Nabors Industries Ltd.

Good day and welcome to the NABIRS first quarter 2022 earnings conference call. All participants will be in a 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 touchtone phone. And 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 Mr. William Conroy, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining Naver's first quarter 2022 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 me, are Siegfried Meissner, 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 adjusted 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 adjusted 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. Thank you for joining us as we review our results for the first quarter of 2022. 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 open up for your questions. Our performance in the first quarter marked solid progress on each of our five key initiatives. Our strategies are paying dividends. At the same time, we benefited from the increasingly constructive markets for our services. The adjusted EBITDA in the first quarter was $131 million. Our operational execution remains strong, especially in our key markets. Our results reflect minor impacts from disruptions in our operations in Russia, as well as ongoing challenges to the supply chain. Our global average rig count for the first quarter increased by 10 rigs. This rig count growth was mainly driven by increases in our U.S. drilling activity. Revenue momentum in our drilling solutions segment remains strong, increasing by nearly 5% sequentially. EBITDA in this technology leader reached the $20 million mark, its highest level since the start of the pandemic. In the first quarter, we made significant progress to reduce net debt. For the quarter, EBITDA less capex totaled $47 million. Typical working capital needs in the first quarter were exacerbated by supply chain constraints, inventory, and the growth in the business. Net debt improved by $55 million in the first quarter, driven by exercises of our warrants, which were issued in 2021. Next, as I have outlined for the past few quarters, I will highlight our progress on the five key drivers that we believe support the investment thesis on neighbors. These drivers include Our leading technology and performance in the U.S. market Expansion of our international business Improving results for our technology and innovation Improving our capital structure and reduced leverage And our commitment to sustainability and the energy transition Let me update each of these starting with our performance in the U.S. Daily rig margins in the lower 48 improved yet again We exited the quarter with 87 rigs running In the first quarter, our daily margin increased by $533 and was just under $7,700. The continued growth in our margins demonstrates the market's demand for our value proposition and our ability to price to value. I'm convinced this leadership is driven by the quality of our assets and the level of our execution. But let's be clear, the technology leadership we bring to the market through neighbors drilling solutions is equally important in helping our rigs deliver best-in-class drilling performance. We remain committed to delivering the industry's best performance and most advanced technology while leading in safety and sustainability. Let's discuss our international business. We performed well and our financial results in this segment were consistent with our outlook. Operational execution in the field was excellent. Staten's first-in-kingdom new build rig, which was anticipated before the end of the first quarter, is now expected to deploy in May. The rest of the five new bills, which have been awarded, should come at a rate of approximately one per quarter. Given the terms of the JV agreement, we estimate each of these new rigs will generate annual EBITDA of approximately $10 million. With the JV's long-term plan for 50 new bill units over 10 years, the prospects for significant future growth are outstanding. Now, let's discuss our technology and innovation. We believe that development and deployment of advanced technology are key to neighbors' future success. Our focus areas include automation, digitalization, and robotization. Again in the first quarter, our market position improved. Quarterly EBITDA in our drilling solution segment increased to $20 million. We used the combined daily margins in the lower 48 from both our drilling and drilling solutions businesses to evaluate our business on an apples-to-apples basis versus peers. In the first quarter, drilling solutions get at more than $2,100 per day. With this contribution, our combined daily rig margin figure amounts to more than $9,800 per day. One of the core elements of NDS's strategy is to target the third-party rig market. This approach to the business expands our addressable market well beyond neighbors' own rigs. We've made progress on our goal to expand penetration of the NDS portfolio into this third-party universe. Last quarter, third-party customers accounted for more than 20% of NDS's lower 48 revenue. I'll wrap up my comments on technology with a brief update on our fully automated rig, R801. This rig runs our smart suite of performance automation tools, as well as integrated casing running. We are in the process of using lessons learned from this rig and applying them across the rest of our fleet. We have identified certain automation modules on the rig that can be exported in component form to replicate functionality of R801. We are now ready to install one of these automation modules on one of our Permian rigs. We expect that over time, these automation modules will be deployed on most of our existing high spec rig fleet. In addition, We also intend to make them available on third-party rigs. In this way, we intend to exploit these new technologies without the need for a new rig build cycle and broaden the knowledge and acceptance for these solutions. Now, let's discuss our delevering efforts and the steps we've completed to de-risk our capital structure. In the first quarter, we made significant progress to reduce net debt. In particular, exercises of our warrants contributed a reduction of net debt exceeding $120 million and a commensurate increase in equity. Recognizing our improved near-term debt maturity profile, as well as the completion of our new revolving credit facility, in February, one of the major debt rating agencies raised its issue-level ratings across our notes. I'll finish this discussion with remarks on our key value driver of ESG and the energy transition. Building on our industry-leading TRIR performance in 2021, we are looking to improve on that further in 2022. Less visible in the TRIR statistic is the significant progress in the severity of the incidents reported. Our incident severity rate improved by 44% in 2021. We expect a further advance in 2022. Both of these measures demonstrate the positive emphasis we place on employee safety. On the environmental front, in our lower 48 field operations in 2022, we are targeting a further 7.5% improvement in greenhouse gas emissions intensity, on top of the 10% we delivered in 2021. We made additional progress across our initiatives supporting the energy transition as well. We further build out the organization, adding support for our carbon capture and hydrogen injection technologies. We hope to have commercial products available this year. Most recently, we announced an investment in another advanced geothermal company, GA Drilling. This addition to our existing portfolio enhances our position to help drive next generation geothermal technology. Since then, we also invested in a company focused on monitoring and measuring GHG and other admissions. To reiterate, our approach to the transition is comprised of three pillars. Reduce our own environmental footprint by applying new technologies and best practices. Capitalize on opportunities and areas adjacent to our core activity using our global footprint and existing expertise. Invest in companies both adjacent to neighbors and in other verticals and accelerate their achievement of scale. As you can see, we are making significant progress on each of these fronts. Now, I will spend a few moments on the macro environment. The first quarter began with WTI just above $75 and climbed steadily through late February. Since the onset of the war in Ukraine, the price has been more volatile. The quarter closed with WTI just over $100. Food oil prices remained above the pre-war level Let alone above the $60 mark we highlighted in our December analyst meeting. Since that meeting, the forward market has improved as well. The futures price of WTI 24 months out from now stands 20% higher than its price 24 months out from the December of last year. In this range, oil prices provide returns that would incentivize operators to increase their drilling activity above our previous expectations. In response to improving operator economics, drilling activity for the industry will materially higher in the quarter. Neighbors quarterly average rate count increased by 12% in the first quarter. Once again, we surveyed the largest lower 48 clients at the end of the first quarter. This group accounts for nearly 30% of the working rate count. Our survey indicates an increase in activity of more than 15% for this group by the end of the year. Nearly every operator among these 15 clients plans to increase activity. The pricing environment remains bullish. Our average daily revenue exceeded $23,000 in the first quarter, which was up nearly $1,300 or 6% sequentially. Our own leading-edge day rates are in the high 20s. With the potential activity increase indicated by our survey, we see pricing continuing to increase as industry utilization climbs over the balance of the year. Turning next to technology and NDS, the first quarter's EBITDA exceeded the exceptionally strong performance of the previous quarter. This continued growth reflects the strong value proposition of the portfolio. Fully 82% of our lower 48 rigs run five or more NDS services. This metric is up by 8 percentage points versus the previous quarter and represents record high penetration. Among specific services, we saw notable growth in the penetration of Smart Drill and Rig Cloud and our related analytics, demonstrating our focus on third-party rig opportunities and DS revenue from third-party contractors who move more than 10% sequentially. In our international markets, strong commodity prices and expected production increases are driving oilfield activity higher. For neighbors, we expect to add rigs in several markets. In particular, We have visibility to the set of new builds in Saudi Arabia with the first deployment expected next month. In addition, in Saudi Arabia, we will be deploying a flagship rig from our M1200 series, which will incorporate our most modern technologies. Tentering activity has picked up across other markets in the Middle East, notably in the Gulf countries. This growth will likely require higher capability rigs, which should be favorable for pricing and presents an opportunity for can rigs. We are also optimistic for additional rigs in Latin America. Clients there are planning increases in activity, and we have the rigs and relationships to support those plans. Let me wrap up on this macro discussion with updates on several other areas. Russia, COVID and interest rates, labor availability, and the global supply chain. In light of the conflict in Ukraine, we remain concerned for the welfare of citizens there and throughout the region. We currently operate three drilling rigs in Russia under contracts that require us to continue performing for a period. While maintaining compliance with all applicable sanctions, we are refraining from making additional investments and from introducing new technologies into the country. Recent events in the credit markets, coupled with the resurgence of COVID in China, still loom as potential risks to global energy demand. We remain vigilant and the impact these factors could have on the forward outlook. For labor, the tight market we experienced through the end of last year has eased somewhat. Timely staffing for additional rigs remains challenging. We addressed compensation levels to remain competitive and those steps have been successful. Notwithstanding the increasing costs, profitability has continued to improve. Finally, let me address inflation in the supply chain. We have seen higher costs across our supply chain, including materials and logistics. We have been able to offset a significant portion of the pressures on our supply chain with our internal manufacturing infrastructure. We and the industry continue to experience significantly stretched lead times. This challenge has forced us to increase our inventories to ensure we can deliver, without disruptions, great components as spare parts to our customers and internally to neighbors. We remain committed to maintaining our operational tempo. To sum up, we are seeing indications for continued drilling activity increases globally. Our latest survey of the larger lower 48 operators indicates a slightly higher 2022 exit rate rig count than expected just a quarter ago. This reflects that, notwithstanding some hype, At least for now, operator plans appear to remain largely based on the pre-war commodity outlook. We see opportunities emerging in our larger international markets. We are also seeing a significant increase in gas prices and many countries reassessing their hydrocarbon needs focused on natural gas. These factors could spur additional activity as well. Inflation and supply chain constraints remain present. At Neighbors, we have demonstrated our ability to grow our business while improving our financial results and our capital structure. I fully expect this performance to continue in the coming quarters. Now, let me turn the call over to William who will discuss our financial results and guidance.