Q2 2021 Nabors Industries Ltd Earnings Call
Good day and welcome to the Q2 'twenty 'twenty 1.
And the birds industries L. P. D earnings conference call, all participants will be in listen only mode.
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I would now like to turn the conference over to William Conroy, Vice President of corporate development and Investor Relations. Please go ahead and good morning, everyone. Thank.
Thank you for joining Nabors second quarter 2000.
And Pat on 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.
And 21 and these markets.
And support of these remarks, a slide deck is available both as a download within the webcast and and 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.
Well, our 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 $19.33, and the Securities exchange.
<unk> of $19.34.
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.
And 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 either by Tony or William during their presence.
Patients 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 that.
Non-GAAP measure is defined in our earnings release.
We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measures.
With that I will turn the call over to Tony to begin.
Good morning, Thank you for joining.
Joining us as we review our results for the second quarter of 2021.
This morning, I will begin with our overview comments and then I will follow with highlights for the quarter and a discussion of the market.
William will discuss our financial results I will make some concluding remarks before opening up for your questions.
Let me start.
By saying our operations performed quite well on the second quarter.
We also made significant progress across multiple strategic initiatives.
Adjusted EBITDA and the second quarter topped $117 million.
Execution across all of our segments was strong.
Our global rig count for the second quarter.
<unk> increased by 7 rigs and driven by growth and the U S drilling and international segments.
Once again, we made progress on our priorities to generate free cash flow and reduce net debt.
Free cash flow and the quarter approached $70 million after funding Capex of 77.
$7 million.
These results for the second quarter exceeded the expectations, which we laid out on our last conference call.
Net debt improved by $58 million and the second quarter, driven by our free cash flow.
I am very pleased with our financial performance through the first half of 2021 I am looking forward to.
Reported further progress over the balance of the year.
Next I would like to highlight 5 key focus areas as you think about nabors.
First on our leading daily margin performance and the lower 48.
And the upturn and our international business.
Third the improved.
Improving outlook for our technology and innovation.
Progress on our commitment to Delever and fifth our progress and ESG and the energy transition.
Let me start with lower 48 drilling margins.
The margin performance and this core business remains strong.
Kelly margin once again exceeded $7000 Mark.
Clients realize value from our leading fleet capabilities and field performance, we maintained our disciplined approach to pricing as we deployed rates. This unique combination is responsible for these robust results.
Another way to look at our performance is to combine our drilling margin with a margin generated by NDS and the lower 48.
And that increment amounts to approximately $900 per day so.
So we're generating almost $9000 per rig per day on the spaces as you compare results and business models from our peers across the industry. We think it's important to consider at this point.
Next our international business.
Financial results benefit from our historic pricing discipline, and our performance and the fields.
Coming out of the pandemic significant improvements have occurred and Argentina, Colombia and Russia. These.
And these markets collectively account for approximately 25% of our international rig count.
Saudi Arabia has seen it up.
Our activity. We currently have 38 rigs working and the Kingdom there is potential to add a few additional rigs before the end of the year.
In addition, our sand and joint venture has been awarded 5 new build rigs to date.
These 5 units are expected to be deployed at approximately 1 per quarter, starting in Q1 of 2022.
There are estimated to contribute approximately annualized EBITDA exceeding $50 million.
As you know there is a long term plan by Saudi Aramco, 2 and successive generations of 5 rigs per year for an additional 45 rigs.
Saudi Aramco procedure with this plan, we expect a similar EBITDA contribution.
And each successive year these.
These newbuild rigs and their economics on 1 of the main attractions for our participation and the joint venture.
Next technology innovation.
Our technology pipeline remains full and.
<unk> penetration on our own lower 48 rigs with at least 5 share.
Services exceeded 70%.
On third party rigs, we're seeing strong growth and penetration.
Revenue on third party rigs increased sequentially by more than 50%.
Growth occurred across most of the service lines and third party rig market remains fertile for NDS, we are investing to ensure that our products on a rig agnew.
Even though the full potential of the MBS Park suite is still maximized when run on Nabors rigs.
<unk> and total we're expanding our digital platform and expect to see greater penetration of these products across the market.
Now, let's discuss delevering.
We had quite a bit.
Bit of significant news on this topic recently.
We completed the program and distribution of equity warrants to our shareholders. This innovative structure places value on the hands of our equity holders. The warrants can be exercised with cash we're certain of our outstanding notes. This transaction could result in substantial delevering of our capital structure.
And we also signed an agreement to sell our Canadian drilling assets. This sale will result in cash proceeds of approximately $94 million plus we will liquidate the working capital and the business with this deal we pull forward multiple years of free cash flow, which we can deploy into our strategic priorities.
In summary, we've made material.
Progress even through the downturn, we look forward to making additional headway in the future.
I'll finish this discussion of our highlights with ESG and the transition we.
We continue to refine and enhance our focus on ESG. We recently updated our annual ESG report with additional disclosure.
This drove.
You've a 2 point improvement and our environmental score from ISS and.
In addition to the environmental performance, we also reported improvements in several categories of our social score.
Our position and the energy transition also began to take firmer shape. Our strategy here is fully supported by the Nabors Board and our investor.
<unk> the scale of the energy transition opportunity is potentially huge we believe and holds very attractive prospects for nabors and 2 broad areas first to optimize the environmental footprint of our own operations and second to drive the transition and adjacent markets.
Significantly we believe our global.
Footprint technology and scale can be applied to drive initiatives and the transition space. For example, we are working both to reduce our own carbon footprint and to apply our expertise and the broader energy market, we have exclusive agreements to market multiple fuel additives, which materially reduce fuel consumption and emissions of our own large diesel engines.
And as well as other fleets.
We have also identified adjacent areas, which we think are synergistic with our core operations. These include <unk>.
Investing and several early stage geothermal energy companies, we believe the geothermal market holds enormous promise as a source of base load renewable power.
These ventures will enable us to deploy our expertise and to this burgeoning field we.
We expect to realize investment returns commensurate with the opportunities.
We recently agreed to license innovative IP and the carbon capture area the.
And the target markets are and drilling as well as other verticals. We're excited about this technology, which.
She ultimately reaching beyond the oilfield so stay tuned.
We are evaluating a variety of investment structures and the energy transition our intent is to enable our participation across the spectrum of investment opportunities.
We are confident in our ability to participate in and ultimately help drive the energy transition.
And we think this is a compelling opportunity.
Now I will spend a few moments on the macro environment.
The quarter began with WTO just below $60 by early June Wty broke above 70.
Since then and has climbed into the mid seventies and fluctuated between there and the high <unk>.
<unk>.
This range should be conducive to increases in drilling activity across markets.
Next I'll review the rig count.
Comparing the averages of the second quarter to the first quarter. The Baker lower 48 land rig count increased by 16%.
According to Inverness from the beginning of the second quarter through the end.
And the lower 48 rig count increased by 31 or approximately 6%.
The growth rate amongst smaller clients significantly outpaced the growth and larger operators at 8% versus 2%.
With our focus across the spectrum of clients, our average working rig count in the second quarter increased by 20.
And 1%.
This comparison excludes rigs stacked on rate.
Our total average rig count increased by 7 rigs, while the number of rigs stacked on rate declined by 4.
Once again, we surveyed the largest lower 48 clients. This group accounts for approximately <unk> 35 per cent of the working.
Rig count and comparison on the last call. The same group account for 40% of the working rig count.
Our review of these clients show, a modest uptick and activity planned for the balance of 2021.
And our international markets, we saw demand increase about as expected and our served markets we gained.
And the second quarter as activity levels in those markets continue to recover from their friends epic lows.
To sum up commodity prices have risen significantly and global economic activity increased and their current range oil prices generate acceptable operator, economics and virtually all areas.
It'll share right.
With that in mind, we remain vigilant and potential impact of a resurgence of the virus.
That risks and notwithstanding the current commodity environment remains conducive to increase drilling activity.
Now, let me turn the call over to William who will discuss our financial results and guidance.
Thank.
We're re oney and good morning, everyone.
The net loss from continuing operations of $196 million and the second quarter represented a loss of $26 and 59 per share.
Results from the quarter included and net loss of $81 million or $10.80 per share related to 1 time.
Can you tell me, which were largely attributable to the sale of our Canada drilling assets and to reserves for tax contingencies and our international segment.
Second quarter results compared to a loss of $141 million or $20 and <unk> 16 per share and the first quarter.
Excluding the.
And per he mentioned 1 time items, the $26 million quarterly improvement primarily reflects better operational results as well as lower depreciation and income tax expenses.
Revenue from operations for the second quarter was $489 million, a 6% improvement.
Previously and the first quarter.
Revenue continues to increase quarterly with the higher commodity prices.
Revenue for all of our segments increased substantially both domestically and internationally with the exception of Canada, which experienced its normal seasonal downturn.
Total adjusted.
Compared to our expanded by almost $10 million to $117 million for the quarter.
This was significantly higher than we anticipated primarily reflecting the strong increase in revenue across our markets.
And this quarterly improvement as part of a trend that we expect to continue during the second half of the year.
U S drilling adjusted EBITDA of $59.8 million was up by $1 million or 1.7% sequentially on.
On a 14% increase and revenue.
Although our rig count increased our average margins fell in the lower 48 market.
And over 48 performance was in line with our expectations.
<unk> EBIT and a rig margins came in at $7017 falling within our expected range.
Nonetheless, leading edge day rates have inflected and high quality rig utilization.
<unk> to increase with market's tightening for those rigs.
For the third quarter, we expect average daily rig margin.
<unk> remained stable with second quarter as market day rates continue to grind upward.
Second quarter, lower 48 rig count average $63.5 a quarterly increase of 13%.
Which was somewhat above our expectations.
Currently our rig counts dance.
67 with.
We forecast an increase of 4 to 6 rigs and the third quarter versus the second quarter average.
Adjusted EBITDA from our other markets within the U S drilling segment improved moderately.
For these markets in the third quarter, we expect to remain at second quarter levels.
International adjusted EBITDA gained almost $9 million and the second quarter or 14% sequentially.
The improvement came primarily from higher activity in markets with larger rigs per.
Principally Saudi Arabia and Colombia.
And generally strong operational performance and the eastern hemisphere.
The quarter as anticipated, we experienced some headwinds and Mexico that we expect to persist into the third quarter. We continued to move rigs between platforms to accommodate and modifications to the activity profile of our customer.
We believe these changes and activity are linked to the higher commodity price.
And the unfavorable impact to our margins from these moves was $3.7 million and the second quarter.
And its forecast at $6 million and the third quarter.
Also we lost $1.9 million of revenue and the second quarter related to the general strikes and unrest and Latin America.
Despite this friction international delivered a strong quarter average rig count increased in line with expectation by 3 and a half rigs to $68.3 or 5 per cent.
Current rig count and the international segment is 68.
Daily gross margin for.
<unk> increased by over $500 to 13420, and the second quarter, beating our expectations by more than $900.
The second quarter included approximately $900 per day, and lost margin from the moves and Mexico and unrest and Latin America.
Turning.
Internet of third quarter, we expect international rig count to decrease slightly by 1 to 2 rigs as 2 of our rigs moving to and clients.
We forecast our average daily rig margin to remain in line with the second quarter.
Our third quarter forecast includes approximately $1000 and early.
2 the sanction fees from 1 of our rigs offset by additional loss margin from the moves and Mexico.
Has anticipated, Canada, adjusted EBITDA of $3 million fell by $6.7 million, reflecting the seasonal spring breakup.
At this point.
We expect to close the divestiture of our Canada drilling assets by the end of the month.
And the third quarter. We will include 1 month of activity for our Canada drilling operations before the closing of the transaction.
Drilling solutions, adjusted EBITDA of $12.8 million.
Was up $1.3 million and the second quarter, and a 10% revenue increase trending positively and all product lines.
Most notably improved performance software and casing running services.
Penetration of the performance drilling software and the lower 48 and Trs.
And internationally string.
Strengthened.
Driving the improvement.
Lower 48 gross margin for drilling solutions segment totaled $8.9 million for the second quarter.
This comes on top of our lower 48 drilling gross margin of $45 million.
We expect adjusted.
And the third quarter to improve on our strong second quarter results.
Rig technologies generated adjusted EBITDA of $2 million and the second quarter.
And improvement of $2.6 million on a 34% revenue increase.
The growth was primarily.
EBIT data to higher repairs and equipment sales for the third and fourth quarters adjusted EBITDA should move gradually upward on improved capital equipment sales.
Now I will turn to review, our liquidity and cash generation.
And the second quarter total free cash flow was 60.
<unk> million dollars. This compares to free cash flow of approximately $60 million and the first quarter.
Our cash generation was driven by improved collections and lower semi annual interest payments offset by higher capital expenditures and other outflows mainly annual insurance premiums.
Capital expenses, and the second quarter of $77 million were up from $40 million and the first quarter.
These amounts include investments for this sign on new builds of 32 million.
And 8 million for the second and first quarter respectively.
And the third quarter, we forecast.
$68 and capital expenditures, including 35 million force out on new builds.
Our targeted capital spending for 2020, 1 continues to be around $200 million, excluding approximately 100 million required for Saudi new builds.
Free cash flow for the third quarter share.
So total around $10 million to $20 million, excluding proceeds from the Canada divestiture and moderate and strategic transaction outflows.
At the end of the second quarter, our cash balance closed at $400 million and.
And the amount drawn on our $1 billion credit facility was 550.
$80 million.
Our net debt on June 30th was $2.4 billion down from $2.9 billion at the start of the pandemic.
We will continue to prioritize our future cash generation to debt reduction on.
Until we reach our leverage targets.
We previously.
Most of the distribution of warrants to shareholders.
By the end of the quarter, we had seen a small amount of the warrants exercised with notes.
This transaction is another demonstration of our commitment to delevering.
Putting things in perspective.
The last 15 months have probably been and some of the.
We announced Nabors has faced.
Activity dropped across the globe, driven by industry fundamentals and Covid shutdowns, our rig count plummeted on our leading edge pricing dropped despite.
Despite that we maintained our EBITDA at levels higher than the combined EBITDA of our 3 closest public competitor.
These results are the fruits of a absolute focus on cost control and capital discipline.
Well, we have also benefited from our overall strategy of maintaining the highest quality fleet with leading drilling performance driven by our investments in automation and software remodel.
Remote operations and data infrastructure.
As a result of our new revenue profile and our capital expenditures as a percent of revenue have dropped.
In addition, our international business has delivered once again by helping us to much better absorb the sharp dropoff and U S activity and comparison.
And to our competitors.
Together with our superior operational results, we generated meaningful meaningful cash flow for the past 15 months, while also reducing our net debt by $500 million during the period.
Despite the headwinds at the beginning of last year, just before the pandemic we also.
Also issued $1 billion of new long term debt to address and near term maturities and.
And we then and renegotiated our credit facility during the worst of the pandemic to avoid potential covenant breaches and allow us to complete and material debt exchange transaction at the end of last year.
I am convinced we have.
Good stewards of our shareholders' capital during the toughest of times.
And so we now launched a significant new initiative into the rapidly expanding field of new energy.
And we'll maintain our commitment to absolute capital discipline and continued debt reduction.
As you may have seen from recent.
Ben.
Despite the scope of our initiatives, we have limited our cash deployed into these activities.
We have restricted ourselves to placing minority investments with companies adjacent to or to our own business and.
And we have signed alliance agreements with these companies to help them develop their technologies.
<unk> and concluding I would like to emphasize something.
Despite our aspirations to develop our clean energy initiatives and to a significant portion of nabors portfolio over time.
We will retain our capital discipline as well as our focus on cash generation and debt reduction.
With that I'll turn I'll call over to.
Tony for his concluding remarks.
Thank you William.
I'll now conclude my remarks this morning with the following day.
These second quarter results on top of our performance and the first quarter reinforce that our strategy is working and we are making progress toward our goals.
Once again, we made significant headway.
And to Delever at.
And at the same time, we advanced our imperative to provide better execution with our portfolio of leading edge technologies.
The resilience of our financial results towards the depths of Covid and now into the recovery is testament to our robust portfolio of businesses.
This process.
Began years ago, as we continually reevaluate the portfolio, we sold assets and businesses pressure pumping and well servicing most notably and now we are investing in digitalization and automation and the transition.
This active management has served us well and we expect it to continue.
We have and.
The new phase and the evolution of the global energy industry. Nabors has played a key role throughout the development of the drilling industry. We are investing now to extend its leadership and the future.
That concludes my remarks. This morning. Thank you for your time and attention with that we will take your questions.
Thank you.
And we will now begin the question and answer session.
To ask a question you May press Star then 1 on your telephone keypad.
If youre using a speakerphone, please pick up your handset before pressing and Keith.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily.
Really to assemble our roster.
Yeah.
The first question comes from Taylor.
Their share with Tudor Pickering and Holt. Please go ahead.
Hey, everyone and thanks for taking my question.
Question on my first 1 is on international.
International and the guidance for Q3 was it was pretty clear from an activity perspective, but as we think and in the back half of the year you talked about a couple more rigs in Saudi and excluding the new builds potentially going back to work and.
As OPEC, plus and starts to roll back some other.
Our production curtailments that I suspect activity and some of the core GCC countries is and it's likely heading higher and to the back half of the year. So just curious if you could frame for us.
And maybe thinking into Q4 and beyond.
Just any high level thoughts on on how we should think be thinking about the cadence of international activity and momentum from here.
Well, what we currently have some visibility on this as we reported last quarter.
And in Saudi I think towards the end of the year, there shouldn't be an additional 3 rigs and possibly 2 more earlier in 2022.
It's fair to say given today's climate and the wait.
And where the commodity prices we're seeing.
And a lot of robust activity across the region, there, particularly on the Emirates as well as and places like Kazakhstan. So activities generally is picking up and it's all conducive to entering in 2022 with and up and.
And uptick and activity.
Basically thats across the board both.
<unk>.
In the middle East as well as and South American as well. So I think all the signs are positive looking forward to 2022 and as I said, we have visibility on on several rigs right now looking towards the end of the year.
And I think and 1 thing with notice and the market right now is theres been an uptick in and tendering activity.
And by clients. So we have more tenders and some of them quite significant outstanding that we had we've had and a long time.
Okay understood, thanks for that and and my follow ups around the Newbuild.
$10 million of annual EBITDA contribution is is a pretty clear and it's certainly probably.
And on margin accretive to the current business and my question is more around the NDS and and how that might fold and to some.
Some of these so on on Newbuild is.
Do you have the ability to fold and some of the various products and services around N D S and.
And to those Newbuild rigs and moving forward and I mean, maybe just.
More broadly speaking.
How do you think about the pathway from here for further international penetration within N D S.
And it's excellent point I think.
I think the expansion of NDS is now on our target radar for international really it's very hot for US right now and it can be 2 fold.
1 on AR and in Saudi Arabia, and particularly on our existing rigs and the NDS needs the platform and those existing rigs to be upgraded and were looking at that as a base case and.
And second the new builds will provide us a platform to add the NDS services to them. So Saudi in particular is a target market for Mds.
But regionally I think as well there is a high degree of interest from other players in the region to duplicate the scale and optimization, that's been going on and the U S and a lot of the operators and particularly.
Particularly the Llc's want to get to a level of force the duplicate set and NDS is viewed as a key.
A key element of that so that's 1 thing that we're pushing very well we've had some success with Mds already and Argentina, we're working for a supermajor down there and Mds on the on.
On some of the rig tier produced incredible performance gains for them. So NDS as you know.
And with our latest automation, our smartphone application basically.
And it allows operators to automate the entire rig rig sequence from slipped to slip just off bottom. So it's a it's something that the other products and marketplace don't do and plus it allows the other services to be integrated into our rig. So we think for international markets in particular.
These things could really offer a high degree of value for.
For the operator, and obviously upside for us so it's a very high on our priority right now.
Alright, good to hear and thanks for the answer.
Okay.
Your next question comes from Dan <unk>.
Morgan Stanley. Please go ahead.
Hey, Thanks, good morning.
Corning.
And so I just wanted to ask.
I appreciate the color on.
Pricing and activity and the press release and on the call. So far I was just wondering if you could kind of characterize or kind of juxtapose, what youre seeing in terms of pricing traction and U S versus international markets and kind of what your outlook.
Good morning for those 2 markets moving forward.
Well I think and the good news is and the U S. It's grinding higher on all fronts right now across all the regions.
I think it's fair to say the leading edge rates are moving into the high teens to low twenties and as you see we're getting convergence between our average working.
As Sig rate today, and the leading edge, which.
Suggests that crossover should occur.
And the near term.
In this sector as a whole as you know you don't get to appointment flash until roughly get to 70% utilization I think.
We and others I think were probably the highest in terms of utilization of Super spec rig.
And real I think were like 61% today I think some of our competitors are a little less than net but as as we all march toward that 70% utilization number I think we will approach the point of inflection on pricing.
Which is clearly made me to a number of our fiber to rig count roughly so hopefully we will get there.
And the meantime, I think we and together with the other players and loss shown some good discipline in the market and the answer and all constructive.
The market in the U S. Obviously, given where we are today, it's on a market where youre going to.
Our lockup on term and anytime soon given where things are so which.
And actually helps US right now in terms of being able to move our pricing up as things roll March forward on the.
Other hand, the international market as you know the good thing about international is you have term coverage. So we have a portfolio of contracts in place and therefore youre not going to see the same you don't see the same hockey stick up nor the same downside down.
Which is a company that served us really well and the downturn as.
As we have remarked you've looked at our combined <unk> compared to the combined EBITDA for our 3 largest competitors.
We were excuse them and thats because of our international portfolio, which doesn't have that volatility so the prospect for pricing increases.
Down when your group and stove termed out.
At the average to move that quickly there's not going to happen.
That's actually a good thing thats robust thing, but I think the good news is as as the market does heat up the quality the quantity of available good rigs to comments on the market internationally doesn't exist.
General and otherwise if you want to a new if you on a gas rate with all the bells and whistles today 3000 horsepower rig those rigs do not exist, which means basically it's going to force the market to replacement cost pricing, which we think is constructive so looking out for the international I think is directionally, it's going to be higher in terms.
And translating to meaningful numbers is at the margin can be accretive and meaningful.
And obviously the ability to price up our whole fleet is going to be more Ltd.
But I will point out that all of the contracts that we're signing recently internationally are coming and significantly higher prices than the prior to signing.
They may be a couple of quarters ago.
Got it thanks for all that color and then.
So just to touch back on cyanide quickly on this and on Newbuild program.
So I appreciate all the color you guys have shared.
In terms of capital spending plans to share I'm, just wondering if there's any.
And so it's kind of range that you could give us in terms of what capex might look like on a quarterly basis moving beyond 2021 like it is kind of the second half $30.35 million per quarter Capex number a decent run rate or you know could there be upside or downside to that I'm assuming.
On the Newbuild program moves on that 5 rig per year plan on pace moving forward.
So the 5.
5 rigs a year and this time on it.
And it's relatively easy to estimate, but it does change on Iran, and coil, providing those drilling contracts right, so and so for now.
And.
And is fully based on that it's not as if we have.
And.
And guaranteed and.
Uh huh.
Roadmap going forward and how much on Capex is going to be we are planning, however, and who we're assuming in our plants are going to be adding 5 rigs a year over the next several years.
And that piece is it's pretty pretty stable, we know how much the rig cost and how many rigs per year.
Of our our portfolio is it's.
It's really running very reasonably well as you know we set up on a $200 million a year.
And in and and.
For everything.
And exceeding.
And those <unk> are now and the Capex of course this also.
And linked to the number of rigs that are operating we expect those to go up so certainly next year the number should be somewhat higher.
And then $200 million, but and in line with our rigs we don't have any major programs to increase on.
Footprint, we have sufficient idle rig capacity to continue expanding next year without having to invest and additional rigs exceeding those in Saudi Arabia.
Yes.
Got it understood. Thanks for the color I'll turn it back.
Our next question comes from Karl Blunden with Goldman Sachs. Please go ahead.
Hi, good morning, and congrats on the strong results again this quarter on both EBITDA and the cash flow side.
Just 1.1.
And 1 question on your slides here it.
It looks like for the U S. Lower 48, you mentioned there.
Our rig 4 rigs on revenue of which high spec our 55, so and when I look at that sequentially. It looks like most of the growth is coming outside of high spec, but youre also reporting increased utilization of the high spec rig. So just hoping you could give a bit more color on that dynamic on both the sequential change and then what you expect going forward.
60.
I don't know what Youre actually looking at the.
And all the rigs are operating today are high spec, so and tell you the rig count of 67 rigs and we have 110 high spec rigs, so 67, and a $1.10, which is 61% today to walk through a high spec.
Got.
Gotcha.
And maybe I'll follow offline just to make sure I understand the.
The numbers there with regard to.
The warrants you mentioned that a small amount of the warrants were exercised.
Using bonds during the quarter when you think about this longer term.
And.
Obviously depends on where the share price is.
Could you talk a little bit about the conditions.
Under which you'd consider terminating the warrants to essentially encourage them to be exercise and accelerate debt reduction.
Well I think I think we need some time to lift and mechanism works. So you got to step back a second understand what this is all about basically.
It was a means to allow the discount on the bonds to be captured and to be shared with the shareholders. As you know theres no market available where debt can be easily swap with equity and always have and it really happens is in bankruptcy and that exchange usually results in the equity guys, giving short and is sick.
So what this really is a way of doing is allowing our shareholders and a non dilutive fashion to be given the opportunity to capture that bond discount themselves.
And through the exercise of the warrant now for that to be meaningful what you've got to do is do the calculations with the shares and an update where the.
And the exercise price you hit the bonus number of shares you got to calculate the amount you'd value of the shares you'd get if you exercise using the value of the warrant of the bond that face amount. When you do the math, you'll see that there's a lot of upside for debt holders for debt is trading at a discount to <unk>.
They get a premium to that current market price through that exercise. The good news is since it's been announced there has been.
But really a huge volume of trading and the warrants in fact, if you compare our warrant transaction to 1 that was done biopsy I think the first day of trading we were double the amount of activity and volume compared to them and so I think.
And in fact March and now being put in a position where the personnel and whether it's a shareholder who is going to think about buying bonds or bondholders on warrant I think it's being positioned debt when the stock price gets into the zone, where its economic and where there is upside that there'll be positioned to exercise. So we're obviously not there yet.
<unk>.
As we March when you look at the matrix.
And once that happens then we'll see what that happens then we'll assess what the future of the warrants is what we expect a good portion of the warrants to be exercised to capture this discount.
Mhm.
That's very helpful and certainly in line with what your debt reduction goals is.
But any kind of timing element around that and the exercise of their relative to extending the bank facility or that those 2 are disconnected.
Transactions.
And that's that's a great question, obviously, we'd like to see where we end up with a were and transaction and see where our balance sheet.
Is there.
We think we will be and a better position than we are today. In addition, we have the proceeds from Canada coming in and we think we will have a strong second half in terms of free cash flow generation. So so I think on all of those dynamics will will help us have a better.
More constructive discussion with.
With our lenders.
So I think I don't think you should expect to see anything with respect to our credit facility.
Within the next couple of 3 months that would be something more.
Towards the end towards the fourth quarter and of the year.
In addition to that.
And we will also explore options for issuing.
Additional longer term debt.
To take care of the.
On the short term maturities and maybe.
Term out some of the spending on our revolver. So those are some of the things you could expect all of that remains open, but obviously, having a benchmark.
Once the war interest action.
Is completed.
And we will give us a better sense of what is achievable.
So you anticipated a bunch of my questions really appreciate the time.
Thanks, Paul.
And again, if you'd like to ask a question. Please press Star then 1 our next.
Mark and comes from Andrew Ginsburg with R. W.
Okay.
Please go ahead.
Hi, guys. Thanks for all the color you provided so far most.
Most of my questions were answered 1 clarification and I wanted to make was around the proceeds from the Canadian drilling segment.
You guys mentioned that.
Clustering and user for our key strategic initiatives.
Do you have any color on what proportion and thats going to be used for debt reduction versus other key.
Key initiatives.
The overriding strategic initiative in terms of cash.
Utilization is debt reduction so okay. So that's.
We have made a couple of investments minority stakes and and some geothermal companies, but thats a pretty single digit number.
For those investments and single digit in terms of millions.
Sure.
So we accommodated within our <unk>.
And cash flow, so I would say that the proceeds of Canada.
Fully going to be used to reduce debt.
Perfect. Thank you.
The only outstanding question I had thanks for your time guys. Thank you. Thank you.
This concludes our question and answer session I would.
Our existing on the conference back over to William Conroy.
Thank you everyone for joining us this morning, I will wrap up our call. If you have any follow ups. Please contact us at Nabors and.
And we'll end the call there. Thank you.
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