Nabors Industries Ltd.

Good day, and welcome to Neighbors Industries' fourth quarter 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. To ask a question, press star, then one on a touch-tone phone. To withdraw your question, press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to William Conroy. Please go ahead.

Good afternoon, everyone. Thank you for joining Naver's fourth quarter 2020 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 Ziggy 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 certain 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 measure. With that, I'll turn the call over to Tony for his remarks.

Good afternoon. Thank you for joining us as we review our results for the fourth quarter of 2020. Before I begin, I would like to express our thoughts and concern for the members of our community who were affected by the severe weather and the related power and water outages. Our rig operations in Texas were essentially unaffected. Turning to our results, I will begin with overview comments. Then I will follow with a discussion of the markets and highlights from the quarter. William will discuss our financial results. I will make some concluding remarks before opening up for your questions. First of all, as we close the books on 2020, I want to recognize the entire neighbors team for its outstanding performance in these extraordinary circumstances. Our company staff confronted the impacts of COVID and the depressed drilling market head on with perseverance and ingenuity. Those efforts across all of our segments and functional areas reinforced our leadership in our markets. At the same time, we managed to improve our financial strength. We are emerging from the pandemic as a stronger company. Neighbors is well positioned to capitalize on the upturn. Our financial discipline paid off in 2020. For the full year, we reduced overhead spending by 24%. This effort began in the second quarter. Our run rate in the fourth quarter represents a nearly 27% drop over the 2019 quarterly average. We also made further progress on our twin priorities, namely generate free cash flow and reduce net debt. We began the year at just under $2.9 billion in net debt. We deleveraged by nearly $400 million, fueled in part by free cash flow generation of $184 million. We ended 2020 with net debt less than $2.5 billion. We achieved this in the face of very difficult market conditions. Our results demonstrate the earnings power and resiliency of our unique portfolio of premium assets with geographical diversification. Notwithstanding the most adverse industry and macro conditions in decades, we maintained our position as the preferred drilling contractor and reset our cost structure. Our operational strength has supported our financial performance. Outside of North America, we remain the largest and most profitable land drilling contractor. And in the lower 48, we continue to deliver the highest daily gross margins among our peers. Based on the strength of our performance drilling offerings and our digital infrastructure, we increase the penetration of innovative drilling contracts. These contracts generate incremental margin based on value sharing. In the fourth quarter, the combined gross margin from our lower 48 drilling rigs and our U.S. drilling solutions significantly exceeded those of our peers. Our investments in performance, technology, safety, and importantly, human capital and sustainability are driving this success. We are positioned well for continued growth. I am looking forward to reporting further progress in 2021. Next, I would like to spend a few moments on the macro environment. After briefly testing the upper 30s in late October, the price of near-month WTI increased by 35% through the end of the year. Since the beginning of 2021, the price has risen further. Recently, WTI was trading above $61. Brent, which is also important to our global client base, made a similar move. It was recently priced above $64. Global oil demand continued to recover in the fourth quarter. The EIA reports consumption increased by more than 2% versus the third quarter. In part, this contributed to a global inventory draw of over 200 million barrels. In early January, the OPEC Plus Group agreed to keep its production essentially flat. That announcement was followed almost immediately by Saudi Arabia's reported reduction in output. The resulting higher prices which I detailed earlier, are generally supportive of increased oil field activity across all markets. Comparing the fourth quarter and third quarter averages, the Baker Hughes lower 48 land rig count increased by 23%. Our own working rig count increased by a similar percentage as we edit rigs with several customers. These additions more than offset the reduction of our rigs stacked on rates. From the beginning of the fourth quarter through the end, the end-risk lower 48 rig count increased by nearly 30%. The growth rate among larger clients was approximately equal to the growth in the smaller operators. It should be noted that more than half of the increase among the larger operators was driven by a single client, and most of that client increase was the reactivation of just one drilling contractor's rigs, which were stacked on rate. Once again, we surveyed the largest lower 48 clients. This group accounts for approximately 35% of the working rate count. Our review of these clients shows a modest pickup in activity planned for the balance of 2021. It is the smaller and medium-sized operators which appear more responsive to the recent strength in commodity prices. In our international markets, we have recently started to see demand increase in selective geographies as measured by the number of active rates. This trend extends across major markets in Latin America and in Saudi Arabia. To summarize our view of the markets, global oil demand continues to rebound from the pandemic low. Oil inventories, which expanded considerably in early 2020, are dropping. The resulting increase in commodity prices has improved operator economics. We see their response in the recent growth in rig count. Overall, assuming the worst of the pandemic is behind us, the market environment is poised to support higher levels of activity. Now I will comment on our fourth quarter results. Total adjusted EBITDA was $108 million in the quarter. These results reflect activity which was somewhat better than anticipated. Our lower 48 operation and our international and drilling solution segments exceeded our expectations. With this adjusted EBITDA performance, we generated approximately $66 million in free cash flow after funding $41 million in capital spending. Our global rig count for the fourth quarter was essentially stable at 131 rigs. Growth in the lower 48 in Canada largely offset the decline in international. In our lower 48 business, our reported daily rig margin of $9,541 exceeded our guidance and remained in line with the third quarter. For the international segment, adjusted EBITDA for the quarter was higher than our expectations. Daily margin outperformed, driven mainly by strong operational performance in Saudi Arabia and by revenue from early terminations. These items more than offset the decline in rig count. Our industry-leading fleet capabilities, outstanding operational and safety performance, and expense and capex discipline all drove this accomplishment. Next, I would like to mention some specific highlights of the quarter. During the fourth quarter, we completed a series of debt exchange transactions. In the aggregate, these reduced our outstanding debt obligations by $284 million. Adjusted EBITDA in our drilling solution segment increased sequentially by 44%. The adjusted EBITDA margin in NDS widened to 32% in the fourth quarter. This compares very favorably to 24% margins in the prior quarter. In NDS, we increased the penetration of our rig cloud platform for digital operations. In the fourth quarter, rig cloud was running on nearly all of our working rigs in the lower 48. We are now in the early stage of growing on third-party rigs. We saw continued growth in our SmartSlide and SmartNav apps. SmartSlide is our directional steering control system, which automates slide drilling. SmartNav is our automated directional guidance system. Our cumulative footage drilled for these apps working together increased by 11% in the fourth quarter. Our cumulative well count was up by 12%. Our portfolio of automation applications in NDS is second to none in terms of capabilities. We developed these products around our Smart ROS, or Rig Operating System. Smart ROS was conceived from the ground up to collaborate with customer workflows while optimizing rig operations. We believe we now have the broadest, most advanced, and most profitable automation solutions in the market today. Our focus on ESG is increasingly reflected in our ISS ESG quality scores. In the fourth quarter, Our ISS environmental score improved significantly, and the ISS social score improved again. We continue to reinforce our commitment to ESG, and I look forward to reporting on that progress. More recently, neighbors have signed on to the Science-Based Targets Initiative. We have committed to setting science-based GHG emissions targets. We are the only land drilling contractor to do so. The use of alternative power on our rigs is an excellent illustration of our efforts in ESG. I will cover this topic in more detail in a few moments. In addition to these highlights, I would like to discuss one of our smart apps in particular. Back in the second quarter of 2020, we released an improved version of Smart Drill, our automated drilling software. Smart Drill digitizes an operator's well plan with optimal task sequences as defined with the operator. Essentially, it executes virtually every task that a driller performs from the chair, and it compiles automated sequences of those tasks. It is the only automated drilling solution in the market that enables ad hoc changes to the sequence. By digitizing best practices, Smart Drill improves consistency and reduces the potential for human error. For example, we are able to minimize the risk of damage and reduce lost time. Tangible benefits of Smart Drill include an increase in single-run laterals, a decrease in unplanned trips, and improved and consistent connection times. We are excited about Smart Drill. Our pricing models for this app reflect the measurable value that it generates for customers. I look forward to reporting on its progress and on other apps in our portfolio in the future. I will also make some comments on neighbors' positioning in the energy transition. Our plan, as we embark on the transition, consists of two parallel tracks. Most immediately, we are examining alternatives to improve neighbors' own carbon footprint. We actually started down this track several years ago when we introduced the Fuel Tool. Fuel Tool is a system that monitors and optimizes rig engine usage. It was targeted to reduce fuel consumption. Now we are evaluating technologies aimed at carbon capture, emissions minimization, and power management. We have an inventory of 40 dual-fuel packages to satisfy market needs in the lower 48. Approximately 15 percent of our operating rigs in the lower 48 are currently running on either high-line power or bi-fuel. In addition, we have introduced our advanced energy management system on one of our rigs. This system yields a significant improvement in the rig's carbon footprint. We are also running 12 rigs in Canada with bi-fuel capability. Globally, I expect use of these technologies to increase in the future. The parallel track includes opportunities which are relevant beyond our own rig fleet. These prospects could include other drillers' rigs or scale beyond the traditional markets in the oil field. Our energy transition initiatives are still in the early stages. We expect to make tangible progress going forward and look forward to reporting further on this area. Before turning the call over to William, I will discuss our view of the market in some more detail. The lower 48 industry has hit 151 rigs, or 67%, since its low in August. Looking forward, we see the current commodity price environment supporting increased activity as the year progresses. We expect our own rig count to increase each quarter throughout the year. We are also starting to see some modest improvements in spot day rates. In our international markets, since the third quarter, we have seen our own activity increase further in Latin America. Our working rig count in the region rose more than 50% during the quarter. Accordingly, versus the fourth quarter of 2019, pre-pandemic, we have gained significant market share in both Argentina and Colombia. In addition, several customers in Latin America with temporary COVID pricing adjustments have returned to full day rates. Notwithstanding the macro challenges, the operation in Saudi Arabia performed exceedingly well. In addition, the expected rig restarts in the Kingdom have begun. Since the beginning of the year, eight of the auto rigs have returned to work. Our working rig count in Saudi Arabia now stands at 38. This leaves five expected to return over the next 12 months. These reactivations are consistent with the expectations we laid out last quarter. I would like to take a moment here to express our appreciation to our SanEd CEO and the members of the SanEd board, especially the directors from Saudi Aramco. The Aramco board members have been tireless in supporting the management team in delivering best-in-class operational performance. That concludes my remarks on our fourth quarter results, highlights, and the market. I wish to reiterate that our primary concern remains the health and well-being of the extended neighbors community. On behalf of the company, we extend our heartfelt thoughts to those affected by the pandemic. Now, let me turn the call over to William, who will discuss our financial results and guidance.