Nabors Industries Ltd.

Good day, and welcome to the fourth quarter 2021 Neighbors Industries Limited 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. And I'd like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you for joining Naver's fourth 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 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 Meisner, President of our Energy Transition and Industrial Automation 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. Good afternoon.

Good afternoon. Thank you for joining us as we review our results for the fourth quarter of 2021. This afternoon, we will follow our usual format. I will begin 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 comment on our financial results. I will make some concluding remarks and we will then open up for your questions. I am pleased with our strong operating performance in the fourth quarter. Once again, all our segments met or exceeded the outlook we gave on our previous earnings call a quarter ago. We also made further progress on each of the company's five key strategic initiatives. Adjusted EBITDA in the fourth quarter was $132 million. As you can see from this result, we finished the year on a strong note. We maintained our execution at a high level while we grew the overall business. Our global average rig count for the fourth quarter increased by 12 rigs, excluding the impact of the sale of our rigs in Canada. This rig count growth was driven by increases in both our US drilling and international activity. Revenue in our advanced technology drilling solutions and rig technology segments also increased. Combined, sequential EBITDA in these two segments grew more than 25% and accounted for nearly 18% of the company's total. This is a new high watermark for these segments' contribution to our EBITDA. In the fourth quarter, we again made progress on our twin priorities to generate free cash flow and reduce net debt. Free cash flow in the quarter totaled $50 million. As I mentioned, Our EBITDA generation exceeded our outlook. Looking another way, EBITDA minus CapEx exceeded our expectations for the quarter and totaled $68 million. Free cash flow was impacted by increases in working capital as the business expanded in the quarter. Net debt improved by $32 million in the fourth quarter, driven by the strong operating performance and disciplined capital spending. I am pleased with our overall performance in the fourth quarter and for the full year I look forward to reporting further progress throughout 2022. In 2021, we began highlighting the five key drivers that we believe support the investment thesis on neighbors. These 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 on our commitment to deliver. Let me update each of these, starting with our U.S. performance. Our strong daily rig margins in the lower 48 improved yet again. We exited the year with 79 rigs running. In the fourth quarter, our daily margin increased to $7,161. This accomplishment reflects our superior value proposition and was achieved even with upward pressure on costs. We remain committed to delivering the industry's best performance and most advanced technology while leading in safety and sustainability. Next, let's discuss our international business. We bring those same attributes I just mentioned to our international drilling segment. Our financial results in this segment were consistent with last quarter's margin outlook. This demonstrates our excellent performance in the field as we continue tightly disciplined spending. Looking ahead, We expect SADDED to deploy its first in-kingdom new-build rig around the end of the first quarter. The rest of the five which have been awarded should come at a rate of approximately one per quarter. We estimate each of these new rigs will generate annual EBITDA of approximately $10 million. We are excited as SADDED nears the deployment of the first new rig into the field. The JV's long-term plan calls for a total of 50 new-build units over 10 years. Each successive year of five deployments should add $50 million to annual EBITDA. This visibility to future growth is unmatched in the industry. Now, let's discuss our technology and innovation. Our focus on the development of advanced technology continues to pay dividends. Our initiatives span several key target areas, including automation, digitalization, integration, and robotization. Once again, our portfolio's market position improved. Quarterly EBITDA in our drilling solutions segment increased sequentially by 25%. This segment's EBITDA of $19.6 million exceeded its performance in the first quarter of 2020, immediately pre-pandemic. The business crossed another milestone in the fourth quarter when we combined the daily margins in the lower 48 from our drilling and drilling solutions businesses Drilling Solutions added more than $2,000 per day in the fourth quarter. We recognize some competitors' top performance contracts, which are not yet yielding superior margins. In contrast, our combined daily rig margin figure amounts to more than $9,200 per day, reflecting the value pricing of our rating and technology offering. This is the highest daily margin per rig by far in this market. In addition to this quarterly performance, our pipeline of advanced technology solutions remains full. Our development initiatives focus on the critical goals of improving customer well-being quality and productivity while reducing operator costs. We believe we are unique in that our apps and products are deployable beyond the neighbor's fleet on third-party rigs. This approach to the business significantly expands our addressable market. Notwithstanding this opportunity, the full potential of the neighbors' portfolio is maximized on neighbors' high-specification rigs, which we believe are the industry's most capable. Looking ahead, we expect to see greater penetration of our digital portfolio across the market. I'll wrap up my comments on our technology with a brief update on Rig 801. You will recall we deployed this groundbreaking, fully automated rig in the third quarter, for ExxonMobil in the Permian. The rig has completed its second full pad. Its performance is comparable to our other high-spec rigs, and it drills with the rig crew members away from the red zone. Now, let's discuss the levering and the steps we've completed to de-risk our capital structure. In the fourth quarter, we again generated free cash flow and reduced net debt. This performance kept a full year in which we generated significant free cash flow and made meaningful progress to deliver. Also, during the fourth quarter, we completed an offering of senior notes. Subsequently, we closed out a new revolving credit facility. These two transactions have positioned us with materially reduced debt maturities over the next three years. This enables us to potentially manage our debt maturities through 2024 with free cash flow. I'll finish this discussion of our key value drivers with sustainability and the energy transition. We continue to refine and enhance our focus on sustainability. With the emphasis we place on employee safety, we improved our safety record in 2021. With a TRIR of 0.41, we believe we lead the industry. This notable accomplishment by the neighbors team should be viewed in the context of activating more than 30 rigs worldwide during 2021. On the environmental front, we made significant progress. We reduced our 2021 greenhouse gas emissions in our lower 48 field operations by 10% versus the 2020 level, doubling our target. We also made progress across our initiatives supporting the energy transition. Initial prototype testing of our carbon capture and hydrogen injection technologies has been promising. We hope to have commercial products available this year. We have several more projects underway. As these proceed, we'll be reporting the results. Neighbors Energy Transition Corp., or NETC, which Neighbors sponsored, completed its IPO in November. The SPAC structure enables us to address the scale of energy transition opportunities with a lower cost of capital than Neighbors. This remains an exciting initiative for neighbors, as well as one we think could have material synergies with neighbors' existing operations. To reiterate, our approach to the transition is comprised of three pillars. First, reduce our own environmental footprint by applying new technologies. Second, take advantage of the opportunities in areas adjacent to our activity. And finally, invest in companies both adjacent to neighbors and in other verticals and help them to reach scale. Now, I will spend a few moments on the macro environment. The fourth quarter began with WTI just above $75, followed by a dip to the mid-60s. Since then, it's been a relatively steady climb to the $90 level. As we pointed out at our analyst meeting in December, sustained crude prices above the $60 mark provide returns that would incentivize operators to increase their drilling activity. This pricing drove activity materially higher in the quarter. During the quarter, neighbors added eight rigs, equating to 11% growth. In comparison, according to Inverness, from the beginning of the fourth quarter through the end, the lower 48 rig count increased by 54 rigs, or approximately 9%. This translates to a 15% share of the incremental rig count for neighbors. For the industry, larger clients accounted for slightly more than half of this growth. Once again, we surveyed the largest lower 48 clients at the end of the fourth quarter. This group accounts for approximately 30% of the working rate count. Our survey indicates an increase in the activity approaching 20% of this group by the end of the year. Nearly every operator amongst these 15 clients plans to increase activity. The pricing environment is moving upward quickly. Our own leading entry day rates now stand several thousand dollars higher than the daily average in the fourth quarter. We see pricing accelerating as industry utilization increases throughout the year. As we mentioned earlier, NDS's growth in the quarter was exceptional. This growth reflected the strong value proposition of the portfolio. Fully 74% of our lower 48 rigs run five or more NDS services. Our top service runs on 99% of those rigs. Going forward, in addition to our own domestic rigs, NDS will be focusing on both third party and international opportunities. In our international markets, those same macro factors exist. Strong commodity prices and expected production increases are driving oil field activity higher. We see potential activity increasing in several countries. In particular, we have visibility to the set of new bills coming in Saudi Arabia. tendering activity has picked up across other markets in the Middle East. The supply of suitable aisle rigs remains limited in that region, which should be favorable for pricing. We are also optimistic for additional rigs in Latin America beginning in the first half of 2022. Clients there are planning increases in activity, and we have the rigs and relationships to support those plans. 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 increases in our activity. We took actions to address the labor market tightness and remain competitive. In the fourth quarter, we increased compensation in the field and throughout the organization. As a result, this challenge has recently eased somewhat. Now, let me address inflation and the supply chain. We have seen higher costs across our supply chain. Their effects have been mitigated thus far through our vertically integrated manufacturing structure. The primary stress factor in our supply chain remains vendor lead times, which have widened significantly. Our team has been on top of this challenge and our operational continuity remains excellent. I would note that we managed to increase daily drilling margins in the lower 48 even as our costs increased. This speaks volumes to the performance we're delivering to our clients. To sum up, commodity prices remain at levels that are supportive of increased operator activity. We are also encouraged by the reduction in deduct inventory, which suggests a favorable shift in operator spending towards drilling. Natural gas prices, as indicated by the two-year strip, remain above $3. We are also seeing increased interest from operators which can benefit from these higher prices. With all of this, and the worst of Omicron seemingly behind us, we remain vigilant to potential future disruptions from the virus and challenges in the economy. Those risks notwithstanding, the current commodity environment supports increased global drilling activity. Now, let me turn the call over to William, who will discuss our financial results and guidance.