Nabors Industries Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 8 speakers on the call.

Operator

Hello, and welcome to

Speaker 1

the Q3 2023 Nabors Industries Limited Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. Now like to turn the conference over to William Conroy, Vice President of Investor Relations.

Speaker 2

Please go ahead, sir.

Speaker 3

Good afternoon, everyone. Thank you for joining Nabors' Q3 2023 earnings conference call. Today, we will follow our customary format with Tony Petrello, our Chairman, President and Chief Executive Officer and William Mostrepo, Our Chief Financial Officer providing their perspectives on the quarter's results along with insights into our markets and how we expect Nabors 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 nabors.com. Instructions for the replay of this call are posted on the website as well.

Speaker 3

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 Nabors 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.

Speaker 3

All references to EBITDA made by either Tony or William during their presentations, Whether qualified by the word adjusted or otherwise, mean adjusted EBITDA, as that term is defined on our website and in our earnings release. Likewise, unless the context clearly indicates otherwise, references to cash flow mean adjusted free cash flow As that non GAAP measure is defined in our earnings release. We have posted to the Investor Relations section of our website A reconciliation of these non GAAP financial measures to the most recently comparable GAAP measures. With that, I will turn the call over to Tony to begin.

Operator

Good afternoon. Thank you for joining us as we present our results and outlook. Activity in our major global markets Was essentially in line with our expectations. Rig count in the Lower forty eight declined in the 3rd quarter. It appears to have reached the bottom.

Operator

Leading edge pricing seems to have stabilized. Lower drilling activity in the U. S. Impacted results in our Nabors Drilling Solutions and Rig Technologies segments. The newbuild rigs in Saudi Arabia We're a source of disappointment as reflected in our Q3 results.

Operator

Specifically, the issues included Delivery delays by our local supplier, field performance challenges with certain of the new build rig components and higher startup costs as we address These challenges. The impact to EBITDA in the 3rd quarter was approximately $5,000,000 We have now addressed the existing quality issues. We expect our suppliers' performance to improve rapidly As their local manufacturing experience increases, on the positive side, our Lower forty eight margins remain at historically high levels And international rig markets provide us with multiple opportunities at attractive pricing. For the 3rd quarter, Adjusted EBITDA totaled $210,000,000 This result principally reflects the known decline in Lower 48 drilling activity as well as the shortfalls in Saudi Arabia. Our global average rig count for the Q3 declined by 8 rigs, all of which was attributable to the U.

Operator

S. Our Drilling Solutions and Rig Technologies segments together accounted for 18% of total EBITDA. This contribution is approximately double the proportion immediately pre COVID. Next, let me make some comments on each of our five priorities. 1st, performance in the U.

Operator

S. Daily rig margins in our Lower forty eight operation We're in line with our expectation. Pricing in this market reflects the reduction in industry utilization this year. Please note that our margin performance in the 3rd quarter was higher than that of any quarter prior to 2023. Our reported Lower 48 daily rig margin reflects the financial results of just our drilling rigs.

Operator

On top of that, Nabors Drilling Solutions portfolio generated significant additional margin. I'll discuss this in more detail in a few moments. Now I'll discuss our international drilling business. In the quarter, we stood up a newbuild rig in Saudi Arabia and a rig in the UAE. These units are the first two of the 13 pending international startups that I detailed last quarter.

Operator

Profitability improved substantially in several international markets, primarily in Latin America. Let me add a few more comments The new build program in Saudi Arabia. The 4th rig deployed in the 3rd quarter. The 5th was also expected to start in the 3rd quarter. Although construction of the rig has been completed, its start date has been pushed to the beginning of next year.

Operator

The aforementioned supplier issues This timing mismatch between the capital outlays and the commencement of EBITDA had a negative impact on free cash flow in the quarter. The 2nd tranche of 5 rigs is currently under construction in the Kingdom. We currently expect the first of this group To spud in the Q1 of next year, 2 of the remaining 4 rigs should be deployed by the Q3 of 2024. The last two rigs of that tranche are expected to spud in early 2025. Saudi Aramco Recently awarded the 3rd launch of 5 new builds, we expect to deploy the first of these rigs around mid year 2025.

Operator

In general, the outlook for international business, including Saudi Arabia remains quite positive. Coming out of the 3rd quarter, We have 11 deployments expected through the end of 2024. Beyond these, we see improving prospects for additional rigs across a number of markets. These include Kuwait, Algeria and Oman in the Middle East and Argentina and Colombia in Latin America. Next, let me discuss our technology and innovation.

Operator

Growth in NDS' international business actually accelerated in the 3rd quarter. Managed pressure drilling and casing running drove this growth. NDS's U. S. Business was impacted by reductions in overall rig activity.

Operator

3rd party revenue offset some of these reductions. Next, I will detail the value that NDS generates in the Lower forty eight market. The average daily margin in the Lower forty eight from our Drilling and Drilling Solutions businesses combined was over $19,000 in the 3rd quarter. Of that, NDS contributed approximately $3,400 per day. This significant incremental margin contribution Comes with limited capital spending.

Operator

Thanks to the low capital intensity of the NDS portfolio, the returns on capital are the highest in our company. In the Q3, penetration of NDS services held steady on Nabors rigs in the Lower 48 at nearly 7 per rig. Once again, we saw an increase in installations of our SmartSlide Directional Steering System and our SmartNav Directional Guidance Software. Our volume of casing running jobs also grew sequentially. Our NDS portfolio remains robust.

Operator

We have seen increasing interest both domestically and internationally, including for our software solutions on 3rd party rigs. Next, let me offer an update on our capital structure. Our free cash flow generation and debt reduction were challenged in the quarter. Most of the items impacting our liquidity were one offs or resulted from shifts and expected timing between quarters. We are addressing the impact of the issues in Saudi Arabia that I mentioned in order to recapture our momentum.

Operator

The entire company remains focused on increasing free cash flow and reducing net debt. I can assure you these goals Remain our top priorities. I'll finish this part of the discussion with remarks on sustainability and the energy transition. Our energy transition initiatives, as you know, focus on making a difference on Nabors' own emissions profile and exporting solutions to other verticals. These technology solutions already contribute visible margins.

Operator

The first of these is our PowerTap module. This unit connects rigs to the grid. At the end of September, we had 23 modules running, more than 20% of those were on 3rd party rigs. We have commitments in hand to add 2 units in the 4th quarter. Notably, one of these is our 1st PowerTap unit incorporating a frequency converter For the international market, this allows our rigs working in certain markets to tap into the local grid.

Operator

We believe this is an industry first. In addition to the unit now deploying, we expect 3 more international deployments by early 2024. 2nd is the Nano 2 Diesel fuel additive, which improves engine performance and reduces emissions. We have treated more than 22,000,000 gallons of diesel to date On both drilling rigs and pressure pumping units, in the 3rd quarter alone that increased by 10%. Quarterly revenue and EBITDA from our Energy Transition portfolio once again increased versus the prior quarter.

Operator

We see a path to further growth Across the client base, both our neighbors and third party rigs as well as in other verticals. Now I will spend a few moments on the macro environment. Notwithstanding the volatile environment as well as the decline in rig count in the quarter, Commodity prices remain constructive for operator economics. Compared to our last earnings conference call, oil prices or up more than $10 a barrel. We believe this oil price environment is very positive for international markets.

Operator

We are still of the view that several large LNG projects along the Gulf Coast will support drilling activity for gas, especially in the Haynesville. These commodity prices form a favorable backdrop for operator economics. However, the combination of operator capital discipline And consolidation could temper the scale up in U. S. Activity that we have normally seen at these higher prices.

Operator

Recently, We've noted 2 announced mergers involving U. S. Majors. These transactions indicate their confidence in the future of the U. S.

Operator

Hydrocarbon business. As I mentioned, given this backdrop, international prospects, particularly those driven by national oil companies remain favorable. Our balanced geographical portfolio positions us well to capture U. S. Growth in 2024 and to capitalize on these international opportunities.

Operator

Some overhanging risks nevertheless remain. These include sustained higher interest rates, if not additional increases by the Fed and looming geopolitical concerns across several geographies. Next, I'll spend a few moments on the rig pricing environment. Our 3rd quarter results for the Lower forty eight reflects stabilization of leading edge market prices. As I have emphasized in the past, these current rates for our highest spec rigs exceed all of the pre-twenty 23 market highs.

Operator

Our focus in the Lower forty eight market remains profitability, while continuing to serve our valued customers. As such, we continue to demonstrate the worth of our technology portfolio with MDS. As I mentioned, in the international market, We still have visibility to 11 additional rigs through 2024. This growth should provide substantial uplift potential. Given the commodity price backdrop, we believe there is room for additional unit additions in the Middle East and Latin America.

Operator

As rig utilization across these markets improves, we expect rig pricing will increase further as well. Once again, we surveyed the largest Lower forty eight clients at the end of the Q3. Our survey covers 17 operators, which account for approximately 45% of the working rigs at the end of the quarter. The survey indicates this group will add about 6% to its rig count Through early 2024. This increase is spread across nearly 50% of the surveyed operators.

Operator

We are encouraged by the distribution of this planned increase. With the expected international additions, we would increase our international rig count by 15% by the end of next year. Let me wrap up my remarks with the following. We expect our financial performance to improve materially in the 4th quarter As we remain committed to increasing cash flow, reducing net debt and greater returns to our investors. Now let me turn the call over to William, who will discuss our financial results and guidance.

Speaker 4

Thank you, Tony, and good afternoon, everyone. Our Q3 financial results reflected primarily the expected reduction in Lower forty eight activity with an associated leading edge pricing decrease. As anticipated, our U. S. Offshore results fell as we completed planned annual maintenance on critical components for the largest rig.

Speaker 4

I will also point out The results in Saudi Arabia, despite their quarter on quarter activity increase, fell materially short from expectation. Results were mainly affected by the disappointing performance and quality assurance by the supplier of our newbuilds. Thanet experienced delays in delivery and commissioning of their newbuild rigs, which cost them significant revenue and which we only partially anticipated. These delays were compounded by unexpected downtime and newly delivered rig components by the same manufacturer. We are now forecasting additional loss margins in the 4th quarter from these issues.

Speaker 4

The drilling activity reduction in the Lower forty eight Also impacted our NDS results more than we expected, driven by higher than anticipated rig count reductions in the general market. These affected our ability to increase penetration on 3rd party rigs. On the positive side, we continue to experience tailwinds in most international drilling rig markets, particularly in Latin America and throughout the Eastern Hemisphere. Revenue from operations for the Q3 at $734,000,000 declined by 33,000,000 or 4% as compared to the Q2. Revenue for our U.

Speaker 4

S. Segment at $276,000,000 Fell by $38,400,000 or 12%. This decrease reflected an 8 rig sequential reduction in Lower 48 rig count. Revenue per day of $35,700 fell by $10.54 from the 2nd quarter level. U.

Speaker 4

S. Offshore revenue was $6,500,000 lower sequentially as our largest platform rig completed its planned annual maintenance for major components. In addition, a second rig was placed on standby rate by our customer through the end of the year. Our international segment reached $345,000,000 at $7,000,000 or 2% improvement over the prior quarter. This expansion was driven by an additional newbuild rig deployed in Saudi Arabia as well as strong increases in Argentina and Mexico.

Speaker 4

These positive outcomes offset the end of contracts in Kuwait and Colombia. Nonetheless, the magnitude of the increase was disappointing due to the aforementioned delays and quality assurance issues on the newbuilds. These issues cost SANAD a total of $5,000,000 In foregone revenue during the quarter, Nabors' Earning Solutions and Rig Technologies were both affected by the reduction in U. S. Rig count During the Q3, the combined revenue impact for the 2 segments was approximately $6,000,000 sequentially.

Speaker 4

Revenue in our Drilling Solutions segment declined by 5% to $72,800,000 reflecting the lower drilling activity in the Lower forty eight market. There were, however, a couple of bright spots to highlight. Despite the headwinds in the broad U. S. Drilling rig market, NDS revenue continued to grow with 3rd parties.

Speaker 4

Compared to the Q2, NDS increased its U. S. 3rd party revenue by 8%. International revenue Also continue to expand increasing by 8% sequentially. Total adjusted EBITDA for the quarter was $210,000,000 $25,000,000 lower than the 2nd quarter, a 10.6% decline.

Speaker 4

Nearly all of this decline was in the U. S. Drilling segment, which reported EBITDA of $117,400,000 down by $24,100,000 or 17% sequentially. This was driven by the activity reductions in the Lower forty eight market. Lower forty eight drilling rig EBITDA decreased by $18,200,000 or 15.3 percent compared to the prior quarter.

Speaker 4

Average rig count of 74 declined by 10%. Average daily rig margin of almost $15,900 was in line with expectation and represented a reduction of about 10 $35 per day or 6%. Operating expenses were in line with the prior quarter. We believe leading edge prices as well as costs have stabilized. For the Q4, we project our Average daily rig gross margin between $15,000 $15,200 driven by the repricing of renewals as rigs roll to new contracts.

Speaker 4

We're targeting flat operating costs. During the Q3, our rig count went as low as 70 rigs And exited the quarter at 71. On a net basis, Alaska and the U. S. Offshore businesses performed better than we anticipated.

Speaker 4

In the Q3, the combined EBITDA of these two operations was $16,500,000 a decrease of $5,900,000 This reduction reflected planned downtime for the top drive upgrade and recertification on our M400 rig in the Gulf of Mexico. Combined EBITDA for Alaska and U. S. Offshore should improve by $1,500,000 in the 4th quarter With a full quarter of M400 operations, partly offset by planned maintenance on 2 rigs in Alaska. International EBITDA decreased by $2,200,000 or 2.2 percent to $96,200,000 Average rig count and average daily gross margin were lighter than expected, largely driven by the newbuild challenges in Saudi Arabia.

Speaker 4

In addition to the material foregone revenue, we still had to absorb compensation and other costs on these non performing rigs. For the quarter, average rig count remained at 77. Average daily gross margin came in approximately at $15,800 The SANAD issues affected our international daily margin by about $700 We project international average rig count in the 4th quarter to increase by 1 to 2 rigs driven by redeployments in Latin America. And for average daily gross margins, we are targeting between 16,200,000 and 15,300. Drilling Solutions posted adjusted EBITDA of $30,400,000 in the 3rd quarter, down 2,300,000 This was primarily driven by the decline in the Nabors Lower forty eight rig count.

Speaker 4

Although international and third party revenue did well during the quarter, Some of our 3rd party target clients reduced their activity, which cut our opportunities for additional expansion in this market segment. We expect 4th quarter EBITDA for Drilling Solutions to increase by approximately 10% over the 3rd quarter level as we continue to grow in international markets and add 3rd party activity in the U. S. NDS gross margin per day for the Lower forty 8 was $3,388 Our combined Drilling Rig and Solutions daily gross margin closed at $19,243 Brake Technologies generated EBITDA of $7,200,000 a 12.7% increase versus the 2nd quarter. This improvement was primarily driven by higher margin aftermarket sales and services as well as higher penetration of our energy transition technologies.

Speaker 4

We expect Rig Technologies EBITDA in the 4th quarter to expand by approximately 20%, reflecting expected year end sales of Rig Components And additional increases in energy transition revenue. Now turning to liquidity and cash generation. Free cash flow for the Q3 at just under breakeven fell below our target, mainly due to higher capital expenditures of $33,000,000 which reflected the accelerated timing of investments in Saudi Arabia and the U. S. This resulted in lower than previously In addition, our accounts receivable balance and other working capital items were some $40,000,000 higher than we expected.

Speaker 4

In addition to this working capital impact, lower EBITDA than planned negatively impacted free cash flow. In the Q4, we expect overall CapEx to decrease significantly and the Q3 working capital impact to reverse itself. We expect free cash flow for the full year 2023 of between $225,000,000 $250,000,000 as compared to our previous expectation to generate between $300,000,000 $350,000,000 The reduction includes $40,000,000 of incremental CapEx during the second half. Our Algerian deployment has been moved up. We expect to spend approximately $20,000,000 in CapEx before year end in preparation for the 4 rig multiyear contract.

Speaker 4

We also decided to spend $10,000,000 in purchasing our rented base in Argentina's Vaca Muerta Basin. The opportunity to purchase this critical facility presented itself after unsuccessful attempts in previous years to lock in our major operation space for the long term. Finally, also SANAD newbuild CapEx in the Q3 was essentially an acceleration from the Q4. We now expect about $10,000,000 of 20.24 CapEx to move into late 2023. Capital expenditures in the 3rd quarter were $157,000,000 $4,000,000 higher than the 3rd quarter.

Speaker 4

This amount including investments for the San Antonio book program of $52,000,000 For the Q4, we expect capital expenditures of Approximately $95,000,000 including $35,000,000 for SANAD newbuilds. For the full year, we are targeting $520,000,000 of which $190,000,000 are percent of newbuild rigs. In conclusion, the 3rd quarter EBITDA and free cash flow were unfavorably by one off events as well as items that shifted between quarters. Excluding these items, the underlying results for our international continue to progress and we expect further acceleration ahead. Just as importantly, The trends in the Lower 48 proceeded as we had forecast.

Speaker 4

I believe we have seen a bottom in rig count and pricing. We also anticipate that U. S. Drilling, NDS and RigTech will benefit from a meaningful uptick in activity in 2024, driven by an expected recovery in gas drilling. Increased EBITDA in 2024 versus the prior year as well as sustained capital discipline should result in higher free cash flow next year than what we now forecast for full year 2023.

Speaker 4

We will continue to allocate this cash generation to debt reduction throughout 2024. With that, I will turn the call back to Tony for his concluding remarks.

Operator

Thank you, William. I will now conclude my remarks this afternoon. Notwithstanding challenging market conditions in the U. S, we expect a material improvement in our consolidated financial results for the Q4. In the Lower forty eight, we expect to grow our rig count this quarter from its current level.

Operator

As we look to put rigs back to work, We remain committed to our pricing discipline and expense control. Our international segment has excellent visibility Significant growth through 2024 and beyond and additional opportunities are already emerging across our major markets. The international portion of our NDS segment is also growing as those clients realize performance benefits from the NDS solutions portfolio. In the U. S, we continue to focus on increasing penetration on our own rigs as well as on 3rd party units.

Operator

We are encouraged by early signs of an acceleration in Rig Technologies, especially for capital equipment in the international markets. On top of that, we have high expectations for RigTech's energy transition initiatives. We remain committed To our goals of free cash flow generation and net debt reduction, we expect to report improvements in both metrics this quarter. That concludes my remarks today. Thank you for your time and attention.

Operator

With that, we will take your questions.

Speaker 1

Yes. Thank you. And the first question comes from Derek Baudheiser with Barclays.

Speaker 5

Hey, good morning. Just wanted to ask you about the You highlighted in the press release, you mentioned these things are ready to go. Just maybe give us some more color around your expectations on When those should be deployed, the cadence of deployment, maybe the customer type, the basin, just help us with those 14 rigs as you look at them through 2024.

Operator

Sure. Well, in terms of customer types, obviously, we've seen a bit of a shift from the privates to the publics from where we were a year ago, and I think that shift is going to continue given other developments. In terms of basins right now, I think the most attractive right now is South Texas due to a combination of interest and rig availability. West Texas, there's been Some redeployments of existing equipment there and there's no operator churn, but at the same time we're seeing slight increases and based on our survey we see a pickup in early 2024, with budgets reloading, East Texas and Northeast, as we alluded to, that those are gas driven. And right now, we see some stability.

Operator

In fact, we think pricing, which had been Disconnected from oil is actually firming up that gap between oil and gas is actually narrowing. So that's another area. Then finally, North Dakota, as you get into winter, that activity is going to be pushed into next year or more, but there's some recent stuff now, but then later in the year. So Pretty much in each of those markets, Northeast, I'm not so sure if we see much in the Northeast for us right now.

Speaker 4

I guess, how many of

Speaker 5

those 14 do you think you can add back by the end of 2024?

Speaker 4

It depends on customer demand, Derek. I mean, it's a bit early To be hazarding that, but if the demand is there, we'll be ready.

Speaker 5

Got it. Okay, that's helpful. Just follow-up, just wanted to ask about 2024 CapEx budget. Any help you can give us as far as color, maybe some bookends, how we should think about it between the U. S.

Speaker 5

International, SATA and technology, anything Just to give us some preliminary guidelines here?

Speaker 4

I think SANAD will be similar to this year, maybe slightly higher because The supplier is going to get better and probably deliver those rigs a little bit more reliably than they have in the past. We'll have a significantly higher rig count. And as you know, the maintenance CapEx It's directly correlated to the number of rigs, so that will go up. So those are the areas where we see. On the other hand, we won't be buying Based in Argentina and some of the things we have absorbed in places like Algeria We'll not repeat.

Speaker 4

So we will see I would expect to see CapEx higher than this year, but we haven't yet finalized Our budget exercise and as you know, CapEx is a competition between different geographies. So we are shooting to have a number that's going to be Constructive in terms of free cash flow generation next year, and but we're not ready yet to share that with our investors.

Speaker 5

Great. No, that's helpful. That's all I got. I'll turn it back. Thank you.

Speaker 2

Thank you. Thank

Speaker 1

you. And the next question comes from Arun Jayaram with JPMorgan.

Speaker 6

Yes. Good afternoon. Tony, I just wanted to go through Some of the challenges you talked about in Saudi Arabia in the quarter, how has this impacted The future timing of the new build schedule, is this going to be kind of compartmentalized to this year? Or does it have kind of a knock And I know you gave us a bit of color around 4 startups next year and 5 beyond that.

Operator

Well, let me give you some context first. First of all, the new build program vis a vis what Nabors normally does in countries, it's kind of sui generis, Because as you know, in this particular operation, it's unique because Aramco has committed over 10 years for us to build these 50 rigs, 5 a year, but also this was part of Vision 2030 and they wanted to source the manufacturing in local country And they award that sourcing contract to a joint venture between them and NOV. So unlike where Nabors normally does stuff or sales and controls at all, That's different. And also the fact was that, that JV called ARM had no infrastructure. So they had to build a new facility.

Operator

They have to get up to speed and no inventory, All that stuff and all that was occurring at the same time the new build program started to get underway. So the only thing I'd tell you is that we're committed to follow and ramp those wishes. I'm We actually have a 30 year relationship with LOV, so we respect them. But it's hard and these are this is actually a very big project And there's a lot of strain in the system when this stuff happens. Ramapo has very deliberate acceptance testing processes and procedures.

Operator

And what's been going on these rigs is, given it's all a startup operation from a manufacturing point of view, The acceptance procedures are taking somewhere from 2 to 3 months just to go through acceptance testing, never mind putting things that are coming up. And then there's issues of stock inventories for stuff that's never been there in the country before and all those kind of challenges. So that's what's stretching everything out and that's what's great tension. But notwithstanding that, I think we've really had some great success this year in terms of getting these rigs on to payroll. And as we said, We have great visibility here right now in terms of next year with the 4 more rigs next year and the beginning of the second tranche.

Operator

So as we've said, The 5th of the first launch is going to be pushed to the Q1. Obviously, that rig, as we alluded to, is already built. But again, for all these problems, we have to make sure the base rigs All working in the right way. That's the foundation here. So it's in everybody's interest to make sure they will get to up to snuff the exact way And then it should become cookie cutter as you go forward.

Operator

So that's why the time is being spent here. And obviously, that all Drives extra costs because if you have a rig and you've been crew planning for the rig and then the acceptance testing gets strung out, Then we have all the crew extra crew expense as well. So that's what's driving a lot of this extra expense here. So that's a concept. And then the last thing I make is Two other good points here is we've also told you that the 3rd tranche has also been announced, which is going to start in 2025.

Operator

Again, that just shows Aramco is really getting behind the thing now and the fact that they're announcing it so early when 2024 is not even yet delivered, the 2nd tranche Shows that their intent on pushing everybody to actually get the program going. So like I said, everybody is motivated to get this I'm sure our friends across the street feel the same way and we just want to make it work and get this cadence down. In terms of numbers and impact, I think this is probably the least appreciated thing of what Nabors has today actually. These the 4 rigs that have already been put on the payroll Next year, combined with the 4 that are going to be added, we're going to be more than $40,000,000 incremental EBITDA.

Speaker 4

$50,000,000 to $60,000,000 roughly, Actually, to be precise.

Operator

Yes. Well, yes. So, anyway, the magnitude, as you can see, is very large. And therefore, That gives us great visibility. And when you add that to the 11 rigs that you know about in other markets, I think international is really poised for A really great upturn here and we can talk a little bit more about that context, but hopefully that answers your questions about Saudi Arabia.

Operator

If you have any other ones, I'll

Speaker 4

be happy to follow-up a Let me say something what Tony said that I think is very interesting and a lot of people are not seeing is that we still have some 11 rigs that have been awarded They're going to be deployed before the end of the year 2024. And then we have another 7 Already awarded that will be deployed in 2025. So that's what our between the beginning and the end of 2025. So there's 18 more rigs that are coming on the payroll over the next couple of years. And that's huge growth based on our 77 base.

Operator

I would say there's nothing like that in the sector or there's ever been that much planned growth committed to in the land drilling sector ever These kind of numbers, it really is unparalleled. And then as I said, and then You have away from Saudi Arabia, you have the other things that's going on in the macro environment.

Speaker 6

Great. Thanks for that color on international. Appreciate it. I'll turn it back.

Speaker 1

Thank you. And the next question comes from John Daniel with Daniel Energy Partners.

Speaker 7

Hey guys, thank you for including me. Tony, just sort of a big picture question for you, but let's assume Middle East tensions, the situation escalates And energy security fears ramp even higher. How quickly can you just ramp your international business, Not country specific, but just broadly speaking, how quickly could you ramp it further?

Operator

I would say very, Very quickly, actually, that's the benefit of having the integrated infrastructure that we have. And We actually have a bunch of assets around the world in various places that form the outlines of something and Adding Tim and refurbishing them and bringing you all the stuff is what we do every day and that is just a question of the opportunity. So if that comes up, whether it's Enhanced Energy Security here in the U. S. Or there's other markets that need it, I think that has really the power of the company that we have today.

Operator

And That's actually what makes us different

Speaker 4

than everybody else, John, as you know.

Operator

And so that is really the strength of the company. And I think we're well positioned to meet that.

Speaker 7

Okay. And I guess sticking with the energy security theme, Are you seeing any change in behavior with people looking for longer term contracts on equipment, just to know they've got it? Or is it too early?

Operator

Too early, although we have gotten inquiries from the Middle East. We've had a number of on the Canrig side actually, We've gotten a number of inquiries from what you might call our local competitor companies. These are companies that really we don't really compete with because they typically drill in the shallower Part of the market or there are captive companies for certain markets where the national oil company controls it more. And those companies, we've had a lot of inquiries recently reaching out, asking about equipment and sizing things up. I mean, this goes consistent with the theme William alluded to, which is the overall international arena here, I mean, just to give you an idea, there is a Away from Saudi Arabia, I may have a

Speaker 4

list here. Just to give you an idea

Operator

of the breadth of what's going on internationally, I mean, you've heard All the big boys, oil service companies, we've all talked about super cycles and things like that. But let me I can illustrate the following way.

Speaker 4

Let me give

Operator

you a list of countries: Kuwait, Algeria, Oman, India, Abu Dhabi, PNG, I mean Papua New Guinea, Argentina, Mexico, Colombia, Venezuela, those companies today have tenders out what we have in hand For more than 50 rigs, 50,

Speaker 2

okay.

Operator

All right. I've never seen this is really Something that we've never seen before, this kind of scale, it's kind of stunning. And what's the reason for that? I think the reason alluding to what you're talking about, Which is the security, I think the NOCs appear driven to increase the production capacity. That's clearly a big driver of it.

Operator

2nd, obviously, the geopolitical events obviously are also reordering the flows of oil and gas, including into areas like North Africa, where you're going to see people there That up to now, you put a higher priority on increasing the production. And then finally, I think we're all under estimating the fact that All these major oil and gas countries, their internal energy consumption is increasing themselves. And so that also is a driver. So you put all this together And the fact of lack of investment, what's gone on in the past 5 years, that's what's generating all this activity. Now will those all result And that number of rigs being awarded, then I'm not going to I don't want to I'm not over selling that, but I'm just trying to give you an idea to respond to your question of inquiries.

Operator

When you have that many tenders out, You can see why Canrig is getting inquiries from everybody in the world because they want top drives, they want things to be upgraded, they want all kinds of things and so that's what's driving

Speaker 7

Thank you. That's very good color, Tony. I appreciate your time. Thank you.

Speaker 2

Thank

Speaker 1

And the next question comes from Dan Kutz with Morgan Stanley.

Speaker 2

Hey, thanks. Good afternoon, guys. So I wanted to ask on the Roller 48 Activity, it looks like you guys have kind of stayed in a pretty consistent market share range recently, which is a little bit lower than maybe we saw in some past years, but that seems consistent with Your strategy and what you're saying about defending being disciplined in your bidding, managing costs And kind of trying to defend margins as much as possible. But I wanted to ask, is there a scenario where you could Gain some market share and still achieve all the other stated goals or do you think that We're kind of at a fairly steady state from that perspective and it's just going to be more the macro backdrop that will The biggest driver of your Lower forty eight rig count? Thank you.

Operator

Well, obviously, We do like to grow and we like to grow profitably and so there's always that balance. And What we've tried to prioritize in our thinking is focusing on customers that also have similar view to us as the adoption of technology, Because as you know, the rig count or our rig margin is one thing, but the added benefit of NDS margins on these rigs also is a material enhancer, not just Of absolute margin, but also of return on capital because the NDS quality of that EBITDA is much higher than also the base drilling business where The cash conversion rate is almost 80% of the EBITDA, the cash conversion. So that's where the priority is. And we think that as customers begin to get the story of NDS more and more and learn about the product line that that offers Great expansion opportunities to help drive the rig sales and it also helps to drive the use of NDS on 3rd party rigs. And you saw in this quarter something quite interesting, which was even though our rig count dropped, NDS actually grew in 3rd party business, which is interesting in and of itself, which proves the concept that what we're trying to unlock with this stuff It's something that actually has a broader ability away from just Nabors rigs.

Operator

So the answer is, Yes, I do believe as the market matures, as the big players take a bigger position in the U. S. Market and they are more technology focused That there is an opportunity to gain market share. So one example of that is the focus on With the consolidation that has occurred, I think one of the things people will be focused on is improving EOR, not just drilling wells faster. As you know, the industry has done a great job Drilling wells very, very quickly and at certain point there's going to be a lot of diminishing returns.

Operator

So I think some of the metrics may go to looking at EOR Per lateral foot drilled and we'll actually see some of the big guys talk about that increasing lateral length as much as 5 miles. And that kind of stuff benefits Nabors because we've pre invested in that move. We built the M1000 rig, which was the successor to the X-ray a couple of years ago, That's a 1,000,000 pound hook load that's perfectly designed for these longer lateral lengths. We also introduced in the market a new top drive that has the highest torque available That can actually handle a 5 mile lateral. So the company has positioned itself to capture that moment.

Operator

And I think when As the market moves in that direction, all these were bets we made in the past couple of years as the market moves in that direction, I think it would help us also We'll share. So that's a pretty long winded answer, but I hope its response is what you want it.

Speaker 2

No, that's great. It was a long winded question. Thank you. And then I guess just another one on the international space. So if I back out The SNOD rigs that are working today, you guys are somewhere in the low mid-70s.

Speaker 2

And then if I look back to kind of the pre pandemic period, When the SNOD program hadn't kicked off, you guys' international activity was another 2 dozen above where your Exinade activity is now. What I'm basically trying to Frame or understand is like, what do you think the potential is in the international space just to kind of get back to The level of investment and activity that's required to kind of get back to a normal production And then on top of that, you have all these capacity growth targets that a lot of the Middle East players are have put out there. But I guess, I'm just trying to understand if there's a historical period that you'd point to that you think could be the opportunity International activity outside of Sanad. And again, I appreciate you guys have given us a ton of color on your visibility over the next 2 years. But I'm just trying to understand what like the ultimate opportunity could be for international rig redeployments Aside from the substantial Sanad opportunity?

Speaker 2

Thank you.

Operator

Well, I gave you a pretty big list of those opportunities. Really going to be a question of our prioritizing where we want to allocate the capital, what's best served Is what we would put it. And as we think about that, some of the other logic I've talked about, which is technology and NDS also applies to international in terms of Which opportunities we choose to pursue. So it's going to be a balance in terms of allocation of capital And what we want to pursue in terms of how fast we want to grow. But I think right now you're seeing an environment where There's not a can be a dearth of opportunity.

Operator

The question is whether the returns on capital are good enough to meet what our hurdle rates and what Are they such that they base 1 on 1 equal 3 when we pursue that opportunity? And I'll let Wayne add anything to that.

Speaker 4

Sure. I think Latin America,

Operator

which is Under,

Speaker 4

I would say, estimated piece of the pie, I think we have real opportunities to grow in places like Argentina and Colombia, where we already are the strongest player and in Mexico on the platform rig market, we're getting a lot of pressure from Pemex to add rigs in that market as well. So I don't even want to mention Venezuela because it's still a little bit up in the air and Whether how much the sanctions are going to be removed and how much some of our clients are going to go back to that, but we do have real opportunity. We have four Rigs in prime condition in Venezuela waiting for a resumption in activity by some of the foreign players. And then we have seen places like Kazakhstan that have gone down, but we don't know when that will come back. But I think If it does, we're ready for that as well.

Speaker 4

And then Kuwait, we have some very important tenders Coming and we are very well positioned in that market as well. Now we mentioned that we got an award in Algeria for 4 rigs, which is a very impactful win for us. And we are looking at other places in North Africa as well To expand, so those are the areas where you would expect to see most of the uptick in Nabors. Now we do have to be Conscious that we cannot address all the opportunities that are out there. So we have to be selective.

Speaker 4

We have to focus, as Tony said, on We can get technology on top of the rigs and we have to make sure we have a CapEx program for next year that makes sense in terms of our Our free cash flow objectives.

Speaker 2

Great. Thank you both very much. I'll turn it back.

Speaker 1

Thank you. And the next question is a follow-up from Derek Paul Heizer with Barclays.

Speaker 5

Hi. I just wanted to follow-up on the 11 rigs you highlighted international to be deployed by the end of Sure. Is that a net number? Or I'm just wondering how we should think about that. Will we see some offsets, maybe some rig releases in other regions?

Speaker 5

I know you highlighted Kuwait and Colombia is the areas of softness currently. Just thinking about if that 11% is completely incremental or We should think the 11 minuteus something.

Speaker 4

The 11 is stuff that we have in hand already, but we have others that we have Very high probability of getting. So the 11 could be higher, right? Now it's true that in some places there could be some We lease it somewhere, but again, we have very long term contracts all over the place. So right now, we're not expecting to see reductions in other places.

Speaker 5

Got it. Okay. Very helpful. And then just I know capital allocation strategy talked about it being towards debt reduction repayment. But considering just how constructive you are on NDS, I'm just curious how we should think about M and A opportunities, Whether it's a tuck in or bolt on as far as technology or anybody else out there that can fold right into the Under the Neighbor Solution, just thinking about M and A opportunities in NDS, how we should think about that?

Operator

I think you've hit on something that It's been on our radar for quite a while and we have been looking and we've added some small software stuff that you haven't really seen much visibility to that We become part of our product lines as well, so kind of add to our internal growth, but with kind of small tuck in acquisitions. And then we've also embarked on partnerships as well. So our example is Corva out there, which has a software product that we've competed with. But together, We think we can actually do 101 equal 4. And the marketplace is not a big marketplace, right?

Operator

I mean, there's only X 700 rigs in the international I mean, what's the other mean, 1500 rigs that are target rigs. It's not not like Microsoft and Apple, which has a gazillion customers out there. So for the technology to work, it makes sense to try to Work with incumbents and see if there's a way to make things work better. And so we've embarked on that path with some of these We've done and we're open to it. We are looking at other similar deals, not just acquisitions.

Operator

I think we

Speaker 4

also deal with Halliburton that I think is going to be Accretive for Nabors Learning Solutions and of course one of the big objectives that we have is to try to Convinced some of our peers to take our technology rather than redeveloping, reinventing the wheel themselves, and we have been having some success on that.

Speaker 5

Great. Thanks for taking my follow ups. I'll turn it back.

Speaker 1

Thank you. And this concludes the question and answer session. I would like to turn the floor to management for any closing comments.

Speaker 3

Thank you all for joining us this afternoon. If you have any additional questions or would like to follow-up, please contact us. With that Keith, we'll end the call there. Thank you very much. Thank you.

Speaker 1

And as mentioned, the call has concluded. Thank you for attending today's presentation and you may now disconnect your lines.

Powered by Quartr
Earnings Conference Call
Nabors Industries Q3 2023
00:00 / 00:00