Nabors Industries Ltd. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Parker Acquisition: Completed March 11, operations in line with expectations, on track to achieve $40 million in synergies by 2025.
• Macro Environment: Oil market affected by OPEC+ output plans, tariffs, and US shale production; natural gas activity in US poised for recovery.
• International Drilling: SANAD joint venture in Saudi Arabia performing well; reactivated a rig in Colombia, deployed a rig in Kuwait, with plans to add 10 rigs in 2025.
• US Market: Lower 48 rig count fluctuated, daily margin $14,276, focused on reducing costs and aligning with market.
• Technology and Innovation: Drilling Solutions business remained significant contributor, benefited from Parker acquisition.
• SANAD Business: Forecast to earn adjusted EBITDA over $300 million in 2025, with newbuild additions driving growth.

Segment Performance

• International Drilling: Generated revenue of $382 million in Q1, a 3% increase sequentially. Adjusted EBITDA was $115.5 million, up 3.1% sequentially. Rig count averaged 85% including 20 days of Parker's contribution. Daily gross margin was approximately $17,400.
• Lower 48 Drilling: Revenue was $231 million, down 4.5% sequentially. Average rig count in Q1 was 61, with daily revenue at $34,546. Daily margin was $14,276. Forecast for Q2 Lower 48 daily margins is ~$14,100, average rig count between 63-64.
• Drilling Solutions and Rig Technologies: Combined EBITDA over $46 million in Q1. Drilling Solutions revenue was $93.2 million, up 22.6% due to Parker acquisition. Rig Technologies revenue was $44.2 million, down 12% sequentially.
• Alaska and U.S. Offshore: First quarter EBITDA $20.5 million, with Parker contributing ~$800,000. Second quarter forecast ~$26 million including $5.3 million from Parker.

Guidance

• Revenue: First quarter revenue $736 million, up 1% from prior quarter.
• EBITDA: Total adjusted EBITDA $206.3 million in Q1, lower than prior quarter. Second quarter EBITDA forecast includes improved numbers from international deployments and Parker contribution.
• Capital Expenditures: Q1 CapEx $144 million excluding Parker, targeting ~$230 million in Q2.
• Parker Synergies: Expect to capture ~$40 million in synergies in 2025, including $15 million run rate in Q4.

Risks

• Oil Market Volatility: Impact of OPEC+ output changes, tariffs, and US shale production on oil prices and drilling activity.
• International Market Challenges: Reductions in certain international markets, political uncertainties in Mexico and Colombia, and sanctions affecting Russia operations.
• Tariff Uncertainty: Potential impact on costs and margins due to tariffs on imported goods.

Question and Answer

Q: On SANAD, have you started accruing any debt in that JV right now or not yet?

A: No. And we don't plan to for now or there's no-- Q: Do you know if Saudi Aramco is finished with the rig releases or you expect there's still some more to come this quarter?

A: So, let's back up a little bit. So, in terms of what's happened and we give you just a thumb on where we are right now. So, you had -- last year, you had on the offshore, you had 32 rigs suspended and one in this quarter on offshore. And on land last year, you had 31 and this quarter, you had eight, so 39 in total. Now, you also have to bear in mind that on the offshore, there were some additions only three. But on land, last year, there were 21 additions and seven additions in the first quarter that's 28. So, the net result of the delta change was 11 rigs, okay, on land. And obviously, all these activities in the oil in terms of the reductions. And I think what's underappreciated is that is the amount of condensate, Aramco is generating on their gas production, and that's driving some of this reassessment things in terms of the numbers in addition to the sort of global oil demand issues. So, that's where it's now. And obviously, in this environment, there's -- everyone has contingency plans and obviously, Aramco has contingency plans if things drop and there will be more suspensions, but they haven't called on them yet, given where things are still. So, everybody is in a wait-and-see attitude. And as we said, with respect to sounding ourselves, we think we're well-positioned because number one, our existing rigs are basically in the gas play, super majority of that and all our rigs are gas-capable. So, that's a real benefit we have to get to other people.

Q: I see in your presentation, you expect a restart of a rig in Mexico. Do you have an indication from Pemex that’s going to happen, or is that just your expectation?

A: Yes, Pemex is keen to get that rig restarted. And obviously, as William talked about, we continue to have the dialogue with the customer about payment issues. So that remains an issue. But yes, their plans are still to restart that rig.

Q: Completely agree that SANAD stands out as a rare high-return investment in the land rig space with exceptional long-term visibility. And just given your deleveraging priorities, how do you think about the potential to accelerate the value realization from SANAD potentially via an IPO? And should we view that as one of the potential levers you could pull if market conditions deteriorate in the next year or two?

A: I think you can assume that, that's paramount on both Aramco and our agenda item. It's the obvious path. When you look at valuations in the Middle East, in particular, you noticed there how the reward for the drillers is radically different than what it is here in terms of multiples. And we think Senate is the most attractive company in the region and could be in such a scenario. Obviously, we have some preparatory work to be done in the meantime. And both parties are looking at that as an option, obviously. So it's pretty clear that, that is one path to realize value and create enormous shareholder value. If you look at our last investor call slide deck, we put a pro forma valuation of Nabors in it. And in there, we do a sum of the parts analysis and you can see there an analysis for SA, assuming you get -- you can extract that kind of multiple and the uplift, of course, is enormous. And that, of course, is one of the long-range potentials in the stock over the next two years to the extent that we can pull that off.