Nabors Industries Ltd.

Good day and welcome to the NABIRS second quarter 2020 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, Investor Relations and Corporate Development. Please go ahead.

Good afternoon, everyone. Thank you for joining Naver's second quarter 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 Naver's 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. 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. Furthermore, the results discussed during the call are preliminary and unaudited and are subject to change and finalization based on the completion of the company's normal quarter-end procedures particularly as it relates to impairments and valuations or reserves around the carrying value of various assets on our balance sheet. As a result, these preliminary results may be materially different than the actual results reflected on the company's Form 10-Q when it is filed. We do not expect there to be any differences in revenues, adjusted EBITDA, adjusted operating income, free cash flow, or net debt. or any of the RIG activity or daily RIG financial information, but there could be material differences to net loss from continuing operations attributable to neighbors' common shareholders and earnings per share. Before I turn the call over to Tony, I would like to mention that we have attempted to incorporate your suggestions to improve this call's usefulness to you. As such, we are streamlining our prepared remarks, which should permit more time for your questions. With that, Now I will turn the call over to Tony.

Good afternoon. Thank you for joining this review of our results for the second quarter of 2020. I will begin with comments on our actions in light of the current environment. Then I will follow with the discussion of the markets and highlights from the quarter. William will follow with the financial results. My wrap-up comments today will focus on three timely and key subjects. Neighbors positioning to capitalize on several emerging themes in the industry. Second, our advantage position in the market as the industry navigates the downturn. And third, neighbors standing as a technology leader in our industry. Let me first lead off by commending each member of the neighbors global team on their management of the impact of the pandemic. The health and safety of our worldwide staff are paramount. Neighbors remain committed to ensuring the well-being of our workforce at each location around the globe. As well, we are dedicated to maintaining our focus on safety and our industry-leading drilling performance. This environment has been a challenging one. I am proud of the team for its innovation and perseverance. These qualities have minimized the virus' effects on the neighbors' extended family and on our operations. Neighbors has a long-standing commitment to the health and safety of our employees and the broader community in which we operate. The value of this commitment is especially noteworthy in this era. Next, I would like to update you on our actions as we manage the current business environment. This downturn requires swift and decisive actions. The spending reductions, which we announced earlier, have been fully implemented. As those were put in place, I also challenged our team to re-evaluate our structure and processes. The team responded and we are targeting additional savings to those previously announced. These measures should reduce our overhead costs and further support our free cash flow. We are now targeting approximately $11 million in additional savings and fixed costs. This figure targets $96 million up from the $85 million which we announced previously. I think it is important to note we expect to realize the additional $11 million during 2020. Combined with the common dividend suspension, these actions plus our previous capital spending reductions total more than $220 million of cash savings. That magnitude demonstrates our commitment to mitigate the impact of lower industry activity. At the same time, we remain focused on free cash flow generation and net debt reduction. Let me now spend a few moments discussing the macro environment. On the day of our last quarterly earnings call in May, near month WTI was $24. Since then, it has rallied above $40. As this upward movement occurred, operators executed the spending reduction plans they had put in place earlier. Consolidation has continued. Chevron is acquiring Noble for $13 billion. More than a dozen oil producers have filed for bankruptcy. From the beginning to the end of the second quarter, the Baker Hughes lower 48 land rate count declined by 451 rates, or 64%. The pace of decline has slowed dramatically since the beginning of June. Based on our conversations with the largest Lower 48 operators, we believe that their planned activity reductions are nearly complete. That and the lack of incremental announcements suggest we may be nearing a bottom in activity. In our international markets, the activity responses vary. In certain Latin American markets, the response was sharp with drilling activity ceasing four times during the second quarter. Most of these reductions resulted from efforts to contain the spread of the coronavirus. Some longer-lasting cuts in investment were also announced in Colombia and Venezuela. In this last market, the exit of our main customer has led to a shutdown of our activity. In other markets, customer actions were initially more measured. However, some of our customers outside of Latin America have started to reduce their billing activity based on supply-demand considerations. The most impactful is the significant cut in the total rig count in Saudi Arabia. For neighbors, that has resulted in the suspension of a number of rigs until year-end. In addition, our customer in Kazakhstan has terminated contracts on two of our rigs. More recently, some of our clients are beginning to reverse the actions taken earlier this year. Global oil demand has increased from the low point in the second quarter as economic activity rebounds. That trend should help work down the excess inventory which built up. These are positive signals, but it's still too early. Next, I would like to highlight a few aspects of our second quarter results. William will cover our results in more detail, as well as our forward guidance. Total adjusted EBITDA was $154 million in the quarter. These results benefited in part from one-time items in our international markets, which totaled approximately $8 million. Thanks in part to this EBITDA performance, we reduced net debt in the quarter by $117 million. Our global rig count totals 148 rigs, a 26% decline from the first quarter. Outside of the US lower 48 in Canadian markets, our rig count declined by just 5%. We never like downturns, but neighbors decline has been much smaller than the industry. This is a strong testament to the performance and value which Naver's delivers to its worldwide customer base. In our lower 48 business, our reported daily rig margin of $10,449 exceeded the expectation laid out on the previous earnings call. Naver's margin performance reflects four key factors. First, the capabilities of our rig fleet are second to none. We offer the highest specification rigs in the lower 48. Second, we are the leaders in field and safety performance. We believe we deliver greater value while emphasizing safety than our competitors. Third, our focus on operational excellence and reducing expenses yielded the expected benefit of free cash flow. And fourth, recognition by our customers of the value we bring to the table has allowed us to manage pricing and mitigate the erosion of our average day rate for the fleet. In our rigged technology segment, we delivered the highest quarterly EBITDA in five years. This performance reflected improved margins in the CanVig operation. It also underscores neighbors' ability to deliver technology initiatives at lower costs. We achieved some notable highlights in addition to our financial results. First, data and digital workflows are coming to the forefront as a means to create significant value in our billing services. The latest addition to our digital portfolio is RigCloud. RigCloud is a platform for digital operations which streams real-time drilling data from the edge devices to the cloud. It provides real-time visibility and analytics to drive performance. RigCloud enables collaboration between the remote teams of customers and support centers to maximize planning, execution, and rig performance across fleets. RigCloud is an open ecosystem of apps compatible with both neighbors and third-party rigs. It promotes informed, simple, and better drilling decisions. We have launched it this month with more than 20 drilling apps and widgets that can be customized to create dashboards and tiles based on users' preferences. Second, we have unified the branding of several products and services to align with neighbors' smart brands. This evolution should enhance awareness for several products and services in the neighbor's portfolio. The new naming under the smart umbrella with accompanying value propositions for each offering will reinforce our product reputation for innovation, Value Add, and Quality, and Help Drive Demands. Now, I will discuss our view of the market in more detail. Last week, the lower 48 land rig counts stood at 236. That is down by 465 rigs since the end of the first quarter, a 66% decline. In comparison, neighbors' working rig count, excluding rigs stacked on rate, has declined by 53%, but 13 points better over the same period. This environment is challenging, and clients are highly selective when determining their contractors. Our share gain clearly demonstrates our position as the leading performance driller. Neighbors provides the best drilling performance with a superior safety record in the lower 48. Looking to the future, we have spent a significant amount of time trying to understand how this market will unfold. The recent stability in oil prices around the $40 level should improve operator confidence. A handful of operators could see a modest increase in working rates during the second half of 2020. For 2021, assuming global economic activity and demand for oil continue to grow, we believe E&P industry spending will increase. That spend will likely pull through additional rig activity. In this scenario, we believe lower 48 operators will be highly discriminating in their selection of drilling contractors and rigs. For drilling specifically, we anticipate a focus on premium, high-spec rigs. The lower 48 operators, which are most likely to increase their drilling in the very near term, include several that pause activity completely. Beyond those, we expect operators with balance sheet strength, free cash flow generation, and a low cost base as the most likely to deploy rigs. In our international markets, we have already seen activity restart in Argentina and Colombia. The Middle East markets continue to evolve. The spending outlook there is less certain. Regardless, contractors with established market share and a demonstrated track record of operational excellence will be advantaged. That concludes my remarks on our second quarter results, highlights, and the current market. Before William offers his remarks, I want to thank the entire neighbors team for their hard work and sacrifice in a very difficult environment. I also extend well wishes to all those in our extended community who are affected by the virus. Now, I will turn the call over to William for his discussion of the financial results and guidance.