Nabors Industries Ltd.

Good day, and welcome to the Q2 2024 Neighbors Industries Limited earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for 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 telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. So now I turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Good morning, everyone. Thank you for joining NABIRS' second 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 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 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. 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 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 morning. Thank you for joining us today. Before I begin, I would like to acknowledge the challenging conditions impacting the communities in Hurricane Burroughs Path. A number of neighbors' employees have suffered damage to their homes. It is a strong testament to our staff that we have been able to maintain operational continuity. I want to thank all of our employees, especially those facing difficult personal situations, for their efforts during this time. Now, I'll start with our results and outlook. Total adjusted EBITDA in the second quarter exceeded our expectations. Daily margins in the U.S. lower 48 remained strong. Margins in our international segment were essentially in line with the first quarter. Demonstrating its broad reach, our drilling solution segment outperformed the industry rate count in the lower 48. I will begin my detailed remarks with comments on the international markets. The strength of the international expansion is evident when looking at the considerable number of incremental rig awards and deployments. Neighbors has been successful capitalizing on its environment. We've seen this in our own international rig count and our roster of pending deployments. In summary, as I'll detail in a few moments, we expect to deploy five more incremental rigs over the remainder of 2024. Lower 48 industry activity once again declined, The lower 48 industry land rig count declined by 37 rigs, or 6% during the second quarter. The average lower 48 industry rig count decreased by approximately 4%. Notwithstanding this lower 48 industry rig count performance, leading-edge pricing for high-performance rigs remains stable. Current pricing continues to support our daily rig margins at near-record levels. Naver's total adjusted EBITDA reached $218 million in the second quarter. Our global average rig count was essentially in line with the previous quarter. Our average international rig count increased by three rigs. Naver's drilling solutions and rig technologies segments generated a combined EBITDA of $40 million. This high free cash flow EBITDA increased from the previous quarter. These high-tech operations accounted for more than 18% of total EBITDA in the quarter. Next, I will make some comments on the five key drivers of our results. I'll start with our international drilling business. As I have said for some time, this international market is the strongest we have seen in 10 years. That strength is evident across many of our markets. We have been successful on recent tenders and negotiations. We are encouraged by a substantial number of pending opportunities. This environment enables us to remain highly selective. We are targeting high return opportunities that meet or exceed our free cash flow objectives. In the second quarter, we deployed the third rig of our earlier four-rig award in Algeria. We expect the fourth rig to start in the current quarter. We have begun work towards the deployment of three incremental rigs in Argentina. These rigs, which we announced earlier, span multiple operators. We expect all three to commence operations around the end of 2024, the first two in the fourth quarter and the final one in the first quarter of 2025. The three rigs for Argentina will utilize idle rigs from the lower 48. In addition, we expect substantial drilling solutions content on all of the rigs. In Saudi Arabia, the sixth Senate new bill began drilling during the second quarter. The seventh finished its acceptance procedure, and split its first well in early July. The eighth and ninth new bills are now targeted for deployment in the fourth quarter of this year. At this point, another five are expected in 2025, and one more should start at the beginning of 2026. A quarter ago, we announced we were shortlisted for three rigs in a large market in the Middle East. We can now say we have received formal awards for the three rigs in Kuwait for work starting in 2025. Each of the rigs is currently in country. Kuwait is an important and challenging market. It requires high spec equipment and skilled crews. These are neighbors' strengths. We are well positioned to capitalize on increasing demand there. With these developments, it is clear our prior optimism was well placed. I am confident we will report even more progress on this front. In the second quarter, several markets drove the sequential improvement in our international EBITDA. Our operation in Colombia returned to a more normal performance after experiencing some labor unrest in the first quarter. Algeria, Saudi Arabia, and Kuwait improved as well. Let me finish by giving a little more color on our activity in Saudi Arabia. Saudi Aramco recently announced $25 billion of overall contract awards for the development of natural gas. As neighbors, and more recently through Senate, we have historically supported Aramco's natural gas production. Today, approximately 80% of Santa's rigs are specced and actively drilling for gas. Next, I'll discuss our performance in the US. Daily rig margins in our lower 48 rig fleet slightly exceeded our expectations. The market for our rigs remains resilient. We continue to focus on the portion of the market that values automation and performance. At the same time, pricing discipline remains our priority. From the start of the second quarter to the end, Our own rig count outperformed the industry. Our reported lower 48 daily rig margin reflects the financial results of just the rigs. NDS generates significant margin on top of that. I'll discuss this in more detail in a few moments. Next, let me discuss our technology and innovation. Our drilling solutions business continues to gain traction on international rigs. NDS's international revenue and EBITDA were each up sequentially by double digits. This performance demonstrates our growing success to extend NDS beyond the U.S. market. The growth was driven primarily by our casing running and managed pressure drilling solutions. Overall, NDS EBITDA exceeded our expectations. Next, I'll discuss the lower 48 markets specifically. The average daily margin from our drilling and drilling solutions businesses combined was 19,100 in the second quarter. Of that, NDS contributed $3,500 per day. This second quarter, NDS performance marks a slight increase over the first quarter. Penetration of NDS on neighbor's rigs in the lower 48 remained high in the second quarter. Penetration was equal to the first quarter. However, overall results on neighbor's rigs were muted due to the decline in neighbor's rig count. In terms of specific services, NDS saw volume increases in managed pressure drilling and casing running. Our results for the second quarter validate our continued strategy to focus on the third-party market. This focus enables us to offset the effects of a sideways rate count in the U.S. Next, let me make some comments on our capital structure. During the second quarter, we amended our credit facility. We expanded the facility and extended its maturity by five years. More recently, we issued $550 million of seven-year notes. With those proceeds, we intend to retire the existing notes due in 2026. This financing extends our weighted average maturity by more than a year from 3.6 years last quarter to 4.7 today. In the second quarter, we generated free cash flow and reduced net debt. Our priority remains reducing debt. I'll finish this part of the discussion with remarks on sustainability. Our energy transition portfolio focuses on improving operational performance and reducing emissions. In the second quarter, these solutions made a notable contribution to the results in our rig technology segment. The most impactful ET initiative remains our PowerTap module. This unit connects rigs to the grid. It reduces diesel fuel consumption as well as related emissions. Where grid power is readily available, operators realize significant savings by running PowerTap. With the performance and savings we demonstrated in the U.S., we see growing opportunity internationally. We expect to have the first three international units deployed by the end of the year. Traction in our energy transition portfolio remains strong in the U.S. On top of that, operators in our markets beyond the U.S. are gaining interest. Next, I will discuss the rig pricing environment. Our second quarter results in the lower 48 showed resiliency in leading-edge market pricing. With a focus on operational excellence, continued pricing discipline remains our mantra. Our drilling solutions portfolio plays an important role in this approach. In the international market, we still have visibility to additional near-term rig awards. They are spread across geographies including Asia, MENA, and Latin America. These markets are seeking more than 30 rigs. Those are in countries where we work currently or that we consider attractive. With this volume, we can be selective when it comes to adding work. And with the increasing tender activity, as you would expect, pricing is showing signs of firming. We surveyed the largest lower 48 clients at the end of the second quarter. Our survey covers 16 operators, which accounted for approximately 47% of the lower 48 industries working rigs 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 second quarter. Essentially, all of the projected decline relates to announced merger activity. The operators not involved in mergers project activity to remain at current levels. Aside from the mergers, we believe that clients remain cautious about their plans for 2024, particularly in gas-focused spaces. At the same time, we expected the market to continue to exhibit a relatively high level of churn. For the international market, our view remains bullish. We are on track to end an additional five rigs in the second half of 2024. This yields a 10-rig increase in rig count compared to the end of 2023. What is particularly satisfying is that we already have good visibility for 2025, namely nine scheduled deployments, including five rigs in Saudi Arabia, one in Argentina, and three in Kuwait. Next, I will share a couple of highlights from the quarter in addition to those we announced in the press release. The common thread in all of our highlights is a strong element of our advanced technology solutions. A major operator in the Gulf of Mexico extended NDS casing running services for three years on six deep water units. This award solidifies neighbors' position in this market. We installed our smart ROS rig operating system on five third-party rigs for three different drilling contractors. These installations demonstrate the value that our advanced rig technology delivers across the spectrum of contractors and operators. We believe these smart ROS installs provide the basis to secure additional NDS content with these contractors. Let me finish my remarks with the following. Our performance in the second quarter exceeded our expectations. We are deploying the previously awarded rigs in our international markets. At the same time, our advanced technology continues to deliver industry-leading performance across our markets. Now, let me turn the call over to William, who will discuss our financial results.