Q1 2023 Nabors Industries Ltd. Earnings Call
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[music].
Good day and welcome to the Nabors Industries first quarter 2023 earnings conference call.
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Please note today's event is being recorded.
I would now like to turn the conference over to William Conroy, Vice President of corporate development and Investor Relations. Please go ahead good afternoon, everyone.
For joining Nabors first quarter 2023 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 in May are other members of the senior management team.
Since much of our commentary today will include our forward expectations. They may constitute forward looking statements within the meaning of the Securities Act of 1933, and the Securities Exchange Act of $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 by such forward looking statements.
Also during the call we may discuss certain non-GAAP financial measures such as net debt adjusted operating income adjusted EBITDA and adjusted free cash flow.
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 and adjusted free cash flow as that non-GAAP measure is defined in our earnings release.
We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measures.
With that I will turn the call over to Tony to begin.
Good afternoon. Thank you for joining us as we present, our results and outlook are segments continued to perform well in the face of a challenging environment in the lower 48 sequential growth in drilling businesses drove the increase in EBITDA.
For the first quarter adjusted EBITDA totaled $240 million. This result was in line with our outlook for the segments on last quarter's call.
Our global average rig count for the first quarter declined by one rig.
Growth in the international segment was offset by a reduction in the U S lower 48.
EBITDA in drilling solutions once again grew sequentially, reaching $32 million combined our advanced drilling solutions and rig technologies segments accounted for 15% of total EBITDA.
In the first quarter, we again generated free cash flow. We achieved this performance even with semi annual interest payments on most of our debt and seasonally high cash outflows as we start the year.
Next I will update the progress we've made on our five key to excellence.
Our success executing these strategies drives value creation across our stakeholder base.
The five elements include enhancing our leading performance and technology in the U S.
Expanding our international business with innovative solutions.
Advancing technology and innovation with increasing financial results, improving our capital structure, and our commitment to sustainability and the energy transition.
Let me update each of these starting with our performance in the U S.
The only big margins in our lower 48 operation expanded in the first quarter. This measure reached $16700 up from $14600 in the previous quarter.
This sequential growth, 14% reflects strong day rates in the quarter, which increased the fleet's average daily margin.
This performance does not reflect the growing lower 48 margin from Mds combined that margin is significantly higher I'll discuss this in more detail in a few moments.
Now I'll discuss our international business.
The healthy margins in this segment increased in the first quarter, reaching $15200 profitability improved in several international markets, including most notably Saudi Arabia.
I'll spend a few moments providing an update on the Newbuild rig program in Saudi Arabia. The first two rigs deployed in the second half of 2022, they are performing well, which is encouraging for the broader Newbuild program.
<unk> expects to deploy three additional new bells over the remainder of this year. These rigs have attractive returns with six year initial contract terms. We expect construction of the previously awarded second tranche of five rigs to commence in the coming months.
Next let me discuss our technology and innovation.
The key focuses of our initiatives in these areas include automation digitalization and mobilization.
The initial deployment of our revolutionary laser module has been successful recall that razor is our robotic rig for module, which can be retrofitted on any existing rig rates.
Raise your advanced as the standard for consistent drilling performance and control.
As important razor improves rigs for safety by removing rig has from the Red zone and from the Zurich.
In our drilling solutions business quarterly EBITDA increased sequentially to nearly $32 million Mds as growth in the first quarter was led by managed pressure drilling and performance software.
Let me detail the value Mds generates in lower 48 market. The combined average daily margin as lower 48 from our drilling and drilling solutions businesses with almost 19900 in the first quarter.
Of that Mds contributed just over $3200 per day.
That combined figure increased by 15% versus the fourth quarter.
In the first quarter the typical nabors rig in the lower 48 ran more than six NDS services.
Additional penetration of the MBS portfolio represents a large opportunity. This increase is an important component of our Mds growth strategy.
Our focus on automation and digital services is generating results in the market.
In the first quarter, we saw growth in rig cloud instrumentation installed on both Nabors and third party rigs, including a nearly 30% increase in smart plan.
And broad growth across the smart suite portfolio as well as rabbit.
In the first quarter Mds revenue and use third party rigs grew by 10% versus the previous quarter.
This performance matched the growth rate in the fourth quarter.
Growth on third party rigs is a key target area for Mds. These results demonstrate the broad appeal of the MBS portfolio across E&P clients and other drilling contractors alike.
Recently, we announced an alliance between Mds Incorvaia. This collaboration will deliver our unique automated drilling solution that will create value to E&P companies and drilling contractors by improving performance outcomes.
Next let me update our progress to improve our capital structure.
We made several notable accomplishments in this area in the first quarter.
In the first quarter, we generated free cash flow of $37 million as compared to negative $39 million in the first quarter of last year. We also completed the issuance of convertible notes followed by redemption of high coupon notes, which were due in 2025.
I'll finish this part of the discussion with remarks on sustainability and the energy transition.
Our three focus areas include improving our own environmental footprint.
Capitalizing on related opportunities and investing in adjacent leading edge companies.
Today, I will update several impactful technologies, which are focused on reducing our own environmental footprint as well as on third party rigs.
First is our power tap module, which connects rigs to the grid. We now have 15 of these units deployed including multiple units on third party rigs.
Second our smart power advisory and control system optimize utilization of the edges and reduces emissions. This solution is currently installed on all of our rigs in the lower 48.
Third the nano to diesel fuel additive improves engine performance and reduces emissions, we have already successfully treated more than 17 million gallons of diesel to date.
Quarterly revenue from this portfolio increased by 68% versus the prior quarter.
Clients indicate strong interest in our solutions that reduce fuel consumption and emissions.
We are now in field testing for a new technology, which uses hydrogen economically generated at the well site to reduce fuel consumption. We expect this product to become commercial later this year.
Although still a relatively small part of our business our clean energy initiatives are growing at a fast pace.
Now I'll spend a few moments on the macro environment.
The recent volatility in commodity prices, particularly natural gas has impacted activity levels. However, we believe that the current range of spot and future prices for W. T I and Brent should continue to be supportive of oil directed drilling activity is lower 48 Natura.
Natural gas remains more challenged while challenges may persist through next year, we believe the pipeline of several large LNG projects expected to come online. The next two years will support a burgeoning export gas market.
Several factors in the current macro environment could impact our markets.
Negative side demand destruction from higher interest rates and the possibility of a recession looms on the positive side. There is the potential for an acceleration of economic activity in China.
Next I will spend a few moments on day rates, our first quarter results for the lower 48 reflect the pricing environment. We saw through 2022 more recently, although day rates for our highest spec rigs remained at historically high levels, we have experienced some softening into predominantly gas basins.
Notwithstanding this interim pressure, we expect the average daily revenue into lower 48 to be essentially flat with the first quarter.
In the current environment, we believe prioritizing revenue or margins as prudent as such we remain focused on realizing the value that our rigs and services delivered to clients in the international market. We continue to see prospects for increases in the activity of course, many of our major geographies.
This increase in demand supports generally higher day rates and margin expansion in both the middle East and Latin America.
Once again, we surveyed the largest lower 48 clients at the end of the first quarter. This group accounted for approximately 34% of the working rig count.
Our survey indicates a modest near term dip in activity followed by an increase in the second half of the year. We believe this outlook primarily reflects the decline in natural gas prices balanced by constructive oil prices.
Operators in several of our existing international markets are plenty increases in their activity levels, we see potential opportunities to add rigs in multiple markets. Both in the middle East and Latin America, and we will continue adding newbuild rigs in Saudi Arabia.
We estimate each new build will generate annual EBITDA of approximately $10 million with the first 10 awards in hand, Sandoz is underway to realize an EBITDA of more than $100 million per year from the Newbuild program.
Let me now wrap up my remarks with the following the near term commodity price volatility may give way to an improving market outlook as we look through and beyond 2023, we expect activity across our markets to increase over the second half of the year.
Our advanced services and solutions fill the need for automation digitalization and improve sustainability, we see excellent prospects for growth across this portfolio in summary, nabors remains poised to deliver year over year improvements in financial results.
Increasing free cash flow and greater returns to our investors now.
Now, let me turn the call over to William who will discuss our financial results and guidance.
Thank you Tony.
The first quarter results were encouraging with strong performance in several markets offsetting a reduction in lower 48 drilling activity at.
As anticipated during prior earnings call. The current environment in the predominantly gas basins in the U S had a noticeable impact on our lower 48 rig count during the first quarter as contract in these areas started to expire gas rig count dropped over the last several weeks dragging down the overall rig count for the market although.
Oil basins have remained supportive and have started to provide incremental activity. These increases have not been enough to accommodate the full redeployment of gas rigs with the current level of oil prices and the fundamental imbalance between supply and demand. We expect additional increases in active oil rigs through the remainder of the year and a rebound and utilize.
Station for the market as a whole.
Despite a rig count decrease we've seen in the market pricing has remained at high levels, Although day rates have decreased and that predominantly gas basins. They have remained fairly firm outside those areas. Consequently, we managed to continue increasing our revenue per day on our drilling margins during the quarter, even with a sequential reduction.
In an average rig count we deliver significantly higher lower 48 EBITDA than in the fourth quarter.
I would say the lower 48 drilling rig markets were strong as it was during solutions, which also benefited from increased penetration and higher pricing in the U S.
Revenue from operations for the first quarter was $779 million compared to $760 million in the fourth quarter at two 5% improvement. Despite the shorter first quarter, most segments, particularly the U S drilling and drilling solutions contributed to the growth.
U S drilling revenue increased by $17 8 million to 351 million a five 3% improvement lower 48 revenue grew by almost 7%, reflecting an increase in daily revenue of over $3700 or 11, 4% average daily revenue for the first quarter.
<unk> was almost $36500 up from 32700 a quarter ago.
Revenue from our international segment increased by $2 5 million to $320 million or about 1% up for the quarter.
The improvement was driven primarily by higher day rates and activity as well as performance improvements in Saudi Arabia in Latin America, one of our Mexico rigs was off revenue due to our long move and the rig we expect it to deploy in March for a customer in Argentina was moved to mid April drilling.
Drilling solutions revenue also grew sequentially by $3 7 million to 75 million a five 2% improvement.
Revenue in our rig technologies segment at $58 $5 million was down $4 3 million or six 9%.
Kris in revenue came primarily from delayed capital equipment deliveries, partially offset by headway made in our energy transition initiatives.
Total adjusted EBITDA for the quarter was $240 million $10 million higher than the fourth quarter, a four 3% improvement. This was a strong performance considering the $5 million unfavorable impact from the shoulder first quarter.
EBITDA margins of 38% increase for the fourth consecutive quarter. This is a 780 basis point improvement compared to the first quarter of 2022.
U S drilling EBITDA of $156 million was up by $12 3 million or eight 6%.
This improvement was driven by our lower 48, EBITDA, which rose by $13 million or 10, 3% improvement sequentially.
If any of the gas market drove a 1.8 sequential rig count reduction to $93 three rigs instead of the slight increase of one rig that we expected.
If any of the gas market drove a 1.8 sequential rig count reduction to $93 three rigs instead of the slight increase of one rig that we expected.
Daily rig margins in our lower 48 business increased by $2090 to 16700 in the first quarter and higher pricing for our fleet.
We exited the first quarter with 88 rigs operating at a reduction in gas activity started to bite and contracts expired purveyors to rigs that are currently being redeployed at.
At this point the pace of reduction in gas basin activity is exceeding the incremental opportunities in the oil basins. We expect average rig count in the second quarter to decrease by roughly three rigs from the first quarter exit rate and then to trend back up during the second half of the year and saw activity continues to increase for the <unk>.
Quarter, We project, our lower 48 average daily margin to continue expanding to a range of $16900 to $17000. This is without the additional contribution from our drilling solutions business.
On a net basis EBITDA from our other markets within the U S drilling segment remained steady in the second quarter. The combined EBITDA of these two markets showed improved slightly as the effect of one rig in Alaska Rolling to cold stack in late first quarter is more than offset by a meaningful positive day rates reset on our March 400 rig in.
The Gulf of Mexico.
International EBITDA of $88 6 million was essentially in line with the fourth quarter, despite slightly higher activity levels and increased margins again, the short first quarter impacted the sequential comparison.
International rig count improved by about one rig with full quarter contributions from the second Newbuild rig and the reactivation of our legacy rig in Saudi Arabia, both of which deployed late in the fourth quarter. These increases were offset by the Mexico rig move gross margin increased by about $300 to over 15200.
Dollars per day, principally due to higher day rates in Saudi Arabia related to contract extensions.
We expect international average rig count in the second quarter to be in line with the first quarter. We now anticipate deploying the next Audi Newbuild rig early in the third quarter. One additional rig is scheduled for late in the third quarter and another one before the end of the year. We also expect the startup of an additional rig in Argentina. However, we are now forecasts.
Casting these increases to be offset by activity reductions in Colombia, We project second quarter International daily margins to be between 15000 916100.
Drilling solutions delivered adjusted EBITDA of $31 9 million up $1 6 million from the fourth quarter gross.
Gross margin for NDS exceeded 52%, we continued to see increased penetration of our <unk> solutions, particularly in third party rigs with the largest contributions to growth coming from performance software and managed pressure drilling in the U S.
We expect second quarter EBITDA for drilling solutions to increase by approximately 3% over the first quarter level.
NDS gross margin per day for the lower 48 increased suggest over $3200, a $430 increase compared to the fourth quarter.
This improvement takes a combined drilling rig and drilling solutions daily gross margin to $19900, a sequential increase of over $2500 per day.
For the first quarter rig technologies generated EBITDA of $5 million. The sequential decline was primarily driven by a reduction in capital equipment sales.
For the second quarter, we expect <unk> EBITDA to grow between two and $3 million.
Now turning to liquidity and cash generation.
Free cash flow of $37 million in the first quarter exceeded our expectation since the first quarter does include higher cash interest payments on our notes more of our coupon payments. Following the first and third quarters. In addition at the beginning of the year, we paid several large annual items, such as property taxes and employee bonuses. Nonetheless.
Outflows were offset by the higher EBITDA and strong collections.
Capital expenditures of $119 million in the first quarter were lower than anticipated.
This amount included $37 million of investments supporting this newbuild program.
For the second quarter, we expect capital expenditures of approximately $140 million, including $55 million for Sonat No bills.
We are currently reviewing our capital expenditure plan for 2023 to reflect the current market environment, We expect capex reductions and the lower 48 in Colombia.
We are targeting second quarter free cash flow approaching $50 million for the full year, we still expect to deliver free cash flow in the $400 million range lower capital expenditures and reduce working capital should mitigate any potential reductions in EBITDA.
At the end of the first quarter net debt remained below $2 1 billion during the quarter, we issued $250 million and $1, 75% convertible notes due in 2029.
The notes conversion share price is $212 $51 we.
We used the funds to redeem the 9% notes due in 2025.
In addition to improving our debt maturity profile, we also reduced our annual interest payments by more than $15 million year to date, we have bought back nine $2 million of our 2024 convertible notes in the second quarter, we plan to repay the $52 million remaining balance on our September 2023 senior notes.
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 first let me summarize our first quarter highlights quarterly adjusted EBITDA reached $240 million free cash flow in the quarter was $37 million.
Our lower 48 daily margins reached a quarterly record of $16690 and when combined with Mds that measure is nearly $19900.
In the lower 48, we remain disciplined in our approach to pricing current oil prices should eventually lead to higher oilfield activity, which in turn drives rig demand and supports rig pricing.
In our international segment, the combination of growth in our major markets, coupled with pending newbuild deployments it sounded should lead to improving performance.
In Mds, we remain focused on increasing our service penetration on both nabors rigs and on third party units the.
The international markets are also realizing the efficiency benefits from the Mds portfolio.
We remain optimistic for material future growth in this segment.
For all of 2023, we expect a material contribution from rig technologies, and we have high expectations for the energy transition initiatives, where the early results are very encouraging.
Driven in large part by our expected free cash flow and with the debt transactions already completed we are optimistic for material progress to improve our leverage and capital structure in 2023.
I'm looking forward to reporting on our performance in the coming quarters that concludes my remarks on the first quarter. Thank you for your time and attention with that we will take your questions.
Thank you.
I'll now begin the question and answer session.
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So the charter question. Please press Star then two.
Today's first question comes from Kurt Highway up with benchmark. Please go ahead.
Hey, good afternoon guys.
Good afternoon.
Yeah, It's a great. That's a great summary, I really appreciate all the level of detail you you've gone through.
So I guess, let me start off with with the U S land business.
Tony So you you you indicated that there's going to be some softness in the natural gas basins, you're starting to see that here in the second quarter.
Yeah as you go forward in the second half of the year.
You talked about your surveyed customers and are you already getting indications from those customers that they want to start picking up some rigs in.
Maybe that's question number one and question number two is how many rigs are you gonna. If any are you planning on moving out of the gas basins into it to some of the oil basins.
Alright, well, let me first let's start with the second question and then we'll get back to the first.
In terms of the gas markets, obviously, we have hit an air pocket here and.
In terms of the weakest market I would say the northeast.
It was one of them.
We can see east, Texas northeast didn't see as large an increased activity when gas prices rose in the 'twenty, one 'twenty two time frame because the takeaway capacity and operators stayed within their core acreage and activity levels with respect to east, Texas. However, there was a lot of private operators that came in that drove the activity increased and as we've remarked and when the end of March came in.
Along a lot of those guys just hit the whole button and that's what's caused this air pocket.
So.
That was in part ameliorated by people wanting to finish up pads and now you've seen some of that stuff rolled off but through all that I think.
What we've tried to do is maintain our pricing discipline and leading edge rates in the gas markets I would say right now are all in in the low thirties.
And I think the good news is you alluded to a pick me up on William's comments is that we are moving rigs from both east, Texas, and South, Texas, West, Texas, and some cases most of the cases actually the customers pay for all or a majority of the move costs into west, Texas. So I think.
That process is underway and we're actively managing that that that that process right now and a longer term I think for the obvious reasons of our LNG export capacity I think we're constructive on.
Still on the on the near term and we.
And we're not we're not going to be prepared to go in there and increased market share by buying buying down using our rates by now, but we will maintain our position in those markets. Because we believe the gas workers do have a long term future here. So.
Does that cover those questions for you.
That's really helpful.
Great just one one just incremental thing on that one so how many how many rigs are you moving out of the gas basins into the oil basins.
Now four or five that order of magnitude right now.
Gotcha, Okay, Great and then just one follow up if I may you know you talked about the Newbuild program finally kicking in for a sign at and did you you indicated that was a $10 million of EBITDA per per Newbuild, and then you've referenced something along the lines of a $100 million out of <unk>.
EBITDA can.
Can you just clarify that first line sure sure. So every rig incrementally is $10 million of annual EBITDA every new build rig on an annualized basis $10 million EBITDA and so we have two tranches of award it right now and as they get all get Onstream it'll be 10 rigs that we have quite a $100 million EBITDA business.
And as we've outlined.
Regression is.
Two started up already relating to we ended the first tranche is going to be coming out the remainder of this year and then we've been awarded next five and in the first of those will deploy it towards the end of the year at the beginning of next year and so we should get back to a cadence of five year, but once those firsthand get on you have a $100 million EBITDA business.
Walt with long term contracts and a lot of runway after that and with the additional upside so it's.
Pretty robust.
Sorry.
Okay, and then those tend to take should be fully up and running by the end of 2024.
Absolutely absolutely I mean, we like I said the second five the first five will be rolled out this year. The remainder of this year and then the next five start at the end of this year through 2024.
Gotcha and you you indicated now coming back to U S land again, just real quick.
You referenced gas pricing and gas basins in a low 30 that much much mean that pricing in the oil basins are still want high the high thirties yourself.
Yes, so I'd say the price of a high basis mid to high Thirty's and I think one of the things you've got to bear in mind here is that the <unk>.
Super spec utilization percentage is still around 80% with all this in and there is a difference between those rigs and the other rigs in that that's giving supports this thesis.
To this pricing structure right now so that's why we're still constructive on the whole environment. There obviously when people move some rigs into the into the basin and create some downward pressure just by way of background. We had I think we had rigs pricing in the low 40 <unk> four.
Just earlier in the quarter, so that has come in to the high <unk> to high mid Thirty's, but.
It's still very constructive and given the utilization percentage, we still remain.
<unk>.
I'm pretty satisfied with where things are so Kurt just a comment to clarify that.
When we talk about day rates revenue per day is about $445000 per day higher than those day rates that.
That includes a Reimbursable, then and the add ons that declined.
May opt to buy or not so.
So keep that in mind, when you're when you're thinking when you're evaluating those numbers.
Great. That's awesome color. Thanks, guys appreciate it.
Thank you and our next question comes from Gary <unk> with Barclays. Please go ahead.
Hey, good afternoon, so just continuing on those comments around the day rates the gas going down to the low thirty's or seen all their pressure coming into the oil basins. How should we think about the date daily margin does he work towards the back half of the year, you talked about bringing back some rigs, but then you'll have a mix of repricing rigs do you have a mix.
The softening race in the gas market strength in the oil markets and it looks like you had some elevated opex per day, just a lot of moving pieces should we see a downward inflection in your daily margins or would you expect continued strengthening as you work through the year just given a lot of the cross currents that are going on.
Well as you saw in our prepared remarks, the second quarter, we actually going to maintain in fact go up a little bit.
And.
Obviously.
We're at the mid Thirty's there.
Getting a little closer to our average day rate so.
It's going to need a little more momentum in the second half, but we're pretty confident in that momentum on the I'll, let william expand on that but with respect to the cost numbers bear in mind, our costs those costs that you referred that you're referring to in the first quarter increased those cost is actually because of content and increasing content not necessary cost inflation and in fact.
Inflation is.
Actually become less of an issue for us as well as labor has become less of an issue for us.
We can get a little more comment about the direction of the pricing for the remainder of the year.
Yeah, I think I think a lot of the rigs that are moving from the gas markets into stronger markets have been moving very good day rates. So we do expect the second half to see a continued gradual increase in all activity.
Yeah.
And.
And certainly in that case.
Strength in term and firm prices for our services.
So we think in the second half we will continue to go upwards in terms of margins per day keep in mind again that when Tony.
Mid mid thirties.
<unk> that revenue per day is actually about $39 $40000 per day, right and our costs have been between 18 and $19000 per day. So.
So still have.
Some running room to go in terms of pricing down the road and in terms of margins as well and obviously the pace that we've seen in the past three quarters.
We won't see that over the next three quarters, because we've already brought our average per day to the 36 and a half $36500 per day level, which we were thinking we would peak around $40000 per day level absent. Some large increase in utilization. So we're getting closer to that number that we think.
We were going to get too so you won't probably won't see the rates.
3000 dollar per day increases that we saw in prior quarters.
And the only follow up but it says please don't lose sight of the fact that if I had said a year ago that our combined Mds drilling margin rate was going to be 99, almost $20000. You all everyone. On this call where they said were smoking something I mean that number is really.
Actually very quiet.
Quite good quite good amazing actually it's amazing and so that that just gives you an idea of the power of the portfolio and the power of where we're positioned right. Now. So we're I think we're really we're really satisfied with what we have to offer the clients and the response.
I appreciate all the comments that are very helpful.
Last one a quick one for me just the $1 billion EBITDA Guide you guys put out.
It was end of last year, just do you want to readjust that you still feel good about it any update that we should be thinking about that target out there.
We feel very good about it.
Great. Thanks, I'll turn it back.
Thank you and ladies and gentlemen, as a reminder, if you would like to ask a question. Please press Star then one.
Our next question today comes from Keith Mackey with RBC capital markets. Please go ahead.
Hi, good afternoon, and thanks for taking my questions I, just maybe wanted to start out on the Capex front I. Appreciate you are working through the scenarios for what your 2023 Capex should now be given the adjustment in activity levels in the lower 48 in Colombia, but if we were.
To think about it in terms of a framework.
Should we be thinking about the adjustment essentially being call it $1 million a day for maintenance Capex for every rig we for every rig we take out of our model and then is there some incremental activation capex that you think won't have to be spent or is there another way too.
Think about the they'll believers in what your revised capital spending will approximately be.
Thanks, That's a great question, yes, youre right under $1 million per day in the U S lower 48 inch.
Internationally, it may be a little bit.
I mean, the rigs tend to have more stuff.
In the international markets.
So yes, there'll be an automatic adjustment just because of the air pocket that we hit in the second quarter as Tony mentioned, so on the average for the full year, we will have.
Less operating time and less so.
I would say wear and tear cumulative on our rigs right. So that's so that's part of the answer.
We were planning on spending.
<unk> money and reactivation early on.
However, we do think that by the end of the year will be back on track.
And.
Some of that money will be spent in 2023, if not all maybe some of that will be later in the year. So maybe the payment slip into 2024, but but but most of the cost is based on reduction in average working rigs during the year.
Which most of that will be in the first and the second quarter.
Got it okay, So just and again Tim.
1 million per year.
For one year 1 billion per year per rig right yeah.
Yes.
Got it got it okay. So it sounds like we're talking about a.
A reduction in like the $20 million to $40 million range.
Nothing more nothing less necessarily is that like broadly.
That should all shake out or.
I think it was more of a staff. We havent finished the analysis and part of it is Colombia as you know the government. There is not very helpful to our industry and so we don't we don't know what's going to happen there so but certainly not growth that we thought we may have had this year and so there's some from Colombia, but I think most of it will be in the lower 48 and <unk>.
Yes somewhere in the 20 plus million dollars ranges.
It's something we're targeting.
Okay. Okay. That's helpful. Thanks for that.
Second question would be just on.
No not on the price levels, but I guess on the price mechanism you know you've got the base rig and then you've got all of the rentals and things, but you've also of course got Mds.
And so how do you which is of course, a high margin low capex business.
That that.
Pat you want to grow with with with more third parties. So how do you think about when you go to market to price a rig like if you're trying to sell more NDS services on on these third party rigs specifically or on your own breaks as well.
How do you think about like pricing the rig level as you know has the desire to bundle some of that in kind of caused some.
Some churn on the rig price as well or is it a totally separate conversation that you like to have with the with customers as you price the rigs and get NDS services on there.
I think the whole reason why we've created Mds was to get away from these types of a bundling.
And we believe that what we offer a unique value and therefore, the conversation is about the VAT extra value Mds package offers and the fact that we're able to actually able to offer Mds to third parties I think further demonstrate the value of that portfolio on a standalone basis. So yes purposely we've constructed this in a way to gives you.
Awesome visibility as to what those numbers are rather than putting them. All together there is some other people in our sector has claimed.
Claims to put them altogether.
But I think one of the possibly put things altogether is they tend to first get given away and number two that would be appreciated with real value proposition is and so that's why we've deliberately done it this way because we think it's the best way to prove to ourselves that we're creating value and also show the customer and its incentive to make.
Grow that even more because obviously that segment is capital light I personally believe it deserves a better valuation because of it and the <unk>.
The growth prospects is on top of it but you're absolutely right. When it comes to third parties. We've tried prices on a value on a value basis, what would those tools bring to the party and you can see from our corporate announcement focusing on third party growth is a core element of our strategy I mean, corva waste Nabors I think corporate has the best set of apps for the rigs and also <unk>.
To the table, operator, workflows and so by combining forces year, we're hoping to create the industry's premier platform to integrate all of this up a one stop shop for operators and we're actually Gonna offered also drilling contractors as well I think.
It's kind of a unique value prop for everybody involved and we're pretty excited about that opportunity.
Let me just also comment something Keith because Thats I think thats, a very relevant question.
If you look at the margins of drilling rigs alone without including other services, but just the drilling rigs.
We have had the highest for the last three years in the market.
Barring nobody and by and by a lot. So we have a couple a couple thousand a $1000 more than our closest peers and maybe three or even more versus some of the Canadian companies. So I'd like to point that out because that proves to you that in addition to the 3000 plus dollars of Mds that we're getting.
We're still getting the highest margins for the drilling rigs alone in the lower 48 and by a wide margin.
Perfect No. That's very helpful and you answered my core of a follow up in that as well. So appreciate the comments. Thank you.
So thanks for the good questions Keith.
Thank you, ladies and gentlemen, as a final reminder, if you'd like to ask a question. Please press star one at this time.
Pause momentarily to assemble our roster.
Okay.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to William Conroy for any closing remarks.
Thank you all for joining us. This afternoon. If you have any additional questions or would like to follow up please contact us Rocco will end the call. There. Thank you very much.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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