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.