Nabors Industries Ltd.

Good day and welcome to the Neighbors Industries LPD Q3 earnings teleconference 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, VP Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining Naver's third 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 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 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 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. With that, I will turn the call over to Tony to begin.

Thank you for joining us this morning as we review our results for the third quarter of 2021. I will begin my remarks with some overview comments. Then I will detail the progress we made on our five keys to excellence and follow with the discussion of the markets. William will discuss our financial results. I will make some concluding remarks and we will open up for your questions. Our operating performance in the third quarter was strong. All of our segments met or exceeded the outlook we gave a quarter ago. On top of that, we completed several milestones across our strategic initiatives. Adjusted EBITDA in the third quarter reached $125 million. We maintained our execution at a high level while we grew the overall business. Our global average rig count for the third quarter increased by two rigs, excluding the impact of the sale of our Canadian drilling assets. This rig count growth was driven by an increase in U.S. drilling activity. Volumes in our drilling solutions and rig tech segments both grew quarter on quarter. That drove sequential increases in both revenue and EBITDA in those operations. The third quarter again marked progress on our twin priorities to generate free cash flow and reduce net debt. Free cash flow in the quarter exceeded $130 million, including the Canada sales proceeds. Without those proceeds and the funding for our geothermal investments, we generated free cash flow of $55 million. This result was significantly above our expectations. In line with the cash generation, net debt decreased to $2.3 billion in the third quarter, driven by the combination of our strong operating performance, disciplined capital spending, improved working capital, and our strategic capital allocation evidenced by the Canadian sale. I am pleased with our financial performance, both in the third quarter and year-to-date. Last quarter, I highlighted five key themes that we believe support the neighbor's investment thesis. These drivers include our leading performance in the U.S., the upturn in our international business, improving results in the outlook for our technology and innovation, our commitment to sustainability and the energy transition, and our progress in our commitment to de-lever. Let me start with the U.S. performance. Our margin performance in the lower 48 remains strong. As we expected, For the third quarter, we held daily margins above the $7,000 mark. This accomplishment was in line with our second quarter and with the outlook we gave last quarter. We believe our value proposition leads the industry, specifically in operational excellence, advanced technology, top safety performance, and sustainability. Our financial results validate this. Next, our international business. We bring the same elements that support our lower 48 business to our international segment. Our financial results are benefiting from outstanding performance in the field and highly disciplined capital spending. Daily drilling margin in this segment remains robust. As you look through the end of the year and into next, we have visibility to reactivations of three more rigs in Saudi Arabia. This is in addition to the two restarts that recently occurred. Currently, we have 40 rigs working in Saudi Arabia. the in-kingdom rigged new bill program is progressing. Based on the manufacturer's delivery schedule, we expect to deploy the first of SANAID's five awards in the first quarter of 2022. The balance should come at approximately one per quarter. We expect each of these rigs to contribute annual EBITDA of approximately $10 million. SANAID's long-term plans call for a total of 50 new bills over 10 years. Each successive generation of five rigs should they have $50 million annually. Through the end of 2022, we have excellent visibility to growth at Sannit from expected rig activations and new builds. With that expected growth, our international EBITDA could increase by 20% versus the third quarter just reported. Let me next turn to technology and innovation. Our advanced technology is one of the key drivers of our industry-leading performance. Our portfolio continues to gain traction in the market. Quarterly EBITDA in our drilling solutions segment increased sequentially by 22%. This business has scale and is an earnings multiplier on top of our drilling business. Beyond this performance, our technology pipeline remains full. Penetration on neighbor's lower 48 rigs and on third-party rigs increased. Revenue on third-party rigs improved sequentially by more than 20%. We continue investing in apps and products that are deployable on third-party rigs. Notwithstanding that feature, the full potential of this portfolio is maximized on neighbors' rigs. In the third quarter, 74% of our rigs in the lower 48 ran five or more NDS services. This compares to 62% in the second quarter. For NDS in total, we are committed to expanding our digital portfolio further. Over time, we expect to see greater penetration of these products across the market. Next, I would like to highlight a significant technology breakthrough. During the quarter, we deployed the industry's first fully automated land rig, the PACE-R801. Earlier this month, Rig 801 reached total depth of 20,000 feet on its initial well. This rig incorporates a number of innovations. It features our fully automated robotic drilling package. It also incorporates leading edge controls and smart suite drilling software. The rig runs casing automatically with a high degree of precision and without the need for a separate casing crew and equipment. With this design, we have removed the rig hands from the rig floor. With less physical labor required, Rig 801 has the potential to greatly expand the pool of talent available to work on our rigs. By removing people out of harm's way, we are confident this rig will experience a step-change improvement in safety performance. With all this rig has to offer, we've already seen interest from other operators. Now let's discuss delevering. The third quarter marked significant progress to improve our capital structure. Free cash flow in the quarter was strong. We remain committed to a multifaceted approach to delever. The primary focus is to continue delivering free cash flow. I think our results thus far this year demonstrate our commitment and illustrate our success, but we're not finished. We look forward to reporting additional progress in the future. I'll now finish this discussion of our themes with sustainability and the energy transition. We continue to refine and enhance our focus on sustainability. We made additional progress on our environmental and social scores from ISS. We remain on track for an additional 5% reduction in greenhouse gas emissions in the US in 2021. Our employee safety record measured by TRIR has improved each quarter this year. This TRIR performance leads our industry. We also made progress in our energy transition initiatives. We are currently testing prototypes of our carbon capture and hydrogen technologies. These results have been encouraging. We have several more projects underway. As these proceed, we'll be reporting the results. During the third quarter, we completed investments in three early stage geothermal companies. We now have a portfolio that covers a spectrum of innovative geothermal technologies. We view geothermal as immediately adjacent to our existing business. Each of these companies will benefit from our asset platform as well as our engineering and manufacturing expertise. We are excited to help drive the widespread development of this source of renewable base load energy. We will help these companies cut down the time required to reach their respective commercial stages. Our global presence, technology, and scale will be applied to drive these and other initiatives in the transition space. We are taking a three-pronged approach to the transition. We reduce our own carbon footprint by applying new technologies. We can expand these technologies to other verticals. And we can take advantage of the opportunities in areas adjacent to our activity by investing in these companies and helping them to reach scale. Now I will spend a few moments on the macro environment. The quarter began with WTI above $70. By the end of September, WTI was in the mid-70s. Since then, it has reached the $80 mark, where it remained recently. This range should be conducive to increases in drilling activity across markets. Next, I'll review the rig count. Comparing the averages of the third quarter to the second quarter, the Baker Lower 48 land rig count increased by 11%. According to Inverness, from the beginning of the third quarter through the end, the Lower 48 rig count increased by 47, or approximately 9%. Smaller clients accounted for nearly all of this growth. Once again, we surveyed the largest lower 48 clients at the end of the third quarter. This surveyed group accounts for approximately a third of the working rate count. Our survey indicates an increase in activity approaching 10% for this group by the end of the year. This outlook is consistent with EMP spending increasing going into the end of the year. It is very encouraging as we look into 2022. We also see potential activity increases in our international markets. In particular, we have visibility to reactivations of suspended rigs in Saudi Arabia. We recently added an additional rig in Latin America, and we are optimistic for additional rigs beginning early next year. I'll wrap up this macro discussion with an update on our labor availability and the global supply chain. For labor, we have been successful at recruiting and staffing to support our increases in activity. Recently, this has become more difficult, particularly in the lower 48. As a consequence, we raised compensation in this market during the last quarter. This increase has helped, and we are monitoring whether additional steps will be necessary. Now, let me address the supply chain. We continue to see moderate cost inflation and lead times have stretched significantly. With our global systems, we are able to maintain operational continuity. I would also like to point out that we have delivered on our margins. The cost increases we have experienced have been offset by similar increases in our day rates for the fleet. To sum up, commodity prices have continued to rise as global economic activity has increased. In their current range, oil prices generate favorable operator economics in virtually all areas where we operate, Natural gas prices have increased to levels not seen in more than 10 years. We have observed early signs of increased interest from operators which can benefit from these higher prices. With that in mind, we remain vigilant to potential disruptions from the virus and challenges in the economy. Those risks notwithstanding, the current commodity environment supports an increase in the level of drilling activity. Now, let me turn the call over to William, who will discuss our financial results and guidance.