Nabors Industries Ltd.

Good day and welcome to the Neighbors Industry First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start 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 introduce William Conroy, Vice President, Corporate Development and Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you for joining Naver's first quarter 2024 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 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 today as we present our results and outlook. Total adjusted EBITDA exceeded our expectations in the first quarter. Daily margins in the U.S. lower 48 remained strong, and our two technology segments performed well. I would like to start my detailed remarks with comments on our international markets. The strength of the international expansion continues to surprise us. It's been over a decade since I've seen an environment as robust as this one. We have a unique opportunity to strengthen our international footprint. On our previous conference call, I mentioned we had scheduled the deployment of seven international rigs in 2024, three in Saudi Arabia and four in Algeria. In the first quarter, we started two of the rigs in Algeria. And so far in the second quarter, we started the third Algeria unit. That's the update on our previously expected deployments. In addition, we have also been successful with recent negotiations for three rigs in Argentina. We expect two of those to go to work in 2024. That leaves a total of six more rigs slated to start up over the remainder of 2024. The third Argentina rig should commence operations in early 2025. I would like to point out that all three of these awards in Argentina have long-term contracts with favorable pricing and high rates of return. Additionally, we have been shortlisted for three rigs to go to work in the Middle East. These rigs would also have multi-year term contracts with favorable economics. In the lower 48, industry activity has been disappointing. We had hoped for a moderate increase during the first quarter. From beginning to end, The lower 48 industry land rig count declined by four rigs. The average lower 48 industry count was essentially flat. Nonetheless, leading edge pricing for the high-performance, technology-focused rigs in the lower 48 was stable. This helped support our own daily rig margin. Once again, our expense control in the lower 48 was outstanding. Daily operating expenses declined. In the first quarter, total adjusted EBITDA for neighbors was $221 million. Our global average rig count grew by four rigs. This increase was spread across our operations. Our drilling solutions and rig technology segments together generated EBITDA of $39 million. Combined, they accounted for more than 17% of total EBITDA in the quarter. 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. The market for our rigs remained strong. At slightly above $16,000, daily margin in the first quarter was higher than we expected. Revenue was better than our projections. Expenses declined. I am pleased with this performance. These results demonstrate our team's ability to execute at an impressive level in this market environment. We are working diligently to maintain, if not improve, this execution. The industry rig count was essentially flat in the first quarter. Our own rig count increased, but it was below our target. As we have said before, pricing discipline remains our priority. Our reported lower 48 daily rig margin reflects the financial results of just our drilling rigs. The Drilling Solutions Portfolio, NDS, generates significant margin on top of that. I'll discuss this in more detail in a few moments. Now I'll review our international drilling business. As I said earlier, this international market is the strongest we have seen in a decade. It is providing us with multiple high return opportunities to reactivate rigs. We see tangible evidence in tendering and negotiating activity, rig awards, and deployments. During the first quarter, we deployed two rigs of our four-rig award in Algeria. A third rig has since started. We have also been awarded three incremental rigs in Argentina. These awards, across multiple operators, should commence operations around the end of the year, two in the fourth quarter and one in the first quarter of 2025. All three of the rigs are currently idle in the US. We plan to transfer them to Argentina. This redeployment is an excellent use of our existing assets. In Saudi Arabia, the sixth new build is currently finishing its acceptance procedure. It should begin drilling imminently. Two more will be deployed this year. Another five are scheduled for 2025. And the final two of the existing awards should start in 2026. Finally, we were shortlisted for three rigs in a large market in the Middle East. The rigs that we bid are already in country. This opportunity would cement our position in this important geography. With these developments, it is clear our prior optimism was well placed. I am confident we will report even more progress on this front. For the first quarter, daily margin in our international segment was impacted by labor unrest in Colombia involving four rigs. Looking forward, we expect deployments and operational improvements to generate daily margin of approximately $17,000 by the end of the year. Let me finish my remarks on our international business with a few comments on our activity in Saudi Arabia. Several offshore drilling contractors in the kingdom have announced the temporary suspension of operations on a number of rigs. As for Sanad's outlook, we are bullish. Aramco's development of the natural gas resource is expanding. Its focus on the unconventional land reserves is increasing. Sanad's fleet overwhelmingly targets gas. Moreover, the recent new build awards are for rigs capable of drilling for gas. The international expansion for neighbors still has legs. Beyond our announcements today, we see prospects for additional rigs in international markets. These include units in Kuwait, more opportunities in Algeria, rigs in Argentina, Mexico, and elsewhere in the eastern hemisphere. Next, let me discuss our technology and innovation. NDS's revenue grew sequentially on neighbors' own lower 48 rigs and on international rigs. This growth was offset by a decline in the lower 48 third-party market. Overall, NDS EBITDA exceeded our expectations. From a product line perspective, managed pressure drilling and rig cloud drove the segment's first quarter performance. 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 $19,440 in the first quarter. Of that, NDS contributed more than $3,400 per day. This incremental margin is significant. We generate this margin with limited capital spending, so the returns are impressive. In the first quarter, penetration of NDS's services on neighbor's rigs in the lower 48 remained high. On third-party rigs, we saw growth in Smart Slide directional steering, our Revit stick slip mitigation, and our Smart Slide Smart Nav directional guidance software. NDS's first quarter results demonstrate the value of its broad portfolio and its focus on both neighbors-owned and third-party rigs. Looking ahead, we are making significant inroads with smaller contractors interested in adding neighbor solutions to their portfolios. At the same time, international clients are increasingly recognizing the performance improvements in the US. They too are accelerating their adoption of neighbors advanced technology. Next, let me make some comments on our capital structure. Early in the first quarter, we redeemed the notes that were due in 2024 and 2025. We accomplished this with the proceeds from the 650 million of notes issued at the end of 2023. Our next maturity is in 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 made a significant contribution to our RIG Technologies segment results. The most impactful remains our PowerTap module. This unit connects rigs to the grid, greatly reducing diesel fuel consumption as well as related emissions. With the appropriate availability of grid power, operators can realize cost savings by employing PowerTap. In a significant development, the first PowerTap unit deployed outside the US is running in Argentina. This unit incorporates a frequency converter for international applications. We have additional units under construction, including two destined for international clients. Interest in our energy transition portfolio remains strong in the US. On top of that, we see growing opportunities overseas. Next, I will discuss the rig pricing environment. First quarter results for our lower 48 operation reflect continued stability in leading edge market prices. Our approach to the lower 48 market is to exercise pricing discipline and support activity levels while delivering superior value to our customers. NDS is an integral element in this approach. In the international market, we have growing visibility to additional near-term rig deployments. Pricing on these pending deployments is attractive, reflecting the strong conditions we see across the international domain. We surveyed the largest lower 48 clients at the end of the first quarter. Our survey covers 17 operators, which accounts for approximately 45% of the lower 48 working rate count at the end of the quarter. The latest survey indicates this group's year-end 2024 rate count will be modestly lower than the total at the end of the first quarter. Essentially, all the projected decline relates to announced merger activity. From our past experience, combined activity usually drops immediately after the merger is completed. Over time, though, we have generally seen a return to prior activity levels for the combined companies. We anticipate the same behavior by our customers following this latest burst of mergers. Aside from the mergers, we believe that clients remain cautious about their plans for 2024, particularly in gas-focused basins. Our view of the international market is bullish. With the international editions now in hand, we would increase our international rig count for all of 2024 by nine rigs. That's up by two versus the seven we had previously announced. So seven is now nine for 2024. And for 2025, we have six expected deployments, including five in Saudi Arabia and one in Argentina. The prospective Middle East rigs would add three on top of that 2025 total. Next, I will share other notable recent highlights and accomplishments in addition to the RIG Awards in Argentina. CanRig received an order from an existing client in the Middle East for six land drilling packages. This order demonstrates CanRig's outstanding reputation in the international land market. It also evidences the wide breadth of the international expansion. And in the lower 48, a drilling contractor has begun standardizing its entire fleet to neighbors' RIG Cloud platform. This development is a significant endorsement of Red Cloud, and it clearly demonstrates the value of NABRA's third-party strategy. Let me finish my remarks with the following. Our performance in the first quarter exceeded our expectations. We are making meaningful progress, capturing the significant opportunities in our international markets and for advanced technology. Now, let me turn the call over to William, who will discuss our financial results.