Nabors Industries Ltd.

Good day and welcome to the Q2 2021 Neighbors Industries LTD 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, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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 Naver's second quarter 2021 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 Navers 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 Navers.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 Siggy 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 either by 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. With that, I will turn the call over to Tony to begin.

Good morning. Thank you for joining us as we review our results for the second quarter of 2021. This morning, I will begin with our overview comments. Then I will follow with highlights for the quarter and a discussion of the markets. William will discuss our financial results I will make some concluding remarks before opening up for your questions. Let me start by saying our operations performed quite well in the second quarter. We also made significant progress across multiple strategic initiatives. Adjusted EBITDA in the second quarter topped $117 million. Execution across all of our segments was strong. Our global rig count for the second quarter increased by seven rigs driven by growth in the U.S. drilling, and international segments. Once again, we made progress on our priorities to generate free cash flow and reduce net debt. Free cash flow in the quarter approached $70 million after funding capex of $77 million. These results for the second quarter exceeded the expectations which we laid out on our last conference call. Net debt improved by $58 million in the second quarter, driven by our free cash flow. I am very pleased with our financial performance through the first half of 2021. I am looking forward to reporting further progress over the balance of the year. Next, I would like to highlight five key focus areas as you think about neighbors. First, our leading daily margin performance in the lower 48. Second, the upturn in our international business. Third, the improving outlook for our technology and innovation. Fourth, progress on our commitment to the lever, and fifth, our progress in ESG and the energy transition. Let me start with lower 48 drilling margins. The margin performance in this core business remains strong. Daily margin once again exceeded the $7,000 mark. Clients realized value from our leading fleet capabilities and field performance. We maintained our disciplined approach to pricing as we deployed rates. This unique combination is responsible for these robust results. Another way to look at our performance is to combine our drilling margin with the margin generated by NDS in the lower 48. That increment amounts to approximately $1,900 per day. So we're generating almost $9,000 per rig per day on this basis. As you compare results and business models from our peers across the industry, we think it's important to consider this point. Next, our international business. Our financial results benefit from our historic pricing discipline and our performance in the field. Coming out of the pandemic, significant improvements have occurred in Argentina, Colombia, and Russia. These markets collectively account for approximately 25% of our international rig count. Saudi Arabia has seen an upturn in activity. We currently have 38 rigs working in the kingdom. There's potential to add a few additional rigs before the end of the year. In addition, our Santa Joy Venture has been awarded five new bill rigs to date. These five units are expected to be deployed at approximately one per quarter starting in Q1 of 2022. They are estimated to contribute approximately annualized EBITDA exceeding $50 million. As you know, there is a long-term plan by Saudi Aramco to add successive generations of five rigs per year for an additional 45 rigs. If Saudi Aramco proceeds with this plan, we expect a similar EBITDA contribution in each successive year. These new bill rigs and their economics were one of the main attractions for our participation in the joint venture. Next, technology and innovation. Our technology pipeline remains full. NDS's penetration on our own lower 48 rigs with at least five services exceeded 70%. On third-party rigs, we are seeing strong growth and penetration. Revenue on third-party rigs increased sequentially by more than 50%. Growth occurred across most of the service lines. The third-party rig market remains fertile for NDS. We are investing to ensure that our products are rig agnostic, even though the full potential of the NDS product suite is still maximized when run on neighbors' rigs. For NDS in total, we are expanding our digital platform and expect to see greater penetration of these products across the market. Now, let's discuss delevering. We had quite a bit of significant news on this topic recently. We completed the provided distribution of equity warrants to our shareholders. This innovative structure places value in the hands of our equity holders. The warrants can be exercised with cash or certain of our outstanding notes. This transaction could result in substantial delevering of our capital structure. We also signed an agreement to sell our Canadian drilling assets. This sale will result in cash proceeds of approximately $94 million, plus we will liquidate the working capital in the business. With this deal, we pull forward multiple years of free cash flow, which we can deploy into our strategic priorities. In summary, we've made material progress even through the downturn. We look forward to making additional headway in the future. I'll finish this discussion of our highlights with ESG and the transition. We continue to refine and enhance our focus on ESG. We recently updated our annual ESG report with additional disclosure. This drove a two-point improvement in our environmental score from ISS. In addition to the environmental performance, we also recorded improvements in several categories of our social score. Our position in the energy transition also began to take firmer shape. Our strategy here is fully supported by the Neighbors Board and our investors. The scale of the energy transition opportunity is potentially huge. We believe it holds very attractive prospects for neighbors in two broad areas. First, to optimize the environmental footprint of our own operations, and second, to drive the transition in adjacent markets. Significantly, we believe our global footprint, technology, and scale can be applied to drive initiatives in the transition space. For example, we are working both to reduce our own carbon footprint and to apply our expertise in the broader energy market. We have exclusive agreements to market multiple fuel additives, which materially reduce fuel consumption and emissions of our own large diesel engines, as well as other fleets. We have also identified adjacent areas which we think are synergistic with our core operations. These include investing in several early-stage geothermal energy companies, We believe the geothermal market holds enormous promise as a source of base load renewable power. These ventures will enable us to deploy our expertise into this burgeoning field. We expect to realize investment returns to measure with the opportunities. We recently agreed to license innovative IP in the carbon capture area. The target markets are in drilling as well as other verticals. We're excited about this technology, which we see ultimately reaching beyond the oil field, so stay tuned. We are evaluating a variety of investment structures in the energy transition. Our intent is to enable our participation across the spectrum of investment opportunities. We are confident in our ability to participate in and ultimately help drive the energy transition. We think this is a compelling opportunity. Now, I will spend a few moments on the macro environment. The quarter began with WTI just below $60. By early June, WTI broke above 70. Since then, it has climbed into the mid-70s and fluctuated between there and the high 60s. This range should be conducive to increases in drilling activity across markets. Next, I'll review the rig count. Comparing the averages of the second quarter to the first quarter, the Baker Lowey 48 land rig count increased by 16%. According to Inverness, from the beginning of the second quarter through the end, the lower 48 rig count increased by 31, or approximately 6%. The growth rate among smaller clients significantly outpaced the growth in larger operators at 8% versus 2%. With our focus across the spectrum of clients, our average working rig count in the second quarter increased by 21%. This comparison excludes rigs stacked on rate. Our total average rig count increased by 7 rigs while the number of rigs stacked on rate declined by four. Once again, we surveyed the largest lower 48 clients. This group accounts for approximately 35 percent of the working rig count. In comparison, on the last call, the same group accounted for 40 percent of the working rig count. Our review of these clients show a modest uptick in activity planned for the balance of 2021. In our international markets, we saw a demand increase about as expected. In our served markets, we gained incremental share in the second quarter as activity levels in those markets continued to recover from their pandemic lows. To sum up, commodity prices have risen significantly as global economic activity increased. In their current range, oil prices generate acceptable operator economics in virtually all areas where we operate. With that in mind, we remain vigilant to the potential impact of a resurgence of the virus. That risk notwithstanding, the current commodity environment remains conducive to increased drilling activity. Now, let me turn the call over to William, who will discuss our financial results and guidance.