Nabors Industries Ltd.

Good day and welcome to the neighbors first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note 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 afternoon, everyone. Thank you for joining NABIRS' first quarter earnings conference call. Today, we will follow our usual 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 NABIRS 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 neighbors.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 Siegfried Meissner, president of our global drilling 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 risks and uncertainties as disclosed by neighbors 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. Now I will turn the call over to Tony to begin.

Good afternoon. Thank you for joining us as we review our results for the first quarter of 2020. Our format this morning will diverge somewhat from our usual. I will begin with comments on our actions in light of the current environment. Then I will follow with a discussion of the markets Our results and the outlook. William will follow with the financial highlights and I will then wrap up. Let me begin by commending our team for its tireless efforts to ensure the health of our global workforce and to maintain the continuity of our worldwide operations. Our primary focus has been to protect the safety of our employees on our rigs, at operating locations, and in our offices. The coronavirus pandemic has presented an extraordinary challenge to the global population and economy. At Neighbors, we mobilized our worldwide crisis response team early on. The quick actions and detailed preparations of the Neighbors crisis management team in close cooperation with customers and local authorities have minimized the impact for our people and the business. To date, we have experienced fewer than 10 cases among are 14,000 employees. The current business environment, with significant demand destruction resulting from the fast-striking pandemic, is without precedent. The now-interrupted battle for market share between two leading oil exporters exacerbated the drop in oil prices over the past months. Our customers in the US have reacted swiftly and decisively, cutting activity deeper and faster than we have ever seen previously. These sharp reductions and the current uncertainty on the duration require equally swift and decisive actions by oil field service providers. Neighbors is no exception. We have seen several deep downturns before. We have proven experience managing sharp declines in activity by lowering costs and navigating through the additional challenges posed by deteriorating capital markets. In line with the reduction in drilling activity, we have put in place the normal reductions in variable costs. In addition, we have implemented a number of specific actions targeted at materially cutting our overhead costs and supporting our free cash flow. These actions include, first, several actions related to our fixed cost structure. We have adjusted our corporate structure Temporarily reduce compensation throughout our company and right-size our field support organization. We expect to realize savings of $85 million over the remaining three-quarters of 2020 from these actions. Second, in late March, we announced a reduction in 2020 capital spending totaling $75 million below our 2020 plan. That brought our estimated annual CapEx to a range of $275 to $295 million. We are now targeting additional cuts of $45 million that will take our 2020 CapEx to $240 million. This compares to $428 million in 2019. Lastly, the management team made a recommendation to the board of directors to suspend the dividend paid on common shares. This suspension should save over $7 million for the balance of 2020 and double that amount annually. As mentioned, All of these actions are aimed at mitigating the impact of lower industry activity on our financial results while supporting the generation of free cash flow and our targeted reduction in net debt. Our strategy focuses on technology, automation, and integration. We aim to generate additional value for our customers while delivering higher margins and reducing capital intensity. This combination improves our competitiveness and enables us to generate free cash flow even in difficult markets. In summary, we are significantly better positioned today than we were approaching the 2015 downturn. Among the most significant initiatives, we improved our competitive position in the lower 48. We invested in innovative and cost-efficient rig designs. We now have a fleet of the industry's highest specification rigs. Just as importantly, we invested in systems and processes which have generated industry-leading drilling performance. and we have led the market in the development of drilling automation software. These actions have helped us strengthen and expand our relationships with our customers. This translates into enhanced revenue opportunities, improved margins and more resilient market share. We have also expanded the breadth of the NDS and Kendrick service and product lines with the acquisition of Tesco. The addition of this higher return, lower capital intensity portfolio improves our penetration with customers. Our track record in these businesses adds to our competitive leverage in the current market. Our SANA joint venture in Saudi Arabia creates a unique alignment of interests between neighbors and the world's largest energy company. This alignment should continue to prove beneficial to the JV, especially in the current environment. Finally, we made significant progress in liability management. In the last few months, we effectively pushed out the maturity of approximately $1 billion Thank you. Thank you. Thank you. Industry-wide activity is stressed severely. In the lower 48, operators have reduced activity sharply. The rig count decline only began in earnest in the back half of March. Since then, the decline has accelerated as announced capital spending cuts by operators started to take hold. From beginning to end during the first quarter, the lower 48 industry land rig count declined by 73 rigs or 9.4%. The rate of decline has increased substantially since the end of the first quarter, with steep decreases in active rates through the last week. In our international markets, activity has held up better, despite disruptions from the pandemic. These disruptions are particularly acute in Latin America, where some governments have imposed strict lockdowns. Historically, volatility internationally has been lower than in the lower 48. However, we expect that this unique combination of both demand and supply challenges will have some impact on international markets. I will conclude my comments on the macro with the following. This current combination of supply and demand challenges is unprecedented in its magnitude. In the short term, the industry will suffer a painful hangover from the extraordinarily high levels of oil inventory. With the global economy beginning to resume activity and operators holding back or shutting in production, we will begin to work off these excess inventories. At the current time, it is just too early to state with confidence when we will emerge on the other side. We believe in markets and the problem will be fixed. But in the meantime, we will keep managing ourselves through these challenges with the playbook outlined above. Next, I will summarize our results. First quarter adjusted EBITDA of $188 million held up well despite the reductions in U.S. activity. Our lower 48 average rate count declined by approximately eight rates. Daily gross margin declined by $327 to just under $9,900. This reduction was due primarily to costs relating to the stacking of our rates as activity declined sharply toward the end of the quarter. Our revenue per day before reimbursable expenses Thank you very much. Thank you. Temporary virus-related lockdowns resulted in reductions of approximately $2 million. In our other segments, Canada improved, reflecting its usual seasonal pattern. Drilling solutions adjusted EBITDA declined by $5 million to $19 million, reflecting the drop in U.S. drilling activity, which affected both volume and pricing, particularly involving third parties. Rig technologies declined as equipment and aftermarket sales weakened. Now, let me discuss our view of the market in more detail. At the end of last week, the lower 48 land rig count stood at 389. That is down by 285 rigs since the end of last year, a 50% decline. In comparison, neighbors rig count has declined by 38% over the same time period. We think our advances in technology and systems have solidified our position as the leading performance driller. So far, this relative outperformance in the rig market supports that premise. We have spent significant time trying to understand the plans for our largest lower 48 customers. Currently, these clients account for more than 75% of neighbors rig count. Among these clients, based on our latest information, we are targeting our market share to increase from approximately 18% to above 25%. This increase in share should help us cushion the expected reduction in rig count. At this point, all of our working rigs are high spec. The increasing concentration of our working fleet at the top end of the market has supported pricing and rig margins. We expect that support to continue, even with the recent decline to market utilization and downward pressure on rates. In our international markets, industry rig activity has proved more stable than in the lower 48. However, we expect the continuing disruptions related to the virus, as well as low oil prices, to affect drilling activity materially over the coming quarter. In the other segments, we see growing interest in our advanced technologies in drilling solutions. But the declining rate count and pricing reductions are challenging. Notwithstanding that, we expect our penetration to continue to improve as customers embrace the benefits of our innovative products and services. We achieved some notable highlights during the quarter. First, we started two impactful rigs in our international segment. The first was an offshore platform rig in Mexico. The second was a large gas rig in Kuwait. And in early April, the 43rd rig in our Santa Joy venture with Saudi Aramco commenced operations. Second, thanks to our early planning, we took advantage of an opening in the debt markets in early January. We issued $1 billion of notes due in 2026 and 2028. With those proceeds, we successfully tendered for more than $950 million of existing notes due in 2021 and 2023. These two transactions significantly lengthened the maturity of a meaningful portion of our debt. Third, during the first quarter, we opportunistically bought back approximately $135 million of our outstanding notes in open market purchases. We believe that this purchase of predominantly short maturity bonds was a prudent use of cash, especially considering the notes were purchased at a discount. Now to the outlook. Given the rapidity of change in the rig markets and the uncertain magnitude of the market volatility, we will offer abbreviated guidance for the second quarter. In U.S. drilling, for the second quarter, we believe our average lower 48 rig count should decline by approximately one third as compared to the first quarter level. We expect lower 48 daily margins to be impacted by declining leading edge day rates and increasing costs to stack rates. In the international segment, we anticipate declines in activity in the short term. This drop comes as our customers cope with government imposed restrictions and falling oil prices. That concludes my remarks on the first quarter results in the current market. Now I would turn the call over to William for his detailed discussion of the financial results.