Nabors Industries Ltd.

Good day and welcome to the Neighbors Industries fourth quarter 2023 earnings 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 a touch-tone phone. 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 Business Development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining NABOR's fourth quarter 2023 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 neighbors 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 me, are 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 chart 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 reasonably comparable GAAP measures. With that, I will turn the call over to Tony to begin.

Good morning. Thank you for joining us today as we present our results and outlook. Adjusted EBITDA in all our segments exceeded our expectations in the fourth quarter. Daily margins in the U.S. lower 48 and international drilling improved. Our two technology segments once again performed well. As we forecasted, the industry rate count in the lower 48 declined modestly in the fourth quarter. Our major international markets were essentially in line with our prior view. During the quarter, we deployed three rigs in these markets. One was a new bill unit in Saudi Arabia. Leading edge pricing in the lower 48 was stable. This helped drive the increase in our daily rig margin, along with outstanding expense control. For the fourth quarter, adjusted EBITDA totaled $230 million. Our global average rate count for the fourth quarter declined by two rigs. All of this decline occurred in the U.S. Our drilling solutions and rig technology segments together generated EBITDA of $43 million, a record. As a portion of total EBITDA, these segments accounted for nearly 19% of the quarter, also an all-time high. Next, let me make some comments on five key drivers of our results. I'll start with our performance in the U.S. Daily rig margins in our lower 48 rig fleet exceeded our expectations. They increased by almost $400 compared to the third quarter. Daily revenue in the fourth quarter increased slightly. Daily expenses declined by more than $300. I am pleased with this performance. These results demonstrate our team's ability to execute at an impressive level in this market environment. Our reported lower 48 daily rig margin reflects the financial results of just our drilling rigs. The drilling solutions portfolio, NDS, generates significant margins on top of that. I'll discuss this in more detail in a few moments. Now I'll discuss our international drilling business. Daily margin in this segment increased by nearly $900. This result exceeded our expectations. During the quarter, we stood up three rigs. We restarted two in Colombia. Another new build rig in Saudi Arabia also started up. With these additions, we have now deployed the first five of the ongoing international startups that I detailed last year. Margins increased in Saudi Arabia, where our SANA joint venture operates 48 rigs. This fourth quarter improvement resulted from the contribution from new bills deployed during the third and fourth quarters of last year, plus strong operating performance across the entire fleet. Let me add a few more comments concerning the new build program in Saudi Arabia. The fifth rig started in the fourth quarter. The second tranche of five rigs is currently under construction in the Kingdom. We currently expect the first of this group to spread during the current quarter. Two of the remaining four rigs should be deployed by the third quarter of 2024. The last two rigs of that tranche are expected to spread in early 2025. We expect the first unit of the previously awarded third tranche to start around mid-year 2025. The outlook for the balance of our international business, both in the Middle East and in Latin America, remains quite positive. Three of the four total rates we were awarded in Algeria should start this quarter. We see prospects to add additional rates in a number of international markets. These include Kuwait and Algeria in the Middle East and elsewhere in the Eastern Hemisphere, in Argentina and Latin America. Let me finish this discussion on the international business with a few comments on the recent news out of Saudi Arabia. The Senate currently operates 48 rigs there. Of these, 40 work in gas and the balance in oil. Contracts for the oil-directed rigs have recently been extended for a four-year period. With the Kingdom's focus on developing the natural gas resource, we are very comfortable with our position there. As to the new bill program, This was contemplated well before capacity expansion plans in Saudi Arabia. The new bill program is also a key element in the Kingdom's Vision 2030 plan. As such, we are confident in the program's future. Next, let me discuss our technology and innovation. Revenue grew sequentially in all three portions of MDS's business, on neighbors' lower 48 rigs, on third-party lower 48 rigs, and in international markets. The international business recorded the strongest growth, with revenue up 13% sequentially. Revenue grew in the lower 48, both on neighbors and third-party rigs. I would like to stress, NDS grew faster than the rig counts in both of these market segments. Our NDS EBITDA increased by 13%, which beat our expectations. This performance represents the highest sequential quarterly progress in all of 2023. From a product line perspective, casing running and performance software drove NDS's growth. Next, I will detail the value that NDS generates in the lower 48 market. The average daily margin in the lower 48 from our drilling and drilling solutions businesses combined was over $20,000 in the fourth quarter. Of that, NDS contributed more than $3,900 per day. This significant incremental margin contribution, a quarterly record, comes with limited capital spending. The returns on capital in NDS are the highest in our company. In the fourth quarter, penetration of NDS services increased on neighbor's rigs in the lower 48 to nearly 7 per rig. Once again, we saw growth in our SmartSlide directional steering system and our SmartNav directional guidance software. These installs were up 19%. The casing running job count also grew significantly, up 17%. As shown by the fourth quarter results, our multi-pronged growth strategy for the MDS portfolio is proving successful. Looking ahead, we see increasing interest globally across product lines, particularly for our advanced technology solutions. Next, let me make some comments on our capital structure. With the proceeds from our recent debt offering, we redeemed the notes that were due in 2024 and 2025, pushing our next maturity to 2026. As we look ahead, our first priority for free cash flow remains reducing net debt and improving our credit ratings. I'll finish this part of the discussion with remarks on sustainability and the energy transition. Our energy transition initiatives, as you know, focus on improving operational efficiency and reducing emissions intensity. These technology solutions once again contributed visible margins to our rig technology segment. The most impactful is our PowerTap module. This unit connects rigs to the grid. In the fourth quarter, we had 24 modules running. More than 20% of those were on third-party rigs. In addition, two units are in transit to Argentina. These two are the first power top units incorporating a frequency converter for the international market. We have eight more units under construction, including two destined for the international market, one more for Argentina, and the second for a large market in the Middle East. Our energy transition portfolio continues to gain traction. We are encouraged by the emerging opportunities internationally, complementing those in the U.S. on both neighbors and third-party rates. Geopolitical events in the Middle East interest rates, and lingering inflation concerns all make for the continued elevated volatility of commodity prices. In this environment, the operator response has been to restrain ambitions and exercise capital discipline. It is understandable why operators are looking at mergers in this environment. The near-term effect of recently announced mergers is yet to be fully determined. Notwithstanding this uncertainty, international prospects, particularly those driven by NOCs, remain very attractive. Our geographical position is unique in the global land drilling industry. It enables us to capture international growth. At the same time, we are positioned to capitalize on any emerging growth in the U.S. Next, I will discuss the pricing environment. Our fourth quarter results for the lower 48 reflect continued stabilization of leading edge market prices. I want to reemphasize the rates for our highest spec rigs exceed all of the pre-2023 market highs. Our focus in the lower 48 market remains profitability, while we stay committed to delivering superior value to our customers. As such, we continue to demonstrate the value of our technology portfolio with MDS. As I mentioned, in the international market, we have committed seven additional rigs in 2024. This growth should provide substantial uplift potential to our earnings. We believe there is room for additional rig deployments in the Eastern Hemisphere and Latin America. I will discuss these in a few minutes. We surveyed the largest lower 48 clients at the end of the fourth quarter. Our survey covers 17 operators, which account for approximately 46% of the working rigs at the end of the quarter. During the fourth quarter, consistent with the prior survey's results, this group added more than 10 rigs. The latest survey indicates this group's year-end 2024 rig count will be essentially in line with the year-end 2023. More than half of this group signals no change. The balance indicates minor additions or decreases. We believe that, with the uncertainty in commodity prices, customers remain cautious about their plans for 2024. Our plan for our lower 48 business this year fully contemplates the current environment. We continue to focus on maximizing free cash flow while we look for opportunities to put additional rigs to work. Our view of the international market is bullish. With the international additions already in hand, we would increase our international rig count by almost 10% by the end of 2024. We expect our segment revenue to grow by low double digits and our EBITDA margins to expand. Next, I will share some of our notable recent highlights and accomplishments. First, NDS was selected by a very large operator in the Middle East to install NDS's advanced rig control and automation system of five working rigs. The multi-round award process was competitive. This award marks the first rig automation project in this market. It is notable the neighbors were chosen to lead this effort. Second, we commenced operations in Arkansas to drill wells supporting lithium production. Exxon Mobil selected a neighbor's Pacex rig for this project. Third, another of our Pacex rigs was awarded for the year by one of the largest operators in the Permian for the second consecutive year. Competition for this award came from rigs operated by six other drilling contractors. Next, we are now providing support to a drilling contractor in Libya under a recently signed technical services agreement. Under the agreement, we are providing expertise but have no capital at risk. In addition to these highlights, I want to mention the notable agreement between Nabors and SLB. Together, we will collaborate to scale automated drilling solutions for operators and drilling contractors. This integration of both companies' platforms expands the breadth of drilling automation technologies available to customers. It also increases their flexibility to utilize existing rate control systems from either neighbors or SLB. And to wrap up, the SPAC sponsored by neighbors closed the previously announced business combination with Vast Renewables Limited. The combined company trades on the NASDAQ exchange under the ticker VSTE. Let me finish my remarks with the following. We are encouraged by our operational performance as we close out the year. Looking ahead in 2024, we see significant opportunities both in our global markets and for our advanced technology solutions. Now, let me turn the call over to William, who will discuss our financial results.