Q4 2023 Nabors Industries Ltd Earnings Call
Operator: [music].
Operator: Good day, and welcome to the Nabors Industries fourth quarter 2023 earnings call. All participants will be in listen only mode.
Good day and welcome to the Nabors industries fourth quarter 2023 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
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Operator: To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Business Development and Investor Relations. Please go ahead.
To withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to William Conroy, Vice President of business development and Investor Relations. Please go ahead.
William J. Restrepo: Good morning, everyone. Thank you for joining Nabors' 4th 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.com Instructions for the replay of this call are posted on the website as well.
William J. Restrepo: Good morning, everyone. Thank.
William J. Restrepo: Thank you for joining Nabors fourth 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 are you.
William J. Restrepo: Nabors to perform in these markets.
William J. Restrepo: 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.
William J. Restrepo: Instructions for the replay of this call are posted on the website as well.
William J. Restrepo: With us today, in addition to Tony, William, and me, are other members of the senior management. Since much of our commentary today will include our forward expectations, it 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.
William J. Restrepo: With US today in addition to Tony William Penn Me or other members of the senior management team.
William J. Restrepo: 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 $19 34.
Such forward looking statements are subject to certain risks and uncertainties as disclosed by Nabors from time to time in our filings with the Securities and Exchange Commission.
William J. Restrepo: As a result of these factors our actual results may vary materially from those indicated or implied by such forward looking statements.
William J. Restrepo: 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 chart is defined on our website and in our earnings release unless the context clearly indicates otherwise.
William J. Restrepo: 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.
William J. Restrepo: All references to EBITDA made by either Tony or William during their presentations, whether qualified by the word adjusted or otherwise mean.
William J. Restrepo: Adjusted EBITDA as that target as defined on our website and in our earnings release.
William J. Restrepo: 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.
William J. Restrepo: References to cash flow mean adjusted pre-cash flow, as that non-GAAP measure is defined in our earnings release. We have posted in 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.
William J. Restrepo: 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.
Anthony G. Petrello: Thank you for joining us today as we present our results and outlook. Adjusted EBITDA in all our segments exceeded our expectations in the fourth quarter. Daily margins in the U.S. lower 48 and international drilling improved. Our two technology segments once again performed well. As we forecasted, the industry rate count in the lower 48 declined modestly into the fourth quarter.
Anthony G. Petrello: Good morning.
Anthony G. Petrello: Thank you for joining us today, as we present, our results and outlook.
Anthony G. Petrello: Adjusted EBITDA in all of our segments exceeded our expectations in the fourth quarter daily.
Anthony G. Petrello: Daily margins in the U S lower 48, and international drilling improved our two technology segment once again performed well.
Anthony G. Petrello: As we forecasted the industry rig count in lower 48 declined modestly in the fourth quarter.
Anthony G. Petrello: Our major international markets were essentially in line with our prior view. During the quarter, we deployed three rigs in these markets, one a new bill unit in Saudi Arabia. Leading-edge pricing in the lower 48 was stable.
Our major international markets were essentially in line with our prior view.
Anthony G. Petrello: During the quarter, we deployed three rigs in these markets one was a newbuild unit in Saudi Arabia.
Anthony G. Petrello: Leading edge pricing in the lower 48 was stable. This helped drive the increase in our daily rig margin along with outstanding expense control.
Anthony G. Petrello: This helped drive the increase in our daily rate margin, along with outstanding expense control. For the fourth quarter, Adjusted EBITDA totaled $230 million. Our global average rate cap for the fourth quarter declined by 2 rigs, and all of this decline occurred in the U.S. Our drilling solutions and rig technology segments together generated an EBITDA of $43 million, a record. As a portion of total EBITDA, these segments account for nearly 19% of the quarter, also an all-time high. Next, I will make some comments on five key drivers of our results. I'll start with our performance in the U.S. Daily rig margins in our lower 48 rig fleet exceeded our expectations. They increased by almost $400 compared to the third quarter. Daily revenue in the fourth quarter increased slightly, but daily expenses declined by more than $300.
Anthony G. Petrello: For the fourth quarter, adjusted EBITDA totaled $230 million.
Anthony G. Petrello: Our global average rig count for the fourth quarter declined by two rigs.
All of this decline occurred in the U S.
Anthony G. Petrello: Our drilling solutions and rig technology segments, together generated EBITDA of $43 million a record.
Anthony G. Petrello: As a portion of total EBITDA these segments accounted for nearly 90% in the quarter also an all time high.
Speaker Change: Next let me make some comments on five key drivers of our results.
Speaker Change: I'll start with our performance in the U S.
Speaker Change: The only big margins in our lower 48 rig fleet exceeded our expectations the increased by almost $400 compared to the third quarter.
Daily revenue in the fourth quarter increased slightly.
Speaker Change: <unk> expenses declined by more than $300 I am pleased with this performance.
Anthony G. Petrello: I am pleased with this performance. These results demonstrate our team's ability to execute at an impressive level in this market environment. Our reported lower 48 daily rig margin reflects the financial results of just our drilling rigs. The Drilling Solutions Portfolio, NDS, generates significant margins on top of that. I'll discuss this in more detail in a few moments.
Speaker Change: These results demonstrate our team's ability to execute in an impressive level in this market environment.
Speaker Change: Our reported lower 48 daily rig margin reflects the financial results of just our drilling rigs.
Speaker Change: The drilling solutions portfolio N D S generate significant margins on top of that I'll discuss this in more detail in a few moments.
Anthony G. Petrello: Now I'll discuss our international drilling business. Daily margin in this segment increased by nearly $900. This result exceeded our expectations.
Speaker Change: Now I'll discuss our international drilling business daily.
Speaker Change: Daily margin in this segment increased by nearly $900. This result exceeded our expectations.
Anthony G. Petrello: During the quarter, we showed up three rates. We restarted two in Columbia, and another new build rig in Saudi Arabia also started up. With these additions, we have now deployed the first five of the ongoing international startups that I detailed last year. Margins increased in Saudi Arabia, where our San Antonio venture operates 48 rigs. This fourth quarter improvement resulted from the contribution from new bills deployed during the third and fourth quarters of last year, plus strong operating performance across the entire fleet. Let me add a few more comments concerning the new bill program in Saudi Arabia. The fifth quarter started.
Speaker Change: During the quarter, we stood up three rigs we restarted two in Colombia.
Speaker Change: Another new build rigs in Saudi Arabia will also started up with.
Speaker Change: With these additions we have now deployed the first five of the ongoing international startups that I detailed last year.
Margins increased in Saudi Arabia, where our Santa joint venture off reached 48 rigs. This fourth quarter improvement resulted from the contribution from new builds deploy during the third and fourth quarters of last year, plus strong operating performance across the entire fleet.
Let me add a few more comments concerning the Newbuild program Italia Arabia.
Speaker Change: The fifth rig startup in the fourth quarter.
Anthony G. Petrello: The second tranche of five rigs is currently under construction in the kingdom, and we currently expect the first of this group to be completed during the current quarter. Two of the remaining four rigs should be deployed by the third quarter of 2024, and the last two weeks of that tranche are expected to start in early 2025. We expect the first unit of the previously awarded third tranche to start around mid-year 2025. The outlook for the balance of our international business, both in the Middle East and in Latin America, remains quite positive. Three of the four total rates we were awarded in Algeria should start up this quarter, and we see prospects to add additional rigs in a number of international markets. These include Kuwait and Algeria in the Middle East and elsewhere in the Eastern Hemisphere, as well as Argentina and Latin America.
The second tranche of five rigs is currently under construction in the Kingdom. We currently expect the first of this group to spud during the current quarter.
Speaker Change: Two of the remaining four rigs should be deployed by the third quarter of 2024.
Speaker Change: The last two weeks of that tranche are expected to spud in early 2025.
Speaker Change: We expect the first unit of the previously awarded third tranche to start around mid year 2025.
Speaker Change: The outlook for the balance of our international business, both in the Middle East and in Latin America remains quite positive three of the four total richly rewarded in Algeria sharp this quarter.
Speaker Change: We see prospects to add additional rigs in the number of international markets. These include Kuwait, Algeria, and the middle East and elsewhere in the eastern Hemisphere, and Argentina in Latin America.
Anthony G. Petrello: Let me finish this discussion on international business with a few comments on the recent news out of Saudi Arabia. SanEd currently operates 48 rigs there. Of these, 40 work in gas, and the balance works in oil.
Let me finish this discussion on the international business with a few comments on the recent news out of Saudi Arabia.
Speaker Change: <unk> currently operates 48 rigs there of these 40 working gas and the balance in oil cause.
Anthony G. Petrello: Contracts with the oil-directed rigs have recently been extended for a four-year period. With the Kingdom's focus on developing the natural gas resource, we are very comfortable with our position there. As to the new build program, this was contemplated well before capacity expansion plans in Saudi Arabia. The new build program is also a key element in the Kingdom's Vision 2030 plan. As such, we are confident in the program's future. Next, let me discuss our technology and innovation. Revenue grew sequentially in all three portions of NDS's business: Nabors lower 48 rates, on third party lower 48 rates, and in international markets.
Speaker Change: Contracts for the oil directed rigs have recently been extended for a four year period.
Speaker Change: With the kingdom's focus on developing the natural gas resource we are very comfortable with our position there.
As to the Newbuild program. This was contemplated it well before capacity expansion plans in Saudi Arabia.
Speaker Change: The program is also a key element in the Kingdom vision 2030 plan as such we are confident in the program's future.
Speaker Change: Yeah.
Speaker Change: Next let me discuss our technology and innovation.
Speaker Change: Revenue grew sequentially in all three portions of Nds's business, our neighbors lower 48 rigs on third party lower 48 rigs and in international markets. The.
Anthony G. Petrello: The international business recorded the strongest growth, with revenue up 13% sequentially. Revenue grew at the lower 48, both on Nabors and third-party rigs. I would like to stress NDS grew faster than the rig counts in both of these market segments. Our NDF EBITDA increased by 13%, which surpassed our expectations. This performance represents the highest sequential quarterly progress in all of 2023. From a product line perspective, casing running and performance software drove MDS's growth. Next, I will detail the value that NDS generates in the lower 48 markets. The average daily margin in the lower 48 from our Drilling and Drilling Solutions businesses combined was over $20,000 in the fourth quarter. Of that, NDS contributed more than $3,900 per day.
Speaker Change: The international business recorded the strongest growth with revenue up 13% sequentially.
Revenue grew in the lower 48, both on Nabors and third party rigs I would like to stress mdx grew faster than the rig counts in both of these market segments.
Speaker Change: Our NDS EBITDA increased by 13%, which beat our expectations. This performance represents the highest sequential quarterly progress in all of 2023.
Speaker Change: From a product line perspective casing running and performance software drove nds's growth.
Speaker Change: Next I will detail the value of the MTS generated lower 48 market.
Speaker Change: The average daily margin in the lower 48 from our drilling and drilling solutions businesses combined with over $20000 in the fourth quarter.
Speaker Change: Of that N D has contributed more than $3900 per day.
Anthony G. Petrello: This significant incremental margin contribution, a quarterly record, comes with limited capital spending. Returns on capital in NDS are the highest in our company. In the fourth quarter, penetration of NDS services increased on Nabors rigs in the lower 48 to nearly 7 per rig. Additionally, once again, we saw growth in our Smart Slide directional steering system and our Smart Nav directional guidance software. These installs were up 19%. The casing running job count also grew significantly, up 17%.
Speaker Change: This significant incremental margin contribution a quarterly record comes with limited capital spending returns on capital and Mds are the highest in our company.
Speaker Change: In the fourth quarter penetration of NDS services increased on Nabors rigs in the lower 48, so nearly seven per rig.
Speaker Change: Once again, we saw growth in our smart slide directional steering system, and our smart NAV directional guidance software. These installs were up 19%.
Speaker Change: The casing running job count also grew significantly up 17%.
Anthony G. Petrello: As shown by the fourth-quarter results, our multi-pronged growth strategy for the MDS portfolio is proving successful. Looking ahead, we see increasing interest globally across product lines, particularly for our advanced technology solutions. Next, let me make some comments on our capital structure. With the proceeds from our recent debt offering, we redeem the notes that were due in 2024 and 2025, pushing our next maturity to 2026.
Speaker Change: As shown by the fourth quarter results, our multi pronged growth strategy for the Mds portfolio is proving successful.
Speaker Change: Looking ahead, we see increasing interest globally across product lines, particularly for our advanced technology solutions.
Speaker Change: Next let me make some comments on our capital structure.
Speaker Change: With the proceeds from our recent debt offering we regained the notes that were due in 'twenty 'twenty four and 'twenty 'twenty five pushing our next maturity to 2026.
Anthony G. Petrello: As we look ahead, our first priority for free cash flow remains reducing that debt and improving our credit ratings. 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 improving operational efficiency and reducing emissions intensity. These technology solutions, once again, have contributed visible margins to our rig technology segment. The most impactful is our PowerTop module. This unit connects rigs to the grid.
Speaker Change: As we look ahead, our first priority for free cash flow remains reducing that debt and improving our credit ratings.
Speaker Change: I'll finish this part of the discussion with remarks on sustainability and the energy transition.
Speaker Change: Our energy transition initiatives as you know focus on improving operational efficiency and reducing emissions intensity.
Speaker Change: These technology solutions once again contributed visible margins to our rig technologies segment the.
Speaker Change: The most impactful is our power top module this unit connect rigs to the grid in the fourth quarter. We had 24 modules running more than 20% of those were on third party rigs. In addition to unitary transit Argentina. These two are the first power tap units incorporating a frequency converter for the inter.
Anthony G. Petrello: In the fourth quarter, we had 24 modules running, and more than 20% of those were on third-party rigs. In addition, two units are in transit to Argentina. These two are the first power top units incorporating a frequency converter for the international market.
Speaker Change: The national market.
Anthony G. Petrello: We have eight more units under construction, including two destined for the international market, one more for Argentina, and the second for a large market in the Middle East. Our energy transition portfolio continues to gain traction. We are encouraged by the emerging opportunities internationally, complementing those in the US on both Nabors and third-party rates. Geopolitical events in the Middle East, interest rates, and lingering inflation concerns all make for the continued elevated volatility of commodity prices. In this environment, the operator response has been to restrain ambitions and exercise capital discipline.
Speaker Change: We have eight more units under construction, including two desperate for the international market, one more for Argentina, and a second for a large market in the middle East.
Speaker Change: Our energy transition portfolio continues to gain traction we are encouraged by the emerging opportunities internationally comparable windows in the U S on both Nabors and third party rates Geo.
Speaker Change: Political events in the middle East interest rates and lingering inflation concerns all make for the continued elevated volatility of commodity prices.
Speaker Change: In this environment. The operator response has been to be screened ambitions and exercise capital discipline.
Anthony G. Petrello: It is understandable why operators are looking at mergers in this environment, but the near-term effect of recently announced mergers is yet to be fully determined. Notwithstanding this uncertainty, international prospects, particularly those driven by NOCs, remain very attractive. Our geographical position is unique in the global land drilling industry. It enables us to capture international growth, and at the same time, we are positioned to capitalize on any emerging growth in the U.S. Next, I will discuss the pricing environment. Our fourth quarter results for the lower 48 reflect continued stabilization of leading edge market prices. However, I want to reemphasize that rates for our highest spec rigs exceed all of the pre-2023 market highs. Our focus in the lower 48 market remains profitability, while we stay committed to delivering superior value to our customers. As such, we continue to demonstrate the value of our technology portfolio with NDS.
Speaker Change: Understandable why operators are looking at mergers in this environment.
Speaker Change: The near term effect of recently announced mergers is yet to be fully determined.
Speaker Change: Notwithstanding this uncertainty international prospects, particularly those driven by Nlcs remained very attractive.
Our geographical position is unique in the global land drilling industry. It enables us to capture international growth at the same time, we are positioned to capitalize on any emerging growth in the U S.
Speaker Change: Next I will discuss the pricing environment.
Speaker Change: Our fourth quarter results with lower 48 reflect continued stabilization of leading edge market prices.
Speaker Change: I want to reemphasize the rates for our highest spec rigs exceed all of the pre 2023 market highs.
Speaker Change: Our focus in the lower 48 market remains profitability, while we stay committed to delivering superior value to our customers as such we continue to demonstrate the value of our technology portfolio with NDS.
Anthony G. Petrello: As I mentioned, in the international market, we have committed seven additional rigs in 2024. This growth should provide substantial uplift potential for our earnings. We believe there is room for additional rig deployments in the Eastern Hemisphere and Latin America. I will discuss these in a few minutes.
Speaker Change: As I mentioned in the international market, we have to wait at seven additional rigs in 2020 for this growth should provide substantial uplift potential to our earnings. We believe there is room for additional rig deployments in the eastern Hemisphere, and Latin America I will discuss these in a few minutes.
Anthony G. Petrello: We surveyed the largest lower 48 clients at the end of the fourth quarter. Our survey covered 17 operators, which account for approximately 46% of the working rates at the end of the quarter. During the fourth quarter, consistent with the prior survey's results, this group added more than 10 rigs. The latest survey indicates this group's year-end 2024 rig count will be essentially in line with the year-end 2023. More than half of this group signals no change.
We surveyed the largest lower 48 clients at the end of the fourth quarter. Our survey cover 17 operators, which account for approximately 46% of the working rigs at the end of the quarter.
Speaker Change: During the fourth quarter consistent with the prior surveys results. This group, we added more than 10 rigs there.
Speaker Change: Latest survey indicates this group's yearend 2024 rig count will be essentially in line with the year end 2023.
Speaker Change: More than half of this group signals no change the balance indicates minor additions or decreases we believe that with the uncertainty commodity prices customers remain cautious about their plans for 2024.
Anthony G. Petrello: The balance indicates minor additions or decreases. We believe that with the uncertainty in commodity prices, customers remain cautious about their plans for 2024. Our plan for our lower 48 business this year fully contemplates the current environment. We continue to focus on maximizing free cash flow while we look for opportunities to put additional rigs to work. Our view of the international market is bullish.
Speaker Change: Our plan for our lower 48 business this year fully contemplates the current environment.
Speaker Change: We continue to focus on maximizing free cash flow, while we look for opportunities to put additional rigs to work.
Speaker Change: Our view of the international market as bullish with the international additions already in hand, we would increase our international rig count by almost 10% by the end of 2024.
Anthony G. Petrello: With the international editions already in hand, we expect our international rate count to increase by almost 10% by the end of 2024. We expect our segment revenue to grow by low double digits and our EBITDA margins to expand. Next, I will share some of our recent notable highlights and accomplishments. First, NDS was selected by a very large operator in the Middle East to install its advanced rig control and automation system on five working rigs. The multi-round award process was competitive, and this award marks the first rig automation project in this market. It is notable that Nabors was chosen to lead this effort.
Speaker Change: We expect our segment revenue to grow by low double digits, and our EBITDA margins to expand.
Speaker Change: Next I will share some of our notable recent highlights and accomplishments.
Speaker Change: First <unk> was selected by a very large operator in the middle east to install Nds's advanced rate control and automation system, a five working rigs.
Speaker Change: The multi round award process was competitive this award marks the first rig automation project in this market. It is notable that nabors was chosen to lead this effort.
Anthony G. Petrello: Second, we commenced operations in Arkansas to drill wells supporting lithium production. ExxonMobil selected a Nabors PASEX rig for this project. Third, another of our paycheck rigs was awarded for the year by one of the largest operators in the Permian for the second consecutive year. Competition for this award came from rigs operated by six other drilling contracts. Next, we are now providing support to a joint contractor in Libya under a recently signed technical services agreement. Under the agreement, we are providing expertise but have no capital at risk.
Speaker Change: Second we commenced operations in Arkansas, Joe while supporting lithium production.
Speaker Change: Exxon Mobil slipped to the neighbors pace X rig for this project.
Speaker Change: Third another of our pace X rigs was rewarded forget the year by one of the largest operators in the Permian for the second consecutive year competition for this award came from rigs operated by six other drilling contractors.
Speaker Change: Next we are now providing support to a drilling contractor and Libya under a recently signed technical services agreement under the agreement, we are providing expertise, but have no capital at risk.
Anthony G. Petrello: In addition to these highlights, I want to mention the notable agreement between Nabors and SLB. Together, we will collaborate to scale automated drilling solutions for operators and drilling contractors. This integration of both companies' platforms expands the breadth of drilling automation technologies available to customers, and it also increases their flexibility to utilize existing rig control systems from either Nabors or SLB. And to wrap up, the SPAC sponsored by Nabors closed the previously announced business combination with Vast Renewables Ltd. The combined company trades on the NASDAQ exchange under the ticker VSTE.
Speaker Change: In addition to these highlights I want to mention is the normal agreement between Nabors and that's L. B together, we will collaborate to scale automated drilling solutions for operators and drilling contractors. This integration of both companies platforms expansive breadth of drilling automation technologies available to customers. It also increases their flexibility to.
Speaker Change: Existing rig control systems combine their neighbors or S. L b.
Speaker Change: And to wrap up the spec sponsored by neighbors closed the previously announced business combination with vast renewables limited the combined company trades on the NASDAQ exchange under the ticker <unk>.
William J. Restrepo: Let me finish my remarks with the following. We are encouraged by our operational performance as we close out the year. Looking ahead in 2024, we see significant opportunities both in our global markets and for our advanced technology solutions. Now, I turn the call over to William, who will discuss our financial results. Thank you, Tony, and good morning everyone.
Speaker Change: Let me finish my remarks with the following we are encouraged by our operational performance as we close out the year looking ahead in 2024, we see significant opportunities both in our global markets and for our <unk> Technology solutions now, let me turn the call over to William who will discuss our financial results.
William: Thank you Tony and good morning, everyone fourth quarter financial results surpassed our expectations with EBITDA for all segments increasing sequentially.
William J. Restrepo: Fourth quarter financial results surpassed our expectations with EBITDA for all segments increasing sequentially. In the U.S., we managed to maintain our lower 48-day revenue at the strong level we achieved in the third quarter, while our operational expenses decreased meaningfully following measures to reduce our field overhead. Consequently, our daily margins improved materially rather than decreasing as we had anticipated. International drilling benefited from increased rate counts in Colombia and Saudi Arabia, together with disciplined cost control across geographies. Drilling solutions deliver strong results, well above our expectations, bolstered by year-end sales of casing running tools, as well as robust deployments of our software and data offerings. For RIC technologies, we believe an upgrade and recertification cycle is developing as the global RIC count increases.
William: In the U S. We managed to maintain our lower 48 daily revenue has a strong level, we achieved in the third quarter.
William: While the operational expenses decreased meaningfully following measures to reduce our field overhead.
William: Consequently, our daily margins improved materially rather than decreasing as we had anticipated.
William: International drilling benefited from increased rig count in Colombia, and Saudi Arabia, together with disciplined cost control across geographies drilling solutions delivered strong results well above our expectations bolstered by yearend sales of casing running tools as well as robust deployments of our software and data.
William: Offerings.
William: Rig technologies, we believe an upgrade and recently vacation cycle is developing as global rig count increases.
William J. Restrepo: The segment also over-delivered with strong year-end shipments of brick components together with higher-than-expected equipment rental and sales of spare parts. In addition, the margin mix of our revenue contributed favorably to the healthy port quarter result for the sector. We expect the first quarter of the year to improve over fourth-quarter levels, though at somewhat lower average prices. We also anticipate that the international growth we have experienced should continue throughout 2024. Although we are forecasting positive trends for drilling solutions and rig technologies to persist in the first quarter, we will miss the impact of seasonal year-end equipment sales. For the full year 2023, revenue from operations will total $3 billion.
William: The segment also over delivered with strong year end shipments of rig components together with higher than expected equipment rentals and sales of spare parts.
William: In addition, the margin mix of our revenue contributed favorably to the healthy fourth quarter results for the segment.
William: We expect the first quarter drilling activity in the lower 48 market to improve over fourth quarter levels now at somewhat lower average pricing.
William: We also anticipate that the international growth, we have experienced should continue throughout 2024.
William: Although we are forecasting positive trends for our drilling solutions in our rig technologies to persist in the first quarter, we will miss the impact of the seasonal year end equipment sales.
William: For the full year 2023 revenue from operations totaled $3 billion.
William J. Restrepo: This compares to $2.65 billion for 2022, a 13% improvement year over year. NDS and RIC Technologies led the way with both delivering 24% growth. Our drilling rate segments also grew significantly. Lower 48 improved by 15% while international increased by 12%. For the fourth quarter, revenue from operations was $726 million, or 1% below the third.
William: This compares to 265 billion for 2022.
William: 13% improvement year over year.
William: N D S in rig technologies led the way with both delivering 24% growth.
William: Our drilling rig segments also grew significantly lower 48 improved by 15% while international increased by 12%.
William: For the fourth quarter revenue from operations was $726 million or 1% below the third a slight decrease reflecting a decline in U S average rig count.
William J. Restrepo: A slight decrease, reflecting a decline in U.S. average rates. This impact was partially offset by strong increases in drilling solutions as well as incremental increases in Colombia and Saudi Arabia. Revenue for our U.S. drilling segment, at $266 million, was down $11.04 million.
William: This impact was partially offset by strong increases in drilling solutions as well as incremental rig count in Colombia, and Saudi Arabia.
William: Revenue for our U S drilling segment at $266 million.
William: Was down $11 million or 4%.
William J. Restrepo: This decrease reflected a 3.4 rig reduction in our lower 48 rig count. Daily revenue of $35,800 was up slightly versus the third quarter. However, revenue from our international segment of $343 million dollars remained essentially in line with the prior quarter. In Saudi Arabia, we successfully deployed the fifth new build rig and improved operating efficiency. In addition, two rigs restarted operations in Colombia.
William: This decrease reflected a $3 four rig reduction in our lower 48 rig count.
William: Daily revenue of $35800 was up slightly versus the third quarter.
William: Revenue from our international segment of $343 million remained essentially in line with the prior quarter.
William: In Saudi Arabia, we successfully deployed a fifth newbuild rig and improved operating efficiency.
William: In addition to rates restarted operations in Colombia Rev.
William J. Restrepo: Revenue from this incremental activity was offset by a reduction in low-margin reimbursables in certain geographies. However, revenue from Nabors joint solutions grew sequentially by $4.2 million, an increase of 6%. Despite a lower recount in the lower 48, NDS demonstrated resilience by continuing to add third-party revenue and expanding its presence in international markets. Compared to the third quarter, NDS increased lower 48 third-party revenue by 8%, and international revenue improved by 13%. Ray Technologies' revenue decreased by $2.2 million, or 3.5%, primarily due to lower capital equipment sales through the Nabors fleet.
William: Revenue from this incremental activity was offset by a reduction in low margin reimbursable in certain geographies.
William: Revenue for our Nabors drilling solutions grew sequentially by $4 2 million an increase of 6%.
Despite lower rig count in the lower 48, and he has demonstrated resilience by continuing to add third party revenue and expanding its presence in international markets.
William: Compared to the third quarter <unk> increase lower 48 third party revenue by 8% and international revenue improved by 13%.
William: Rig technologies revenue decreased by $2 2 million or three 5%, primarily due to lower capital equipment sales through the neighbors fleet now.
William J. Restrepo: Nonetheless, we experienced a material increase in third party high-margin rig components, rental, and spare parts sales. All year 2023 EBITDA reached $915 million, increasing by 29% from $709 million in 2022. This growth was spread across all of our sectors. The improvement was primarily driven by significant daily margin expansion in both our drilling businesses and recount expansion in international markets. NDS and RIC technologies also contributed.
William: Nonetheless, we experienced a material increase in third party high margin rate component rental and spare parts sales.
William: Okay.
William: Full year, 2023, EBITDA reached $915 million, increasing by 29% from $709 million in 2022.
William: This growth was spread across all of our segments.
William: The improvement was primarily driven by significant margin expansion in both our drilling businesses and rig count expansion in international markets.
William: N D S. In rig technologies also contributed meaningfully.
William J. Restrepo: Combined, these two businesses grew in the dock by $43.6 million in 2023, a 38% improvement year over year. For the fourth quarter, total adjusted EBITDA was $230 million, $20 million higher than the third quarter, and 9.6% improvement. All of our segments contributed to the growth.
William: Bind these two businesses grew EBITDA by $43 6 million in 2023 30.
William: 38% improvement year over year.
William: For the fourth quarter total adjusted EBITDA was $230 million $20 million higher than the third quarter and nine 6% improvements all of our segments contributed to the growth.
William J. Restrepo: Despite decreased ROR 48 activity, U.S. Earnings EBITDA increased by $1 million, or 1%, compared to the prior quarter. This improvement was driven by the M400's maintenance-related downtime in the third quarter and higher daily margins in the ROR 48 period. Lower 48 drilling rate per job decreased by $1.2 million or 1.2% sequentially. Average recount of 70.3% declined by 4.6%; average daily rate margin of $16,240 was almost $400 higher than the prior quarter on a moderate increase in daily revenue and a $300 per day reduction in operating expenses.
William: Despite decreased lower 48 activity U S drilling EBITDA increased by $1 million or 1% compared to the prior quarter. This improvement was driven by the <unk> hundred's maintenance related downtime in the third quarter and higher daily margins in the lower 48 market.
William: Nor 48, joining rate EBITDA decreased by $1 2 million or one 2% sequentially.
William: Average rig count of 73 declined by four 6%.
William: Average daily rig margin of 16240 was almost $400 higher than the prior quarter.
William: And a moderate increase in daily revenue and a $300 per day reduction in operating expenses.
William J. Restrepo: The leading edge price environment continues to hold steady, and our efforts to limit costs are proving effective. For the first quarter, we project our average daily rate gross margin at approximately $15,300. The expected sequential reduction reflects repricing of renewals as rigs roll to new contracts. During the fourth quarter, our recount was 70.3 on average, and we exited the quarter at 74 rates.
William: The leading edge price environment continues to hold steady and our efforts to limit costs are proving effective for.
William: For the first quarter, we project our average daily rate gross margin at approximately $15300 do you expect the sequential reduction reflects repricing of renewables as rates rose and new contracts.
William: During the fourth quarter, our rig count was 73 on average and we exited the quarter at 74 rigs we.
William J. Restrepo: We anticipate a high level of churn during the first quarter. Consequently, despite an underlying favorable trend in activity, we expect the RIC count in the first quarter to average between 73 and 75. On a net basis, Alaska and the U.S. offshore businesses performed better than we anticipated. In the fourth quarter, the combined EBITDA of these two operations was $18.7 million, an increase of $2.2 million. EBITDA rebounded following third-quarter planned maintenance on our M400 rig in the Gulf of Mexico. However, the strong offshore results were partially offset by year-end maintenance on two Alaska rigs. Combined EBITDA for Alaska and U.S. offshore should increase between $1.5 and $2 million in the first quarter, driven by a rebound in Alaskan activity and partly offset by a rate drop off. International EBITDA increased by $9.4 million and 9.7% to $105.5 million. Average rig count and average daily growth margin improved, largely driven by the additional three rigs deployed, as well as by operating expense reductions and improved operational performance in Saudi Arabia. For the quarter, average rate count increased by 2.4 to 79.6.
William: We anticipate a high level of churn during the first quarter. Consequently, despite an underlying favorable trading activity, we expect rig count in the first quarter to average between 73 and 75 rigs.
William: On a net basis, Alaska and the U S offshore business performed better than we anticipated and.
William: In the fourth quarter. The combined EBITDA of these two operations was $18 7 million an increase of $2 2 million.
William: EBITDA rebounded following third quarter planned maintenance on our end 400 rig in the Gulf of Mexico.
William: The strong offshore results were partially offset by year end maintenance on two Alaska rigs.
William: Combined EBITDA for Alaska, and U S offshore should increase between one five and $2 million in the first quarter <unk>.
William: Driven by a rebound in Alaska activity, and partly offset by a one rig drop offshore.
William: Internationally, EBITDA increased by $9 4 million or nine 7%.
William: The $105 5 million.
Average rig count and average daily gross margin improved largely driven by the additional three rigs deployed as well as by operating expense reductions and improved operational performance in Saudi Arabia.
William: For the quarter average rig count increased by $2 $4 79, six rig.
William J. Restrepo: Average daily gross margin came in at $16,650, up almost $900 from the third quarter. We project international average rate count in the first quarter to increase by approximately two rates, driven by new build startups in Saudi Arabia and the commencement of our contract awards in Algeria. For average daily gross margins, we are targeting between $16,100 and $16,300. The anticipated sequential decrease, as compared to the fourth quarter, reflects potentially higher start-up costs for several rates during the first quarter. Drilling Solutions' adjusted EBITDA grew by 13.4% to $34.5 million in the fourth quarter.
William: Average daily gross margin came in at $16650 up almost 900 from the third quarter.
William: We project International average rig count in the first quarter to increase by approximately two rigs.
William: Driven by Nobel startups in Saudi Arabia, and the commencement of our contract awards in Algeria.
William: Our average daily gross margins, we are targeting between 16000 $116300. The anticipated sequential decrease as compared to the fourth quarter reflects potentially higher startup costs for several new rates during the first quarter.
William: Turning solutions adjusted EBITDA grew by 13, 4% to $34 $5 million in the fourth quarter.
William J. Restrepo: Gross margin for NDS was 52.4%, up from 51.2%. We continue to see increased market penetration, particularly on third-party rigs and in international markets. Internationally, NDS, GUI, Vidave, and almost 10% sequential. In the U.S., casing running and performance software drove robust growth. We expect first quarter EBITDA for drilling solutions to come in between $30 and $31 million, primarily driven by the absence of seasonally high equipment sales. NDS daily gross margin for the lower 48 was $3,912, a 15% increase from the prior quarter.
William: Gross margin for our NDS was 52, 4% up from 51, 2%. We continued to see increased market penetration, particularly on third party rigs and in international markets.
William: Internationally N D S buoy, the dog almost 10% sequentially.
William: In the U S casing running and performance software drove robust growth.
William: We expect first quarter EBITDA for drilling solutions to come in between 30 and $31 million.
William: Primarily driven by the absence of seasonally high equipment sales.
William: And yes daily gross margin for the lower 48 was $3912 up 15% from the prior quarter.
William J. Restrepo: Our combined drilling rig and solutions daily gross margin reached $20,151, a 4.7% improvement. It is worth highlighting the NDS growth year-on-year. Comparing to full year 2022, NDS EBITDA increased by over 30 percent. NDSC Vida contribution to Nabors as a whole also increased while gross profit margin widened. Rick Technologies generated EBITDA of $8.8 million, a 22% increase versus the third
William: Our combined drilling rig and solutions daily gross margin reached 2100, $51, a four 7% improvement.
William: It is worth highlighting the NDS growth year on year, comparing to full year 2022, Andy as EBITDA increased by over 30%.
William: NDS EBITDA contribution to Nabors as a whole also increased while gross profit margin widened.
William: Rig technologies generated EBITDA of $8 8 million at 22% increase versus the third quarter.
William J. Restrepo: This quote was primarily related to high-margin year-end capital equipment shipments, rentals, and spare parts sales. I would also like to point out that our energy transition business has started to contribute meaningfully to our RIG technologies in the town. We expect Great Technologies' EBITDA in the first quarter to be between $5 to $6 million.
William: This growth was primarily related to higher margin year end capital equipment shipments rentals and spare parts sales.
William: I'd also like to point out that our energy transition business has started to contribute meaningfully to our rig technologies EBITDA.
William: We expect great technologists EBITDA in the first quarter of $5 million to $6 million.
William J. Restrepo: Now turning to liquidity and cash generation. Overall, our 2023 EBITDA was historically strong. It is true, however, that last year we had a significant EBITDA shortfall in our U.S. economy, driven by the market, and in Saudi Arabia with the late new build deployment. Notwithstanding these shortfalls, totaling nearly $200 million in EBITDA, we still generated $111 million in free cash.
William: Now turning to liquidity and cash generation.
William: Overall, our 2023 EBITDA with historically strong it is true however that last year, we had a significant EBITDA shortfall in our U S segment, driven by the market and.
William: And in Saudi Arabia, we delayed newbuild deployment.
William: Notwithstanding these shortfalls totaling nearly $200 million in EBITDA, we still generated $111 million in free cash flow.
William J. Restrepo: Other factors did affect our free cash flow in 2023. Our capex for the year, at $553 million, was higher than we had forecasted by about $70 million, most of the variance coming from Saudi Arabia. In addition, we incurred capital expenditures from incremental international awards that required significant upfront investment spent well before the corresponding EBITDA generation. Additionally, we purchased our operating basin in Guacamole, Argentina, as our activity in that basin continues to expand. Interest expense was also higher than we planned, with interest rates increasing sharply during the year.
William: Other factors that affect our free cash flow in 2023 or.
William: Our capex for the year at $553 million.
William: It was higher than we had forecasted by about $70 million most of the variance coming from Saudi Arabia.
William: In addition, we incurred capital expenditures from incremental International awards that required significant upfront investment spend well before the corresponding EBITDA generation.
William: Also we purchased our operating base in Vaca <unk>, Argentina as our activity in that basin continues to expand.
William: Interest expense was also higher than we planned with rates increasing sharply during the year.
William J. Restrepo: Finally, working capital, rather than being a tailwind, actually increased in the second half of the year as clients held on to their cash for longer, likely driven by the higher interest rate environment. In terms of capital structure, we remain busy during 2023 addressing our debt maturity profile. During the year, we completed capital market transactions for a total of $900 million.
William: Finally, working capital rather than being a tailwind actually increase in the second half of the year as clients held on to their cash for longer likely driven by the higher interest rate environment.
William: In terms of capital structure, we remain busy during 2023 addressing our debt maturity profile during.
William: During the year, we completed capital market transactions for a total of $900 million.
William J. Restrepo: Late in 2023, Nabors issued $650 million of Senior Priority Guaranteed Notes due in 2030. During January of this year, we retired $630 million of our near-term debt maturities, namely our 2024 convertible debt and our 2025 senior unsecured note. These transactions extend our next debt maturity into 2020. Free cash flow totaled $52 million for the fourth quarter.
William: Late in 2023 neighbors issued $650 million senior priority guaranteed notes due in 2033.
William: During January of this year, we retired $630 million of our near term debt maturities, namely our 2024 convertible debt and our 2025 senior unsecured notes.
William: These transactions extend our next debt maturity into 2026.
William: Free cash flow totaled $52 million for the fourth quarter.
William J. Restrepo: This result includes an increase in capital expenditures versus our projections and working capital headwinds. CapEx of $124.5 million in the fourth quarter fell by $32 million below the level of the preceding quarter but was significantly higher than our target, mainly in Saudi Arabia. This amount included investments for the Sina Nugent program of $42.9 million.
This result includes an increase in capital expenditures versus our projections and working capital headwinds.
William: Capex of $124 5 million in the fourth quarter.
William: Well by $32 million below the level of the preceding quarter.
William: But it was significantly higher than our target mainly in Saudi Arabia.
William: This amount included investments, where the Senate Newbuild program of $42 9 million.
William J. Restrepo: For the first quarter of 2024, we expect capital expenditures of approximately $170 to $180 million, including $50 million for Sunup Nougat. This should be the high water quarterly mark for the year. We will refrain from providing annual free cash flow and capex guidance at this time. We're currently considering a total of eight additional international tenders. In conclusion, the fourth quarter had many. First, our EBITDA rebounded close to the levels of the first half and was significantly above our expectations. Second, the lower 48 was higher than we expected and delivered very strong price and cost performance. We are seeing an increasing rate count in that market with stability and leading edge price. Third, the international rate count increased, and margins were also significantly stronger than expected, almost $900 over the prior quarter.
William: For the first quarter of 2024, we expect capital expenditures of approximately $170 million to $180 million, including $50 million of our signage new goods.
William: This should be the high water quarterly mark for the year.
William: We will refrain from providing annual free cash flow and Capex guidance. Additionally, we're.
William: We are currently considering a total of eight additional international tenders.
William: In conclusion, the fourth quarter had many positives.
Our EBITDA rebounded close to the levels of the first half and were significantly above our expectations second the lower 48 was higher than we expected a very strong price and cost performance, we are seeing increasing rig count in that market with stability in leading edge pricing.
William: Third international rig count increased and margins were also significantly stronger than expected almost $900 over the prior quarter.
William J. Restrepo: Fourth, NDS was strong on international and third-party sales, with our gross margin profitability expanding. Fifth, great technologies also grew, with signs that an upgrade recertification cycle is commencing and with encouraging performance from our ET business. And finally, I can say that the future holds well, with double-digit international revenue growth expected in 2024 and a base being built for further lower 48 recovery. This improved drilling environment and further progress on our market penetration strategies should also continue to drive improved results for drilling solutions and rig technology. Although at this point, we will not provide annual guidance, we expect lower 48 rate counts to recover throughout the year from the 2023 quarterly average.
William: Fourth <unk> was strong and international and third party sales with our gross margin profitability expanding.
William: With Great technologies also grew with signs that in upgrades recertification cycle is commencing with encouraging performance from our <unk> business and finally, I can say that the future bodes well with double digit international revenue growth expected in 2024, and our base being built for further lower 48 rig.
William: Covering.
William: This improved drilling environment and further progress on our market penetration strategies should also continue to drive improved results for drilling solutions and rig technologies.
William: Although at this point, we will not provide annual guidance, we expect lower 48 rig count to recover throughout the year from the 2023 quarterly average our full year 2024 average should end up somewhere close to our average for the full year 2023.
William J. Restrepo: Our full year 2024 average should end up somewhere close to our average for the full year 2023. International average rate count should increase by somewhere between 7 and 10 rates, depending on the timing of deployment. We also expect drilling solutions and rig technologies to increase significantly as compared to 2023. And during 2024, we expect to deliver a significant sequential increase in free cash flow. And, of course, we are planning to allocate this cash generation towards reducing our net debt. With that, I will turn the call back to Tony for his concluding remarks. Thank you, William.
William: International average rig count should increase by somewhere between seven and 10 rigs depending on timing of deployments. We also expect drilling solutions in our rig technologies to increase significantly as compared to 2023.
William: And during 2024, we expect to deliver a significant sequential increase in free cash flow and of course, we are planning to allocate this cash generation towards reducing our net debt.
William: 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, as we look ahead, we see significant opportunities as mentioned previously we havent hand, seven rig startups in 2024, which combined with partially or stops in 2023 will yield sizable EBITDA contributions in 2024.
Anthony G. Petrello: I will now conclude my remarks this morning. As we look ahead, we see significant opportunities. As mentioned previously, we have in hand seven RIG start-ups in 2024, which, combined with partial year start-ups in 2023, will yield sizable EBITDA contributions in 2024. Looking ahead, we still have in our pipeline additional opportunities which we are evaluating. Those markets include Algeria, Kuwait, Argentina, and one more market in the eastern
Anthony G. Petrello: Looking ahead, we still have in our pipeline additional opportunities, which we are evaluating those markets include Algeria, Kuwait, Argentina, and one more rig in a market in eastern hemisphere.
Anthony G. Petrello: That totals eight rigs in these markets. On top of these eight, we have committed orders for seven more rigs in Saudi Arabia in 2025 and 2026. Altogether, these add up to 15 incremental opportunities on top of the seven committed rigs for 2024. We believe it is imperative to use our strong geographical position to take advantage of these favorable market opportunities. The Nabors portfolio is uniquely positioned to take advantage of multi-year contracts with attractive returns in international markets. Ultimately, when combined with the prospects for our NDS business, this is one of the most attractive environments we've seen in years. This concludes my remarks today. Thank you for your time and attention.
Anthony G. Petrello: That totals eight rigs in these markets on top of these eight we have committed orders for seven more rigs in Saudi Arabia in 2025, and 2026 altogether. These add up to 15 incremental opportunities on top of the seven credit rigs for 2024.
Anthony G. Petrello: We believe it is imperative to use our strong geographical position to take advantage of these favorable market opportunities.
Anthony G. Petrello: The neighbors portfolio is uniquely positioned to take advantage of multi year contracts with attractive returns and international markets.
Anthony G. Petrello: Ultimately when combined with the prospects for our NDS business. This is one of the most attractive environments, we've seen in years.
Speaker Change: This concludes my remarks today. Thank you for your time and attention with that we will take your questions.
Operator: With that, we will take your questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Operator: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. Our first question comes from Kurt Halyak with Benchmark. Please go ahead. Hey, good morning guys. Good morning.
Speaker Change: Using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: Our first question comes from Kurt how react with benchmark. Please go ahead.
Kurt: Hey, good morning, guys.
Kurt: Good morning.
Kurt Halyak: Hey, thanks. Thanks for that thorough, thorough assessment. So, hey, Tony, I'm really curious about the context here, right?
Kurt: Hey, thanks, Thanks for that thorough thorough assessment so.
Kurt: Hey, Tony I'm I'm really.
Kurt: Curious in the context here right and it looks like there.
Anthony G. Petrello: It looks like there's this continued growth wedge between, you know, international and the US and you kind of laid out how you think things are going to run, right? So when you think about the opportunities outside of Saudi... Right. There's always been. Keith Mackey, Nabors Industries Ltd.
Kurt: Continued growth wedge between international and U S.
Kurt: And.
Can you kind of laid out how you think things are going to get it wrong right. So when you think about the opportunities outside of Saudi.
Anthony G. Petrello: Alright, there has always been seen because I've always been some things that are kind of getting away that impede.
Anthony G. Petrello: Timing or start up or something along those lines. So just kind of curious on how you think about that with respect to that seven to 10 rig increase.
Keith Mackey: Right. So, let's break it down first.
Anthony G. Petrello: So just to put it in context, because you mentioned outside Saudi Arabia. In the last half of 2023, we actually added five rigs internationally, one in the UAE and two in Colombia, in addition to the two new ones built in Saudi Arabia. So that's how we closed out the year. Then for this year, as I mentioned, we have seven rigs, three of which are for Saudi Arabia and four for Algeria actually. And Algeria is a market we've known really well.
Anthony G. Petrello: Youre thinking about through 2024, and what could be some of the risk factors again outside of Saudi.
Anthony G. Petrello: Alright.
Anthony G. Petrello: No.
Anthony G. Petrello: Well, let's let's break it down first so just to put it in context, because you've mentioned outside Saudi in the last half of 2023, we actually added five rigs internationally one in the UAE and two in Colombia. In addition to these two newbuild to Saudi Arabia, So that's where how we closed out the year.
Anthony G. Petrello: And then for this year as I mentioned, we have seven rigs, which three are for Saudi and four for Algeria, actually and Algeria as a market, we've known well Kendrick has a great presence in that market as well so and attract the NBC states really companies are actually big customer as well can reach so we have a good infrastructure. So we're pretty confident in our ability to get.
Anthony G. Petrello: Canrig has a great presence in that market as well. Sonatraq and the state drilling companies are actually a big customer as well for Canrig. So we have a good infrastructure. So we're pretty confident in our ability to get out there. And as I said, these three new builds, three of those four, we're expecting to hit this first quarter.
Anthony G. Petrello: Active out there and as I said these three newbuild three of those four were expecting to hit this first quarter. So.
Anthony G. Petrello: And, you know, I think the organization has been looking at this for a long time, so it's well time to address that. So that's seven rigs committed for 2024. Please see the complete disclaimer at https://sites.google.com/boughtaramco for 2025 and 2026.
Anthony G. Petrello: And I think the organization has been looking at this for a long time.
Speaker Change: Well well loyal to address that.
Speaker Change: So that's seven rigs committed for 2024, clearly and that's locked in and then as I said on the call. We have an additional we have an additional committed orders for seven rig does not.
Speaker Change: Maybe I misspoke, a little volume opportunities there are actually seven more rigs committed.
Anthony G. Petrello: So when you add those together, that means over the next two years, we're a little bleeding over, depending on timing, for that seventh of the new bills into early 2026. You've got 14 rigs going there. The organization on the Saudi side, we've actually reinforced that organization really well. We've added some people from Houston over there to help them with all the stuff that's been going on. And we have a pretty good feeling now that we have our arms around each other.
Speaker Change: <unk> for 2025 to 2026.
Speaker Change: When you add those together that means over the next two years with little believing over depending on timing for that seven of the new builds.
Speaker Change: 'twenty early 2026, you got 14 rigs going there the organization on the Saudi side, we've actually reinforce that organization really well we've added some people from Houston over there to help them with all the stuff that's going on and we have.
Speaker Change: Probably a pretty good feeling now for that we have our arms around the scaling up of what's needed to make sure that all successful, which then has led us to reorganize for the rest of the company to focus on some of these key markets that youre, referring to so.
Anthony G. Petrello: Scaling up what's needed to make sure that it's all successful, which has led us to reorganize the rest of the company to focus on some of these key markets that you're referring to. So, let's talk about those other key markets. Those key markets, remember, if you go back to my conference call last quarter, I listed off about 10, 12 markets, and those markets today still have about 50 tender opportunities. Okay, 50 tender opportunities. And what we're doing now is trying to streamline our focus in our slide deck on the website. I think it refers to 12 opportunities, but I would say in my remarks that I refer to eight.
Speaker Change: So let's talk about those other key markets those key markets and remember if you go back to my conference call.
Speaker Change: Last quarter I listed off about 10 12 markets and.
Speaker Change: Those markets today still have about 50 tender opportunities.
Speaker Change: Okay 50 tender opportunities.
Speaker Change: And what we're doing now is we're trying to trying to streamline our focus and our slide deck on the website I think it refers to 12 opportunities, but I would say on my call in my remarks, I referred to eight so really as eight of the shortlist of 12 that we're focused on and one of the things. We're focused on when we do that is obviously, what you just said to make sure that we actually can delay.
Anthony G. Petrello: So, really, it's eight of the short list of twelve that we're focused on. And one of the things we're focused on when we do that is obviously what you just said to make sure that we actually can deliver from an execution point of view. So, these selections will be both a function of the economics as well as our ability to make sure we get it on board as much and as quickly and as efficiently as possible. That is all part of our logic in evaluating this stuff right now. But I think the big message here is, I think we have a unique geographical position and portfolio. I mean, we're the only one that has such a balance between a huge percentage in the US and internationally, and we want to exploit this position as much as possible, taking advantage of what everyone is recognizing as a clear secular uptrend in international business. So that's the thinking that helps you. That's really helpful.
Speaker Change: From an execution point of view so.
Speaker Change: These selections will be both functions the economics as well as our ability to make sure we get it on board.
Speaker Change: As much and as quickly as efficiently as possible. So that is what part of our it's all part of our our logic and evaluating the stuff right now, but I think the big message here is I think we have a unique geographical position and portfolio. I mean, we're the only one that has such a balance between a huge percentage in the U S and internationally and we want to exploit.
Speaker Change: As much as possible taking advantage of what everyone is recognized as a clear secular uptrend in international so that.
Speaker Change: That's the thinking that helps you.
Speaker Change: That's really helpful. Now the second second element of the question in right you you referenced the.
Anthony G. Petrello: Now, the second element of the question: you referenced the quarterly survey that you do with E&P companies, and again, if I heard you correctly, you referenced that those companies would effectively exit 2024 flat with year-end 2023, which would effectively represent no change in overall drilling activity. However, you referenced that you expect your rate count in 2024 in the U.S. to average the same as it did in 2023, which, by math, would infer you're going to add anywhere around 8 to 10 rigs between now and when you're in. So the question is, are you displacing other contractors if the overall rig market is not expected to grow? So let me let me put it this way.
Speaker Change: Quarterly survey that you do with <unk>.
Speaker Change: A&P Company, then and again.
Speaker Change: If I heard you correctly you you referenced that are those companies.
Speaker Change: It effectively exit 2024 flat with year end 2023 of which from this point would effectively represent no change in overall drilling activity. However, you referenced that you expect your rig count in 2024, new at the average the same as it did in 2023, which.
Speaker Change: My math would infer you're gonna add anywhere around eight to 10 rigs.
Speaker Change: Between now and yearend. So question is are you are you displacing other contractor safety overall rig market is not expected to grow up great.
Speaker Change: Alright, So let me let me put it this way.
Anthony G. Petrello: We get paid for doing better, right? So that's what we have to do better. And I think one of the things in this market that goes sideways is the operators now. You're not as excited about things. And so everyone is going to be focused on improving what they're doing.
Speaker Change: We get paid for doing better right. So that's what we have to do better and I think one of the things in this market that goes sideways the operators now.
Speaker Change: Youre not as excited about things and so everyone has or is going to be focused on improving what they are doing and so.
Anthony G. Petrello: That means technology, and that means also maybe upgrading your service providers. So I think with the churn going on, it will give us an opportunity, and some of our big competitors as well, to upgrade our position, and that's what we're referring to. That's what we're going to try to play into, because we think there will be that opportunity. If you listen to the guys that have recently done the big acquisitions, in particular, you know, the good news is that those acquisitions show that there's long-term value in the U.S., and they need to make money, and it's all part of them to make money, which is good for us.
Speaker Change: That means technology and that means also.
Speaker Change: Maybe.
Upgrading your service providers, so I think with the churn going on I think it will provide us an opportunity in some of our big competitors as well to upgrade upgrade to position. That's what that's what we're referring to that's what we intend to play into because we think that will be that opportunity if you listen to the guidance.
Recently, the big acquisitions in particular.
Speaker Change: The good news is that those.
Speaker Change: This has shown that there is long term value in the U S and they need to make money and it all.
Speaker Change: <unk> powered limited to make Mike, which is good for us.
Anthony G. Petrello: But the benefit to us is that with this consolidation stuff that's going on, that means they're going to turn to the bigger players to help implement that, and that's, hopefully, what we're going to plan on playing to. And then, if you listen to the remarks of some of the CEOs of these companies, the next leg for really getting their economics going is better technology, better technology on the wellbore as well as intelligent completions. And so we think we have a unique portfolio that will help us address both of those things with our drill view of technology, et cetera, that we have. And also along the laterals, to the extent that you have one... Supermajor, really buying into that.
The benefit to us is that with this consolidation stuff that's going on that means theyre going to turn to the bigger players to help execute that and that's what we're that's hopefully what we're going to.
Speaker Change: Plan on playing too and then if you listen to the remarks with some of the Ceos of these companies. The next leg really them getting their economics going is to better technology better technology on the wellbore as well as intelligent completions and so we think we have a unique portfolio to help us address both of those things with our drill view technology et cetera.
Speaker Change: That we have and also the long laterals at the extent that you have.
Speaker Change: Don.
Speaker Change: Supermajor really buying into that others haven't yet got there in large part because they all have the acreage to do it but you know nabors is unique in terms of our capacity to do that I think I think today I don't want to say that's true, but I think we do have the longest lateral out there I think it was something like 32900 fee for Exxon.
Anthony G. Petrello: Others haven't yet got there, in large part because they don't have the acreage to do it. But Nabors is unique in terms of our capacity to do that. I think today, I don't wanna say that it's not true, but I think we do have the longest lateral out there. I think it was something like 32,900 feet for Exxon. It was the total measured depth. I think the lateral was like more than 22,000 feet.
Speaker Change: With a total measured depth I think the latter was like more than 22000 feet and so are our top drive in the rest of our equipment is really poised to handle that that racking capacity and other things. So that's what gives me some confidence now obviously I need the market to break well I need some breakthrough hit that number but we're sitting.
Anthony G. Petrello: And so our top drive and the rest of our equipment is really poised to handle that racking capacity and other things. So that gives me some confidence. Now, obviously, I need the market to break well, I need some breaks to get that number, but we're setting that, that's the objective for the management here to try to make that happen. But you're right, it's a heavy lift, and I don't wanna, but we're putting out there, that's our aspiration for the year to try to gain in that fashion. Does that make sense? Yeah, that's great. And that's a fantastic color!
Speaker Change: The objective for the management here to try to make that happen, but you're right. It's a heavy lift and I don't want to.
Speaker Change: We're putting out there that's our aspiration for the year to try to.
Speaker Change: Gain in that fashion that makes sense to you.
Speaker Change: That's great.
Kurt Halyak: Thanks, Tony. The next question comes from Derek Podheiser with Barclays. Please go ahead.
Speaker Change: That's good color thanks, Tony.
Speaker Change: The next question comes from Derrick pod Heizer with Barclays. Please go ahead.
Derek Podheiser: Hey, good morning guys. I appreciate the comments around Saudi Arabia's recent announcement. I understand that it should not affect your new build program, but from what we heard as far as potentially slowing down existing activity, would there be a threat to the cadence of your rig deployments? I know you previously got around one a quarter, and had the first three charges awarded, but is there any threat that that could get stretched out from where you stand? The short answer is no, but let me give you some reasons why I think I will go there.
Speaker Change: Hey, good morning, guys I appreciate the comments around Saudis recent announcement I understand that it should not affect your Newbuild program.
Speaker Change: But what about from what we heard as far as potentially slowing down existing activity would there be a threat to the cadence of your rig deployments and how your previous scattered out in one quarter and the first three charges awarded but we should is there any threat that could get stretched out from what you from where you stand today.
Speaker Change: The short answer is no, but let me give you some reasons why.
Anthony G. Petrello: So let's put everything in context here. There are 210 land rigs working in Saudi Arabia and 87 offshore rigs. Conventional oil and gas account for 73% of the market.
Get there so let's put everything in context here, there's 210 rigs land rigs working to Saudi and 87 offshore rigs.
Speaker Change: The conventional oil and gas account for 73% of the market the unconventional accounts for about 10% of the market and there is 22 unconventional rigs working today now in process today right. Now is awards by ramp go for 2024, and 2025 for 20 additional rigs and you've heard some other people announce some awards.
Anthony G. Petrello: The unconventional accounts for about 10% of the market, and there are 22 unconventional rigs working today. Now, in the process today, right now, are awards by Ramco for 2024 and 2025 for 20 additional rigs, and you've heard some other people announce some awards that may be related to that. So those 20 are in process, and we have not seen any sign that any of those changes are gonna be impacted, and the reason for that is twofold. Again, I can't predict what is going on there, but our impression is there's growing domestic consumption that natural gas is needing to solve for, and then, of course, the attraction of having a burgeoning export market, and those two things are not, are not affected by the capacity issue you've heard about.
Speaker Change: That may be playing to that so that those 20 are in process and we have not seen any sign that any of those changes are going to be impacted and the reason for that is twofold.
Speaker Change: Again, I can't predict what.
Speaker Change: What is going on there, but our impression is there is a growing domestic consumption that natural gas is needed to solve for and then of course the attraction of having.
Speaker Change: Burgeoning export market and those two things are not.
Speaker Change: That affected by the capacity issue you've heard about now excited currently operates 48 rigs and more than 75% of them are gas directed and in fact this year. The only two rigs we have up for renewal or two gas directed rigs. So for this year, we're looking pretty good.
Anthony G. Petrello: Now, SanEd currently operates 48 rigs, and more than 75% of them are gas-directed. And in fact, this year, the only two rigs we have up for renewal are two gas-directed rigs. So for this year, we're looking pretty good.
Anthony G. Petrello: The new build program that you referred to, of course, was done back when we did the joint venture more than five years ago. And it's part of a longer-term industrial policy for the kingdom, part of 2030. And those long-term policies are sort of like, you know, an act of God.
Speaker Change: The Newbuild program that you referred to of course was done back when we did the joint venture more than five years ago, and it's part of a longer term industrial policy for the Kingdom part of 2030 and those those long term policies are sort of like you know.
Speaker Change: Active got went went through in place Theyre hard to move to elect Eric largest so I really don't see things changing will it affect some cadence yes.
Anthony G. Petrello: Once they're in place, they're hard to move. They're like dirt barges. So I really don't see things changing. Will it affect some cadence?
Anthony G. Petrello: Yeah, I'm sure over time, depending on what happens, it could be some cadence about whether it's four rigs or five rigs, which is the target per year, that could get affected. But we haven't heard anything that affects any of the rollouts so far at all. So today, as you know, we have five rigs, new builds that are on the ground and working. We have 45 to go.
Speaker Change: I'm sure over time depends on what happens there could be some cases about whether it's four rigs or five rigs, which the target per year that could get effective but we have not heard anything we haven't heard anything that affects any of the rollout so far at all so.
Speaker Change: Today as you know we have five rigs new builds that are on the ground working we are 45 to go.
Anthony G. Petrello: Our view is that this is an unparalleled growth opportunity that we're just beginning to see the fruits of. And we think, you know, when realized, you know what the numbers are, this thing could approach $500 million in EBITDA just from these incumbent rigs when all 50 of them are on board. So it's a huge thing that we're playing to.
Speaker Change: Our view is that this is an unparalleled growth opportunity that we're just beginning to see the fruits of and we think when realized you know what the numbers are distinct.
Speaker Change: Approached $500 million in EBITDA just from these incumbent rigs.
Speaker Change: While 50 or more on board. So it's a huge thing that we're playing too and that's why we're spending the capital to do it which obviously is chewing into our free cash flow, we spent quite a bit a little bit more than planned for this year because of timing issues, but we think it's it's a play and a unique market and we have a very unique position that we need to take advantage of it.
Anthony G. Petrello: And that's why we're spending capital to do it, which obviously is chewing into our free cash flow. You know, we spent quite a bit, a little bit more than planned for this year because of timing issues. But we think it's a play in a unique market, and we have a very unique position that we need to take advantage of and exploit as much as possible. And so we're really, really happy that Aramco has been part and parcel, and has been a great partner along the way. And as I said, we haven't seen any second guessing of this at all.
Speaker Change: As much as possible and so we're really really happy that our ramp go is an important parcel and it's been a great partner along the way and as I said, we haven't seen any second guessing of this at all.
Speaker Change: Great I appreciate all the detail that is very helpful.
Derek Podheiser: Great. I appreciate all that detail. That is very helpful. Just switching over to the U.S., you talked about the dynamic of repricing your rigs lower down to current market rates, which is putting some pressure on your first quarter margins. You've also talked about how current rates are remaining steady. So maybe just expand on that churn as your higher-priced rigs go down to the current market rates, and maybe when should that spread narrow from what you see in your blended average to where we are in current rates, and then maybe talk about contracting versus spot exposure across the fleet today. Well, let me start out and say, yes, I think our guides for the first quarter reflect some, you know, some continued churn and the current market pricing.
Speaker Change: Switching over to the U S. So you talked about the dynamic of repricing your rigs lowered that down to current market rates, which is putting some pressure on your first quarter margins. You've also talked about how current rates are remaining steady. So maybe just expand on that churn as you as your higher priced rigs go down to the current market rates and maybe when I answered that.
Speaker Change: Spread now from what you see in your blended average versus where we are in current rates and then maybe talk about your contracted versus spot exposure across the fleet today.
Speaker Change: Well.
Speaker Change: Let me start I'd say, yes, I think I think our guidance for the first quarter does reflect some.
Speaker Change: Some some some continued churn.
Speaker Change: And the current market pricing, let me first comment by basically just give you a feel for the market maybe it makes sense West, Texas I would describe the rate of churn is high and activity level is down South, Texas I would call the churn low and activity flat East, Texas had called the term medium activity down northeast sites called that low.
Derek Podheiser: Let me first comment by base and just give you a feel for the market. Maybe that makes sense. West Texas, I would describe the rate of churn as high, and the activity level is down. South Texas, I would call the churn low, and activity flat. East Texas, I'd call the churn medium, and activity down. Northeast, I'd call that low, and activity flat.
Speaker Change: And activity flat and North Dakota, I'd say low code activity flat with neighbors Constitution, and <unk> had some upturns there 44% of our rigs are in west, Texas and so.
William J. Restrepo: And North Dakota, I'd say low with activity flat, but Nabors goes to position actually has had some upturns there. 44% of our rigs are in West Texas. And so that does affect the overall thinking in terms of, you know, we got to be concerned about churn given that market today and that's why you saw the numbers where we are. I think there are two positives in our numbers. The first is that our customers have shifted more to public operators from last year. So year-end, this year we're exiting around 72% of our client base is public versus 61 before. And then the second point is that our gas rig count change mix has changed. It was 30% in early 2023, and we're down to 14% today.
Speaker Change: That does affect <unk>.
Speaker Change: The overall thinking in terms of.
Speaker Change: Got to be concerned about churn given that market today and that's why you saw the numbers, where we are I think there's two positives in our numbers. The first is that our customer mix.
Speaker Change: Shifting more to public operators from last year. So year end. This year, we're exiting around 72% our client basis public versus 61 before and then the second the second point is our gas rig count change mix has changed we were 30% in early 2023 and were down to 14% today.
Speaker Change: I think our guidance reflects the fact that to deal with that.
Speaker Change: Maintaining a disciplined approach on selection of the jobs and pricing and find customers also.
Speaker Change: We can share our journey to on technology as well to technology deployment.
Anthony G. Petrello: So, I think our guidance reflects the fact that to deal with that and to maintain a disciplined approach to selection of jobs and pricing and finding customers is also, you know, that we can share our journey on technology as well, technology deployment, which, you know, is key to us realizing, you know, even better returns. And as you know, when you measure us for returns, you have to make sure you add the NDS margin per rig to the base drilling margin. When you do that, NDS's margin, this last quarter, was 3,900, and you add that to the margin for over $20,000 per rig, which I think is pretty good in this market. So the goal is: Thank you for stopping by. It does indeed.
Speaker Change: Which is key to us realizing even better returns.
Speaker Change: And as you know when you measure us for return to get make sure you had the NDS margin per rig.
Speaker Change: To the base drilling margin when you do that and Es margin. This last quarter's 3900, and <unk> to the market for over $20000 per rig, which I think is pretty good in this market and so the goal is.
Speaker Change: Try to maintain.
Speaker Change: Maintain our our outperformance and to try to.
Speaker Change: Customers that play into those factors I just talked about.
Speaker Change: That makes sense.
Speaker Change: It does and then maybe just just quickly on.
Speaker Change: The narrowing of your blended revenue per day, and then just where the current spot is just as we think about the churn through through the year.
Derek Podheiser: And then maybe just quickly on the narrowing of your blended revenue per day and then just where the current spot is. And just as we think about the churn through the year, how is that going to narrow, maybe how wide it is now? So I think the latest contracts that we are signing are somewhere a couple thousand dollars in terms of revenue per day beyond where the blended average is. But we do have a ton of contracts that are locked in already. I would say 30% have a lot of term remaining. So the other 70 are basically for qualifying.
Speaker Change: How is that going to narrow maybe how wide. It is now just to give you.
Heather: So heather.
Heather: So I think the latest contracts that we're signing are somewhere couple.
Heather: A couple of thousand dollars in terms of revenue per day.
Heather: On where the blended averages now we do have a ton of contracts that are locked in already.
Heather: I would say, 30% have a lot of term on them remaining.
Heather: So the other 70 are are basically.
Heather: Exposed to where the leading edge.
Heather: Leading edge day rates are.
Heather: Over the next six months or so.
William J. Restrepo: So, you know, average. That's why we are forecasting a reduction of about a thousand dollars per day in the first quarter. At this point, we're not ready to look at the second quarter, but we think that prices have steadied and we are even managing to get leading-edge prices in some cases that were higher than the prior contract. So, you know, we think we're in a good situation right now, but undoubtedly, because of where our revenue per day is and, in fact, the fourth quarter was a bit of a surprise to us and how well we managed to renew our contracts and maintain the day rates at a pretty high level. But we do think we'll see some deterioration in the first quarter, and we would hope that the second we see some, for the So that's where we're seeing the narrowing happening sometime and crossing over, I guess, sometime in the second quarter. Okay, great. Appreciate all the detail, guys. I'll turn it back. The next question comes from Waqar Syed with ATB Capital Markets. Please go ahead.
Heather: So let's say you know average that's why we are forecasting a reduction in about $1000 per day.
Heather: In the first quarter.
Heather: We are at this point, we're not ready to look at the second quarter, but we think that prices have steadied and we are.
Heather: Even managing to get leading edge prices in some cases that were higher than the prior.
Heather: Contracts. So we think we're in a good situation right now, but undoubtedly because of where our revenue per day and in fact for the fourth quarter was a bit of a surprise to us and how well we manage to.
Heather: Renew our contracts have maintained the day rates at a pretty high level.
Heather: So, but we do think we'll see some some deterioration in the first quarter and we would hope that the second we see some.
Heather: Some stability for the average day rate or the average revenue per day.
Heather: So that said we are seeing the narrowing happening sometime.
Heather: And <unk>.
Heather: Crossing over I guess sometime in the second in the second quarter.
Speaker Change: Okay, Great I appreciate all the detail guys I'll turn it back.
Speaker Change: The next question comes from over cars Sayiid with ATB capital markets. Please go ahead.
Waqar Mustafa Syed: Thank you for taking my question. My question relates to free cash flow, and that's the number one question I'm getting from clients right now. You're not giving guidance on free cash flow for 2024. Is that because?
Sayiid: Thank you for taking my question.
Sayiid: My question relates to free cash flow and that's number one question I'm getting from from clients right now.
Sayiid:
Sayiid: You're not giving guidance for our free cash flow for 2024 is that because.
William J. Restrepo: You're not sure of any additional contract wins internationally or, you know, anything on what's driving the reason or what's the reason behind not providing guidance? Well, we're not providing guidance. I'll address that first because, you know, it's still very early in the year and we do have a very meaningful amount of contracts that are being negotiated and vendors outstanding, as Tony mentioned. And those can have a significant impact on EBITDA, but also on CAPEX. So, you know, before we get the outcomes of those contracts, we feel it's a bit premature to go out on a free cash flow for the year. But if you're referring to the fourth quarter, also, you mentioned that some clients are asking about it. What I'm focusing on is that our underlying cash flow generation, Waqar, was very strong from our operations. In fact, the underlying cash flow was strong and remains strong.
Sayiid: You are not sure of any additional contract wins internationally or are you know anything on whats driving the reason or what's the reasoning behind not providing guidance.
Speaker Change: Well, we're not providing guidance.
Speaker Change: I'll address that first because.
Speaker Change: It's still very early in the year and we do have.
Speaker Change: A very meaningful amount of contracts.
That are being negotiated and.
Speaker Change: Vendors outstanding as Tony mentioned and those can have a significant impact on EBITDA, but also on capex.
Speaker Change: Before we get.
Speaker Change: Get the outcomes of those contracts.
We don't we feel it's a bit premature to go out on a on a on a free cash flow for the year.
Speaker Change: But if you're referring to the fourth to the fourth quarter also you mentioned that some clients are asking about it.
Speaker Change: Uh huh.
Speaker Change: What I'm focusing on is that our underlying cash flow generation for <unk> was very strong from our operations and in fact, the underlying cash flow was strong and remained strong.
William J. Restrepo: Now, we did have some unplanned items that fell in the fourth quarter, so if I focus just on the fourth quarter, the biggest shortfall was really working capital, Waqar. I mean, and that was about $50 million, versus what we forecast. The working capital was higher, $40 million of that was our accounts receivable. We were planning to reduce our accounts receivable and inventories for the quarter, but those increased during the fourth quarter, mostly due to worse collections than we targeted. So the U.S. was the main driver, but it was not the only one, by the way.
Speaker Change: We did have some unplanned items that fell in the fourth quarter.
Speaker Change: If I focus just on the fourth quarter. The biggest shortfall was really working capital Waqar.
Speaker Change: That was about $50 million.
Speaker Change: Versus what we forecast.
Speaker Change: Working capital was higher at $40 million of that with our accounts receivable.
Speaker Change: We were planning to reduce our accounts receivable and inventories for the quarter and but those increased during the fourth quarter.
Speaker Change: Mostly in worst collections than we targeted.
Speaker Change: So the U S was the main driver, but it was not the only one by the way.
William J. Restrepo: We really have had a tougher time in the second half of this year collecting from our customers. I do suspect that interest rates have something to do with this. Nonetheless, it is true we need to adjust to this environment and find a way to bring this DSO down. We are planning to do that, to bring the DSO back to the levels we had in the first half. So I think that was the largest shortfall. CAPEX was also an issue this quarter, about $30 to $40 million more than we targeted, all of that in Saudi Arabia. I think about $30 million of that was really legacy rigs in Saudi Arabia. We will have about 20 rigs going through their four-year recertification. In Saudi Arabia, that's a massive undertaking because it includes not only the rig but all the related equipment.
Speaker Change: We really have had a tougher time in the second half of this year collecting from our customers.
Speaker Change: I do suspect that interest rates have something to do with it.
Speaker Change: Nonetheless, it is true we need to adjust to this environment and find a way to bring this DSO down we just weird so and we and we are planning to do that.
Speaker Change: To bring it their DSO back to the records we had in the first half.
Speaker Change: So I think that with the Lord largest shortfall Capex was also an issue.
Speaker Change: And this quarter about $30 million to $40 million more than we targeted and all of that in Saudi Arabia.
Speaker Change: I think about 30 million of that was really <unk>.
Speaker Change: Legacy rigs in Saudi Arabia, we will have about 20 rigs going through their four year Richard vacation.
In Saudi Arabia that is a massive undertaking because it's not only the rig but all the related equipment and a lot of equipment. After four years needs to be replaced refurbished and upgraded.
William J. Restrepo: A lot of equipment, after four years, needs to be replaced, refurbished, and upgraded. So we are preparing for that, and we have ordered the required components to make sure we minimize the downtime related to this certification process. So I think AFE for these specifications is about one and a half million dollars per rig for cars.
Speaker Change: So we are preparing for that and we have ordered required components to make sure we minimize the downtime related to this.
Speaker Change: Certification process.
Speaker Change: So I think AFC for these for certifications are about $1 $5 million per rig waqar. So we had expected our suppliers to get this material ready at the beginning of the first quarter, but based on our clients' schedules or request, we have to move out some of the deliveries of these items and that hit us pretty bad in the fourth quarter. So that was the lion's share.
William J. Restrepo: So, we had expected our suppliers to get this material ready at the beginning of the first quarter, but based on our client schedules and requests, we had to move up some of the deliveries of these items, and that hit us pretty bad in the fourth quarter. So, that was the lion's share of the CAPEX hit. Again, you know, that's something that we would have had to absorb anyway, so it's not like an extra incremental CAPEX, but it did hit us in the fourth quarter. And you may remember that we issued senior notes in November, so between fees and some carry on the cash for a bit more than a month, we had an extra cash outflow of about $15 million or so for the fourth quarter.
Speaker Change: The capex here.
Speaker Change: Again, that's something that we would have had to absorb anyway. So it's not a like an extra.
Speaker Change: Incremental capex, but but.
Speaker Change: It did hit us in the fourth quarter and.
Speaker Change: And you May remember that we issued senior notes in November.
Speaker Change: So between fees and some carry on the on the cash for a bit more than a month, we had an extra cash outflow of about $50 million or so for the fourth quarter. So so basically if you add all that up it's about a $100 million shortfall, but half of that is really accounts receivable and that's where we end the inventories in that area of focus.
Waqar Mustafa Syed: So basically, if you add all that up, it's about a $100 million shortfall, but half of that is really accounts receivable and inventory, and that's the area of focus for us for 2024. So we do have to get better at adjusting to the customer's attempts to keep their cash, and we have a plan for materially reducing our inventory. So we expect those to have a very positive impact in 2024. I hope that answers your question, Waqar. Thank you for that great detail. It's very helpful.
Speaker Change: For us.
Speaker Change: For 2024.
Speaker Change: So we do have to get better at.
Speaker Change: At adjusting to our customers' attempts to keep their cash and we have a plan for materially reducing our inventory.
Speaker Change: So we expect those to have a very positive impact in 2024, I hope that answers your question.
Speaker Change: Thank you for that.
Speaker Change: Great detail that's very helpful. Just.
William J. Restrepo: Just on 2024 CAPEX, are you prepared to provide just the bookends and the kind of range, and I'm sure it's a pretty wide range because reactivations can be quite costly internationally, but maybe a broad range of if you don't get a contract, what they could be, and if you get additional funding, then where they could go. We are, you know, we have our board meeting today and, I So, we're going to, obviously, these are important items right now because, as you well know, CapEx and free cash are very important, a very important topic for us, as you have pointed out. So, until we have the board's blessing on what we can actually focus on and what they're going to, basically give us the green light to go for. I think they're giving some sort of very wide range, you know, like a range that's 50, 60 million dollars different is not very useful.
Speaker Change: On 2020 full Capex are you prepared to provide just the bookends.
Speaker Change: Range and I'm sure, it's a pretty wide range because.
Speaker Change: Reactivation is can be quite costly internationally.
Speaker Change: But maybe a broad range of you if you don't get the contract what they could be and if you'd get additional.
Speaker Change: It could go.
Speaker Change: We are we have our board meeting.
Speaker Change: <unk> and <unk>.
Speaker Change: I mean, we're starting today until Friday.
Speaker Change: So we're going to obviously these are these are important items right now because as you well know.
Speaker Change: Capex and free cash is very important.
Speaker Change: A very important topic for us as you well pointed out.
Speaker Change: So until we have the board blessing on what we can actually focus on and what the.
Speaker Change: What theyre going to.
Speaker Change: Basically yes.
Speaker Change: Gave us that gave us the green light.
Speaker Change: Go for I think of giving them some sort of very wide range.
Speaker Change: Yep.
Speaker Change: Arrange that $56 million different is not very useful at this point, so I think we're going to.
Waqar Mustafa Syed: So I think we're going to, I'll just say that we expect our capex to be a bit higher next year than it was this year. That's all I will say at this point. Thank you very much. I really appreciate it. Thank you.
Speaker Change: I'll, just say that we will we expect our capex to be a bit higher next year than it was this year. That's all I'll say at this point.
Speaker Change: So thats you. Thank you very much really appreciate it.
Speaker Change: Alright. Thank you. Thank you for the detailed answer I appreciate it.
Speaker Change: Yes, the only other comment I'd add to this car is that if you look at our our free cash flow for the year and you add back the E ink Kingdom rates, which is really a newbuild program investments.
William J. Restrepo: Appreciate it. The only other comment I'd add to this, Waqar, is that if you look at our free cash flow for the year and you add back the Ink Kingdom rigs, which is really a new-build program investment, Together, that amount of free cash flow that we generate this year, I think, is really a remarkable total number. So it really shows the strength of the portfolio, what we do have, and do other things, which I think is a distinction that we have uniquely given our portfolio. Thank you, sir. Thank you very much. The next question comes from Arun Jayaram with JP Morgan. Please go ahead.
Speaker Change: Together that amount of free cash flow that we generate this year I think is really a remarkable number.
Speaker Change: A remarkable total number so it really shows the strength of the portfolio that we do have.
Speaker Change: Here as a company so I'm pretty proud of that that we actually can do a newbuild program that no. One two new appointment of besides what we're doing here at all and so that was the fact that we can do that and still chip away at that.
Speaker Change: Other things I think as it is.
Speaker Change: As a distinction that we have uniquely given our portfolio. So that's the other thing I'd add.
Speaker Change: Thank you Sir thank you very much.
Speaker Change: The next question comes from Arun <unk> with JP Morgan. Please go ahead.
Arun Jayaram: Yeah, good morning. Gentlemen, I appreciate the fact that you don't have a board-proof budget for 2024, but the CAPEX commentary was helpful. Tony, you mentioned 7 to 10 incremental international rigs that you expect by year-end. Can you give us maybe a little bit of a flavor of the type of rig that you expect to deploy, and what type of CAPEX do you see on those, call it reactivations and upgrades?
Speaker Change: Yeah.
Arun: Yeah good morning.
Arun: Gentlemen, I appreciate the fact that you don't have a board approved budget for 2024, but with the Capex commentary was helpful.
Arun: Tony You mentioned seven to 10 incremental.
Arun: International rigs that you expect by yearend.
Arun: Give us maybe a little bit of a flavor of the type of rig that you expect to deploy and what type of capex.
You see on those call it reactivation and upgrades are these.
Anthony G. Petrello: Are these rigs that are already located internationally, or are you moving some capacity from the lower 48? So the seven rigs that I'm talking about that are in hand, that you're going to see, the four are in Algeria, which are existing rates with upgrades, and the three of those are... Thank you for watching, and, and the other ones are upgrades, and there are upgrades of rigs that are on site in Algeria. They're not being brought from the U.S. And so when you look at the size of those rigs, they are not equal to the average size of the good rigs in Saudi Arabia. So when you actually look at blended margins, you know, we are having some change in mix because the Algerian rigs are a little bit smaller rigs; 1500 horsepower rigs are a little smaller than the other rigs that we have.
Arun: The rigs that are already located internationally or you're moving some capacity from the lower 48.
Arun: So the set the seven rigs that I am talking about for that are in hand.
Arun: You're going to see the four are in Algeria, which our existing rigs with upgrades and the three of those are <unk>.
Arun: Our <unk>.
Arun: In Kingdom, new builds being tuned real dose of a ticket more than $50 million a pop in and the.
Arun: And the other winter of.
Arun: Grades and Theres upgrades of rigs that are on site in Algeria, theyre not seeing growth in the U S.
Arun: And.
Arun: So when you look at.
Arun: Those rates are not equal to the average size of the good rigs in Saudi Arabia. So when you actually look at blended margins.
Arun: We are having some change in mix because the Algerian rigs.
Arun: Or is it a little bit smaller rigs 500 horsepower rig that was smaller than the other rigs that we have therefore, when you look at our margin for the first quarter that we're talking about.
Anthony G. Petrello: Therefore, when you look at our margin for the first quarter that we're talking about, it's just concerned when there are move accidents there is some change in mix and timing that affects margins, the handicap, as you work all the numbers through, but those rigs are all, do not include anything from the U.S. There's nothing, there are no upgrades required from the U.S., which again is unique to us because we have rigs in the international market already.
Arun: Consensus there is change some change in mix or timing that affects margin.
As your workloads numbers through those.
Arun: Those rigs are all.
Arun: Do not include anything from the U S. Theres nothing Theres no upgrades required from U S, which again is unique.
Arun: <unk> to us because we have rigs in the international market already.
Anthony G. Petrello: So we did dial in a slight reduction in margin in the first quarter because we're going to have like seven rigs coming in. We took a little bit of a cautious view on deploying those rigs and the amount of uptime we're going to get at the beginning until those rigs are fully operational. So there is a little bit of that included in the forecast for the first quarter.
Arun: Okay.
Arun: So we do we did we did dial in a slight reduction in margin in the first quarter.
And because we're going to have like seven weeks coming in.
We took a little bit of a cautious view on.
Arun: Deploying those rigs and the amount of uptime, we're going to get at the beginning onto those rigs are fully operational so there is a little bit.
Arun: Of that included in the forecast for the first quarter.
Speaker Change: Got it.
Arun Jayaram: Got it. And maybe just one follow-up, Tony, one question that's come up as you do deploy the new Sunod build as part of the JV: are these take or pay contracts? And what kind of contract commitments do you have on those? Because you are investing capital there?
Speaker Change: And maybe just one follow up Tony one question Thats come in is as you do deploy the Synod newbuild as part of the JV are these take or pay contracts and what kind of contract commitments do you have on those.
Anthony G. Petrello: Yep, these are 10-year contracts, 6 years take or pay, for your renewal options, four-year guaranteed renewal. So it's a 10-year contract. Great. Thanks a lot. That's what's unique about everything I'm talking about.
Speaker Change: Because you are investing capital there yes. These are.
Speaker Change: 10 year contracts six six years take or pay.
Speaker Change: A four year renewal option, it's about four year guaranteed renewal basically so there are 10 year contracts.
Speaker Change: Great. Thanks, a lot.
Speaker Change: That's what's unique about everything I'm talking about no don't have that kind of contract six years with the with a four year renewal guarantee 10 year contract.
Arun Jayaram: No one has that kind of contract here. 4 year renewal, guaranteed for 10 years. Great, thanks a lot. This concludes our question and answer session. I would like to turn the conference back over to William Conroy for any closing remarks. Thank you all for joining us this morning. If there are any additional questions, please follow up with us offline. And Dave, with that, we'll end the call there. Thanks very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Great. Thanks, a lot.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to William Conroy for any closing remarks.
William J. Restrepo: Thank you all for joining us. This morning, if there are any additional questions. Please follow up with us offline.
William J. Restrepo: Dave with that we'll end the call there thanks very much.
William J. Restrepo: Okay.
William J. Restrepo: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.