Nabors Industries Ltd. Q3 FY2024 earnings call

Acquisition of Parker Wellbore

• Excited about the combination, as Parker's portfolio and geographic footprint fit neatly into Nabors, accelerating the strategy, especially in the Drilling Solutions segment.

International Markets

• Remain a source of strong growth, with prior rig awards progressing into deployments and incremental EBITDA. Expect to end 2024 with 85 international working rigs and have 9 rig awards scheduled to deploy in 2025.

U.S. Lower 48 Market

• Resilient in pricing and rig count, focusing on high-performance and automation demand. NDS performed strongly with growing International casing running and increased data/software offerings in U.S. and International markets.

Technology Innovation

• NDS International revenue and EBITDA increased sequentially, with expansion of automation systems. International rig presence is expanding and automation software penetration is increasing.

Capital Structure

• Continued to work on debt maturity profile through issuance of seven-year notes, expected to retire debt with free cash flow.

Sustainability

• Energy transition portfolio focuses on improving performance and reducing emissions, with PowerTAP module in Argentina set to begin work soon and interest in other international markets.

Third quarter adjusted EBITDA totaled $222 million, in line with expectations. International segment margin exceeded $17,000, and daily margins in the U.S. Lower 48 remained above $15,000. Adjusted EBITDA in the Drilling Solutions segment increased sequentially by 5.7%, driven primarily by growth in International business and a positive mix shift in the U.S. International markets remain a source of strong growth, with prior rig awards progressing into deployments and incremental EBITDA. International EBITDA was $116 million, up 9%, with daily gross margin increasing from approximately $16,050 to $17,080. U.S. Lower 48 daily rig margin was $15,051 in the third quarter, expected to be $15,000 in the fourth quarter with a rig count of about 68.

Fourth Quarter

• U.S. Lower 48 daily margins expected at $15,000 with a rig count of about 68; International expected to deploy three additional rigs, with average daily gross margin at $17,000.

2024

• Free cash flow expected to end between $100 million and $130 million.

2025

• Have 9 rig awards scheduled to deploy during the year, including 5 newbuilds in Saudi Arabia, 1 activation in Argentina, and 3 activations in Kuwait, with significant incremental opportunities identified.

• SANAD in Saudi Arabia received notice to suspend operation of 3 out of 51 rigs, with a one-year duration, and suspended rigs are lower margin performers.
• Market uncertainties such as oil price fluctuations, market churn, and uncertainties in international market opportunities may impact financial performance.

Q: Arun Jayaram asked about the acquired Parker Wellbore's businesses, economic moat, and capital intensity.

A: Tony and William explained the business areas involved, such as O&M contracts and casing running, Parker's high-quality EBITDA and good free cash flow conversion, and that the acquisition increases NDS's proportion from 15% to 31%.

Q: Arun Jayaram inquired about the impact of efficiency gains on Lower 48 demand.

A: Tony stated that there are diminishing returns on existing infrastructure, longer laterals change well economics, and NDS invests in technology to help operators gain better economics from production. William added that current profit margins are higher than previous peaks and NDS contributes significantly.

Q: Dan Kutz asked about Saudi pricing and SANAD newbuild program.

A: Tony explained Saudi rig situation and SANAD newbuild program cadence remains unchanged. William supplemented on Saudi unconventional drilling rig awards.

Q: Keith MacKey asked about international rig margins and 2025 capital.

A: Tony described international margin situation and regional market supply-demand balance. William mentioned increased SANAD newbuild deployments in 2025 and possible increase in CapEx.