Good day, and welcome to the Nabors Industries Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to William Conroy, Vice President, Corporate Development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining Nabors' second quarter 2025 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. 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 morning. Thank you for joining us today as we review our second quarter results. We will also comment on the Parker Wellbore business that we acquired in March and on the current market environment. The second quarter had several positive developments. Adjusted EBITDA totaled $248 million. This performance was in line with our expectations. It includes a full quarter contribution from the Parker operations, improved results in our U.S. Drilling business and 4 rig deployments in the Middle East. The Parker businesses performed well. They made a meaningful contribution to our overall results, and we are on track to achieve our $40 million cost synergy target for 2025. I also want to mention our legacy Nabors business, excluding Parker, improved in the quarter. This performance speaks to the strength of our portfolio. Next I'll address the broader market environment. A number of factors currently influence oil. Global oil demand remains strong and growing. U.S. trade policy, specifically tariffs, appears to be gaining clarity. At the same time, production is increasing in certain countries, particularly in offshore reservoirs and U.S. production, especially from unconventionals, continues to benefit from efficiency gains. In sum, the global oil market appears stable. This backdrop is supportive. Along with our presence in most major producing countries, we are well positioned to capitalize on opportunities across the globe. As for natural gas, that market has proved resilient. In part, this is driven by increasing LNG exports. The gas-directed industry rig count in the Lower 48 has increased thus far in 2025. Our own rig count in the gas basins has grown since February. Natural gas activity in the U.S. appears poised for further recovery over the upcoming quarters. We are prepared to act quickly to stand up rigs in that event. Next I will elaborate on…

Thank you for those kind words, Tony. Good morning, everyone, and thank you for joining us today. The current market backdrop merits a few comments as macroeconomic uncertainty remains a key theme. Financial markets continue to digest the impact of the current administration's approach to foreign trade and the ongoing debate between treasury and the Fed. Geopolitical tensions are also affecting the capital markets. Nonetheless, more recent favorable trends in employment growth, inflation and progress on the trade front have had a positive impact on credit spreads. Although these spreads are still well above the levels we saw earlier in the year, the recent improvement is encouraging. If inflation remains tame and more tariff treaties are signed, we would expect some interest rate reductions by the Fed and a further compression of credit spreads over the balance of the year. These trends should benefit the cost of our upcoming refinancings later this year. Despite the current investor concerns, global energy demand remains resilient and operator sentiment is largely constructive, particularly in regions focused on natural gas. In our U.S. Lower 48 business, we increased our average rig count by 2 rigs over the last quarter, supported by gas-focused programs in the Appalachian and Haynesville basins. This trend of increased drilling for natural gas should continue. On the other hand, Lower 48 activity in predominantly oil basins remains sluggish. Although contract turnover driven by earlier M&A activity is returning to more normal levels and oil prices have improved from recent lows, we don't believe this will be enough to drive oil-focused activity higher during the remainder of the year. However, overall rig count for the Lower 48 has stabilized over the last 2 months and pricing remains resilient. This environment gives us confidence about our expected pace of cash flow generation…

Thank you, William. I will finish this morning with a few points. Our portfolio of diversified businesses demonstrated its value in our second quarter results. Even if the Lower 48 market fell somewhat, our own operations in this market grew sequentially. We are encouraged by the expected stabilization of rig count in the second half and the prospect for a future uptick in gas drilling. Parker did not have a drilling rig presence in the Lower 48. However, its operations certainly contributed to most of our segments. In North America, we are strengthening our footprint. We've added Quail Tools and casing running services in the U.S. as well as drilling rig services in the Gulf of America, Canada and Alaska. Internationally, Parker adds to our strength in the Middle East together with incremental rigs in Kazakhstan and India. We believe our continued effort to integrate Parker's businesses will unlock significant additional benefit. I cannot stress enough the value brought to our company with the continued expansion of SANAD. On today, we have an awarded pipeline of 8 additional rigs through 2027. Finally, we are encouraged by the improvement in free cash flow over the first quarter. Our outlook for further growth in free cash flow positions us well to address the 2027 debt maturity before the end of 2025. Thank you for your time this morning. We'll now take your questions.

[Operator Instructions] And today's first question comes from Grant Hynes with JPMorgan.

It was great to see sort of the fourth big 5-rig award from SANAD. And just as we think about sort of the growth prospects into '27, could you perhaps speak to maybe how incremental you see these new build rigs? And if any of the suspended or legacy Nabors rigs, you've seen opportunities maybe outside to work in other Middle East regions such as Kuwait?

Sure. So I mean, right now, there's 52 rigs in SANAD on the payroll. A bunch of them are also Nabors-owned rigs that are leased into SANAD. And I would say that virtually the entire fleet there are rigs that are well suited to anywhere in the region. And so, if things did change, there is an opportunity to actually work in other countries. But right now, where we are right now, I think we're -- we believe we're pretty well suited with what the opportunities are in the country themselves. The rigs -- certain rigs are high specifications that could go to Kuwait, for example, for the gas drilling there. And obviously, every one of those markets has different attributes. So there would be incremental capital required for some redeployments. But by and large, we're really happy with our fleet in the Middle East, in general. I think our positions in Kuwait, Oman and the rig in UAE as well, we're really happy with that as a fleet as a whole. I don't think there's anybody in the marketplace that has a better fleet poised for all the opportunities in that region.

Appreciate the color. And then as a follow-up, maybe just a clarification. When considering sort of the flat $80 million adjusted free cash flow guide, it looks like $30 million lower cash burn at SANAD, $60 million less new build CapEx and I think $10 million Lower 48 in other implied CapEx. Could you just help us reconcile sort of the unchanged free cash guide in that context?

So I mean, there's a lot of moving pieces in SANAD, by the way. But in reality, we have a $70 million cut in CapEx, but we also -- because these cuts come late in the year, we also cut back on the CapEx liabilities. So we weren't expecting to pay those by year-end. So in reality, the impact on cash flow is about $50 million really. We have adjusted, of course, the U.S. following the Liberation Day noise, which did have an impact or we think will have an impact in Lower 48 rig count. Across segments, I think that is about $15 million, one-five. In addition, there is still some uncertainty in Mexico. So we took a cautious reduction in our forecast for Mexico of about $10 million. And we think in places like Argentina, where we're seeing some reduction in activity from some clients as well as delays in deployments in Kuwait and Saudi Arabia, we took a combined $15 million. So roughly $40 million of EBITDA we took off the forecast. And the CapEx is about a $50 million improvement net of the payables.

And our next question today comes from Waqar Syed with ATB Capital Markets.

Well, first of all, I really want to thank William for his friendship all these years. William, I've always enjoyed speaking to you. I've learned a lot from you. And you really will be missed by all the investor community and all the analysts who follow Nabors. So best of luck in your next chapter and I will personally miss you as you move on. On the Saudi market, we've seen some rigs being released. What are the risks to some of the Nabors legacy rigs in Saudi Arabia?

Sure. Well, let's just comment in general, what's been going on there. Since the start of 2024, I think 64 land rigs were idled and 35 rigs went back, became online. So the net down was about 29 rigs from about 207 to 178. Since June 30, it looks like there may be an additional 4 or 5 rigs that also suspended. I have no secrets in terms of understanding what Aramco is really doing here but from what I gather, what they're actually doing is evaluating the current production rate, which is 9.3 to 9.5 barrels a day and looking at their maximum production of 12 and trying to right-size what their investment should be between those 2 things and figuring that out. And so that's the process that's going on right now to figure out a resetting of that to make sure that they can fulfill that. And so that's the process and obviously, it's caused a bunch of friction. With us, obviously, during this period, SANAD actually increased the rig count by 4 rigs, which is obviously due to the new build program, and we stand at 52 today. And we also would note that SANAD hasn't been unscathed as we remarked during the past year, we actually had 3 rigs suspended. So we believe we're very well positioned for obvious reasons with the relationship with Aramco, but also the SANAD operating fleet has more than 75% of the rigs are gas functioning rigs, and that is where the growing focus has been in the Kingdom. And then obviously, the newbuild program, which, as you can see from this announcement, I know there was some concern that this is going to be delayed or revisited. But Aramco seems to be very committed to this long-term newbuild program, which is an agenda item for their Vision 2030 as well. So there's a lot of other factors go into it. And so, they've been very supportive of it, and that's given us a really good confidence in what we're doing right now. So I think, all-in-all, that puts us in a pretty good position going forward and what we're focused on just building a great company right now.

Waqar, those rigs were suspended last year for us, those 3 rigs.

Yes. And then on the U.S. Lower 48 drilling margins, $13,300, that's the guidance for Q3. Do you think margins kind of bottom here based on what you know or there could be more downside as additional rigs mark-to-market?

Waqar, one thing that encourages us is that for now multiple quarters, the actual revenue per day on a leading-edge basis has stayed fairly consistent and above the [ 13,000 ] level. So that is encouraging because we've had a significant stability now for 3-plus quarters. I would say that the fact that, that level though is maybe a little bit over $1,000 lower than our average for the fleet means that that's why we're dialing in $13,300 for the third quarter because we will continue to erode a little bit. But once we get there, we're very, very close then to where the leading edge is. And yes, I do think that we should be able to sustain ourselves above the $13,000 level.

And our next question today comes from Keith MacKey with RBC.

I know it's early to do so, but thinking about 2026 potential CapEx levels, can you maybe just run through some of the drivers of how you'd build up the CapEx budget for 2026 or any notable pieces that would make CapEx in 2026 different from the $700 million to $710 million you'd expect to spend in 2025?

So it's a good question, Keith. We -- the way we build it, definitely, SANAD is very easy because we have milestones all the way through 2027 in terms of payments and deployments. So that piece, the new builds is very fairly easy to do and probably will be somewhere in the mid-300 range for 2026, given the recent awards. I would say that the rest is just average CapEx, sustaining CapEx per fleet, which is going to be a bit bigger next year than this year, we think. So in the U.S., we know what the average is and then in the international markets, it's a little bit higher than in the U.S. So based on those numbers, we construct the -- what we expect to be our well-known CapEx. Then we have other issues like, for instance, in places like Saudi Arabia, we have recertification CapEx. And again, we know what that is going to be because that is all -- it has specific dates. So that adds a little bit to the cost. And then if we win contracts internationally, in particular areas, and we estimate how much of many of those wins are going to be, then we add a little bit more CapEx for the recontracting requirements of the client. So based on that, I can tell you with quite a bit of certainty that we will be a little bit higher next year than this year just because the fleet is going to be larger. And so that's our estimate at this point. We haven't started the process yet, but we think that the CapEx is going to be a bit higher next year than this year.

Got it. Appreciate that color there, William. Maybe just on Mexico, can you talk a little bit more about the collections. I noted you're a little bit behind where you expected or hoped to be in Q2. Can you just talk about sort of the process there? And any potential actions or methods you can to increase the collections? I know it might be sensitive to get into too many specifics, but any color you can give around that would be helpful in terms of what you can do and the amounts and all that sort of stuff.

Sure. I'll let William give you the details, but I just want to make one comment, which is I think Nabors' position there is a very great position in the sense that the rigs that we have there are viewed as really core to the ongoing production that PEMEX has. They're unique because of their unique capabilities of fitting out platforms and moving cost effectively. So I think one of the things we got going for us is that PEMEX does really value Nabors as a vendor and wants us to continue in the country. So that is one thing that we're -- we think is a real attribute of our position there.

[indiscernible] Tony. In reality, most of these rigs end up being direct negotiations with the client because they absolutely want to keep them. So on the collection side, in the second quarter, we were already kind of advanced with one of the financial institutions in the country that has a special relationship with PEMEX, whereby they take on the receivable and pay us some money or in PEMEX bonds or whatever mechanism they create without recourse. So we've done that in the past, and we thought in the second quarter, that's what was going to happen. But towards the middle of the second quarter, I think the government decided to take the bull by the horns and take direct control of this process. And in reality, I mentioned during the call that $7 million to $10 million -- $7 billion to $10 billion, but I just saw some news a second ago that in reality, it was $12 billion what they issued or they put in place to reduce the vendor -- the overdue vendor invoices. We think this should move very quickly, the process and somewhere over the next couple of weeks, 3 weeks or so, we will be able to make very substantial collections. We are assuming somewhere in the range of $40-plus million during the third quarter.

William, certainly congrats on a great career and best of luck in your next chapter.

And our next question today comes from Jeff Le Blanc with TPH.

I just wanted to see if you could comment on Lower 48 daily drilling costs moving forward and where you think they'll ultimately stabilize long term, as I believe you previously mentioned it was going to be a focus area moving forward.

Obviously, that's been a focus of ours to right-size the operation. You noticed in the first quarter where we paid a price with churn on the cost structures but I think we have it pretty well under control. We're not -- we don't see a lot of inflation right now in our costs, and we're just trying to optimize against our rig count, not only the direct costs. And obviously, there, it's a deal of having purchasing group supply chain get the best deals given this environment, but also right-size our support structure for the existing rig count. So we think there's more good things to happen there, but that remains a focus of ours.

And our next question today comes from Michael [indiscernible] with Susquehanna.

Just going back to the reduction in CapEx related to this and add new builds this year. Does the push from '25 to '26 for that $60 million push the '26 spend to '27, i.e., is the whole schedule pushed out, or is there at least for now an increased amount in '26 to be further negotiated out? I just think the more flexibility investors understand you guys have, I think, the better. Curious if you could comment on the schedule for basically all through 20 rigs now that they've been awarded.

The schedule is the driver. It's not really -- I mean, we're going to be spending the amount because the rigs are the same number. It's just that some of those milestones shifted somewhat into 2026. And I would assume that, that will mean that 2026 milestones will shift a little bit into 2027. The impact on revenue is not dramatic because it's really mostly milestones of uncompleted rigs. It's not really rig deployments. We did have some delays in 2025 on the deployment of the Saudi rigs, maybe a month per rig or something like that but it's not a massive impact on revenue. Maybe I think probably in Saudi Arabia, the impact has been about $5 million in revenue or in EBITDA, I guess, in 2025. But again, it's more a slippage than a reduction in CapEx.

And our next question today comes from John Daniel at Daniel Energy Partners.

William, congrats on retirement. If your next chapter turns out to be boring, give us a call. We're a safe space for the AARP community. Tony, just one question for you. Do you ever have any interest in sort of looking at more production-oriented services? And I hate to bring up the past, but would you ever consider revisiting, say, something like the well service sector or something along those lines?

Obviously, I think as the industry gets to the point where the goal is to maximize EOR. I think the notion of having something in our portfolio that gives some benefits along those lines makes sense. And so one of the things that we are doing actually within our existing downhole fleet is putting more emphasis on some of our tools that actually can survey the wellbore in the lateral and give an operator a better idea of how to extract value in EOR with intelligent fracking. And so that is one area to do that. Things that would complement that, yes, we would be open to it because we think long term, as the industry moves into this more mature environment, you need to get on the mill to help them address the quest for lower BOE. So things that would make logical sense that would be contiguous to what Nabors does, I think that would fit that would be of interest to us, I would say.

I think it's unlikely we'll get back into pressure pumping.

Yes, exactly.

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

Thank you, Rocco. If there are any questions or follow-ups, please reach out to the Nabors' IR team. With that, Rocco, we'll wrap up the call.

Yes, sir. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.