Q3 2023 Nabors Industries Ltd Earnings Call
Hello, and welcome to the Q3 'twenty two 'twenty three Nabors Industries Ltd earnings call, all participants will be in listen only mode.
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I'll turn the conference over William Conroy, Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, everyone.
Thank you for joining Nabors third 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 N 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 $19 33, and the Securities Exchange Act of 1934.
Such forward looking statements are subject to certain risks and uncertainties as disclosed by Nabors from time to time in our filings with the Securities and Exchange Commission.
As a result of these factors our actual results may vary materially from those indicated or implied by such forward looking statements.
Also during the call we may discuss certain non-GAAP financial measures such as net debt.
Adjusted operating income adjusted EBITDA and 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.
Thank you for joining us as we present, our results and outlook.
Activity in our major global markets was essentially in line with our expectations.
Rig count in lower 48 declined as the third quarter. It appears to have reached a bottom.
Leading edge pricing seems to have stabilized.
Our drilling activity in the U S impacted results in our Nabors drilling solutions, our rig technologies segment.
The newbuild rigs in Saudi Arabia, where a source of disappointment as reflected in our third quarter results.
Specifically the issues included delivery delays by our local supplier fuels performance challenges with certain of the Newbuild rig components and higher start up costs as we address these challenges.
The impact to EBITDA in the third quarter was approximately $5 million.
We have now addressed the existing quality issues, we expect our suppliers' performance to improve rapidly as their local manufacturing experienced increases.
On the positive side, our lower 48 margins remain at historically high levels and international rig markets provide us with multiple opportunities at attractive pricing.
For the third quarter adjusted EBITDA totaled $210 million. This result, principally reflects the known decline in lower 48 drilling activity as well as the shortfalls to Saudi Arabia.
Our global average rig count for the third quarter declined by eight rigs all of which was attributable to the U S.
Our drilling solutions and rig technology segments together accounted for 18% of total EBITDA. This contribution is approximately double the proportion immediately pre COVID-19.
Okay.
Next let me make some comments on each of our five priorities for.
First performance in the U S.
Daily rig margins in our lower 40 operation were in line with our expectation.
Pricing in this market reflects the reduction in industry utilization this year.
Please note that our margin performance in the third quarter was higher than that of any quarter prior to 2023.
Our reported lower 48 daily rig margin reflects the financial results of just our drilling rates on top of that Nabors drilling solutions portfolio generated significant additional margin.
I'll discuss this in more detail in a few moments.
Now I'll discuss our international drilling business in the quarter, we stood up a newbuild rig in Saudi Arabia, and a rig in UAE.
These units are the first two of the 13 pending international startups that I detailed last quarter.
Profitability improved substantially in several international markets, primarily in Latin America.
Let me add a few more comments concerning the Newbuild program in Saudi Arabia.
The fourth rig deployed into the third quarter.
<unk> was also expressed its historic in the third quarter.
Although construction of the rig has been completed his start date has been pushed to the beginning of next year.
The aforementioned supplier issues caused this delay.
This timing mismatch between the capital outlays and the commencement of EBITA had a negative impact on free cash flow in the quarter.
The second tranche of five rigs is currently under construction in the Kingdom. We currently expect the first of this group to spud in the first quarter of next year.
Two of the remaining four rigs should be deployed by the third quarter of 2024.
Last two rigs of that tranche are expected to spud in early 2025.
Saudi Aramco recently awarded the third tranche of five new builds we expect to deploy the first of these rigs around midyear 2025.
In general the outlook for our international business, including Saudi Arabia remains quite positive coming out of the third quarter. We have 11 deployments expected to the end of 2024.
Beyond these we see improving prospects for additional rigs of course, the number of markets. These include Kuwait, Algeria in Oman in the Middle East and Argentina, and Colombia in Latin America.
Next let me discuss our technology and innovation.
Growth in NDS International business actually accelerated in the third quarter.
Managed pressure drilling and casing running drove this growth.
<unk> U S business was impacted by reductions in overall rig activity third party revenue offset some of these reductions.
Next I will detail the value that 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 $19000 in the third quarter.
Of that NDS contributed approximately $34 per day. This significant incremental margin contribution comes with limited capital spending.
Thanks to the low capital intensity of the MBS portfolio. The returns on capital are the highest in our company.
In the third quarter penetration of NDS services held steady on nabors rigs in the lower 48 at nearly seven per rig once again, we saw an increase in installations of our smart slide directional steering system, and our smart NAV directional guidance software.
Our volume of casing running jobs also grew sequentially.
Our NDS portfolio remains robust, we have seen increasing interest both domestically and internationally, including for our software solutions on third party rigs.
Next let me offer an update on our capital structure.
Our free cash flow generation and debt reduction were challenged in the quarter most of the items impacting our liquidity or one offs or resulted from shifts and expected timing between quarters. We are addressing the impact of the issues in Saudi Arabia that I mentioned in order to recapture our momentum.
The entire company remains focused on increasing free cash flow and reducing that debt.
I can assure you these goals remain our top priorities.
I'll finish this part of the discussion with remarks on sustainability and the energy transition.
Our energy transition initiatives as you know focus on making a difference on nabors own emissions profile and exporting solutions to other verticals.
These technology solutions already contribute visible margins.
The first of these is our power tap module. This unit connects rigs to the grid at the end of September. We had 23 module is running more than 20% of those were on third party rigs.
We have commitments in hand to add two units in the fourth quarter.
Notably one of these is our first power tap unit incorporating a frequency converter for the international market. This allows our rigs working in certain markets to tap into the local grid.
We believe this is an industry first in addition to the unit now deploying we expect three more international deployments by early 2024.
Second is the nano two.
Diesel fuel additive, which improves engine performance and reduces emissions, we have treated more than 22 million gallons of diesel today on both drilling rigs and pressure pumping units in the third quarter alone that increased by 10%.
Quarterly revenue and EBITDA from our energy transition portfolio once again increased versus the prior quarter, we see a path to further growth across the client base, both on Nabors and third party rigs as well as another vertical.
Notwithstanding the volatile environment as well as the decline in rig count in the quarter commodity prices remain constructive for operator economics.
Compared to our last earnings conference call oil prices are up more than $10. A barrel. We believe this oil price environment is very positive for international markets.
We are still of the view that several large LNG projects, along the Gulf Coast will support drilling activity for gas, especially in the Haynesville.
These commodity prices form a favorable backdrop for operator economics. However, the combination of operator capital discipline and consolidation could temper the scale up in U S activity that we've normally seen at these higher prices recently, we have noted two announced mergers involving U S majors.
These transactions indicate their confidence in the future of the U S hydrocarbon business.
As I mentioned, given this backdrop international prospects, particularly those driven by national oil companies remain favorable.
Our balanced geographical portfolio positions us well to capture U S growth in 2024 and to capitalize on these international opportunities.
Some overhanging risks. Nevertheless remained these include sustained higher interest rates, if not additional increases by the fed and looming geopolitical concerns across several geographies.
Next I will spend a few moments on the rig pricing environment.
Our third quarter results for the lower 48 reflects stabilization of leading edge market prices.
As I have emphasized in the past these current rates for our highest spec rigs exceed all of the pre 23 market highs.
Our focus in the lower 48 market remains profitability, while continuing to serve our valued customers.
As such we continue to demonstrate the worth of our technology portfolio with NDS.
As I mentioned in the international market, we still have visibility to 11 additional rigs through 2020 for this growth should provide substantial uplift potential.
The commodity price backdrop, we believe there is room for additional unit additions in the Middle East Latin America.
As rig utilization across these markets improves we expect rig pricing will increase further as well.
Once again, we surveyed the largest lower 48 clients at the end of the third quarter. Our survey cover 17 operators, which account for approximately 45% of the working rigs at the end of the quarter.
The survey indicates this group will add about 6% to its rig count through early 2024.
This increase is spread across nearly 50% of the surveyed operators.
We are encouraged by the distribution of this planned increase.
With respect to international additions, we would increase our international rig count by 15% by the end of next year.
Let me wrap up my remarks with the following we expect our financial performance to improve materially in the fourth quarter as we remain committed to increasing cash flow, reducing that debt 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 afternoon, everyone.
Our third quarter financial results reflected primarily the expected reduction in lower 48 activity. We then associated leading edge pricing decrease as.
As anticipated our U S offshore results fell.
I would also point out that would result in Saudi Arabia, despite there quarter on quarter activity to increase fell materially short from expectation.
So its were mainly affected by the disappointing performance and quality assurance by the supplier of our Newbuild.
Saturday experienced delays in delivery and commissioning of the Newbuild rigs, which caused some significant revenue.
Which we only partially anticipated.
These delays were compounded by unexpected downtime and newly delivered rig components by the same manufacturer.
We are now forecasting additional loss margins in the fourth quarter from these issues.
The drilling activity reduction in the lower 48 also impacted our NDS results more than we expected.
Driven by higher than anticipated rig count reductions in the general market.
These affected our ability to increase penetration on third party rigs.
On the positive side, we continued to experience tailwind in most international drilling rig market.
Particularly in Latin America and throughout the eastern Hemisphere.
Revenue from operations for the third quarter at $734 million declined by $33 million or 4% as compared to the second quarter.
Revenue for our U S segment at $276 million fell by $38 4 million or 12%.
This decrease reflected an eight rig sequential reduction in lower 48 rig count.
Revenue per day of 35000, and $700 fell by $1054 from the second quarter level.
U S offshore revenue was $6 $5 million lower sequentially as our largest platform rig completed as planned annual maintenance for a major component. In addition to a second rig was placed on standby rate by our customer through the end of the year.
Our international segment reached $345 million at $7 million or 2% improvement over the prior quarter.
This expansion was driven by an additional newbuild rig deployed in Saudi Arabia, as well as strong increases in Argentina and Mexico.
These positive outcomes after at the end of contracts in Kuwait in Colombia.
Nonetheless, the magnitude of the increase was disappointing due to the aforementioned delays and quality assurance issues on the new business.
These issues cost side at a total of $5 million in foregone revenue during the quarter.
Nabors drilling solutions and rig technologies were both affected by the reduction in U S rig count during the third quarter.
The combined revenue impact for the two segments.
It's approximately $6 million sequentially.
Revenue in our drilling solutions segment declined by 5% to $72 $8 million, reflecting the lower drilling activity in the lower 48 market.
There were however, a couple of bright spots to highlight despite the headwinds in the broad U S drilling rig market NDS revenue continued to grow with third parties compared to the second quarter NDS increase its use third party revenue by 8%.
International revenue also continued to expand increasing by 8% sequentially.
Total adjusted EBITDA for the quarter was $210 million 25 million lower than the second quarter at 10, 6% decline.
Nearly all of this decline was in the U S drilling segment, which reported EBITDA of $117 $4 million down by $24 1 million or 17% sequentially.
This was driven by the activity reductions in the lower 48 market.
Lower 48 drilling rig EBITDA decreased by $18 2 million or 15, 3% compared to the prior quarter.
Average rig count of 74 declined by 10%.
Average daily rig margin of almost 15900 was in line with expectations and represented a reduction of about $1035 per day or 6%.
Operating expenses were in line with the prior quarter.
We believe leading edge prices as well as cost has stabilized for the fourth quarter. We project our average daily rig gross margin between 15000 and $15200 driven by the repricing of renewables as rigs roll to new contracts.
We're targeting flat operating costs.
During the third quarter, our rig count when it's launched 70 rigs and exited the quarter at 71.
On a net basis, Alaska and the U S offshore businesses performed better than we anticipated.
In the third quarter, the combined EBITDA of these two operations or.
It was $16 $5 million, a decrease of $5 9 million.
This reduction reflected planned downtime for the top drive upgrades and recertification on our end 400 rig in the Gulf of Mexico.
Combined EBITDA for Alaska, and U S offshore showed improved by $1 $5 million in the fourth quarter with a full quarter of <unk> 400 operations, partly offset by planned maintenance on two rigs in Alaska.
International EBITDA decreased by $2 2 million or two 2% to $96 $2 million.
Average rig count and average daily gross margin were lighter than expected.
Largely driven by the Newbuild challenges in Saudi Arabia.
In addition to the material forgone revenue, we still had to absorb the compensation and other costs on these nonperforming rigs.
Average daily gross margin came in approximately at $15800.
The Senate issues affected our international daily margin by about $700.
We project International average rig count in the fourth quarter to increase by one to two rigs driven by redeployment in Latin America.
And for average daily gross margins, we are targeting between 16000 215300.
Drilling solutions posted adjusted EBITDA of $34 million in the third quarter down $2 3 million.
This was primarily driven by the declining the neighbors lower 48 rig count.
Although international and third party revenue did well during the quarter.
Some of our third party authorities clients reduce their activity, which cut our opportunities for additional expansion in this market segment.
We expect fourth quarter EBITDA for drilling solutions to increase by approximately 10% over the third quarter level as we continue to grow in international markets and as third party activity in the U S.
N D S gross margin per day for the lower 48 was $3388, our combined drilling rig and solutions daily gross margin closed at $19243.
Rig technologies generated EBITDA of $7 $2 million.
At 12, 7% increase versus the second quarter.
This improvement was primarily driven by higher margin aftermarket sales and services.
As well as higher penetration of our energy transition technologies.
Now turning to liquidity and cash generation.
Free cash flow for the third quarter at just under breakeven fell below our target mainly due to higher capital expenditures of $33 million, which reflected the accelerated timing of investments in Saudi Arabia in the U S.
This will result in lower than previously expected capex in the fourth quarter.
In addition, our accounts receivable balance and other working capital items or some $40 million higher than we expected.
In addition to this working capital impact lower EBITDA than plan negatively impacted free cash flow.
In the fourth quarter, we expect overall capex to decrease significantly and the Q3 working capital impact to reverse itself.
We expect free cash flow for the full year 2023 of between 225 and $250 million as compared to our previous expectation to generate between 300 and $350 million.
The reduction includes $40 million of incremental capex in the secondhand or all.
Jerry and deployment has been moved up we.
We expect to spend approximately $20 million in Capex before year end in preparation for the four rig multiyear contract.
We also decided to spend $10 million in purchasing a rented base in Argentina's Vaca <unk> basin the opportunity to purchase this critical facility presented itself. After unsuccessful attempts in previous years to lock in our major operation space for the long term.
Finally, although sannup newbuild capex in the third quarter was essentially an acceleration from the fourth quarter we.
We now expect about $10 million of 'twenty 'twenty four capex to move into late 2023.
Capital expenditures in the third quarter were $157 million 4 million higher than the prior quarter.
This amount, including investments for the Senate to Bowl program of $52 million for.
For the fourth quarter, we expect capital expenditures of approximately $95 million, including $35 million for Senate no dose.
For the full year, we are targeting $520 million of which $190 million or percent of newbuild rigs.
In conclusion, the third quarter, EBITDA and free cash flow were unfavorably affected by one off events as well as items that shifted between quarters.
Excluding these items the underlying results for our international segment continued to progress and we expect further acceleration ahead.
Just as importantly, the trends in the lower 48 proceeded as we had forecast.
And I believe we are seeing a bottom in rig count and pricing.
We also anticipate at U S drilling NDS in rig tech.
We'll benefit from a meaningful uptick in activity in 2024, driven.
Driven by unexpected recovery in gas drilling.
Increased EBITDA in 2024 versus the prior year.
As well as sustained capital discipline should result in higher free cash flow next year.
We now forecast for full year 2023.
We will continue to allocate this cash generation to debt reduction throughout 2024.
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.
Notwithstanding challenging marketing conditions in the U S. We expect a material improvement in our consolidated financial results for the fourth quarter.
The lower 48, we expect to grow our rig count this quarter from its current level as we look to put rigs back to work, we remain committed to our pricing discipline and expense control.
Our international segment has excellent visibility to significant growth through 'twenty 'twenty four and beyond.
And additional opportunities are already emerging across our major markets.
The international portion of our NDS segment is also growing as those clients realized performance benefits from the NDS solutions portfolio.
In the U S. We continue to focus on increasing penetration on our own rigs as well as on third party units.
We are encouraged by early signs of an acceleration in rig technologies, especially for capital equipment in the international markets on top of that we have high expectations for rig tax energy transition initiatives.
We remain committed to our goals our free cash flow generation and debt reduction we expect to report improvements in both metrics this quarter.
That concludes my remarks today. Thank you for your time and attention with that we will take your questions.
Yes. Thank you at this time well begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing that gays.
Your question. Please press Star then two.
At this time, we will pause voluntarily to assemble the roster.
And the first question comes from Derek Lighthizer with Barclays.
Hey, good morning, I just wanted to ask you about the 14 warm stacked rigs you highlighted in the press release you mentioned these things are ready to go just maybe give us some more color around your expectations on when those should be deployed the cadence of deployment, maybe the customer type the basin just help us with those 14 rigs as you look at them.
Through 2024.
Sure well.
In terms of customer types, obviously, we've seen a bit of a shift from.
The private to the public's from where we were a year ago and I think that ship is going to continue given the other developments in terms of in terms of basins right now I think the most attractive right now is south Texas.
Due to a combination of interest and rig availability west, Texas Theres been some redeployment of existing equipment there.
So operator churn, but at the same time, we're seeing slight increases in based on a survey we see a pick up in early 'twenty 'twenty four with budgets reloading East, Texas and North East as we alluded to that those are gas driven and right now we.
We see some stability in fact, you think.
Pricing.
Which had been disconnected from oil is actually firming up that that gap between oil and gas is actually narrowing. So that's another area and then finally north Dakota as you get into winter that activities can be pushed into next year more but theres. Some recent stuff now, but then later in the year, so pretty pretty much in each of those markets.
Northeast I'm not so sure we see much in the northeast for Us right now.
So I guess, how many of those 14 do you think you can add back by the end of 2024.
It depends on customer demand Derek I mean, it's a bit early to to be hazard that but if the demand is there will be ready.
Got it okay. That's helpful.
Just follow up just wanted to ask about 'twenty 'twenty four capex budget any help you can give us as far as color, maybe some book and how we should think about it between the U S International.
And technology anything just to give you some preliminary guidelines here.
I think cyanide will be similar to this year, maybe slightly higher.
The supplier is going to get better and probably delivery of those rigs are a little bit more reliably than they have in the past.
We will have a significantly higher.
Rig count and as you know the maintenance Capex is it's directly correlated to the number of rigs so that won't go up.
So those are the areas, where we see on the other hands, we wont be buying a base in Argentina and in some of the things. We we have absorbed in places like.
Algeria.
Generation next year.
And but we're not ready yet to share that with them.
With our investors.
Okay.
That's helpful. That's all I got I will turn it back thank you.
Hi.
Thank you and the next question comes from Arun Jairam with J P. Morgan.
Yeah. Good afternoon, Tony just wanted to go through some.
Some of the challenges you talked about in Saudi Arabia in the quarter.
You know how has this impacted the future timing of that the Newbuild schedule is this going to be kind of comparable.
Part Metallize to this year or does it have kind of a knock on effect.
And I know you gave us a bit of color around.
Four four start ups next year and and five beyond that.
Correct, well, let me give you some context first first of all the Newbuild program vis vis what nabors normally doesn't countries just kind of sui generous because as you know in this particular operation it's unique because the ramp was committed over 10 years for us to build these 50 rigs.
Five a year, but also this was part of vision 2030, and they want to source the manufacturing and local country and the award that sourcing contract to a joint venture between them.
Them and N O V. So unlike where neighbors normally does stuff or ourselves and controls and all that that's different and also the fact was that.
That JV called arm had no infrastructure. So they had to build the new facility they have to get up to speed there no inventory well that stuff and all that was occurring at the same time. The newbuild programs are already get underway. So the only.
All I can tell you is that we're committed to following ramp those wishes I'm trying to make this work we actually have a 30 year relationship with that'll be so we respect them, but it's hard and it's these are this is actually a very big project and there is a lot of strain in the system when something happens Grandpa Asbury.
Deliberate acceptance testing processes and procedures and what's been going on on these on these rigs is given it's all the startup operation from a manufacturing point of view.
Seizures are taking somewhere from two to three months just to go through acceptance testing Nevermind. What do you think that are coming up and then there's issues of stock inventories for stuff that's ever been there in the country before and all of those kind of challenges. So that's what stretching everything out and that's what creates great.
Retention and but notwithstanding that I think we've really had some great success. This year in terms of getting these rigs on the payroll and as we said we have great visibility here right now.
Terms of next year with the four more rigs next year and the beginning of the second tranche. So as we've said the defense of the first tranche is going to be pushed to the first quarter, obviously that rig as we alluded to is already built but again for all of these problems. We have to we have to make sure the base rigs all working in the right way that's at the foundation here. So it's an ebb.
Interest to make sure they work.
Get to up to snuff the exact way and then it should become a cookie cutter as you go forward. So that's why the time is being spent here and obviously that all drives extra cost because if you have a rig and you you've been through planning for the rig in and then the acceptance testing get strung out then we have all of that group extra cool expense as well.
That's what's driving a lot of this extra expense here. So that's the concept and then the last thing I'd make as to other good points. Here is we've also told you that the third tranche is also been announced which is going to start in 2025 again, that's a show Dreamcoat was really getting behind this thing now and the fact that they are announcing it so really win.
<unk> four is not even yet delivered second tranche shows that their their intent I'm pushing everybody to actually get program going so here. So like I said everybody is motivated to get this to work I'm sure our friends across the street feels the same way and we just want to make it work and get a.
Cadence down in terms of numbers an impact I think this is probably the least appreciate thing of what nabors has today actually these four rigs that have already been put onto payroll next year.
Combined with the four that there could be added or give me more than $40 million incremental EBITA 50 to 60, roughly actually to be precise yeah, well yeah. So.
Anyway, the magnitude as you can see it's very large and therefore.
That gives us great visibility and when you add that to the 11 rigs that you know about in other markets. I think international is really poised for a really great upturn here and we could talk a little bit more about that context, but.
Hopefully that answers your questions about Saudi Arabia, if you have any other ones I'll be happy to follow up a quick question and let me, let me say something like Tony said that I think is very interesting and a lot of people are not seeing is that we still have some 11 rigs that have been awarded that are going to be deployed before the end of the year 2024, and then we have another seven oh.
Already awarded that would be deployed in 2025. So so that's what our are between the beginning in the end of 2025. So this 18 more rigs that are coming on the payroll over the next couple of years and that's huge growth based on our 77 base.
Yeah, I would say, there's nothing like that in the sector. This has ever been that much planned growth committed to in the land drilling center ever at these kind of numbers it really is unparalleled.
And then as I said and then.
You have away from Saudi Arabia, you have the other things going on in the macro environment.
Great. Thanks for that color on the international appreciate it I'll turn it back.
Thank you and the next question comes from John Daniel with Daniel Energy Partners.
Hey, guys. Thank you for including me.
Tony just sort of a big picture question for you, but let's let's assume middle East tensions this situation escalates and energy security fears you know ramp even higher <unk>.
Quickly can you just ramp your international business lot country specific but just broadly speaking how quickly could you ramp it further.
I would tell you.
Very quickly actually that that the benefit of having the.
Integrated infrastructure that we have and so.
We are actually I have a bunch of assets around the world in various places that.
Formed the outlines of something and anytime and refurbishing them and bring you up to stuff is what we do every day and that is just a question of the opportunity. So if that comes up whether it's enhanced energy security here in the U S. Before there's other markets that need it I think that that is really the power of the company that we have today in that.
That's actually what makes us different than everybody else, John as you know and so yeah.
That is really the strength of the company and.
Thank God.
We are well positioned to meet that.
And I guess sticking with the energy security theme are you seeing any change in behavior with people looking for a longer term contracts on equipment just to know they've got it or is it too early.
Too early although we have gotten inquiries from the middle East we've had a number of on the canvas side actually we've gotten a number of inquiries from what you might call our local our local.
Competitor companies. These are companies that really we don't really compete with because they typically drill in the shallower.
Part of the market where or their captive.
Companies for certain markets, where the national oil company controls it more and those have had a lot of a lot of inquiries recently, reaching out asking you about equipment and sizing things up I mean, this goes consistent with the theme that William alluded to which is the overall international arena here I mean, just to give you an idea.
There is a away from Saudi Arabia.
May I may have a list here just to give you an idea of the breadth of what's going on internationally I mean, you've heard the big or the Big Boys Voice service times, you all talked about super cycles, and things like that but I mean, I can illustrate the following way.
Give me a list of companies countries, Kuwait, Algeria, Oman, India, Abu Dhabi P&G I mean.
Papua New Guinea, Argentina, Mexico, Colombia, Venezuela, those companies today have tenders out what we have in hand.
For more than 50 rigs 50.
<unk>, Okay alright.
Alright that it's had.
Clearly a big driver of it second obviously.
Geopolitical events, obviously are also reordering the flows of oil and gas.
Pulling it into areas like North Africa, where you're going to see people. There that are up to now put a higher priority on increasing their production and then finally I think we're all under underestimate. The fact that all of these major oil and gas countries. Their internal energy consumption is increasing themselves and so that the author was a driver.
So you put all this together and.
And the fact that lack of investment whats gone on in the past five years, that's what all this that's what's generating all this activity now what will the swap resulting in the number of rigs being awarded that I'm not going to I don't not overselling that but I'm just I'm just trying to give you an idea to respond to your question of inquiries. When you have that many tenders out you can see why can't resist getting inc.
So everybody in the world because they want top drives they want they want things to be upgraded.
All kinds of things and so that's what's driving the activity.
Thank you that's very good color Tony I appreciate your time. Thank you.
Thank you and once again. Please press Star then one if you would like to ask a question.
And the next question comes from Dan Kutz with Morgan Stanley.
Hey, Thanks, good afternoon guys.
So I wanted to ask on.
The lower 48.
Activity it looks like you guys have kind of.
Stated in a pretty consistent market share range recently with just a little bit lower.
Maybe we saw in some past years, but that seems consistent with your strategy and what you are saying about it.
About the pending.
Pending the disappointment in your and your bidding managing part and kind of you know.
And margins as much as possible, but I wanted to ask.
Is there a scenario where you could.
Gains in market share and still achieve off the other.
He did goals or what do you think that you know yet.
We're kind of at a fairly steady state from that perspective, and it's just going to be more the macro backdrop that would be the biggest driver of your lower 48 rig count. Thank you.
Well.
Obviously.
Okay.
We do like to grow and we would like to grow profitably and so there's always that balance and what we've tried to prioritizing our thinking is focusing on customers that also have.
Some of you will do watch as the adoption of technology, because as you know.
Rig counts are our rig margins one thing with the added benefit of NDS marches on these rigs also it's material enhancer not just of absolute margin, but also a return on capital because the NDS quality of that EBITDA is much higher than also debase drilling business, where we.
The cash conversion rate is almost 80% of the EBITDA the cash conversion so.
That's where the priority is in and we think that as customers begin to get the story of NDS more and more I learn about the product line that that offers great expansion opportunities to help drive the rig sales and it also helps to drive the use of NDS on third party rigs and you saw in this quarter something.
Quite interesting, which was even though our rig count dropped NDS actually grew in third party business, which is interesting in and of itself, which proves the concept that what we're trying to unlock with this stuff is something that actually has a.
Our broader Apple group agility.
Joe will be away from just nabors rigs.
The answer is yes, I do I do believe as the market matures as the big players take a bigger position in the U S market and they are more technology focused that there is an opportunity to gain market share. So one example of that is the focus on would.
With the consolidation has occurred I think one of the things people will be focused on is improving you are not just drilling wells faster as you know the industry has done a great job drilling was very very quickly and so that starting point is going to be a law of diminishing returns. So I think some of the metrics or may go to look at EUR per lateral foot drilled anywhere.
I actually see some of the big Big guys talk about that increasing lateral length as much as five miles and that kind of stuff benefits neighbors, because we pre invested in that move we built.
1000 rig, which was the successor to the extra week a couple of years ago, That's a million pound hook load. That's perfectly designed for these longer lateral lengths. We also.
Introduced in the market, a new new top drives that had the highest torque available that could actually handle five mile lateral so the company has positioned itself.
To capture that moment and I think when the market moves in that direction that all of these were bet. We've made the past couple of years as it is.
It moves that direction I think it would help US also with share so that that's a pretty long winded answer, but I hope it's responses what you want it.
No that's great. It was a long winded question Scott. Thank you and then.
I guess just another one on the international space.
So if I back out the <unk>.
Non rigs that are working today you guys are somewhere in the low mid Seventy's and then if I look back to kind of a pre pandemic period.
When.
Small program had kicked off.
You guys international activity was another.
Dozen two dozen above where your extra not it can be is now well what I'm basically trying to frame or understand is like what what do you think the potential is in the international space just to kind of get back to the level of investment and activity that's required.
Get back to a normal production level and and then on top of that you have all these capacity growth targets at a lot of the middle East players are.
Put out there but.
I guess I'm just trying to.
I'm trying to understand if there's any historical period that you can point to that you think could be the opportunity for international activity upside.
Outside of the nod and again I appreciate you guys, giving us a ton of color on your visibility over the next two years, but I'm just trying to understand what like the old and the opportunity can be.
For international rig redeployments.
Aside from the substantial opportunity. Thank you.
I gave you a pretty big list of those opportunities and it's really going to be a question of of.
Our prioritizing where we want to allocate the capital. What's best served is what I would put it and as we think about that some of the other watch guys talked about which is technology and NDS also apply to international in terms of which opportunities we choose to pursue so it's going to be a balance.
In terms of allocation of capital and and what we want to pursue in terms of how fast we want to grow but I think right now you're seeing an environment, where there's not it can be a dearth of opportunities and the question is what are the returns on capital are good enough to meet our hurdle rates and what.
Are they.
Are they such that it makes one and one equal three when we pursue that opportunity and I'll, let William add anything to that sure I think I think Latin America, which is up.
Under our I would say estimated.
Piece of the pie and I think we have real opportunities to grow in places like Argentina, and Colombia, where we already are the strongest player.
And in Mexico on the platform rig market and we're getting a lot of pressure from Pemex to add rigs in that market as well so.
So I don't I don't even want to mentioned, Venezuela, because it's still a little bit up in the air and we're there you know the saying how much the sanctions are going to be removed and how much are some of our clients are going to go back to that but we do have real opportunity. We have four rigs in prime condition in Venezuela waiting for for a resumption in activity by some of the foreign players.
And then we have seen places like Kazakhstan.
That have gone down, but we don't know when that will come back, but I think if it does we're ready for that as well and then Kuwait, we have some very important tenders.
Coming and we are very well positioned in that market as well now we mentioned that we got an award in Algeria for four weeks.
Which is a very.
A very impactful win for us and we are looking at other places in North Africa as well to expand so those are the areas, where you would where you would expect to see.
Most of the uptick in Nabors now we do have to be conscious that we cannot address all the opportunities that are out there. So we have to be selective.
We have to focus as Tony said in places, we can get technology on top of of the rigs and we have to make sure. We have our capex. Our Capex program for next year that makes sense in terms of our free cash flow objectives.
Great. Thank you very much I'll turn it back.
Thank you next question is a fall from Derek <unk> with Barclays.
I just wanted to follow up on the 11 raise the highlight of international to be deployed by the end of next year is that a is that a net number or just wondering how we should think about that well we will see some offsets maybe some rig releases in other regions. I know you highlighted Kuwait in Colombia as areas of softness currently just thinking about if that 11 is completely incremental.
Or we should think the 11 minus something.
The 11 ish stuff that we have in hand already.
We have others that we have very high probability of getting so the 11 could be higher right. Now it is true that in some places it could be some relief there somewhere but again, we have very long term contracts all over the place. So right now we're not expecting to see reductions in other places.
Got it okay very helpful and then just.
I know I know capital allocation strategy, we've talked about it being towards that.
Reduction repayment, but considering just how constructive you are on NDS I'm just curious how we should think about M&A opportunities whether it's a.
Tuck in or bolt on as far as technology or anybody else out there that can fall right into it under the neighbors solution, just just thinking about M&A opportunities NDS, how we should how we should think about that.
I think you've hit on something that is clearly its been on our radar for quite a while and and we have been looking and we've added some small software stuff that you haven't really seen much visibility to that become part of our product lines as well, so kind of err towards internal growth.
Small tuck in acquisitions and then we've also embarked on partnerships as well. So our example, with corvid out there, which has a software product that we've competed with but together. We think we can actually do one and one equal for and the marketplace is not a big marketplace, you're right I mean, there's always X.
100 700 rigs.
In the international I mean altogether, maybe 500 rigs that are target rigs, it's not like it's not like Microsoft and Apple, which have a gazillion customers out there so.
For the technology to work it.
It makes sense to try to.
Work with incumbent to see if there's a way to make things work better and so we.
We've embarked on that path with some of these.
Deals we've done and we're open to it we are looking at other similar deals not just acquisitions.
I think we also feel with Halliburton and that I think is going to be.
Accretive.
The Nabors drilling solutions and of course, one of the big objectives that we have we should try to convince some of our peers to take our technology rather than redeveloped reinventing the wheel.
Themselves and we have been having some success on that.
Great. Thanks for taking my follow ups I'll turn it back.
Thank you.
A question and answer session I would like to turn the photo management for any closing comments.
Thank you all for joining us. This afternoon. If you have any additional questions or would like to follow up please contact us and with that Keith will end the call. There. Thank you very much. Thank you and as I mentioned the call has concluded. Thank you for attending today's presentation and you may now disconnect your lines.