Nabors Industries Ltd.

Good day and welcome to the Neighbors Fourth 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 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. And to withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Investor Relations. Please go ahead. Good morning,

everyone. Thank you for joining Neighbors Fourth 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. The presentation accompanying today's discussion includes important disclosures that apply to this call. Please also note this call does not constitute an offer to sell or buy or the solicitation of any offer to buy or sell any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offering of securities shall be made except by means of prospectus meeting the requirements of Section 10 of the Securities Act of 1933. In connection with the proposed transaction, Neighbors and Parker intend to file a registration statement on Form S-4 with the SEC, which will include a joint proxy statement and prospectus. Neighbors and Parker will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decisions, investors and security holders of Neighbors are urged to carefully read the entire registration statement and joint proxy statement and prospectus when they become available, as well as any amendments or supplements to these documents because they will contain important information about the proposed transaction. With that, I will turn the call over to Tony to begin.

Good morning. Thank you for joining us today as we review our fourth quarter results. We will also comment on our prospects for 2025. Let me start with our performance. Free cash flow this quarter fell short. Like others in the sector, we had a very substantial receivable in Mexico, outstanding at year end. And the pace of new build, delivery milestone payments in Saudi accelerated more than planned. William will provide further color on these industry marks. Adjusted EBITDA in the fourth quarter totaled $221 million. The lower 48 market has remained at the levels of the prior quarters. This is disappointing since the market has not improved as we anticipated. That performance directly impacts two of our businesses, our own drilling rigs in the lower 48 and NDS, both on Neighbors rigs and on third party rigs. At the same time, margins in these two businesses remain solid. Pricing in the lower 48 drilling market continues to reflect the significant value that our rigs and NDS's portfolio generate. I will start my detailed remarks with the international markets. For Neighbors, international markets have remained stable over the past few years. More recently, we have entered a period of robust growth. Our earlier rig awards are now progressing into deployments. In 2024, we activated a total of 10 international rigs. For 2025, we previously announced 9 startups. In addition, we expect to reactivate a recently idled rig in Columbia. So, another 10 deployments this year. On top of this total, we have a strong pipeline of additional tenders. These opportunities are in markets which meet our financial thresholds. They are also in key geographies for oil and gas production. We are optimistic for incremental rig awards this year which we deploy in 2026. Turning to the US market, the weekly industry rig count masks an elevated level of rig turn. Even so, leading edge pricing for high performance rigs remained relatively stable. Daily rig margins in the fourth quarter remained at attractive levels in line with our guidance. Our global average rig count declined slightly compared to the previous quarter. This decrease was almost entirely due to a reduction in our lower 48 rig count. Our technology focused businesses, NDS and RigTech, generated a combined EBITDA of more than $43 million. Together, their total EBITDA grew from the previous quarter. A key element of our strategy is to grow the contribution from these capex flight segments. In the fourth quarter, their contribution increased to .5% of the company's consolidated EBITDA. Now, I will make some comments on the key drivers of our results. I will start with our international drilling business. Across multiple international markets, we see a large number of opportunities and tenders for additional rigs. This favorable backdrop offers the prospect to redeploy several currently idle rigs. At the same time, the broad market strength enables us to focus on prospects that recognize the value the neighbors can deliver. Now, I'll summarize the recent developments in our international drilling business. In the fourth quarter, we deployed two rigs in Argentina. These are part of the three rigs awarded last year. We are utilizing idle rigs in the US to meet this demand for unconventional development in Argentina. We are also providing a significant amount of NDS content on these rigs. In Kuwait, we expect the first of the three previously announced rigs to deploy later in the first quarter. The second and third rigs are scheduled to commence operations in the second quarter. We see a considerable number of opportunities for additional rigs. They are spread across geographies including Asia, MENA, and Latin America. Operators in these markets are collectively seeking more than 50 rigs. This number of additional opportunities supports our own rig count progression and pricing improvements in the international markets. We will maintain a disciplined approach to these opportunities to ensure we meet our 2025 free cash flow target. In Saudi Arabia, standard deployed its ninth new bill during the fourth quarter. Another five are scheduled for 2025 with two of those in the first quarter. And one more should start at the beginning of 2026. That will bring the total working to 15. On top of these 15 deployments, Sanit expects to receive awards this year for another five new bills. Upon award, construction on all five of these rigs will commence. I would like to make a few more comments on Sanit. Specifically, I will address the new bill rig program. This program, as you know, calls for 50 rigs built in the kingdom over a 10-year period. Sanit only places orders for rigs from the manufacturer when Sanit receives an award from the operator, Saudi Aramco. The rigs work under six-year initial term contracts. That contract is structured to ensure a return on invested capital in five years. When the initial contract finishes, it is normally followed by a four-year renewal. That's at least 10 years of firm utilization. Sanit is now entering the fourth year of the program. As the operator, Aramco continues to push ahead toward the total of 50. As these rigs are deployed, each rig contributes significant EBITDA to Sanit. The early units generate more than $10 million per year. We expect the more recent ones to produce approximately $13 million annually. This increase primarily reflects some cost inflation as well as rig mix. Even with that, Sanit still recoups its investment within five years. Let me break down the status of the program. Sanit began 2025 with nine new bills working. Six more are currently under construction. Five of these six should start in 2025 with two scheduled for the current quarter. Altogether, we forecast the working new bill fleet will generate adjusted EBITDA of more than $140 million in 2025. With another five expected to start in 2026, Sanit is looking at earning approximately $200 million in EBITDA in 2026, just from the new bills. The program reflects Saudi Arabia's strategic decision to build a sizable drilling rig fleet in the Kingdom. We are proud to be part of this effort. Our partner and client is the largest player in the global energy industry. It is known for prudent, long-term investments. In Sanit's case, together we are building one of the preeminent drilling rig companies in the Middle East. We are not aware of another opportunity in the industry approaching the scale and certainty of the Sanit new bills. By our estimates, the returns on this fleet are greater and lower risk than most other investments in the drilling rig business. While recognizing the capital requirement is significant, we see a path to free cash flow in Sanit in the 2027-28 timeframe. That should lead to distributions to the partners. Longer term, we aim to capture the significant valuation afforded to drilling contractors in the Middle East. We are confident that would generate significant value for our shareholders. And it is important to note that this growth is built on top of a very healthy legacy business, which continues to generate a strong positive free cash flow. Now I'll discuss our performance in the U.S. Our daily rig margins in the lower 48 rig fleet remained at high levels in the fourth quarter. Strong demand for high-performance rigs continues to support attractive pricing. While there is an active turn in the marketplace and resulting friction on daily margins, pricing remains generally disciplined. Select operators are looking to longer lateral weld designs in order to extract more value from their assets. Given our rig capabilities, several clients already use neighbors to drill their longest welds. The trend toward increasing lateral lengths continues. Our lower 48 operation is well positioned to capitalize on this trend now, and even more so once we close the Parker acquisition. In this environment, even at current fleet utilization, our operation generates significant free cash flow. All of our comments on our lower 48 drilling results reflect only the rigs themselves. In addition to the margin on our rigs, NDS generates significant margin on its own. I'll elaborate on this in a moment. Next, let me discuss our technology and innovation. In the fourth quarter, NDS once again made an important contribution to our overall results. NDS's gross margin exceeded 54% in the quarter. This performance is a record. It demonstrates the benefits of the NDS portfolio to clients. In the lower 48 market, the average daily margin from our drilling and drilling solutions businesses combined was approximately $18,700 in line with the third quarter. Of that, NDS contributed $3,723 per day. This measure, NDS's lower 48 daily margin, increased by more than $100 per day. These NDS results validate our strategy. Next, let me make some comments on our capital structure. While our top priority remains the reduction of our debt, our fourth quarter was challenged by three main factors. First, in Mexico, significant delays in payments from our customer are approximately $50 million. We are working diligently to rectify the situation. We expect the customer to resume payments during the first half of 2025. Second, a lack of growth in the lower 48 market. And third, in Saudi Arabia, the pace of payments for new bills accelerated. This was due to faster milestone completion by the rig manufacturer. The ongoing investment in Saudi Arabia is significant. The U.S. market remains sluggish. We are responding to this environment with actions to improve efficiency and align our core structure. At the end of the fourth quarter, we surveyed the largest lower 48 industry clients. After a number of E&P mergers, our survey now covers 15 operators. These clients account for approximately 46% of the lower 48 industry's working rigs at the end of the quarter. The latest survey indicates this group intends to reduce its rig count 4% by the end of 2025. This expected decline is concentrated among three operators. Reasons for the decline include improved performance and concerns about the market environment. Outside of these three operators, the indication is to add a modest number of rigs. Consistent with my earlier comments, our view for the international market remains bullish. Our deployment plan includes four rigs in the first quarter of 2025. With these additions, we expect to end the quarter with 89 international rigs working. For the full year 2025, including the four I just mentioned, we have 10 total rigs scheduled to deploy. Five new bill rigs in Saudi Arabia, three activations in Kuwait, one activation in Argentina, and one activation in Colombia. Early in the fourth quarter, we announced an agreement to acquire Parker Wellbore. Shareholders of both companies have approved the merger. While the entry trust review period in the US has passed, approvals in a few countries are pending. The teams have completed a substantial amount of integration planning. We are confident we will realize an annualized cost energies of at least $35 million in 2025. We are looking forward to adding Parker to the neighbors portfolio and to realizing significant strategic and financial benefits. Now, let me turn the call over to William, who will discuss our financial results.

Thank you, Tony. Good morning, everyone, and thank you for joining us today. Before commenting on the financial resource for the quarter, I would like to make some general remarks on our global markets. In the Middle East and North Africa, we deployed one more new bill rig in Saudi Arabia, which was offset by the three-rig suspension we previously announced. We are preparing for six more new bills in that market and for the start-up of three rigs in Kuwait. We believe that in Saudi Arabia, natural gas activity on land will continue to expand, both in traditional basins and for the more recent and conventional projects. We also expect to benefit from more natural gas opportunities in the MENA market during 2025. This regional expansion should benefit all our segments over the coming year. In Latin America, we recently deployed two rigs in Argentina and expect to add one more during 2025. This market should benefit from the ongoing expansion in the Baca Moherza basin, as new pipelines and export facilities are underway. In addition, the current government continues to take actions favorable to the business environment. We believe Argentina will provide a natural destination for more of our idle lower 48 rigs over the next couple of years, and our progress in drilling solutions should also continue. In Colombia, one of our rigs had downtime between contracts during the fourth quarter, but is resuming operations in the first quarter. That market is expected to remain at current levels, with the government in effect limiting activity by our largest customer. In Mexico, Pemex has announced reduced activity for 2025, reflecting budgetary challenges. It's not clear at this point when the government will loosen restraints on our customer, but we expect this decreased investment to have some effect on our 2025 revenue. In the lower 48 market, the potential increases we previously expected failed to materialize, with operators continuing to demonstrate significant capital discipline in their oil-related drilling, while delivering only muted improvements in gas basins. As longer-term contracts continue to expire, we experience an elevated level of churn in the fourth quarter. We expect this trend to continue in the first quarter of 2025. At this point, we see limited indication of a near-term recovery in the lower 48 drilling rig market, despite these headwinds, our revenue per day has held up relatively well, and our daily gross margin has remained around $15,000. The weakness in the general US drilling rig markets, as well as our own reduced rig count in the lower 48, have also had an impact on our drilling solutions revenue. Nonetheless, we anticipate that increased penetration on our own fleet and on third-party rigs will help us compensate for the stagnant market activity. Revenue from operations for the fourth quarter was $730 million at $2 million sequential reduction. Revenue from the three deployments in Saudi Arabia and Argentina was more than offset by the three-rig Aramco suspension and by declining average rig count in the lower 48. The US drilling segment declined by $13 million sequentially, or 5.2%, driven by reduced rig count in the lower 48 market. Our rig count in the lower 48 averaged 66 at two rigs decreased. However, our average day rates for the fourth quarter slipped by only 1% as we rolled our contracts onto the current market rates. Daily revenue came in at $33,400, a reduction of $1,400 sequentially. This decline was driven essentially by a drop in low margin reimbursable revenue while average rig rates barely decreased. Leading edge pricing remains stable. On our latest contracts, revenue per day remains in the low to mid $30,000 range. International drilling revenue was $371 million, an increase of $2.8 million. In Saudi Arabia, we successfully deployed the ninth Nubil rig and we started two additional rigs in Argentina. These increases were somewhat offset by the suspensions in Saudi Arabia. At the same time, the cadence of SANAD's Nubil deployments remains unaffected. Drilling solutions revenue of $76 million decreased sequentially by $3.6 million or 4.5%. This decline was largely driven by the lower 48 market, which affected our welder placement activity. Revenue in our rig technology segment reached $56.2 million, up $10.4 million or 22.6%, driven by a robust increase in deliveries of capital equipment and parts sales in the Middle East. Total adjusted EBITDA for the quarter was $221 million compared to $222 million in the third quarter. New rig deployments and a strong increase in rig technologies were offset by weakness in the lower 48 market and SANAD's three rig suspensions. US drilling EBITDA of $105.8 million was down by $2.9 million or .7% sequentially. This situation reflected a two rig reduction and a slight decrease in daily margins. Average daily margins came in just under $15,000, down around $100 in the third quarter. For the first quarter, we expect lower 48 daily margins of approximately $14,800 as our average feed rates converge with leading edge daily revenue. We anticipate our average recount in this market to be approximately 61. On a combined basis, Alaska and the US offshore businesses performed in line with our projections. In the fourth quarter, the total EBITDA of these two operations was $21.4 million. First quarter EBITDA from these businesses should be similar to the fourth quarter. International EBITDA decreased by $4 million to $112 million in the fourth quarter on a stable average rate count of 85. EBITDA from the new deployments was offset by the suspensions in Saudi Arabia. Daily gross margin was approximately $16,700, a $400 decrease. The deterioration was essentially driven by one-time items. Our first quarter forecast assumes the startup of the 10th and 11th Sanat Nubil rigs and the restart of our rig in Colombia. We anticipate average daily gross margin to increase to $17,000 in the first quarter. Average rate count in the first quarter should range between 85 and 86 rigs. Drilling solutions delivered EBITDA of $33.8 million in the fourth quarter, down 1.5%. Among product lines, international improvements in managed pressure drilling were more than offset by some in the duration and casing running. Gross margin for this segment increased to more than 54%, up from 53% in the third quarter on a better mix. NDES gross margin per day for the World 48 was $3,720, a .8% increase compared to the third quarter. This improvement took our combined World 48 drilling rig and solutions daily gross margin to $18,660 in line with the prior quarter. For the first quarter, we expect NDES EBITDA of approximately $33 million, better penetration on neighbors rigs as well as revenue on third-party rigs should offset reduced lower 48 drilling activity. Rig technologies delivered EBITDA of $9.2 million in the fourth quarter, up sequentially from $6.1 million. First quarter EBITDA for rig tech should be approximately $5 million. Our EBITDA matched prior quarter levels as we managed to compensate for the decline in the lower 48, but our free cash flow disappointed in the fourth quarter. During the quarter, we consume approximately $50 million as compared to our expectations of generating close to $20 million. The largest component of this show fold was the lack of collections in Mexico as our clients delayed $50 million of expected payments. In addition, capex for Saudi Nubles was $40 million above forecast as Sanad supplier accelerated completion of construction milestones. Capital expenditures were $241 million in the fourth quarter, $123 million above the level of the preceding quarter. CapEx for the Sanad Nubles was $143 million. CapEx for the full year 2024 was $610 million, about $20 million higher than we expected at the beginning of the year. Capital spending for the Saudi Nubles totaled $271 million, $71 million more than what was targeted when we started 2024. Outside the Saudi deployment, CapEx was $338 million, $51 million below our original target. For the first quarter of 2025, CapEx should land between $195 and $205 million, with $80 to $85 million for the Sanad Nubles. The closing date on the Parker-Wellboard transaction is not yet known as we await regulatory approvals, but we anticipate closing sometime in the first quarter. With the release of first quarter financials, we intend to provide guidance on our consolidated results for the company including the impact of Parker-Wellboard. We are preparing for a flood year ahead in the US markets, for growth in international markets and in drilling solutions, and for continued investment in Saudi Arabia. For the full year 2025, we anticipate low 48 average rate count in the range of 62 to 64 and daily gross margin of approximately $14,600. Total combined dividend from Alaska and offshore is expected to decline 5% year over year. International drilling, major drilling solutions, and rig technologies should more than offset the expected US decline. For international drilling, we are targeting average daily margin of $17,600, an increase of $1,100 or 6.8%, as we continue to deploy rigs at better pricing levels. Average rate counts should land between 88 and 89 rigs. Anticipated deployments in Saudi Arabia and Argentina will be partially offset by the Sanat suspensions. Reductions in activity at Pemex could also impact our 2025 rate count. NDS is expected to improve by approximately 6% to close the year at $140 million. And rig technology, SIDIDA, should improve slightly to come in at $30 million. Now, turning to CAPEX, we are currently forecasting our 2025 capital expenses in the range of $710 to $720 million. Sanat Nugil's CAPEX should reach approximately $360 million, an increase of roughly $90 million from the spend in full year 2024 as we deploy five rigs compared to four last year. As we invest in our Saudi growth commitment, we continue to identify opportunities for overhead reductions and other initiatives to improve free cash flow, including these measures that total approximately $80 million. We expect around break-even free cash flow for 2025. I would point out that our consolidated free cash flow projection includes negative free cash flow for Sanat of approximately $150 million. This implies that outside Sanat, our free cash flow will be around $150 million. We plan to use this cash flow outside Sanat to reduce our gross debt. The 2025 free cash flow forecast excludes the Parker-Wilbur results. We expect the acquired business to generate considerable cash flow in 2025, even before the material synergies we have mentioned. Our 2025 projections also assume no favorable impact on lower 48 drilling from changes in policies by the new administration. Similarly, projections don't include any impact from incremental U.S. cash drilling potentially driven by new infrastructure or from data center-related demand. Needless to say, improvement in U.S. drilling would have a very significant impact on our free cash flow. We would benefit from significantly higher rate counts with very limited incremental capex, as well as from improved pricing and margin compared to the levels in our current projections. With that, I will turn the call to Tony for his concluding remarks.

Thank you, William. I will now conclude this morning with a few remarks on our industry and neighbors in particular. As you know, our industry is characterized by short-term, often sharp fluctuations in demand and economics. These occur against the backdrop of sustained, longer-term transformation and innovation. At Neighbors, our objective is to manage near-term volatility while we develop and deploy enabling technology. In this environment, we are positioning Neighbors for the future. With our joint venture in Saudi Arabia, we have a unique, large-scale opportunity in one of the industry's most important markets. Sanit is currently in its investment phase and already generating long-term value. We are working toward completing the merger with Parker. Parker's drilling rig business dovetails neatly with our existing footprint, offering meaningful synergy potential. This addition widens our casing-running business and expands our drilling solutions portfolio. It also adds a high-performance, tubular rental business as the growth of well-bore laterals increases demand for drill pipe. Parker should be immediately accretive to our free cash flow to generate significant synergies. Thinking about Neighbors, we have a very good lower 48 business. On its own, it generates significant free cash flow. At the same time, we are investing in growth in Saudi Arabia, which has its own dynamics. We are deploying new assets there on top of the very large existing operation that generates considerable cash flow. Neighbors can sell their free cash flow today masks the strength of our company away from Sanit. In 2025, without the EBITDA from new bills scheduled to deploy or the capex for rigs under construction, we estimate our free cash flow would be more than $320 million higher. That's the real power of the existing business. This also shows that our Saudi Arabia operation without additional new investment is already generating substantial cash flow in excess of $200 million. And keep in mind, this number is expanding at about $50 million per year. Given the clear profitability and the inherent cash generation potential of the Saudi operation, we are reinvesting all of Saudi's cash flow to continue to build for the future. This investment supports the long-term contracted growth plan that our partner, the largest operator in the world, is committed to deliver. So, wrapped inside our company, we have a singular growth story which already has great value. Sanit also has a clear path for continued growth. Notwithstanding short-term pressure on our consolidated free cash flow, we believe this investment for growth creates significant long-term value for our shareholders. To summarize, we are positioning neighbors not only to capitalize on the future but also to drive it. I look forward to reporting our progress. Thank you for your time and attention. With that, we will take your question.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. At this time, we will pause momentarily

to assemble our roster. And your first question today will come from Kurt Hallid with

Benchmark. Please go ahead.

Hey, good morning everybody. I appreciate all that intel and info, especially on the Saudi fund, very helpful. Hey, I just wanted to get a little bit more clarity around the commentary that you made in the press release and then again here in the conference call around free cash flow. And I think, you know, William's comment was you expect to be free cash flow positive and substantially reduce gross debt. So can you help us just kind of ring fence what you mean by substantially reducing gross debt?

So Kurt, you know, we have a few pieces within the company. One of them is Sanad, which of course is a little bit ring fence and in fact most of the cash flow from that piece is going to be used for the growth program over the coming years. So in 2025, because we're spending about $360 million in capex in Sanad, we're going to be in the red about $150 million in terms of free cash flow generation within Sanad, right? So, you know, that means the fleet is generating about over $200 million, the current fleet, and then we're spending $360 million on the growth going forward. So what that implies though is that outside the Sanad legal entity, all our other legal entities are going to be generating roughly $150 million of free cash because we're forecasting a little bit of a break even for the full year on a consolidated basis. So that money is usable for neighbors for whatever you want to do with it and we're going to allocate that to reducing debt. So I would expect to see a growth debt next year in 2025 be reduced by approximately the $150 million that we're going to generate outside Sanad.

That's great, thanks. That's great, Tyler. And then maybe just kind of, again, follow up on the international outlook, right, is it your read with respect to Saudi that their overall reductions of rate count is complete and do you expect any more additional kind of rate releases outside of Sanad as the year goes on?

With respect to the market as a whole, I think it could well be that there may be some other releases coming, but as you can see, we were treated very well by Rambo the past year and we didn't bear the big brunt of what others had hit. I think it's important, Kurt, to understand the big picture here. The big picture is the same person taking down rigs is the same person building rigs with the doing best with neighbors. And that's the biggest oil company in the world who has the best long-term view of the market and the short-term view of the market out there. And so they've decided with us that they want to continue the new bill program notwithstanding the rig coming down in the short term. Now that's because they believe long-term, these rigs are going to be the preferred rigs or they believe long-term, there's going to be up-listing market, I can't answer that, but there's absolute commitment by them to the new bill program. So you've got the guy who decides who's rigs come down, how many rigs there are, telling us they want to continue investing. And we think they're a great partner. I think we're privileged to have them as a partner. And so we're in with them, supporting them to do that. If I had my drudgers, I'd like to take a break for a year in the new bill and take that $360 million and take my share and pay down some debt, I would. But the opportunity here is unique in the industry. Other people have announced deals where they have eight-year payouts on an EBITDA basis which look like maybe 10 to 12-year payouts on a free cash flow basis. This deal, where these new bills are five-year payouts with 10-year contracts, it's unparalleled and I don't think people really understand what's going on. If you look at the Senate cash flow and we stopped the new bills just where we were at today and you do any valuation metrics with using the stuff in the region which you know what the multiples are either on a cash flow basis or an EBITDA enterprise basis, you'll get numbers anywhere from $2.5 to $3.5 billion for Senate today. So I think people don't appreciate the strategic importance of what's happening here and Ramco's guiding hand because they're basically guiding us what they want to do. I hope that gives you some understanding why we think we're making the right decision. We understand the short-term pressure and like I said, but given the unique opportunity we think it's compelling. I think the good news also is given what's happening not just there but elsewhere, you've seen from our announcements with the other deployments the 10 rigs for 2025 which include rigs outside Saudi. We've had good success in Latin America with the rigs that we refer to and you saw from our press release maybe it wasn't clear in the remarks that we've announced that we have three additional rigs going on term contracts in Argentina. One of them is the current rig that's working in 2025. It's going to be relocated with two additional ones in 2026 and the pipeline for additional opportunities is pretty robust both in MENA and in Latin America and a few in Asia as well. So I think all this stuff actually is supporting pricing and supporting a growth story. The other thing is if you look at NDS, NDS has actually increased its share of EBITDA from 35% to 45% coming from international again reflecting the fact that we're seeing this growth happening and some of these new projects people are realizing the value of putting things like MPD with the rig which neighbors has part of the portfolio. So I think all in all we feel very comfortable about the international story.

Kurt, I like Tony's comment on the Saudi Arabia specifically. Yes, we're very bullish on international of course but in Saudi Arabia the focus of the government and Aramco is to improve and increase production of natural gas. Our fleet in Saudi Arabia is predominantly drilling for natural gas and that's part of the reason we've been treated favorably by Meyer Klein in terms of how many rigs have fallen down. So we don't expect a lot of movement on any further reductions at rig count. Of course this is our opinion and our assessment but again the fact that most of our rigs and almost all of our rigs are now drilling for natural gas is really very helpful.

That's great and if you don't mind just one more additional follow up to Tony International I appreciate you also kind of laying out how you think the year is going to evolve. So I'm not a mathematical whiz by any stretch but you're starting the year with international cash margin at 17 and averaging over 17 and a half so obviously a very favorable progression going on there. Is that kind of a steady progression or is it going to be kind of a fair step function in any one particular quarter to kind of get you that average on rate for the year?

I think since we're adding 10 rigs and they're coming in at various times in the year and prices are improving in international markets so new rigs coming in are better priced than our average we are going to see a gradual progression over the year.

Awesome. Hey that's great Tyler really appreciate it.

Thank you. Thanks Kurt. And your next question today will come from Scott Gruber with Citigroup.

Please go ahead.

Yes good morning and appreciate all the time. William I want to know what's your outlook for working capital and cash taxes on Mexican collections you know is there a catch up or continued delays how are you thinking about it?

That's like a three part question right? So I'll start with the Mexico collections we think those are going to be sorted out but we've been told that it's going to happen in the first quarter but knowing Mexico I would say more like the first half so it's going to be a catch up the government is working on it but again we are we're being cautious in our forecast and assuming some reduction in Mexico that's part of our our assumptions and guidance that we gave if it doesn't happen then we'll have a little bit of an upside there but again Mexico is always you know they always pay and they always deliver but sometimes it takes a while in terms of of the working capital we're looking at the year for 20 for 2025 we ended the year at kind of a high-ish DSO and partially because of Mexico so we think this year since overall revenue is not going to go up a very large amount given the you know the sort of trajectory in the US there is some higher revenue but we believe that DSO will go down a few days and that including the Mexico impact and that will help us keep working capital under control for the full year so we don't expect huge growth in working capital and then what was the third piece again the hashtag so it will be a similar level to this year you know somewhere in the range of $50 million or so OK

and just a quick follow up the employment in Argentina obviously improving and obviously they have a large resource base the cash extraction has been an issue historically is that improving or how are you guys addressing that going forward as you add assets down in the country

yeah we have a new operating model there where we actually can extract the cash and the profits to nominate in US dollars and that's one of the reasons why we've been able to put our foot on the pedal a bit in Argentina and it's working very well so far and we've had pretty good customer reception to using this model and that's what's in place already

so we do have we do have a split context of the new rigs that are coming in which helps with the not getting cash trapped in country and secondly the government has made some changes to the central control to the exchange control rules that allow us a little bit more flexibility in transferring money out using our leasing mechanisms so all those things are converging and helping us clear cash much quicker than in the past

got it appreciate the call, thank you

thank you Scott your next question today will come from Dan Cutts with Morgan Stanley, please go ahead

hey thanks, good afternoon hey Dan just wanted to see if you could help me put the pieces together on the full year 25 guidance that you gave so I guess coming at this from one of two angles if I just assume that kind of US and international GNA and the other reconciling EVA dot line item is flat year over year I think that will give me in the ballpark of 900 million of neighbors stand alone EVA dot this year so wondering if you guys would endorse that or alternatively if you could share on the GNA and the reconciling line item for full year 25 thanks

that's a great question Dan listen, I mean we gave a lot of the pieces to try to get to the number next year and I'm sure you're doing your homework in terms of the SGNA and R&E and some of those items we are working diligently trying to become more efficient and reduce those costs so you could assume those could be somewhat lower in 2035 than they were in 2024 and in terms of of the rest I think we're going to be or we have a lot of confidence that we're going to be higher than in 2024 all the operational pieces obviously with ups and downs reduction in the US improvements in so so all in all you can assume that we're going to beat 2024 by some margin

great that's really helpful thank you and then on the new bill budget and sorry if I missed this but did you guys comment on whether that's the 360 million is for five rigs or six rigs or somewhere in between just trying to kind of triangulate and the other part was you made the comment about 13 million of EBITDA for the recent new builds and that mix was a factor there was that a gas versus oil comment like the gas directed sonata new builds you know higher margin versus versus the oil rigs just wanted to see what you meant by the mix comment

thanks so I'm glad you're listening so the 360 number is a milestone number so it's not in sync with a five rig count actually the total for five rigs is actually 310 and that's one of the issues that's the reason why we've had the strain on cash flow like in the fourth quarter because milestones don't necessarily equate with numbers of rigs that you're committed to just because the way the sequencing works is that you're not going to accept it in the fourth quarter under the mission of getting these rigs out according to an overall schedule so the number is closer to 310 which is higher than when the initial deal was done it was originally done for five rigs at 250 in the meantime there's been two changes one some changes in specs to account for things like you were talking about gas rigs and other issues technical issues with the rigs and number two cost inflation Aramco approves this and Aramco is behind it and Aramco is paying for it because when these numbers adjust it's part of the deal that all the contracts and paybacks adjust which again is an unheard of deal no one else has ever had such a deal but Aramco because they're the ones deciding numbers of rigs, the planning, etc they're actually supporting it all so that's why we're strong supporting them in their efforts great sense for neighbors because those numbers with a five year return and a ten year contract we think those kinds of deals are unheard of in the sector and

by the way we're pretty happy with the performance of our rig supplier which is a joint venture of NOV they have been improving enormously the performance on delivering those milestones which means that five rigs are being now delivered in time they're meeting milestones and so we're pretty happy about that in the sense that you know we're going to get five rigs delivered in 2025 when in 2024 it was only four rigs but again the calculation of the 360 is not five rigs at whatever price it's all the milestones that are going to be completed next year and because NOV is catching up on some of those milestones you know we saw the big number so we would expect the number to go down somewhat in 2026 more of a real run rate for five rigs year in year out which would be more a number in the low 310 range

great that's all helpful and sorry just on the mixed comment as it relates to EBITDA per rig I think 13 million is what you guys cited was that also a factor of that's a factor

of just the calculation if the rigs cost more we get paid more the daily is higher to guarantee that five year return on the investment so the cost goes up on the rig because we're doing more 3,000 horse power rigs or whatever the reason is we recover it in the rate and EBITDA goes up

great thanks a lot thank

you and your next question today will come from Keith Mackey with RBC please go ahead

hey thanks maybe just to start out on or continue along the the standard line of questioning I think you said you expected could likely break even on a free cash basis in 27 or 28 would that effectively assume a five rig new build cadence continues so you spend roughly that 310 a year for the next couple of years and grow the EBITDA commensurately

correct you got that right what happens is once you reach a certain base load number of cumulative rigs and your number is at that cadence level then the existing rigs then fund stuff and then you get excess cash flow going forward so the question here is to try to get that break even number and that's why I think Aramco wants to continue with the pace we're doing it right now

got it and just to follow up on that what are the decision points in terms of those five rigs getting awarded when do you know about the next five and the five after that it sounds like you think they're likely going to happen but just curious for a little more comment on that if you can

so typically because these rigs take about maybe nine months ten months to construct or maybe even 12 in some cases depending how big the rig is we would expect sometime in the first half of this year to get the awards for the next batch of rigs right and as soon as we get those awards we'll let our investors know

yeah got it okay and maybe just one last one for me roughly how many rigs do you have operating in Mexico and sort of what is the cushion that you kind of have baked into that year-end rig count that you talked about

okay so I thought because we did disclose that I'll be fairly transparent on that we do have four rigs operating these are big needle movers these are big rigs on offshore platforms and so the EBITDA in Mexico is considerable if we are dialing in about a 13 million dollar reduction in our 2025 EBITDA versus the number if the four rigs were operating the full year at full pace right so we are assuming some reduction and that reduction is 13-14 million dollars or so

got it okay appreciate the comments thanks very much

your next question today will come from Arun Jaram with JP Morgan please go ahead

yeah first question is regarding the Sanad new build program in 2026 you mentioned that you'd expect 200 million of EBITDA from the 15 rigs so is that fair that the run rate will be about 13 million per rig for the new builds or does the 200 million include additional EBITDA from the next call it tranche of five rigs

no listen we are not operating 15 rigs we are operating nine right now

no I'm talking about 2026 pardon me we don't say anything

about 2026 but 15 rigs the average will be somewhere in the 12 million dollar range per rig if you want to use that

I heard that the Sanad new build program could generate around 200 million of EBITDA in 2026 that was

in 2024 so we are adding more

understood thanks for the clarification for the follow up you've guided to a little over 700 million of CAPEX 360 for the Sanad program new build program can you give us a little bit of a breakdown for the remaining call 350 of CAPEX the buckets where that's going to

so we guided the midpoint is about 715 so 355 would be the the remainder of CAPEX at the midpoint excluding those 360 million dollars and we have somewhere in the range of about 280-85 million dollars in sustaining CAPEX for the year that includes some category 4 recertification so it's going to be a little bit higher than the prior year but not terribly so then we have some international contracts in Kuwait and Argentina that require CAPEX that's going to be about 56 million dollars and then the rest is just DRIFs and DRAFs NDS only requires about 5 million so that's indeed very CAPEX light and then corporate so that's like license IT licenses and R&D prototypes maybe even a little bit of a all that is about 9 million dollars that's how you get to the 715 last year we spent 339 million dollars outside the Kingdom investment that number goes to 355 this year so it's about 15 million dollars up and that's mainly because of the category 4s I mentioned before

this will conclude our question and answer session I would like to turn the conference back over to William Conroy for any closing remarks

thank you everyone for joining us today if you care to follow up please reach out to us in IR here at Neighbors and Nick with that will conclude the call

the conference has now concluded thank you for attending today's presentation you may now disconnect