Q2 2023 Nabors Industries Ltd Earnings Call
[music].
Good day and welcome to the Nabors Industries Ltd, Q2, 2023 earnings teleconference.
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Please note. This 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.
Morning, everyone.
Thank you for joining Nabors second 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 and me or 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.
The 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 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 morning, Thank you for joining us today, as we present, our results and outlook.
Our results demonstrate the value of our diversified business portfolio at the environment in lower 48 remains challenging importantly, we continue to generate free cash flow and reduce net debt.
For the second quarter, adjusted EBITDA totaled 235 million, a slight reduction as compared to the prior quarter.
This result, principally reflects the decline in lower 48 drilling activity across both gas and oil basin.
Total results for the other segments were in line with our outlook last quarter.
Our global average rig count for the second quarter declined by 11 rigs all of which was attributable to the lower 48.
In this macro environment EBITA and drilling solutions was up in line with our target.
Combined our advanced drilling solutions and rig technologies segments accounted for 17% of total EBITDA.
EBITDA contribution from these two operations was more than $39 million up 6% sequentially. This growth demonstrates continued client adoption of our technology.
Notwithstanding the headwinds in the second quarter, we generated free cash flow. We achieved this performance even as milestone payments on the new build rigs in Saudi Arabia, where greater than expected.
Next I will update the progress we made on our five keys to excellence.
Our success executing these strategies drives value creation across our stakeholder base.
Five elements include enhancing our performance in technology in the U S expanding.
Expanding our international business.
<unk> technology in innovation with increasing financial result.
Improving our capital structure, and our commitment to sustainability and energy transition.
Let me update each of these starting with our performance in the U S.
Daily rig margins in our lower 48 operation improved over the first quarter, we continued to realize sequentially higher daily revenue, reflecting our disciplined approach to pricing.
Our reported lower 48 daily rig margin reflects the excellent financial performance of the rigs on top of that our drilling solutions portfolio generated significant margins.
This in more detail in a few moments.
Now I'll discuss our international drilling business daily margins in this segment increased in the second quarter by more than $1000.
Profitability improved in several international markets, primarily in the Middle East.
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 continued to perform well there.
Third newbuild deployed during the second quarter. So we should see a full impact in the current quarter.
Saturday expects to deploy two additional new builds over the remainder of 2023.
With their attractive financial returns and six your initial contracts. These rigs have a growing positive impact on our international results.
Looking ahead cause.
Structure of the previously awarded the second tranche of five rigs is underway and initial deployment should commence around the end of the year.
I'll finish my remarks on the international business with the recent contract awards.
In a tender in Algeria, we were awarded four rigs. These units are already in the country.
We also received an award in Colombia, which will enable us to put a rig back to work there.
These deployments of existing idle assets with attractive economics are material wins, we're looking forward to putting them to work.
Next let me discuss our technology and innovation.
Drilling solutions business quarterly EBITDA increased sequentially to nearly $32 million, an all time record.
N D S growth in the second quarter was led by performance software.
Now I will detail the value with NDS generates in the lower 48 market.
The average daily margin in the lower 48 from our drilling and drilling solutions businesses combined with over $20400 in the second quarter of.
Of that amount N T S contributed more than $3500 per day.
That MBS total increased by 10% versus the first quarter.
In the second quarter, the typical nabors rig in the lower 48, we had nearly seven NDS services. We saw an increase in installations of our smart slide directional steering system, and our smart NAV directional guidance software.
Installations of our smart plan well construction engine also grew.
In the second quarter Mds revenue on third party rigs accelerated growing by 18% versus the first quarter.
A core element of our strategy for MTS targets of third party market. This allows E&P companies to realize the value of NDS technology across all of the rigs they employ.
As well Nabors and third party drilling contractors, both generate economic benefit from these arrangements.
Next let me update on our progress to improve our capital structure.
We recorded several accomplishments in the second quarter, we generated free cash flow of $27 million. We also completed the redemption of our debt that was due at September <unk>.
And finally net debt improved in the quarter.
I'll finish this part of the discussion with remarks on sustainability and the energy transition.
Three focus areas include improving our own environmental footprint capitalizing on related opportunities and investing in adjacent leading edge companies.
First I will comment on some neighbors technologies focused on reducing our own emissions as well as those on third party rigs.
We expect these products will make increasing contributions to margins in rig technologies.
First is our paratype module. This unit connects rigs to the grid at the end of June We had 19 module is running over a quarter of those were on third party rigs.
And we expect further growth in the third and fourth quarters.
Second.
The nano to diesel fuel additives improves and you pro forma and same reduces emissions. We have already successfully treated more than 20 million gallons of diesel today on both drilling rigs and pressure pumping units in the second quarter alone that total increased by 18%.
Quarterly revenue and EBITDA from our energy transition portfolio once again increased versus the prior quarter.
Customer interest in solutions that reduce fuel consumption and emissions remains strong.
We also completed additional testing on our new hydrogen injection technology. The goal is to reduce fuel consumption as well as admissions more than proportionally.
This system uses hydrogen generated economically at the well site testing results are positive we continue to make progress towards commerciality and system may have applicability to transportation verticals, such as large highway trucks.
Next I would like to mention the second neighbors sponsors back earlier in July Nabers energy transition Corp to which trades under the symbol N E. T. D. You completed a $300 million initial public offering.
The offering was more than five times oversubscribed.
This corporate sponsored spec is a critical component of our energy transition strategy.
D U enables neighbors to participate in larger scale synergistic E T opportunities.
Now I will spend a few moments on the macro environment.
The recent volatility in commodity prices and the many macro factors, which you all know well have impacted operator economics and activity in the first half.
Notwithstanding oil price pull backs during the quarter todays oil prices constructive the outlook for gas is supported by several large LNG projects. These facilities are expected to come on stream over the next two years as their operations commence they should drive growth in the export market for gas.
Although the stage is set for a promising 2020 for some overhanging risks remain. These include continued interest rate increases by the fed looming concerns about a recession and the potential for a hard landing and demand from China.
On the positive side, there is the potential for an acceleration of economic activity and tighter global oil inventories.
Now I will spend a few moments on day rates, our second quarter results with lower 48 reflect the pricing environment, we saw through 2022.
More recently in the second quarter, we saw a peaking of rates, particularly in the gas basins.
Pricing came under pressure in the second quarter I want to emphasize current day rates for our highest spec rigs exceed all of the previous market highs.
In this environment, we continue to prioritize revenue and margin not market share, including the contribution from N D. S. Our performance against peers remains competitive.
In the international market, we see prospects for increases in activity across many of our major geographies.
As a group operators in these countries remain committed to increasing their productive capacity.
This increase in oilfield activity supports generally higher day rates and margin expansion, both in the Middle East and Latin America.
Once again, we surveyed the largest lower 48 clients at the end of the second quarter. This group accounted for approximately 44% of the working rig count.
Our survey indicates the group's yearend rig count will be slightly lower than it was at the end of June .
This result reflects a mix of operators, suggesting increases in activity decreases and holding flat.
Notably a few operators signal they intend to rationalize activity as they complete acquisition.
The greatest portion more than 40% look to hold activity flat.
Turning to our international markets several operators are planning increases in their activity levels.
Beyond the five recent awards that we announced we see the prospect for additional awards in our core markets in the Middle East and Latin America.
Of course, we also have the five additional rigs in the 'twenty 'twenty four and Saudi Arabia as you recall these generate annual EBITDA of $10 million each.
Let me wrap up my remarks with the following in summary in the current environment Nabors remains poised to deliver year over year improvements in financial results, increasing free cash flow and greater returns to our investors.
Now, let me turn the call over to William who will discuss our financial results and guidance.
Thank you Tony and good morning, everyone.
Our results in the second quarter reflected the trends in our global drilling market.
Our international segment was solid while our technology businesses also delivered sequential growth.
These herself helped offset the softening rig market, we had anticipated in the lower 48 in Colombia.
We expected lower drilling activity in the lower 48 gas basins, but we must admit that the reductions in oil related drilling we experienced were not anticipated.
Our current level of oil prices, we would have expected to see increased drilling in all basins. Instead, we saw reductions in all of the rig count.
Interest rate increases by the fed and several bank failures during the quarter resulted in increased cost of capital.
The increased cost of financing led most of our smaller customers to curtail activity.
Larger companies also cancelled plans for expansion.
These activity reductions were likely the result of concerns about potential recessions in the U S and in China and their impact on future oil demand.
Despite the pause in the lower 48, our operation in that market continue to generate superior economics.
With record margins and substantial cash flow generation.
In the third quarter drilling activity for the market has continued to weaken in the lower 48.
We are now forecasting sequential decreases in average rig count.
But after a tough first half in the U S. We are now starting to see signs that the market is bottoming with encouraging data points of incremental activity for the fourth quarter.
On another positive note, we anticipate further strength in international market.
With early signs of growth developing into awards for incremental rigs.
Drilling solutions on rig technologies are also expected to increase sequentially.
Revenue from operations for the second quarter was $767 million.
<unk> to $779 million in the first quarter down one 5%.
Revenue in our U S drilling segment fell by 10%, primarily due to rig count reductions and the lower 48 market.
This was largely offset by sequentially higher revenue in all of our other segments.
Lower 48 revenue decreased by 10, 8% as the current market conditions affected volume and pressure pricing in several regions.
Despite these headwinds daily revenue increased to $36750, an increase of $300 over the prior quarter.
Revenue from our international segment increased by $17 $6 million two.
Two $338 million.
Or five 5% for the quarter.
The improvement in our international drilling revenue was predominantly driven by the Middle East and Latin America.
During the quarter, we deployed incremental rigs in Saudi Arabia and Argentina.
Activity in Colombia, partially upset.
These games.
As we anticipated three rigs were idled in that country during the second and early third quarter.
One of the eastern returned to work for another client during the month of August .
Revenue in our drilling solutions segment continued to grow in the second quarter. Despite.
Despite the drilling activity headwinds in the lower 48.
Third party revenue increased 18% sequentially accelerating over the growth rate in the first quarter and validating our focus on this market.
International revenue also increased as we expanded our footprint in Latin America, and the Middle East.
And the rig technologies segment total revenue grew driven by international sales of capital equipment and spare parts.
Total adjusted EBITDA for the quarter was $235 million.
$5 million lower than the first quarter.
At two 1% decline.
U S drilling EBITDA of $141 million was down by $15 million or nine 6%.
Driven primarily by the activity reductions in the lower 48 market.
Lower 48 drilling decreased by $14 5 million or 10, 9% compared to the prior quarter.
Our average rig count in the lower 48 decreased by 11 seven rigs.
So 81 six.
Instead of the eight rig decrease that we expected.
Daily rig margins came in at 16900 <unk>.
By slightly more than $200 in the second quarter.
We exited the second quarter with 78 operating rigs.
I mentioned, leading edge pricing has peaked and we are seeing reductions in various markets.
Given the high cost of moving between basins.
Rising has segmented geographically.
When the gas markets, giving back some of the recent pricing gains.
For the third quarter, we project, our lower 48 margins to approach $16000 per day.
Reflecting some pricing erosion and increased compensation costs as we expect to carry excess labor in certain regional markets.
We also anticipate a further reduction of seven to eight rigs in the third quarter.
On a net basis EBITDA from Alaska, and the U S offshore market remained reasonably steady in the second quarter.
However, in the third quarter. The combined EBITDA of these two markets should decrease approximately $7 million, primarily reflecting about 30 days of downtime on our M 400 rig in the Gulf of Mexico.
We're a top drive upgrades and the certification of several drilling components.
Our international drilling segment delivered EBITDA of $98 million.
An increase of $10 million.
International rig count improve by about one rig with the startup of the third set of no build in the second quarter.
And the startup of our unit redeployed from the U S to Argentina.
These increases were partially offset by the release of rigs in Colombia.
Average daily gross margin came in at $16276 an improvement of 1050 over the prior quarter.
We expect international average rig count in the third quarter to increase one to two rig on a full quarter contribution from the third novo startup in Saudi Arabia.
And do you expect to start up of a rig in the UAE.
We anticipate deploying the fourth Saudi Newbuild rig in the third quarter, while the fifth Newbuild is scheduled to start before the end of the year.
We project third quarter International Daily margins between 15016 thousand 200.
Drilling solutions EBITDA continued on its upward trajectory delivering $32 $8 million.
Roughly 3% from the first quarter.
Gross margin for NDS held steady at 52%.
We continued to see increased penetration of our advanced solutions, particularly in international rigs.
With the largest contributions to growth coming from performance software and our digitalization offering.
We expect third quarter EBITDA for drilling solutions to increase again by approximately 3% over the second quarter level.
N D S gross margin per day for the lower 48 increased to just over 3500.
$310 increase compared to the first quarter.
This improvement took a combined drilling rig and solutions daily gross margin to $20407, a sequential increase of over $500 per day.
Rig technologies generated EBITDA of $6 $4 million or 29, 4% increase versus the first quarter.
The sequential increase was primarily driven by higher capital equipment sales and aftermarket parts revenue.
Our energy transition business also contributed to the growth.
For the third quarter, we expect rig technologies EBITDA to increase by about $3 million.
Now turning to liquidity and cash generation.
Free cash flow for the second quarter reached $27 million.
Free cash flow was impacted by somewhat lower than expected adjusted EBITDA.
And higher than planned capital spending.
Spending for the Newbuild rigs in Saudi Arabia accounted for this variance as our supplier reach progress milestones earlier than we expected.
It is worth highlighting that while our sign a JV as expected consume cash during the quarter.
Free cash flow for the remainder of our business reached almost $60 million.
This incremental cash flow supported the redemption in June of approximately $52 million of notes due in September of 2023.
At the same time, our revolving credit facility remained undrawn at the end of the second quarter.
Med data at the end of the quarter decreased to two point or $7 billion.
We expect third quarter free cash flow to reach approximately $80 million.
Capital expenditures in the second quarter were $152 million 12 million higher than we anticipated.
This amount included investments supporting the Senate Newbuild program of $66 million.
For the third quarter, we expect capital expenditures of approximately $125 million.
Including $48 million for Exxon had no bill.
For the full year, we are targeting $480 million of which 180 million support the Santa Newbuild rigs.
Our target for 2023 reflects capex reductions both in the Nord 48 in Colombia and.
An incremental expenditures for the four rigs recently awarded in Algeria.
Despite the softness in the lower 48 market.
And to a lesser extent in Columbia, we still expect to generate solid adjusted free cash flow for the full year and to continue reducing our net debt.
For 2023, we're currently targeting free cash flow between 300 and $350 million.
With that I will turn the call back to Tony for his concluding remarks.
Thank you William I will now conclude my remarks. This morning first let me summarize our second quarter, our adjusted EBITDA reached $235 million free cash flow was $27 million or lower 48 daily margins reached a quarterly record of 16000, Andrew at 90 and when can be.
And with NDS that measure exceeded $20000 N.
N D S. EBITA set an all time record of $33 million and we reduced net debt.
In the U S. We remain committed to a disciplined approach to both pricing and expense control.
With respect to our international segment, we have visibility to growth in our major markets, including the already planned commitments to Saudi Arabia.
In N D S. Our focus remains on increasing penetration on both nabors rigs and third party units.
The international markets are also realizing performance benefits from the MBS portfolio, we're optimistic for future growth in this segment.
In rig technologies for all of 2023 we expect a growing contribution and we have high expectations for rig techs energy transition initiatives.
We have demonstrated capital discipline and are committed to continue to do so we expect this will result in continued improvement in our leverage in capital structure I'm looking forward to reporting our performance in the coming quarters that concludes my remarks today. Thank you for your time and attention with that we will take your questions.
Thank you.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad if.
If you're using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Okay.
Yeah.
Our first question comes from Waqar Sayed with a T B capital markets. Please go ahead.
Thank you for taking my question.
Johnny Williams I believe you mentioned that the rig count at Q2 end was 78 in the U S.
If that's the case, what what's the number right now.
Have any five worker.
Yes.
75.
And so.
For Q4, you mentioned that you know you're seeing some incremental demand are you able to maybe quantify the level of incremental demand and what type of customers are generating that incremental demand.
So.
In terms of customers I mean, the thing that has happened is we've seen a rotation of our customer base again.
When we came out of Covid as you know.
There was very strong demand for gas rigs, particularly in the Haynesville area.
And that in fact, our percentage of gas rigs in the company as a whole was a little over 30%, which is a little higher than what the market was and that's that change.
In fact drove the the.
The downturn in the sense that east, Texas, and South, Texas, both loved the decline followed by the Marcellus.
And.
With that with that changing now are our mix of private versus public has in fact changed and the interesting thing is that if you look at december's number versus our June exit number in terms of the non private customer base, you'll be surprised to hear in the oil based and actually are our rig count was actually up so.
Given that we think with Detroit with the change in the private in the in the customer base.
Coming out of the privates and people relocating or set up in the fourth quarter for an upturn compared to the third quarter, but in terms of specifics yet I can't I can't I can't give you some specifics other than the fact that the.
Mix has changed the commodity prices strong and based on the reactions people feel a little more positive about the fourth quarter, but we're not putting a number yet on the on the magnitude will be up to them for the fourth quarter.
So we were getting a huge acceleration in and request for pricing and rigs.
For the fourth quarter.
But you know not all of that converts into actual rig count. So at this point, it's a little bit too early to give you the data points, but we're just being we just feeling good about the fourth quarter.
Sure and then from a margin perspective, and a margin typically kind of lags in you know you really get the price discovery that activity actually starts to pick up.
What what's your view on margins and when do you think margins tend to work with Nike bought them and perhaps an update on what level.
Well when you look at when you look at pricing I mean, I think the good news is that pricing has been relatively well behaved as you can see and as we mentioned in our prepared remarks, the leading edge rates have been between in the low to mid thirties. In fact, we recently signed several contracts squarely ended up in those ranges just last week.
So.
The comment I'm, making is that if you look at the leading edge rates those are actually above.
Our revenue per day numbers in the third in the second half of 2022, and so which everyone was very excited about so we think.
If that all holds then you should see.
Pretty good traction in terms of the margins are holding up.
As you're moving forward and.
Yes.
That's what I would say so so they'll make a common data because you mentioned price discovery as the rig count increases I think price discovery has already been quite.
Quite a prevalent in our fleet already because remember we didn't have as much term as we did in the past so we'd been seven months now living in this environment.
Loring and decreasing rig count.
And pricing has held up pretty steady in the in the in the oil basins that waqar, but what you're seeing now is a fair reflection.
You know what has already happened in the gas basins.
You know I.
We do feel there's still some pain to absorb.
More contracts that roll into slightly lower day rates that we have today, but you know you saw what we forecast for the fourth quarter.
The third quarter, I'm, sorry, and a part of that is cost, but you know there will be some pricing and deterioration in the third quarter for the fleet isn't as an average, but it's not as much as you would expect.
Fair enough and just last question as you to get rigs, what's the timing of.
Those are the new contract before rigs are getting up on revenue.
Early 'twenty 'twenty four will start to deploy those spring.
Yeah.
Great well, thank you very much.
Thank you Waqar.
Our next question comes from Kurt I'll, let Wes.
Benchmark. Please go ahead.
Hey, good morning, everybody.
Kurt.
Hum.
Maybe start off on the international front right and you you referenced four four rigs in Algeria, obviously, he has a lot of incremental.
Updated color on the Saudi.
Appointments.
I guess, it's safe is it safe to assume that there was no G. H T regs will start to.
I'll start.
Start on their projects in the fourth quarter.
Or is that is that more of a 'twenty 'twenty four but just trying to get a sense as to what the.
Yeah, I think it itself.
'twenty 'twenty four for the first quarter 'twenty 'twenty four right now that's what it's looking like and I think no.
If you look through the prepared remarks, obviously you have some really great visibility in terms of the international rig count I mean, just working from our R. R for our second quarter average of.
Of.
77, roughly.
When you add in the fact that Theres two more Saudi rigs going online. This this year and then five it looks like next year because of the acceleration of deliveries so that seven four in Algeria that that's.
11, we have two locked up in in combination of South America, and Latin America and in the Middle East So that 13.
And then we have some identified opportunities that for at least another half a dozen that we're now chasing so yeah I'll put it in in our hand as 13 rigs on top of the 77.
Obviously, all bleed in over time in the in 2024, but I think that that underpin some of our confidence and are feeling good about 2024.
The takeaway from this quarter basically is that you still have two good things you saw you saw that our margins in the U S in terms of the.
Amount of margin demonstrates the quality and the power of our U S position and the quality of the fleet what we can do.
D. S hit an all time record in a market, which was experiencing pushback and then you see the beginnings of a underpinning for a line of sight of international. So that's the three takeaways from the quarter's numbers I would say.
Yeah.
Okay, that's great color, Tony So I'm.
Just follow up on the on the free cash flow dynamic, obviously slightly lower than what what you were expecting coming out of the second quarter excuse me in the first quarter.
So when you think about the progression from here Williams, you know how much of the free cash flow incremental because it looks like youre going to have to do about $150 million or so of free cash flow in the fourth quarter to kind of get to that $300 million range.
Much of that is is going to come from working capital.
Uh huh.
I'm from working capital.
Not as much as we thought because the fourth quarter is not looking at a little bit better than we thought but yeah. Some of it is coming from working capital.
Some of that is coming from incremental results in some of that is coming from the fact, we don't really pay that much interest in the fourth quarter. So so yeah, we are targeting around $1 50 for the fourth quarter at this point.
The what we're seeing on the on the free cash, though there's a little bit of uncertainty in the capex.
We have we we were used to our supplier in the middle East and China.
Missing the milestones and therefore, we were estimating that we would have a certain number for sign up for the year and for and for this quarter in fact.
Surprisingly our supplier has been now hitting the milestones and it seems they've got their act together, which is a good thing because we get a rig quicker, but you so but we do have some uncertainty on the Capex. We thought we would take our capex from about $3 90 range for 90.
Sorry for 90 range to somewhere in the $4 44 50.
Range a bit.
The cost of cyanide, probably there's a $20 million swing there that we think what we'll see this year now that means the rigs are coming quicker, though so that's a good thing like I mentioned.
Algeria, Algeria contract, we're bringing some idle rigs back into the market, but that require some capex as well and Tony mentioned are about six rigs plus of opportunity that we have and again. This is not a tender. This is something that clients are coming to us and are asking us to do so it's a really a negotiated deal with very high.
Return on capital, we haven't decided yet whether we will actually pursue or actually signed those contracts are but if we do I did include in our forecast for capex, what the capex that would be required to pursue that work. So that's a <unk>.
Roughly what do you see that the reduction in free cash flow from somewhere in the 400 range to 300 to 350 <unk> mostly.
Capex for additional opportunities and for the Diamond and we hadn't really seen in the past and the past quarter.
Oh, great I appreciate that that that incremental color there as well and then there's just maybe one last just quick follow up here on you mentioned pricing and you mentioned the range you know low to mid 30 that seems pretty consistent with what the commentary was you know through the course of most of the second quarter. So it doesn't appear like there's really much incremental.
This degradation. So when you think about you know what.
The the guidance on your cash margins coming down.
Has that been more you know the fact that you're you're keeping people around or.
How would you attribute that thousand dollar a day decrement is that is that more of a labor or is it more of the pricing.
Obviously, some churn here. So for example, I mean, we as I mentioned before.
Amongst the majors and and and large publics and privates basically our rig count has been held but we've actually had to do some relocations. So we would actually be relocated four rigs from other markets to west, Texas and those move by the way were paid for by the cost of the moves were paid for by the operator, but.
They do invariably result in churn and then even within West, Texas, even though we've been able to maintain.
Count and.
Operators are really focused on me on high grading their rigs in this market and so that also caused some churn. So yes. There is some breakage in all of these numbers now and that's what you're seeing in some of our estimates as well.
Okay. That's great. Thank you.
Thanks Bert.
Our next question comes from Dan Katz with Morgan Stanley . Please go ahead.
Hey, Thanks, good morning.
Good morning, Dan So I'm.
Looking at kind of the first half.
Adjusted EBITDA results in the third quarter Guide I think if my math right that kind of would put you at.
Somewhere in the ballpark of 700 million, but just to be about the third quarter I think in the past you guys had kind of laid out a $1 billion target for this year, if theres some growth in the fourth quarter. It seems like you guys might still get close to that number but I'm just wondering you know.
If you could help us at all with with.
How you would frame any updates to that.
At target.
Yeah.
So I'll take I'll take the first part of it which is N D estimate there's always called asked us about NDS and so as you know we were out there with a target of $1 50 for the year friend, Yes, and at this point I would say that is probably unlikely given all the.
The pushback and what's happened given the first two quarters and still whats going to continue into third quarter.
But I'm reluctant to set a new number and the reason for that is actually some good news, which is we're seeing really positive traction in India, particularly international penetration and in the U S. We've had really great third party adoption in fact, our third party numbers gone up 18% quarter on quarter, and so and you'll watch us awesome.
Tactical decisions, we made with collaboration with some other people like corvid Halliburton and all those things are militating in terms of hopefully NDS, which was designed to offset decline in rig count actually bearing that out and so.
That would be the offset to the overall market to $1 50 is unlikely.
But we're reluctant to give you what the number is yet because we have these offsetting things underway that all are positive so but it is unlikely hit the $1 50, so with that I'll, let William talked about the macro $1 billion number you're talking about.
So $300 million in the fourth quarter is it's also unlikely.
However, you know we although we have seen a sharp reduction in rig count in the lower 48, and you know we probably.
10% to 15 rigs short of where we thought we could be at this point.
We are we are being cut by a little bit by surprise in the international market not only by the awards by by recent.
Tivoli levels pricing increases and so we are pretty happy with what we're seeing on the drilling side on the international and some of that downdraft that we're seeing now in the lower 48 is going to be offset by the international markets. So at this point I mean, what I can tell you is I don't see a pathway to $300 million.
But I do see a pathway for a fairly robust fourth quarter.
Got it that all makes a ton of sense, it's really helpful and then.
I guess, maybe just to put a finer point on this.
I have already given us all the components, we need but going back to.
The third quarter.
Lower 48 activity Guide you guys said that you exited the second quarter at 70 875 today and the guide is for an average of 74 to 76 that kind of implies to me that maybe.
Bottom that youre contemplating would still be somewhat of a seven handle would.
Still being in the low seventies, what would be the trough, but.
The crux of the question is.
Where do you see the lower 48 rig count dropping and.
And the guidance Paul.
And I'll, let Don that's a Tony question.
[laughter] yeah. So.
What are your absolute numbers I'm really reluctant to do that.
I think the range speaks for itself.
And I think all the other comments, we made so I don't want to really give a specific number but I think.
The range is what we're comfortable with and as you said so we're at 75 now we we exit the quarter a little bit higher so and you look at that number so yes, there could be a little bit more downside, but it's.
I think you know the range it looks good right now and we think that given what's going on with our clients.
The conversations with their clients.
<unk>.
Price of oil right now.
And the trajectory of production.
I think I think the whole market.
I think it's getting pretty close to a bottom if its not already there.
Yeah.
You saw that and you saw that in the in the prepared remarks about the with the survey and everything so and.
And all of this is in effect lagging.
Recent oil price moves and so when you layer that on top of things I think that's what gives us some confidence in the rebound in the fourth quarter.
Got it understood all makes sense. Thanks, a lot alternative back.
Thank you Dan.
Okay.
I don't know if you'd like to ask a question. Please press Star then one at this time. Our next question comes from Keith Mackey with RBC capital markets. Please go ahead.
Hi, Good morning, first wanted to start on the international day margin, so they've come up nicely in the last several quarters that the Q3 guide it looks like it's flat flattish from Q2, but what is the right way to think about the international day margins from here is it really take that 16000.
And layer on the incremental impact of the San add rigs coming in at you know what you've talked about previously as a $10 million per year EBITDA rig number or is there. Some other nuances we should be thinking about in that day margin as well.
So Keith that's a very good question actually.
We do expect to have.
The large number of Saudi rigs.
With above average.
Margin per day.
Active in 2024, right and progressively from here to year end and over and over 2024. So as we add those rigs we would expect our margins to go up now obviously, new rigs coming income with cost shakedown periods and things like that so it's not.
And automatic then you can just turn the switch and get those to higher margins on day, one but that is a trend you will be seeing.
And the other rigs that we're talking about are also in a pretty good range of of margin per day. So.
If anything we see we see some upward traction from here to year end in terms of our margins in.
In the international markets and thirdly, increasing some more in 2024.
Okay. That's helpful and William just just for my clarification, the incremental Saudi rigs Youre talking about are there any additional saudi rigs on top of the San add rigs coming in or.
For now.
Theres more tenders and and you know obviously, we could participate in those.
But but you know, we havent really push very hard to penetrate those other pockets of the Saudi market. The unconventional market specifically, there's a lot of tenders out there. So there's nothing in our forecast today four wins in that particular region I think that would be quite capital intensive if we were to pursue.
Those markets, but yeah, theres incremental activity in the Saudi that we haven't really.
<unk> put into our forecast at this point.
Understood. Thank you and Tony in your prepared remarks, you talked a little bit about the impact of recent customer consolidation, causing some softness in industry demand for rigs can you just talk about you know a little bit about how you think that dynamic will play out going forward do you think there will be an outside.
<unk>.
Two of customer consolidation relative to driller consolidation and do you think that will cause any particular impacts on on your bargaining power so to speak going forward or or is it really just going to be a one off dynamic.
Well on.
This is the perennial granting of March.
I think customer consolidation will continue.
Given given the pressure that they all face to be capital efficient and and.
Or maximize their use of cash and so I think that that will continue at a pace probably more so than on the oilfield service side and the bargaining power has always been uneven and we will continue to be.
But.
The consolidation also reads. The fact that once these companies get larger they also look for efficiencies. They also look for high grading their operation, both things like that which will drive them to higher quality expectations for their providers and I think that actually plays into our hands and so are our mission is to help them achieve.
That that new consolidation with using us as a platform. So we try to turn it into a benefit rather than just the liability.
Awesome, Thanks very much.
Thanks.
Yeah.
Our next question comes from Erin <unk> with J P. Morgan. Please go ahead.
Yeah, good morning, gentlemen.
Tony I was wondering if you could discuss some of the competitive dynamics in the middle East.
And just generally how are you seeing things kind of play out from a from a potential supply standpoint. As you are you know as you.
You can participate in some of those tender activity.
I missed the question what was the question competitive.
The competitive landscape Oh sure yeah yeah.
Oh, yes, so obviously.
Past 10 years <unk> seen them.
We'll rise and the role of the Chinese and drilling contractors in the marketplace. There their role historically was segmented to the more commodity drilling, but they've actually gotten better as well. So they have become a player and you also see the rise of local national companies either affiliate with <unk> or.
<unk> are just locally owned or owned by sovereign funds and so that has that has affected the landscape has become in essence more competitive and I.
I think nabors being being there already I think we've been.
In a great position to continue to compete against all of those forces, but obviously it has gotten more competitive.
And.
Our mission is to differentiate ourselves against all of those people, which I think one of the reasons why NDS has become so attractive as people really want the technology aspects of what we're providing and that is a true differentiate against all of those people interestingly virtually everyone. I just mentioned to you is actually a neighbor's customer.
Directly through either through Ken rig or indirectly through N D. S. In other words, we're actually helping them provide services on their rig or we're actually providing parts and things like that either capital equipment or other things. So.
It's kind of an interesting dynamic, but I think.
That's why Nabors I think is unique in that international workplace with all those competitors I think other people.
Head to head with those people will have more challenges than what we have today.
Great and just a follow up Tony about a month ago, you announced an agreement with Halliburton on the automation side I was wondering if you could maybe elaborate on that or agreement what it means for neighbors. It looks like you're deploying some of this technology and in Iraq, So love to get your thoughts on the implications of that.
Sure.
Like I mentioned before is that you know growth of third of third party marketplaces, something is really important to us as well as offering our clients more streamlined solutions, both on our rigs in and third party rigs.
That transaction like the corporate <unk> who's part of that and I'll, let say boat here, who actually negotiated it give us additional comments on it.
Yes, Tony Thank you for that so one of the key things as part of a third party strategy is to partner with the <unk> customers, who are working but L. S. T K kind of projects.
As you know they as Tony alluded they are typically using low cost drilling contractors, who do not have technology.
And our solution, providing automation and digital solutions helps them both.
Maximize the drilling efficiency and also get visibility of how the rigs are performing so that they can drive better outcomes for themselves and for managed stay at these better so our approach with Halliburton and a few other off best customers are that that we are working with us to see how we can add.
All of them, but both automation and digital workflows to drive that Athene management by lowering of the drilling dysfunctions and maximizing efficiency. So it has been a great partnership with Halliburton and I think we will continue to add more of these spot.
No ships over the next six to nine months.
Thanks, a lot.
And by the way those partnerships don't just include all access companies. They actually include other other drilling contractors as well who are interested in and taking advantage of the same benefits I just spoke about which again is the reason why I think compared to other players in the international Arena.
We are a differentiated offering compared to other other people who are just going in there and trying to compete head to head against local people I think that that that's basic strategy.
Is subject to a lot of pushback compared to what we're trying to do.
Great. Thanks, Tony.
Our next question comes from John Daniel with Daniel Energy Partners. Please go ahead.
Hey, guys. Good morning, Thank you for including me.
Uh huh.
My first question is relates to the inquiries that youre getting in for Q4.
Can you characterize what whether that's well to well work short term contracts long term contracts any color on the duration of the work that would be behind it.
Yeah, I'll, let Travis comment on it yes, John Good morning, Travis, Yes, mostly I would say medium to longer term I mean, theres a lot of short term requests as well. So obviously, we're going to pick our pick the ones that make the most sense for the business and we're going to put those rigs to work with those partners.
Okay.
This will probably be that not much question of the day right.
It's natural when the commodity price drops and everybody wants a concession.
People look at is the day rate.
Just curious if you could characterize D.
The request for price concessions within just a straight big marketing you all versus India.
French.
You've seen the technology the value.
That made any sense.
Oh, Yeah, Travis just yet John I'll, just I'll just stay on the subject I mean, obviously, yes, we're having some there is some price discussions with our customers, but when we look at our offerings on our Super specs are our rig platform on our NDS go hand in hand, I mean, it's that's what drives the top quartile outcomes of the <unk>.
The performance that we get on our on our rigs. So we have those conversations if not necessarily discrete rig day rate discussion or an MBS discussion. We its hand in hand, we've been very successful in terms of holding price and showing that value. Let me give you. An example, John you on the last quarter alone we've increased over 10%.
He is 20 and some of our basins in terms of footage per day. So when you think about well delivery for our customers we are driving.
Great outcomes for them and that's high value to our customers. So we stand on pretty solid ground in terms of the pricing that we that we get for our rigs.
Okay. That's very helpful. Thank you.
Thanks, John and John you never ask a stupid question in fact, the one Guy every time I read what you write I learned something so I appreciate it all all your musings.
We're trying.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to William Conroy for any closing remarks.
You all for joining us. This morning, if you have any additional questions or would like to follow up please contact us and with that Sarah will end the call. There. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.