Q4 2020 Nabors Industries Ltd Earnings Call
Good day, and welcome to Nabors Industries fourth quarter 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 press Star then one on a touchdown found to withdraw your question Press Star then two please note. This event is being recorded.
I would now like to turn the conference over to William Conroy. Please go ahead.
Good afternoon, everyone. Thank you for joining Nabors fourth quarter 2020 earnings conference call.
Today, we will follow our customary format with Tony Petrello, Our chairman, President and Chief Executive Officer, and William Restrepo, 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 Dot com instructions for the replay of this call are posted on the website as well.
With US today in addition to Tony William and myself are Siggi Meissner President of our global drilling organization and 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 free cash flow.
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 free cash flow as day.
Non-GAAP measure as 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'll turn the call over to Tony for his remarks.
Good afternoon. Thank you for joining us as we review our results for the fourth quarter of 2020.
Before I begin I would like to express our thoughts on concern for the members of our community were affected by the severe weather and the related power and water outages.
Our rig operations in Texas were essentially unaffected.
Turning to our results I will begin with overview comments there.
Then I will follow with a discussion of the market and highlights from the quarter.
William will discuss our financial results I will make some concluding remarks before opening up for your questions.
First of all as we close the books on 2020 I want to recognize the entire nabors team for its outstanding performance in these extraordinary circumstances, our company's staff confronted the impacts of Covid and the depressed drilling market head on with perseverance and ingenuity those.
Efforts across all of our segments and functional areas reinforced our leadership in our markets at.
At the same time, we managed to improve our financial strength, we are emerging from the pandemic as a stronger company nabors is well positioned to capitalize on the upturn.
Our financial discipline paid off from 2020 for the full year, we reduced overhead spending by 24%.
This effort began in the second quarter, our run rate in the fourth quarter represents nearly 27% drop over the 2019 quarterly average.
We also made further progress on our twin priorities, namely generate free cash flow and reduce net debt.
We began the year at just under 2.9 billion and net debt, we deleveraged by nearly $400 million fueled in part by free cash flow generation of $184 million. We ended 2020 with net debt less than $2 5 billion.
We achieved this in the face of very difficult market conditions.
Our results demonstrate the earnings power and resiliency of our unique portfolio of premium assets with geographical diversification.
Notwithstanding the most adverse industry and macro conditions in decades, we maintained our position as the preferred drilling contractor and reset our cost structure.
Our operational strength has supported our financial performance.
Outside of North America, we remain the largest and most profitable land drilling contractor.
And in the lower 48, we continued to deliver the highest daily gross margins among our peers based on the strength of our performance drilling our offerings and our digital infrastructure, we increase the penetration of innovative drilling contracts these contracts generate incremental margin based on value sharing.
In the fourth quarter, the combined gross margin from our lower 48 drilling rigs and our U S drilling solutions significantly exceeded those of our peers.
Our investments in performance technology safety, and importantly, human capital and sustainability are driving this success. We are positioned well for continued growth I am looking forward to reporting further progress in 2021.
Next I would like to spend a few moments on the macro environment.
After briefly testing the upper thirties in late October the price of near month W. T. I increased by 35 per cent through the end of the year.
Since the beginning of 'twenty 'twenty, one the price has risen further.
Recently W. T I was trading above $61, Brent, which is also important to our global client base made a similar move it was recently priced above $64.
Global oil demand continues to recover in the fourth quarter.
E I a report consumption increased by more than 2% versus the third quarter in part this contributed to a global inventory draw over 200 million barrels.
In early January the OPEC plus group agreed to keep its production essentially flat.
That announcement was followed almost immediately by Saudi Arabias reported reduction in output.
The resulting higher prices, which I detailed earlier are generally supportive of increased oilfield activity across all markets.
Comparing the fourth quarter and third quarter averages the Baker Hughes lower 48 land rig count increased by 23%.
Our own working rig count increased by a similar percentage as we added rigs with several customers.
These additions more than offset the reduction of our rigs stacked on rate.
From the beginning of the fourth quarter through the yen the inverse lower 48 rig count increased by nearly 30%.
The growth rate among larger clients was approximately equal to the growth in the smaller operators. It should be noted that more than half of the increase among the larger operators was driven by a single client.
And most of their clients increased with the reactivation of just one drilling contractor's rigs, which was stacked on rate.
Once again, we surveyed the largest flow or 48 clients. This group accounts for approximately 35 per cent of the working rig count.
Our review of these clients shows a modest pick up in activity planned for the balance of 2021.
It is the smaller and medium sized operators, which appear more responsive to the recent strength in commodity prices.
In our international markets. We have recently started to see demand increase in selected geographies as measured by the number of active rigs. This trend extends across major markets in Latin America and in Saudi Arabia.
To summarize our view of the markets global oil demand continues to rebound from the pandemic low.
Oil inventories, which expanded considerably in early 2020 are dropping.
The resulting increase in commodity prices has improved operator economics.
We see their response in the recent growth in rig count.
Overall, assuming the worst of the pandemic is behind US the market environment is poised to support higher levels of activity.
Now I will comment on our fourth quarter results.
Total adjusted EBITDA was $108 million in the quarter.
These results reflect activity, which was somewhat better than anticipated.
Our lower 48 operation and our international on drilling solutions segments exceeded our expectations.
With this adjusted EBITDA performance, we generated approximately $66 million and free cash flow after funding $41 billion in capital spending.
Our global rig count for the fourth quarter was essentially stable at 131 rigs.
Growth in the lower 48, and Canada, largely offset the decline in international.
In our lower 48 business, our reported daily rig margin of $9541 exceeded our guidance and remains in line with the third quarter.
For the international segment adjusted EBITDA for the quarter was higher than our expectations daily margin outperformed driven mainly by strong operational performance in Saudi Arabia and by revenue from early terminations. These items more than offset the decline in rig count.
Our industry, leading fleet capabilities outstanding operational and safety performance and expense and Capex discipline drove this accomplishment.
Next I would like to mention some specific highlights of the quarter.
During the fourth quarter, we completed a series of debt exchange transactions in the aggregate these reduced our outstanding debt obligations by $284 million.
Adjusted EBITDA in our drilling solutions segment increased sequentially by 44%.
The adjusted EBITDA margin and N D S widened to 32% in the fourth quarter.
This compares very favorably to 24% margins in the prior quarter.
And N D US we increased the penetration of our rig cloud platform for digital operations in the fourth quarter rig cloud was running on nearly all of our working rigs in the lower 48.
We are now in the early stage of growing on third party rigs.
We saw continued growth in our smart card and smart and have apps.
Slide is our directional steering control system, which automates slide drilling smart NAV is our automated directional guidance system.
Our cumulative footage growth for these apps working together increased by 11% in the fourth quarter, our cumulative well count was up by 12%.
Our portfolio of automation applications, and then D. S is second to none in terms of capabilities. We develop these products around our smart R. O S. Four rig operating system.
Tamara R O S, which can see from the ground up to collaborate with customer workflows, while optimizing rig operations. We believe we now have brought us most advanced the most profitable automation solutions in the market today.
Our focus on ESG is increasingly reflected in our ISS ESG quality scores in the fourth quarter, our ISS environmental score improved significantly.
And the ice has social score improved again, we continue to reinforce our commitment to ESG and I look forward to reporting on that progress.
More recently Nabors decided on to the science based targets initiative, we have committed to setting science space G. H G emissions targets.
We are the only land drilling contractor to do so.
The use of alternative power on a rig that's an excellent illustration of our efforts on ESG I will cover this topic in more detail in a few moments in.
In addition to these highlights I would like to discuss one of our smart apps in particular.
Back in the second quarter of 2020, we released an improved version of smart drill our automated drilling software smart drill digitizes, an operator's well plan with optimal task sequences as defined with the operator.
Essentially it executes virtually every task the drilling performance from the chair and it compiles automated sequences of those tasks.
It is the only automated drilling solutions in the market that enables AD hoc changes to the sequence by digitizing best practices smart drill improves consistency and reduces the potential for human error.
For example, we are able to minimize the risk of damage and reduced lost time.
Tangible benefits of smart drill include an increase in a single run laterals.
A decrease in unplanned trips.
And improve that consistent connection times.
We are excited about smart drill our pricing models for this app reflect the measurable value that it generates per customers I look forward to reporting on this progress and on the other apps in our portfolio in the future.
I will also make some comments on nabors positioning in the energy transition.
Our plan as we embark on the transition consists of two parallel tracks. Most immediately we are examining alternatives to improve nabors own carbon footprint.
We actually started down this track several years ago. When we introduced fueled tool fueled tool is the system that monitors and Optimizes rig engine usage. It was targeted to reduce fuel consumption. Now we are evaluating technologies aimed at carbon capture emissions minimization and power management, we have an edge.
Inventory of 40 dual fuel packages to satisfy market needs in the lower 48 <unk>.
Approximately 15% of our operating rigs in the lower 48 are currently running on either highlight power or biofuel.
In addition, we have introduced our advanced energy management system on one of our rigs.
This system yields a significant improvement in the rigs carbon footprint.
We are also running 12 rigs in Canada with biofuel capability.
Globally I expect use of these technologies to increase in the future.
The parallel track includes opportunities, which are relevant beyond our own rig fleet. These.
These prospects could include other drillers rigs or scale beyond the traditional markets and the oil field.
Our energy transition initiatives are still on the early stages, we expect to make tangible progress going forward I look forward to reporting further on this area.
Yeah.
Before turning the call over to William I will discuss our view of the market in some more detail.
Lower 48 industry has added 151 rigs or 67% sensitive flow in August looks.
Looking forward, we see the current commodity price environment supporting increased activity as the year progresses.
We expect our own rig count to increase each quarter throughout the year.
We are also starting to see some modest improvements in spot day rates.
In our international markets since the third quarter, we have seen our own activity increased further in Latin America, our working rig count in the region rose more than 50 per cent during the quarter.
Accordingly versus the fourth quarter of 2019 pre pandemic, we have gained significant market share in both Argentina and Colombia in.
In addition, several customers in Latin America with temporary Covid pricing adjustments have returned to full day rates.
Notwithstanding the macro challenges the operations in Saudi Arabia performed exceedingly well in addition to the expected rig restarts in the kingdom have begun since the beginning of the year eight of the idle rig to return to work.
Our working rig count in Saudi Arabia now stands at 38.
This leaves five expected to return over the next 12 months.
These re activations are consistent with the expectations, we laid out last quarter.
I would like to take a moment here to express our appreciation to our standard CEO and the members of the sideboard, especially the directors from Saudi Aramco.
The Aramco board members have been tireless in supporting the management team on delivering best in class operational performance.
That concludes my remarks on our fourth quarter results highlights on the market.
I wish to reiterate that our primary concern remains the health and well being of the extended Nabors community on.
On behalf of the company, we extend our heartfelt thoughts to those affected by the pandemic.
Now, let me turn the call over to William who will discuss our financial results and guidance.
Thank you Tony and good afternoon, everyone.
The net loss from continuing operations of $112 million in the fourth quarter represented a loss of $16 on 46 per share.
Our fourth quarter included a $162 million of pre tax gains from debt exchanges and repurchases, partially offset by charges of $71 million, mainly from asset impairments for a net after tax gain of $52 million.
Fourth quarter results compared to a loss of $161 million or $23 on 42 cents per share in the third quarter.
The third quarter included net after tax gains of $6 million related to gains from.
Debt repurchases asset impairments and severance costs.
Revenue from operations for the fourth quarter was $443 million a sequential gain of 1%.
Revenue improved in most segments with only international and rig tick partially offsetting those increases.
In the lower 48, despite some deterioration in the average pricing for our fleet drilling revenue of $103 million increased by $6 9 million or 7% as our rig count improved by 11%.
Lower 48 rig count at $53 six was up sequentially by $5 four rigs.
Which is 2.4 rigs more than we had anticipated.
Daily rig revenue on the lower 48 at 20950 <unk> decreased by about $800.
We continue to sign contracts at current market rates that are lower than the average for fleet.
In aggregate revenue and net other U S markets decreased by $3 million rig.
<unk> a reduction in offshore activity as.
As one of our rig finalize this contract in the prior quarter.
Fourth quarter revenue fell with a lower rig count as well as with the absence of the demobilization revenue, we invoiced in the third quarter.
International drilling revenue at.
$245 million.
Creased by $3 3 million or 1%.
This decrease was primarily related to declines in activity across several markets as rig count fell by almost nine rigs or <unk> 12 per cent.
This rig count reduction was higher than anticipated sour.
Saudi rig count decreased by five rigs to more than expected due to temporary suspensions and Saudi Aramco adjusted as drilling activity towards the end of the year.
<unk> in Colombia, each had a one rig termination both of which we did not anticipate.
In addition on.
Jewelry in Kuwait had contracts expiring late in the third quarter that were not renewed.
The softer rig count was offset by approximately $4 million in revenue from early terminations and from the restoration of full day rates for customers with negotiated COVID-19 rates.
Canada drilling revenue was $14 $8 million, an increase of $4 1 million or 38% range.
Rig count increased by $2 three rigs on the usual seasonal ramp up in activity a.
Quarter also benefited from a 700 dollar increase in revenue per day.
Nabors drilling solutions revenue of $32 million up $2 7 million or 9%.
Merrily reflected strong increases in our high margin performance drilling offerings as well as our rig count installations during.
During the quarter, we continued to increase the penetration of these services with Nabors and third party rigs, while also benefiting from the higher lower 48 rig count.
Rig technologies revenue decreased by $1 $1 million from 4% at several clients delayed deliveries beyond the end of the year.
Total adjusted EBITDA for the quarter was $108 million compared to $114 million in the third quarter the.
The decrease was driven by a $7 $4 million reduction in our international segment and a more modest reduction in rig technologies.
These were partially compensated by improvements in NDS as well as U S and Canada drilling.
U S drilling adjusted EBITDA of $62 $2 million was up by $1 6 million or three 1% sequentially.
The lower 48 performance came in better than expected on the stronger rig count and on higher margins.
Daily rig margin of $9541 plus about $500 above the high end of our previous guidance.
And in line with third quarter level.
Increased costs, mainly a reduction of property tax expenses.
I'll set the pricing deterioration, we experienced in the fourth quarter.
Cost control efforts continue to be a strong focus as we bring rigs back to work.
An example, we have improved our rig stacking and reactivation procedures and the related costs are significantly better than in the last cycle.
For the first quarter, we expect daily rig margins of approximately $8500 driven mainly by the repricing of renewables as rigs continue to roll off from pandemic contracts and by the return to more normal levels of property taxes with an adverse impact of approximately $600 per day.
We forecast at two to three rig increase for the first quarter of 2021.
Our current rig count on the lower $48 57 rigs.
International adjusted EBITDA decreased by $7 4 million to $64 5 million in the fourth quarter.
Or 10% sequentially.
A lower rig count was somewhat offset by early termination revenue and return to full day rates from several customers.
Average international rig count was $62 six a reduction of $8 seven rigs or 12%.
Daily gross margin for the quarter was $13500 as compared to 12700 per the prior quarter.
The fourth quarter included approximately $800 per day in early termination revenue.
Turning to the first quarter, we expect on international rig count increase of two to three rigs.
Saudi rigs returned to work to aggressively during the quarter.
And for gross margin per day to settle between 12005 hundred $13000 per day.
Our current rig count in the International segment is 67 rigs.
Canada adjusted EBITDA of $3 5 million increased by $1 4 million.
Rig count at $9 seven rigs was $2 three higher sequentially.
Gross margins per day, or 4633 also increased due to a higher activity level.
We expect both rig count and daily margins to improve again in the first quarter by three rigs and $500 respectively.
We currently have 14 rigs operating in Canada.
Drilling solutions posted adjusted EBITDA of $10 $3 million up from $7 1 million in the third quarter or 44 per cent.
Improvement reflected mainly the higher revenues from performance drilling offerings and rig cloud infrastructure.
In addition, as shifting our U S casing running services from manual to integrated materially improve the profitability of that business line.
We expect adjusted EBITDA in the first quarter to be in line with a strong fourth quarter.
Rig technologies reported adjusted EBITDA of half a million dollars in the fourth quarter, a decrease of $800000. The first quarter EBITDA should be similar to the fourth quarter.
Now, let me review, our liquidity and cash generation.
Looking back at 2020, it was a challenging year.
Nevertheless, we maintain our focus on improving liquidity and leverage and we made significant headway.
The capital and cost discipline actions, we announced earlier, including cost cuts to corporate and operations overhead.
Salaries dividends and capital expenses were fully executed.
These actions were instrumental in helping nabors deliver $184 million in free cash flow for the full year.
In 2020, we reduced overhead spend by 24%. These reductions began in the second quarter and translate it into cash savings of approximately $90 million over the last nine months of the year.
On a run rate in the fourth quarter represents a nearly 28% reduction over the 2019 quarterly average.
The decrease in overhead combined with Capex reductions of $170 million and dividend cuts at 7 million translate into total cash savings of approximately $267 million versus our initial plan for 2020.
Despite the substantial drop in activity and consequent to EBITDA shortfall nabors deliver free cash flow almost in line with our initial pre COVID-19 target.
In the fourth quarter net debt declined by $290 million to $2 49 billion.
This reduction was driven by positive free cash flow and by several debt exchanges, we completed during the quarter.
Free cash flow defined as net cash from operating activities net net cash used for investing activities totaled $66 million.
This compares to free cash flow of approximately $9 million in the prior quarter.
The fourth quarter included minimal interest payments as compared to the semi annual interest payments.
Approximately $80 million in the third quarter.
During the fourth quarter, we experienced a slowdown in collections from a significant number of our customers.
While our quarterly free cash flow was affected by some $30 million. We expect this situation to prove temporary.
For the first quarter, we anticipate breakeven cash flow lease.
Please keep in mind that semi annual interest payments for all of our senior notes are paid in the first and third quarters.
In addition, the first quarter has an unusually high number of one time annual payments such as property taxes and bonus payments to our work force.
These payments and other onetime annual outflows in the first quarter typically amount to about $30 million.
Offsetting these negative impacts on our cash flow, we anticipate a strong recovery in our quarterly collections, we have already experienced an increase in collections during the month of January.
During the fourth quarter, we completed a public debt exchange and various private exchanges.
These transactions reduced our total debt obligations by $284 million and reduced our near term maturities.
During 2020, we reduced through repayments buybacks or exchanges near term notes with maturities in or before 2023 by us.
Aggregate amount of $1 $5 billion.
Subsequent to year end, we further addressed our capital structure by completing additional debt exchanges and open market purchases of our notes.
These transactions reduced our debt obligations by an additional $22 million.
Let me continue with a comment on capital expenses capital spending in the fourth quarter was $41 million compared to $39 million in the prior quarter.
For all of 2020 Capex totaled $190 million.
$10 million less than we had planned.
We are targeting capex of $50 million for the first quarter.
And a 200 million for the full year 2021.
Excluding Saudi Noble's force on it.
At this point <unk> has been awarded three drilling contracts by Saudi Aramco and we have issued one purchase order for the first rig.
We do not expect than any new builds were delivered in 2021, Nonetheless capex per cent of Nobel if any would be paid out of Senate funds.
The final comment it is worth mentioning that we determined together with our standard management team on way.
Other JV partner, Saudi Aramco that at year end 2020 Senate health cash balances to be on its future needs <unk>.
Consequently, a cash payment of roughly $50 million to each partner was approved.
This payment was executed in the month of January.
With that I will turn the call back to Tony for his concluding remarks.
Thank you William I will now conclude my remarks this afternoon with the following.
As you are aware Nabors strategy focuses on three key themes first operating premium fit for purpose assets and diversify geographies.
Second expanding services at the well site using the rig as a platform and finally using technology to unlock value and drive future growth.
This past year's results demonstrate the value of this strategy with regard to our assets. We continued to produce leading margins in both lower 48 and international markets. This performance reflects the quality of our assets and the competency of our crews.
Our safety record, which has outperformed our competitors also confirms that our fleet is second to none.
In particular utilization of our innovative pad optimal pace X rig.
Remained high throughout 2020.
Utilization of the X rig as well as our other advanced flow or 48 models has increased steadily since last summer.
And in geographies as diverse as the Gulf of Mexico, and the Middle East Desert, our rig utilization has held up better than most.
We predicted in late 2016 that the drilling industry cannot count on an ever increasing rig count to grow EBITDA and free.
Response, we created Mds its mission was to grow by using the rig as a platform.
N D S delivers integrated well site services in a more efficient manner, which unlocks value for operators and generates growth for us.
Today <unk> has one of the most robust and sizable software offerings.
Market challenges since 2016, notwithstanding we have demonstrated that this is a value creating strategy.
Finally, with respect to technology, we have maintained our investment in R&D, even throughout the downturns those investments have fueled our premium assets and NDS offerings. They yielded the first software automated directional drilling and fit for purpose downhole tools, we strongly believe that the next wave of value.
<unk> will be created through process automation, including robotics and Digitization.
ESG and efficiency reasons alone will push operators to resolve the redzone management issue and remove employees from the rig floor.
We believe we are uniquely positioned to meet that challenge, we have an unmatched portfolio of assets technology geographic mix and people that positions us well for the future.
We remain convinced that our portfolio will deliver tangible value to clients and ultimately back to nabors shareholders.
That concludes my remarks. This afternoon. Thank you for your time and attention with that we will take your questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
And the first question comes from Connor Lynagh with Morgan Stanley. Please go ahead.
Yeah. Thanks.
Kristin to see the the cash payment out of Sonata I think there's historically been some concern about your ability to extract cash from that so could you help us understand you know should we think of this as sort of one time and maybe theres not going to be more.
More of these us as you start to embark on the Newbuild program or what what sort of generally youre thinking about the ability to continue that pulls from cash on that asset.
So counter thank.
Thank you for the question I think there we have not been concerned at all about the distribution of cash I don't know, where that's coming from we've been very clear that excess cash needs to be distributed and we have a mechanism to forecast and decide whether we have excess cash or not.
The only reason this distribution was made us because of that process and by the way that was driven by our by our partner Saudi Aramco, we didnt not ask for it we didn't really need the cash right now.
But Saudi Aramco, obviously tracks that very closely and they felt on.
A payment of $100 million 52, each partner was appropriate.
I think that demonstrates there obviously appetite for making sure that Santa doesn't really sit on cash it doesn't need.
Our forecast and I have been clear on that before us that we weren't expecting to get any cash from sign it before 2000 22023.
2024 in that timeframe.
Because we're going to be building, a significant amount of rigs, which are going to be funded from sign on cash holdings and their own cash flow. We don't expect to fund any of that so.
That hasnt changed I don't believe we will have a significant distributions before 2023, but I'll put a caveat on that that's on less.
Saudi Aramco slows down the pace of awards of new rigs to be constructed in kingdom.
So if that happens then we would have.
Excess cash flow would need to be distributed before that timeframe.
Does that answer your question corner.
Yes, I think so and just to be clear that was a market level concern us now you're concerned I was referring to just makes us some pushback now behind us.
Yeah, Yeah. So I guess the Big question then is if you could just update us.
On the sort of thinking I mean, I guess I think you said you had three awards for contracts can you remind me what was it five per year, a cadence or 10 per year cadence that they were supposed to be and then basically the question is is three per year, maybe a better baseline expectation or do you think that's indicative of anything.
True.
Yeah, well I think.
So the cadence is pro forma five five per year, but obviously aramco has to review its own plans on its own budget allocations and it's really up to up to a ramp go to figure out how they want to optimize it as we mentioned there are three has been indicated only one has made it to appeal so far but the idea is to do five.
Pro forma that was the original contemplation of the other thing I'd like to mention here.
These awards are a high class problem in the sense that.
These are the best use of capital in the world in our sector. I mean, all of these contracts are against full payout contracts I think we've indicated their six year contracts with a four year renewal and in the book.
Most important development market in the world and they're all long term and with a great customer who supports the operations. So I think and decided to these things are on.
Such that it's very meaningful and therefore.
If and when I ran from decided to do it we're fully supportive of it and we're happy to be part of the team.
And our mission is to help to help them execute this well and help them build their own programs. So that's our role.
Got it that's helpful. Maybe just one more here just they're there have been some sort of conflicting reports around offshore activity broadly in the middle East, maybe being slow or some suspensions out there on the.
It seems like you have a lot of confidence that your activities going on be trending higher I guess can you confirm that and then just just one other question, which is you know is there.
Are there any sort of major pricing reset we need to think about either on the upside or the downside as we think about sort of your major middle eastern markets.
Well with respect to a ramp go in particular.
The contract.
Us.
Sure.
The pricing is actually determined by the contract. So as I said these contracts a full payout full payout contracts. So we don't really have that kind of concerned what we I think the concern will be ramp go has to decide whether these new builds make sense in the overall plans if they decided to go with the economics are already agreed between the parties so with respect to that.
I don't really think that's an issue let me make a comment on that also corner just to add on what Tony said.
We've already renegotiated and reset prices for them.
All of our rigs going forward and that was already embedded in the fourth quarter.
So we don't expect any more resets in fact.
We have already.
Rod back eight of the rigs.
That were suspended.
Already today.
And we expect another five to come back. So we were at 38 right now we expect to get back to 43 three.
Three more of those rigs are coming in the second half.
And then we have two more that are coming in January.
And Aramco provides us that information on a regular basis. They provided that information at year end 2020 and.
They basically met those internal plants that they have to bring back a rig so.
We understand yes that aramco has tweaked some other drilling activity and that affected us a little bit on the fourth quarter and that they're working on the offshore.
Production and drilling activity, but for for the land activity on particularly Sy Med Ah. We we have been exactly treated like Iran. Co said they would.
Okay.
Great I appreciate all the color. Thank you.
The next question comes from Karl Blunden with Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks for the time, yeah, you've outlined a lot of day work that you've done on your balance sheet over the last year or so I think when folks take a look at it now and you have a little bit of that increase in liquidity available to you from cyanide.
You do have a.
If they're a runaway ahead of you, but when you think about the revolver I'd be interested in and what kind of strategies you can use to address that revolver draw and ultimately extend that and give yourself more runway.
Uh huh.
Connor, Yes, you you basically hit it on the nail on.
I do think our liquidity is not really an issue.
At this point, we've done a lot to address that as I mentioned before we've cut our near term maturities on our notes by a b and a half.
And.
We certainly only have about $86 million worth of maturities in 2021.
And the next year is 2023, where we have still about.
$150 million worth of maturity remaining on our notes for that year. So so liquidity itself is quite manageable, but.
There's a couple of things that we need to look at.
One of them is our total leverage and of course, you know we are.
Still going to be working hard on bringing leverage down.
Basically mostly through internal cash generation, but.
You know if we can find other ways to improve our balance sheet, our balance sheet. We will a part of the issue we have to look at us well, it's obviously the revolver, which expires in 2023.
Good practices best practice. This means that we are going to be working on that in the first half of 'twenty 2022.
To get an extension on our on on.
On a new revolver with a five year term.
That is that as a strategy, obviously before we get to that period.
We will have improved our leverage very materially in terms of net debt to EBITDA.
As you May know, we finished the year at four four times.
If you if you look at Schlumberger and Halliburton, we are in the same range, obviously I'm not comparing nabors to those two powerhouses, but that tells you that our leverage is on.
Trailing basis is quite good.
And where we plan to bring this number down quite materially our Tony's on how your objectives, which we have committed to had been that we would bring it down to the low $2 billion range in terms of on net debt. We think that we're almost there. So we think thats no longer appropriate the environment has changed somewhat in terms of cost of capital and so forth.
So we think that number is now clearly now.
Bit high we want to forget it.
Below the $2 billion Mark So we think thats achievable over the next two to three years.
So again the plan is in the early 2021.
On to potentially issue new debt would remember we do have available still $230 million on.
Senior priority guaranteed notes that we could issue and those are trading today and are in the 8% range. We also had a $500 million of the 2026 2028.
Junior guaranteed level $500 million per dose. So those are those two.
Pockets with us.
Allow us to bring down the revolving credit facility.
And based on the strength of better leverage and improving our maturity profile. We think we can negotiate favorable terms for our revolver in 2022.
Thanks for the detail appreciate it.
The next question comes from Chris Voie with Wells Fargo. Please go ahead.
Alright. Thanks.
Maybe on the lower 48, I guess I think you have about 110 Super spec rigs your market share has lagged a bit on the last couple of quarters or certainly the guidance for <unk>. Just curious if that's driven by higher pricing discipline versus peers, and and whether you expect that to slip as we go through the rest of 2021 night and I know you.
<unk> mentioned expecting the rig count to grow throughout the year. So just curious how to think about market share from you guys as year progresses.
Obviously, our priority is that share growth, but profitable growth.
I think I would I would note that our daily margins on our revenue per per rig are higher than our peers and.
You add NDS content.
Higher still so what we're what we're interested in us profitable growth in and showing that discipline.
Note that the market in general has been disciplined so far and there is good signs that are of.
Deliberate growth pattern as we indicated in the prepared remarks.
Tier one kind of customers are looking at single digit as far as you can tell us currently single digit growth right now for the remainder of the year, obviously, what can happen given the commodity price moves is their budgets theres still budget cycles stages openings and we've used given the commodity price, but that's where we see things.
Obviously in the tier two and tier three the activity is more and so there are opportunities for us to expand we are sitting on 50 50 more rigs, which I think are the best on our second time I should say in the marketplace and we wanted to deploy them, but we want to do it on a deliver fashion to make sure that.
The margins on the air cover working capital the expense of bringing it out all that kind of good stuff.
And.
That's our that's our mission and so far we've done a pretty good job I think coming out on the downturn, adding the reach we have we're at 57 day will be will exit the quarter at 60.
And we'll take it from there in terms of seeing how how fast we ramp up.
Yeah.
That's a net that's also a good question I think on the third quarter, though we we outperformed.
And the last two quarters.
We saw obviously, the our peers getting a bit more aggressive given the net.
The grounding lasts up.
For the third quarter.
So what Tony mentioned that we want to be profitable. So how do we look at this we look at this net if we can get a pricing from a rig that gives us a margin that pace within the year for the.
For the cost to bring the rigs back on the working capital then we're not going to do it. So basically we are being selective and we're focusing more on clients that want to add incremental revenue on the solutions side that are willing to do performance contracts. So.
So we're not chasing pricing or just any rig out there were any customer we are focusing on trying to generate cash in the next 12 months with a contract anything that doesn't do that we don't we just don't move forward.
Okay that makes sense from good to see that discipline as you mentioned the guidance for 8500, a day just curious if you could give a little color on maybe the mix of pre COVID-19 rigs in that and how leading edge now compares to that guidance on <unk>, if theres going be a further decline expected in <unk> and maybe just some sense of the magnitude.
Sure so.
Obviously, our average day rate. This last quarter was about $21000 I think in the last call. We said that we are seeing rates in the high teens I think the good news is given what I just said about rig count is we are starting to see the trend of crossing that.
But.
20000 threshold in terms of pricing so the gap for us between the average current rig count and the spot price is actually narrowing pretty pretty dramatically and.
I'll leave it to you to figure out how soon those things can cross given the progression of at the rig count goes forward obviously.
There's a bunch of estimates out there where rig counts could end up at the end of the year anything north of $425 $4 50, there'll be pretty dramatic price escalation I think.
They're in the meantime of course, we.
We are.
Benefiting from the backlog of current contracts, we do have which have higher margins in them so to the extent we.
We continue to add rigs at even this spot rate there is going to be more more margin degradation a bit so that that will continue.
And to add to Tony on the 'twenty 1000 does include about $1000 of Reimbursable revenue, which doesn't contribute to the margin. So if you look at high teens.
Were seeing anywhere from 17% to $19000 per day.
That means 18 to 20000 per day in terms of revenue per day and that compares to there's only 1000 that Tony mentioned earlier. So we are converging and we expect to see.
We could even see it.
Convergence and inflection sometime this year in terms of.
Revenue per day.
Great. Thank you very much.
Okay.
As a reminder, if you have a question. Please press star then one to be joined into the queue.
The next question comes from Sean <unk> with J P. Morgan. Please go ahead.
Yeah.
Thanks, Hey, guys.
On.
So maybe first just a follow on to that discussion, but thinking about potential sensitivity in terms of activity in the back half of the year.
On the lower 48, I think one other big open questions.
How are your customers will react later this year oil prices.
Can hold near current levels. So what's your expectation in terms of.
Potential upside to rig activity in the back half and.
Do you expect your customers.
We remain disciplined or do you expect them to a REIT.
<unk> to the relatively strong oil prices is much stronger on what's in their price decks and if you could distinguish that between the majors large and small public and private E&P thing that would be helpful as well.
So if I knew the answer to that question accurately I'll play the futures market I'll quit my job.
I mean [laughter].
Yeah, like I said the <unk>.
Hearty line, thus far from the tier one customers is.
To abide by the commitments that people are making a free cash flow and therefore, the census that we've taken.
Whatever value you want to put on it has been today, the only see deliberate growth in the single digits and that obviously does not take into account a big change on the commodity pricing, but we haven't yet seen people, we haven't seen that that mirror Crockett, Sean I'm not going to say it won't crack and history has us those crack.
But.
Yes.
The lexicon of language today with respect to second tier three operating second and third tier operators, yes. They are being more aggressive and there is the prospect of more activity on that in that group of people because they respond up on.
Dan as you know quite fit much faster. So that's the way I would look at it.
Okay, I think that's all fair.
And then.
Maybe a little more on free cash flow.
Last quarter, you guided 21 free cash if I recall correctly.
To be in the tens of millions.
As you guys can be interpreted anywhere between $10 million and $99 million.
And Williams comments earlier, he noted the slip of some collections in <unk>. It sounded like those are being recouped in the first quarter net.
Other moving parts in <unk>, so, let's say neutral on cash, but how do we see free cash cash progressing and the balance of the quarters and if you have an updated guide on the full year, but 'twenty, one I think that would be useful.
So so.
So I'll give you I'll give you an updated guidance I think.
I am comfortable doing that based on the strength of our performance Sean.
I'm, usually accompanies harshest critic.
Even harsher than you if you believe that.
But I mean at least I'm accused of that but this quarter and this year I really have very little things to criticize about I think we had a great quarter our operations guys really delivered on.
I'm much more optimistic on NDS, and our performance offerings, and our total cash flow generation and actually and by the way. This is the last time I will say this the team that's sitting around here because obviously this is not my job to be cheerleading, but but based on the on net performance in what I'm seeing and what I'm seeing already in the first quarter.
I think I'm more confident of our free cash flow. This year, obviously, the $30 million from last year helps because we believe that will be collected this year and as the year progresses, and our clients on a little bit less scrambling for cash themselves. We feel this year and will not be us.
As impactful negatively as this one was a lot of our Nlc's ware.
Sitting on sitting on their hands at the end of the year and not affecting the payments that were due right. So so I think.
I said before tens of millions I think I'm comfortable saying now between 50 and $100 million.
Oh, there you go a narrowed down.
The forecast.
Very good I appreciate that thanks Blayne.
Thanks, Jim.
Yeah.
This concludes our question and answer session I would now like to turn the conference back over to William Conroy for any closing remarks.
Thank you Tom will wrap up the call there. Thank you ladies and gentlemen for joining US. This afternoon. If you have any questions. Please give us a call or email us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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