Nabors Industries Ltd.

Good morning and welcome to Neighbors Industries' third quarter 2025 earnings conference 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 your telephone keypad. 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 Condroy, VP of Corporate Development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining NAVER's third quarter 2025 earnings conference call. Today, we will follow our customary format with Tony Petrello, our Chairman, President, and Chief Executive Officer, and Miguel Rodriguez, 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, Miguel, 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 Miguel 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 morning. Thank you for joining us today as we review our third quarter results. We will highlight a number of positive accomplishments. In particular, we have completed the transaction to sell Quail Tools. This is a transformational development for our capital structure. I will start my remarks with details of this transaction. The terms of the deal are straightforward. On August 20, we sold the Quail business for a total consideration of $625 million. This amount includes a working capital adjustment. We received $375 million in cash at closing and a $250 million seller note, which was fully prepaid earlier this month. To be explicit, we have collected the entire proceeds. Next, I'll discuss the merits of the transaction. When we acquired Parker on March 11 of this year, we estimated its operations would generate a full year EBITDA of $150 million. Quayle accounted for about 143 million of this EBITDA. Further, we were confident we would realize cost synergies during 2025, totaling 40 million. Consideration for Parker consisted of 4.8 million shares of neighbors valued at $180 million, assumed net debt of $93 million, and less than $1 million of cash. This valued the acquisition at $274 million. We estimated full year EBITDA of 190 million, including synergies. That translated to paying a very attractive 1.4 times EBITDA. Now we have sold quail for 625 million. We estimated quail by itself would generate 2025 EBITDA of $150 million. With those metrics, we sold quail for approximately 4.2 times EBITDA. These valuations speak for themselves. Combining both steps of the Parker and Quayle deals is important to note that we effectively sold neighbor shares at approximately $130 per share. Moreover, following the Parker transaction, we have completed considerable restructuring efforts. We now expect the non-Quayle businesses that were earning $7 million of EBITDA to earn $70 million in 2026. For this remaining business, we effectively paid $94 million, or about a 1.4 times multiple. In the third quarter, we used the proceeds to pay down approximately $330 million of debt. Adjusting our quarter end capital structure for the subsequent repayment of the seller note, pro forma net debt stood at approximately $1.7 billion. This is our lowest net debt in more than 10 years. We expect to deploy the entire proceeds from the quail sale to debt reduction. In summary, we effectively issued common shares at a 350% premium to the market. We are reducing net debt by more than 20% this year, and we retain a business portfolio that includes the leading casing running contractor in the Middle East. Now, let me turn to our financial results for the quarter. Adjusted EBITDA totaled $236 million. This performance was better than the expectations we laid out in September after the sale of Quail. Several factors contributed to these results. Improved performance in our international drilling segment, increased EBITDA from our legacy drilling solutions, excluding quail, and lower corporate expenses as we realized additional cost synergies from the Parker acquisition. I want to highlight the total EBITDA, excluding quail, improved in the quarter. I am pleased with these accomplishments. They provide further confidence to our performance outlook in the coming quarters. Next, I'll address the border market environment. Global oil prices reflect a combination of factors. Most recently, the U.S. announced sanctions targeting two of Russia's largest oil producers. There is also the potential for secondary sanctions. Crude oil prices reacted sharply to this announcement. Should these actions impact Russian production, we would expect global producers, including a number of our customers, to step in. We are carefully evaluating the ultimate impact of this action and any lasting impact on commodity prices. However, there remain a number of conflicting issues, including recent actions and lingering uncertainty around tariffs, oil production increases, both inside and outside OPEC, reported excess inventories, and higher demand outside of the OECD. The sanction announcement was positive for oil prices. However, there remains the probability that global supply could potentially exceed demand. This outcome was weighing on oil prices prior to the sanctions announcement. We believe the effect on our global drilling markets could be mixed. Each market has its own drivers. The US lower 48 has evolved to a very short cycle market We would expect a rapid activity response to lower oil prices there. Domestic EMPs remain focused on meeting their production goals. This focus, coupled with economic uncertainty, improved drilling and completion efficiency, leads to a muted activity outlook in the near term. We believe that U.S. activity should begin to stabilize and could see an uptick in the latter part of 2026. This market is complex. Numerous factors have influence. With our diversification across geographies, we expect our international markets would lessen the effect of any potential further short-term decline in the US. As for natural gas, the outlook remains constructive over the next several years, as expected US LNG exports ramp up. In addition, large-scale natural gas development in the Middle East and Latin America should help drive drilling activity. The gas-directed industry rig count in the lower 48 has increased thus far in 2025. Neighbors rig count in the gas basins has grown since February. Natural gas activity in the U.S. appears poised for further recovery over the coming quarters. We are prepared to meet that demand. Next, I will comment on our third quarter results. Adjusted EBITDA in our international drilling segment increased sequentially by more than 8%. Our land drilling joint venture in Saudi Arabia drove most of this growth. The other significant driver was Kuwait. The three previously announced rig startups there contributed to the segment's growth. Next, I want to spend a moment on neighbor's drilling solutions. Excluding quail, NZS's EBITDA increased in the third quarter. In the lower 48, the average Baker Hughes land recount declined by 5% in the third quarter versus the second quarter. NDS's EBITDA without quail in the lower 48 was up slightly. This outperformance compared to the market confirms the strong value proposition we have developed at NDS. Turning to the lower 48 drilling business, our average rig count exceeded our guidance. Our average activity in natural gas basins increased slightly. Oil-directed activity, especially in the Permian, declined. We entered the third quarter at 60 rigs. We held in a tight range throughout the quarter. The quarter ended at the high water mark, 62. Since then, a few operators have released rigs. Recently, our rig count stood at 59. Our lower 48 business continues to feel some pressure. A number of clients, especially in the oil basins, are still adjusting their activity. Next, I'll discuss the international markets. Let me start with Saudi Arabia. Drilling and completions activity seems to have stabilized recently. A rebound in the near to medium term may also be possible. Aramco remains committed to increasing gas production capacity through 2030. The client there recently conducted a tender for onshore and offshore rigs. The potential number of rigs to be awarded is significant, considering the large number of suspended rigs. We believe awards on land could return as many as half of the number of suspended land rigs by the second half of 2026. Senate participated in the tender with its suspended units. We should know the results in the next several weeks. In the third quarter, Senate delivered strong results. It deployed another new bill rig. With the balance of new bill awards in hand, Senate's future new bill deployment schedule calls for one more in 2025, four in 2026, and two in 2027, which would complete the fourth tranche of new bills, or 20 rigs in total. This solidifies SANA's growth trajectory over the coming years. Elsewhere in the eastern hemisphere, there is potential for further activity growth. Currently, we are aware of approximately two dozen opportunities for additional rigs. Nearly two-thirds of those are in markets where we currently operate. This number is encouraging. These additions would support both industry utilization and pricing. In Latin America, our activity outlook in Mexico remains uncertain. We currently have three offshore platform rigs working. As it stands now, two of those three are likely to suspend work during the fourth quarter. This is reflected in our outlook. Our customer in Mexico continues to express interest in working these rigs. The rigs were specifically designed for its offshore platform requirements. However, the customer's initiatives to conserve cash are impacting its activity levels. Turning to Argentina, as we previously announced, we have two rigs scheduled to start in the fourth quarter. These are for two different clients. We have a third rig scheduled to start work in Argentina in the second quarter next year. These deployments would bring our rig count in Argentina to 13 in early 2026. Next, I'll comment on the U.S. market. The Baker Hughes weekly lower 48 land rig count increased by three rigs from the end of June through the end of September. This apparent stability was a welcome shift in the market after the reductions completed earlier this year. Once again, we surveyed the expected drilling activity of the largest lower 48 operators. The group accounted for approximately 42% of the market's working rig count at the end of the quarter. In the aggregate, these operators expect their rig count to remain unchanged through the end of 2025. Digging deeper, eight of the 13 companies surveyed expect some change. This indicates widespread fine tuning of activity up and down across the group. We see modest downside risk to our own current rig count through year end. Now, I will make some comments on the key drivers of our results. I'll start with our international drilling segment. In this business, we consistently focus on long-term development markets that value technology and performance. With this approach, we have established a portfolio that includes operations in 12 countries. This breadth serves us well as prospects in individual markets can vary over time. Across multiple markets, we continue to start up previously awarded rigs. These included one rig in Kuwait, a rig in India, marking our return to that drilling market, and we added two rigs in Colombia. In Saudi Arabia, beyond the future additions I mentioned earlier, SANA is already in discussions with its client for the fifth tranche of new bill rigs. We expect these discussions to conclude in the coming months. This tranche will bring the total number of new bills to 25. The program calls for 50 rigs over 10 years. Once this fifth tranche is deployed, Santa will be halfway to completing the industry's most compelling growth opportunity. I've said multiple times that the visibility afforded by the new build program is unmatched in the industry. With that, Santa's shareholders remain committed to realizing the value that is accumulating in the venture. Now, I'll discuss our performance in the U.S. Once again, our geographic diversification across the major US markets demonstrated its value. Adjusted EBITDA from our operations in the Gulf and in Alaska combined exceeded our guidance. Alaska, specifically the North Slope, remains constructive. LNG developments would improve this outlook. We're tracking multiple future projects there. As expected, our lower 48 daily rig margins declined in the third quarter. The effects of continuing rig churn and progressively more demanding drilling contributed to an increase in our daily rig expense. Daily revenue in the lower 48 also increased, though less than our costs. Before I move on, I want to highlight an important development during the third quarter. We deployed the most powerful rig in the lower 48 for Cateris in the Eagleford. This rig, which we call the PaceX Ultra, is an upgrade to one of our existing X rigs. The PACE-X Ultra combines a 10,000 PSI circulating system, 35,000 feet of racking capacity, a million-pound mast, and an upgraded high-torque CanRig top drive. We worked closely with Cataris to develop the PACE-X Ultra's specifications. They recently completed drilling its first pad. I am pleased to report that its performance exceeded expectations. It drilled its first two wells ahead of their targets. In particular, in the lateral, it averaged more than 240 feet per hour. As an upgrade to an existing rig, this is a cost-effective solution to drilling requirements that are beginning to exceed the capabilities of the existing industry fleet. We are optimistic that more will follow this one. Next, let me discuss our technology and innovation. On the PACE-X Ultra Rig I just discussed, NDS deployed a full automation package and its integrated managed pressure drilling. It also provides casing running services. Looking more broadly, our penetration of NDS services on neighbors' own rigs in the lower 48 increased. We averaged seven services per rig. This is an all-time high. And on third-party rigs in the lower 48, NDS revenue, excluding quail, increased slightly. That increase came in a market where the third party average rate count declined by 6%. These successes demonstrate the wide ranging demand for the MDS portfolio, even in challenging markets. Next, let me make some comments on our capital structure. Our highest priority is the reduction of our debt. The Quail transaction demonstrates our commitment to this objective. Our net debt now stands at the lowest level in many years. We are dedicated to making even more progress. Now let me turn the call over to Miguel to discuss our financial results in detail.

Thank you, Tony, and good morning, ladies and gentlemen. I want to start by reiterating my steadfast commitment to our goals to improve balance sheet leverage and strengthen our capital structure. Reducing our gross debt undoubtedly remains our top priority. Our organization is poised to continue performing at its maximum potential and delivering sustained value. Our financial goals and objectives will be set in a way that, while ambitious and demanding, are at the same time realistic and achievable. In addition, we have recently increased our disclosure around our business portfolio, especially Senate, and we will continue to build on that progress. Today, I will review our third quarter results and outline our guidance for the fourth quarter. Then I will provide an update on the integration of Parker World Board. I will close with some comments on capital allocation, adjusted free cash flow, and recent actions that have materially improved our capital structure. Third quarter consolidated revenue was $818.2 million. a decrease of $14.6 million or 1.8% sequentially. The divestiture of quail tools resulted in a reduction of $28.4 million compared to the second quarter. This was partly offset by continued growth in our international drilling segment. Our consolidated revenue without the contribution of quail grew sequentially. EpiDA was $236.3 million representing an EBITDA margin of 28.9%, down 96 basis points sequentially. These results exceeded the expectations we laid out in September after the sale of QUEL tools. In absolute dollars, EBITDA decreased $12.2 million, or 4.9%. with the effect of the quail tool's divestiture representing $16.7 million of the sequential decline. I want to highlight the strong performance recorded by our international drilling and drilling solution segments, excluding quail. Total EBITDA without quail grew sequentially. Now, I will provide you with details for each of the segment's results. International drilling revenue was $407.2 million, solid growth of 22.3 million or 5.8% sequentially. EBITDA for the segment was $127.6 million, increasing $10 million or 8.5% quarter over quarter, yielding an EBITDA margin of 31.3%, up 76 basis points and 44.4% fall through. Our average daily margin was $17,931, a sequential increase of $397, and was in line with the upper bound of the guidance for our last earnings goal. The improvement was mainly driven by stronger activity in our eastern hemisphere markets, including the deployment of a new build in Saudi Arabia, for a total of four year-to-date, the deployment of eight rigs in Kuwait, totaling three rigs working during the third quarter, and the startup of a legacy parquet rig in India. In addition, rig startups that occurred in Q2 contributed to our incremental revenue in EBITDA in the third quarter. The international drilling average rig count increased by more than three rigs to 89, our quarter end exit rate count was 91. Moving on to U.S. drilling, third quarter revenue was $249.8 million at 2.2% sequential decline. EBITDA total $94.2 million, a decrease of 7.5%, resulting in an EBITDA margin of 37.7%. This results exceed the guidance from our last earnings call, mainly due to stronger performance in Alaska. Looking specifically at our lower 48 business, revenue of $185.4 million decreased by $4.7 million, or 2.5% sequentially, reflecting a decline in average rig count of 3.2 rigs to 59.2 rigs, slightly higher than the open pound of the guidance range we provided during the last earnings call. We exited Q3 with 62 rigs operating and recently stood at 59 rigs. Despite the lower sequential activity as a result of moderating industry demand in the Permian Basin, revenue per day improved by $551 to $34,017 including $220 from reimbursable revenue with little to no impact on margins. Our base revenue per day remains stable in the quarter. In our most recently signed contracts, expected daily revenue remains at the low $30,000 range. Average daily REIT margin was $13,151, a decrease of 5.4% sequentially, driven primarily by lower activity, labor inefficiencies, and cost absorption related to higher than expected activity churn in the latter part of the quarter, and higher repair and maintenance expenses as a reflection of harsher drilling conditions on several of our rigs. Turning to Alaska and U.S. offshore, On a combined basis, our Alaska and offshore drilling businesses generated revenue of $64.4 million in the third quarter, a 1.4% decrease sequentially. EBITDA was $28.4 million, generated a 44.1% margin, essentially in line with Q2. Our Alaska drilling operations remain strong in the North Slope. Our drilling solution segment generated revenue of $141.9 million in the third quarter, and EBITDA of $60.7 million, resulting in a 42.7% margin. Well-tools revenue and EBITDA for the third quarter were $34.2 million and $20.3 million, respectively. Normalized for the sale of QUEL tools, NDS EBITDA increased modestly versus the second quarter. Notably, NDS EBITDA margin without QUEL reached 37.5%, an improvement of 79 basis points sequentially, reflecting growth in casing running and performance software in the U.S. Now on to RIC technologies. Revenue was $35.6 million in the third quarter, a sequential decrease of 2.5 percent, and EBITDA was $3.8 million, down $1.4 million from the prior quarter. The decline reflects reduced demand for aftermarket offerings in the current market environment. Next, let me outline our expectations for the fourth quarter. with total EBITDA to be essentially in line with the third quarter, excluding quail. Turning first to U.S. drilling. As previously highlighted by Tony, given the outlook and market conditions for the next few quarters, with activity anticipated to remain relatively steady from current levels, we cautiously expect the average street count in our lower 48 drilling business to be in the range of 57 to 59 RICs for the fourth quarter. Daily adjusted gross margin is anticipated to average approximately $13,000. We foresee some decline in our average daily revenue as we renew contracts at leading edge day rates that are lower than the third quarter average. We also expect slightly lower OPEX. For Alaska and U.S. offshore drilling combined, we expect additional scheduled maintenance days in the quarter with EBITDA of approximately $25 million. International drilling average rig count is projected to be approximately 91 rigs. This mainly reflects one new bill deployment in Saudi Arabia, two rig deployments in Argentina, partially offset by up to two rigs in Mexico potentially being suspended temporarily following activity and budget allocation uncertainty. We expect daily adjusted gross margin in the 18,100 to 18,200 range. Drilling Solutions EBITDA is expected to be approximately $39 million, reflecting a full quarter without the quail business and some marginal decline in the lower 48 market. Finally, RIC Technologies EBITDA should increase sequentially to $5.5 million, mainly from committed capital equipment deliveries. Let me now provide an update on our integration of Parker Wellbore, which is progressing in line with our expectations. Following the sale of Quell Tools, neighbors retained the balance of the Parker Wellbore operations. These retained businesses seamlessly integrate in our neighbor's portfolio and are expected to produce approximately 55 million of EBITDA in 2025, post-acquisition, and including synergies. We continue to realize synergies as planned from cost savings related to overlapping administrative functions, procurement efficiencies, and redundant facilities. These initiatives are and will continue generating incremental EBITDA and cash flow, and we remain confident in delivering $40 million in cost synergies in 2025. Based on our estimated EBITDA for the fourth quarter of 2025, this should translate into more than $60 million of cost synergies in 2026, with an estimated EBITDA from the retained businesses of $70 million. In summary, we are very pleased with the smooth progress of the Parker integration and robust realization on synergies in line with our plans. The combined organization is ideally positioned to continue delivering both operational and financial benefits in the coming quarters. Next, I would like to discuss our capex, adjusted free cash flow, and liquidity. Then, I will conclude with details of how the QUEL transaction has transformed our capital structure and reset our financial flexibility. Total capital expenditures for neighbors in the third quarter were $188 million, including $81 million related to the CNAT New Build program. Total capex in the second quarter was $199 million. For the fourth quarter, we are currently targeting capital expenditures between $180 and $190 million. As a result, we are now revising our capital expenditure outlook to be slightly up in the range of $715 to $725 million, of which approximately $300 million support the new bill in Kingdom programs. This slight increase from our previous guidance accounts for the earlier than anticipated successful deployment of our PACEX Ultra rig in the lower 48 market and other key automation projects planned for some of our rigs. From these and other drilling projects, we expect to receive upfront payments from our customers of approximately $9 million during the fourth quarter. bringing the total of fund receipts to approximately $42 million for the year, all of which are related to long-term contracts. Although we are not ready to offer capital spending guidance for 2026, we don't expect it will come down from the 2025 levels. This will be largely attributable to approximately $60 million of new-build milestones originally planned for 2025, moving to 2026. We will provide firm guidance during our fourth quarter earnings call. During third quarter, we generated adjusted free cash flow of $6 million. This accounts for the negative impact of approximately $18.2 million on our adjusted free cash flow from the divestiture of the Quail Tools business. In addition, our collections from Pemex were only $12 million, falling short of our expectations by more than $30 million. During the third quarter, Pemex implemented payment mechanisms targeted to address revenue earned during 2025. In October, We received $11.2 million under this mechanism, and we expect more robust collections over the remainder of Q4. There is no structure yet available to resolve the outstanding services from 2024. There is progress being made by PEMEX, although it is very slow-paced. We expect adjusted free cash flow in the fourth quarter to be approximately $10 million, considering timely settlement of outstanding receivables related to our 2025 operations in Mexico. We continue to work relentlessly with our customer to invoice and collect for our 2024 services. However, we have not considered these amounts in our fourth quarter guidance. These delays represent a timing factor in our adjusted free cash flow estimates. On a full-year basis, we expect our adjusted free cash flow to be breakeven. The primary drivers of the variance from our full-year guidance of $80 million are the impact of the quail divestiture for the remainder of the year after the sale, totaling approximately $56 million, and the outstanding collections from PEMEX related to 2024. These are partly offset by proceeds from sales on non-core assets associated with the Parker World Board acquisition in excess of $40 million, most of which have already been realized in prior quarters. Out of our full-year estimated adjusted free cash flow, we expect SANA to consume approximately $70 million. with around $45 million to be consumed in the fourth quarter. Excluding SANA, the rest of our business units are expected to generate $70 million of adjusted free cash flow for the full year, with approximately $55 million in the fourth quarter, the strongest free cash flow generated quarter of the year. In addition to my earlier comments and the remarks made by Tony on the Parker and Quail transactions, each exceptional and transformative in their own merits, I would like to highlight the significant accomplishments we made during the third quarter regarding our capital structure and next steps. In August, we completed the sale of Quell Tools for a total consideration of $625 million, inclusive of the working capital adjustment, consisting of $375 million in cash received at closing and a $250 million seller financing note. We immediately applied the cash proceeds to repay all outstanding borrowings under our revolving credit facility. And later in the quarter, we redeem $150 million of the notes due in 2027. Subsequent to quarter end, we receive full prepayment of the $250 million seller note, well ahead of its scheduled maturity. We intend to deploy these proceeds to further reduce gross debt, concentrating on our outstanding notes maturing in 2028. In addition, we plan to refinance our 2027 outstanding notes. Taken together, these actions reflect our unconditional commitment to improve balance sheet leverage and to strengthen our capital structure. Our net debt leverage metric at the end of the third quarter and accounting for the receipt of the $250 million seller note on a pro forma basis stands at 1.8 times, which is the lowest it has been in more than 10 years. I am looking forward to meeting more of you and helping you gain a further understanding of NAIP. With that, I will turn the call back over to Tony. Thank you, Miguel.

I will finish this morning with a few points. First, the Quail transaction has enabled a significant transformation in our capital structure. Now we are looking at opportunities to decrease debt further. In addition to improving our capital structure, we expect to materially reduce our annual cash interest payments. That should result in a boost to our free cash flow. Second, we have seen recent relative stability in U.S. drilling activity, our own and the industry's, but we also recognize some uncertainty in the global macro environment. We are prepared to adjust our operations accordingly. Third, our international business continues to demonstrate its value, highlighted by the continued expansion at SanEd. Each successive new build deployment adds material cash flow to the joint venture. As a result, value is building at SanEd, The next tranche of new builds will take that value even higher. And our growth across markets beyond the kingdom highlights our success in expanding our broad-based international franchise. That concludes my remarks. Thank you for your time this morning. We'll now take your questions.

Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the... If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Dan Cooke with Morgan Stanley. Please go ahead.

Hey, thanks a lot. Good morning.

Good morning.

Good morning.

So maybe just on the U.S. lower 48, appreciate all the color that you guys shared in terms of your own views and customer views on where you think activity trends from here. I guess against that activity outlook, how would you – anything you'd share beyond the fourth quarter on kind of daily revenue and cost or margin trends, you know, assuming that the – kind of broadly flat activity outlook that you guys shared would play out as you guys see it. Thank you.

Sure. Yeah. I think one thing to note, if you look at our numbers for this quarter, our daily revenue actually increased sequentially by about $500 per day. That was as a result of performance bonuses under contracts where we're trying to have operators recognize more of the value of what we're delivering because of the record times. So Obviously, that's an objective for us going forward in the year. Now, the net result of that, as became clear from Miguel's comments about our cost structure, is because of churn in the last quarter, that did not drop to the bottom line. In fact, it was more than offset. I think, looking forward, one of the objectives, and I'll let Miguel talk to it on operating expense, is to actually make sure that more of that does drop to the bottom line, and the priority is to actually make more realization from that as a mission going forward as well. So that's how I would say it.

Yeah, thank you, Johnny. So one thing that I will add is that one thing that encouraged us actually is the fact that we have seen the daily revenue on a leading-edge basis to be fairly stable over the past several quarters. So at around the low $30,000 per day. Right now, when we look at the fleet, we are maybe around $700 away from that level. As the fleet reprices, once we get there, basically we will be talking around a gross margin per day of $13,000. So that's the reason why we are guiding our fourth quarter to be at that level, combined with a decline in the OPEX. So in terms of the activity levels for the quarter, we saw a lot of churn in the latter part of the quarter. We expect some level of churn to remain in Q4. But once we reach the low 30,000s in terms of daily revenue per day, excluding reimbursable items, if you will, I feel very strongly that the drilling team will be able to maintain the 13,000 per day going forward. We will see some erosion in pricing a little bit from current levels in Q4. From there, we should not see major pricing erosion absent a bigger decline than what we are anticipating for the following quarters.

Great. That's all really helpful. And then maybe going to the comments around Saudi onshore activity, kind of two components of the question, one at the macro level and then one specific to neighbors. So of the – and correct me if I'm wrong, but I think maybe there's been 30 or 40 onshore rig suspensions. And, you know, against your comment that there's – tendering activity and potential for as much as half of those suspended rigs to come back. Any sense for how much of that could actually be net activity ads versus just bringing back suspended rigs when other rigs roll off of contracts in the kingdom? And then specific to neighbors, I think there were three, at least an odd rig suspended. I'm wondering if you guys are participating in the tendering or, you know, Anything you could share about potential for those to go back to work? Thank you.

Sure. I mean, look, overall, I mean, since the start of the suspensions in 2024, on a cumulative basis, we have seen in excess of 80 rigs being suspended inland, right? We are not commenting about offshore here, but inland, we're talking about cumulatively around 80 rigs. A number of risks have been added on unconventional projects here and there, but what we are hearing actually from the market is that Ancon may be contemplating to add back probably around 50% of the cumulative suspensions, right? So a tender has been issued. A number of drilling contractors have responded to this tender. The customer is evaluating as we speak, and we will know the results probably during the course of Q4. The expectation or what we are hearing from the market is that potentially 50% of these suspended rigs will come back to work, right?

I just also realized that of the 80, 21 have actually come back online during the same period, so the net number down is 59. That's right. So that's what he's talking about. And then there's... And you're correct about three. Santa has three, and as we indicated, we'll find out what happens with our rigs as well.

Of course, I mean, we answer to the tender for our three rigs, and we are waiting on the results.

Great.

Thank you very much. Really helpful.

I'll turn it back. Next question comes from Derek Podhazer with Piper Sandler.

Please go ahead.

Hey, good morning. Maybe still going on the last conversation, the question Dan brought up about Saudi. I'm just curious kind of the philosophy around Aramco and these new tenders and bringing back some of the suspended activity. Is there anything different this time around versus prior cycles? Just thinking about the requirements around the rig, maybe through like a technology lens.