a little bit misleading. They are cutting a little bit more offshore, I would say. And we don’t think that the pricing issue will be an issue for us.

Got it. All really helpful and understood. Maybe just your comment on no change in the cadence of the SANAD newbuild program. You guys had the notes in the press release about how the SANAD rig supplier had improved its performance and was reaching manufacturing milestones sooner and then, ultimately, you guys expect earlier delivery of rigs going forward. Are we to understand that, that might mean a pace faster than I think, you have five slotted for next year? Is there potential that the pace can be…

Those…

… faster than that or it’s?

So, we have four this year. We have four this year.

Yeah.

Now, they’re getting to the correct pace now.

Got it.

Which is five per year. We don’t expect that to increase from that rig.

Yeah. Understood. And just one quick one. I think I’m fairly sure that this is pretty much out of Nabors control. But any idea when you might receive the order for the fourth franchise of SANAD newbuild? Thanks.

2025 is all I can say.

Fair enough. All right. Thanks a lot. I’ll turn it back.

And our next question comes from Keith MacKey with RBC Capital Markets. Please go ahead.

Hi. Good morning. Just wanted to start out…

Good morning, Keith.

Good morning. Just wanted to start out on the International rig margins. Certainly did very well this quarter with hitting the $17,000 mark. As you think about folding in some of these new SANAD rigs, some of these new Argentina rigs with the heavy NDS component and the removal of some of the lower margin rigs you have suspended in Saudi, can you just talk a little bit about how we should be thinking about daily rig margins through 2025 with all of that as context?

So to be totally honest with you, I was surprised this quarter by how well International did. I mean, I did say it’s ahead of schedule because we expected to see that $17,000 in the fourth quarter based on the mix of the rigs coming in and some of the things we’ve been doing to improve our performance. But we did have some excellent performance in a couple of geographies that actually can move the needle and that’s what happened in the third quarter. So we think the mix is a little bit better in the fourth now and we should, if we just did the same performance in the third quarter -- in the fourth quarter as we did in the third quarter in terms of operations, we would expect a higher than $17,000, which is the guidance. But these things tend to average out so I don’t think we’ll be as excellent as we were in the third quarter in those particular geographies, number one. And number two, we do have three rigs that are coming in and that does create a little bit of uncertainty in terms of uptime and some of the costs that we have to incur. So being a little bit cautious, we put $17,000 for the fourth quarter. But we do think that going forward into 2025, as we add more SANAD rigs and hopefully get some more wins internationally, it’s entirely possible that we could get higher margins than the $17,000. And we haven’t finalized the budget, but that’s something we’ll be looking at for next year.

Got it. That’s helpful. And you gave us some very good color on the rig market in Saudi Arabia. Curious if you could just give us a little bit more commentary on the general supply-demand balance you’re seeing internationally in the various regions. I know you mentioned you’re still bullish International, but can you maybe just talk about the main geographic regions, what the supply-demand balance looks like and maybe within the context being versus the U.S. Lower 48, which is kind of a flattish market. Like, how are the International markets in supply and demand versus the U.S. Lower 48 and how do you see that playing out through the next couple of quarters?

Well, topically looking by region, I think when I talk about the 40, we see opportunities spread as follows. In Latin America, about 15 spread between Colombia, Argentina and Mexico. The markets there, the rigs, particularly in Colombia and Argentina, a lot of those rigs don’t really exist in a usable form. So that does tend to drive pricing higher because the operator specifications, which is a good thing I think for us in those markets. In MENA, away from Saudi, you have several countries, Oman, Algeria, UAE, for example. And there, there are rigs on the ground. But again, I would say maybe half of them maybe can go to work, but a lot of them still require extra capital as well. I think we’re in an era today where most things that go to work are going to need capital, and therefore, it’s going to drive pricing. It doesn’t matter who the operator is or who the contractor is and I think that’s the environment we’re getting to in International. In Asia, there’s a bit between various Asian company -- countries that we see another five or six opportunities right now as well. So it’s a pretty diverse set of opportunities and right now we’re obviously only going to pick the ones that we think are the most attractive. And given our asset base, we’re trying to optimize those assets to the opportunity to make sure we minimize the capital and maximize the return and try to provide the customer with a fit for purpose solution. That’s -- but that’s the market we’re in. That’s why we’re feeling so good about it because we think with that number of opportunities with our existing capital, we can do that kind of optimization.

So 15 in MENA, as Tony mentioned. So 15 MENA, 14 Latin America and 16 Asia, roughly, right?

19 MENA.

Okay.

Oh! 19 MENA. Sorry.

19 MENA, 15 Latin America and 16 Asia. Yeah.

Got it. Okay. That’s helpful. And maybe just one more. If we think about the capital for 2025, I’m sure it’s early to talk about, but maybe can you just talk a little bit about the pieces of the budget and do you see those pieces adding up to something meaningfully different than what you’d expect to spend in 2024, which is that $600 million number?

Well, next year, we’re going to deploy five rigs in Saudi Arabia versus four this year. So just that is going to be a significant increase year-on-year, right? The good thing is within the SANAD envelope, so it doesn’t really affect our cash flow outside SANAD. So that part, although you will see a higher headline CapEx, it’s not outside SANAD and that’s the cash. Outside SANAD is the cash we can easily use to pay down our debt. So, but you’ll see an increase there. We will also have a higher number of rigs across the globe next year than this year. So the maintenance CapEx should be somewhat up. I mean, I think maybe a 10% increase approximately. We don’t have the same number of opportunities that we attack this year in the sense of how many we think we will try to get next year. So potentially, the International CapEx for new contracts will not be as high. So to put all that in the grinder and we haven’t finalized the budget, so I’ll give you, take that with a grain of salt. But I think the CapEx will be higher next year. That’s all I can say now.

Got it. Thank you very much.

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

Thank you very much, everyone, for joining us today. If you would care to follow up, please just reach out to us. And why -- with that, we’ll conclude the call here.

Good. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.