Q1 2024 Nabors Industries Ltd Earnings Call
[music].
Good day and welcome to the Nabors industries first quarter 'twenty 'twenty four earnings conference call.
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I would now like to introduce William Conroy, Vice President corporate development and Investor Relations. Please go ahead.
William Cornelius Conroy: Good afternoon, everyone. Thank you for joining Nabors first quarter 2024 earnings conference call.
William Cornelius Conroy: Today, we will follow our customary format with Tony Petrello, Our chairman, President and Chief Executive Officer, and William Restrepo, Our Chief Financial officer, providing their perspectives on the quarter's results along with insights into our markets and how we expect nabors to perform in these markets.
In support of these remarks, a slide deck is available both as a download within the webcast and in the Investor Relations section of Nabors Dot Com and.
Instructions for the replay of this call are posted on the website as well.
Speaker Change: With US today in addition to Tony William and me or other members of the senior management team.
Speaker Change: 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.
Speaker Change: As a result of these factors our actual results may vary materially from those indicated or implied by such forward looking statements.
Also during the call we may discuss certain non-GAAP financial measures such as net debt.
Speaker Change: Operating income adjusted EBITDA and adjusted free cash flow.
Speaker Change: All references to EBITDA made by either Tony or William during their presentations, whether qualified by the word adjusted or otherwise.
Speaker Change: <unk> adjusted EBITDA as that term is defined on our website and in our earnings release.
Speaker Change: Likewise, unless the context clearly indicates otherwise references to cash flow mean, adjusted free cash flow as that non-GAAP measure is defined in our earnings release.
Speaker Change: 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.
Speaker Change: With that I will turn the call over to Tony to begin.
Tony: Good afternoon. Thank you for joining us today, as we present, our results and outlook.
Tony: Total adjusted EBITDA exceeded our expectations in the first quarter.
Tony: Daily margins in the U S. Lower 48 remains strong and our two technology segments performed well.
Tony: I would like to start my detailed remarks with comments on our international markets. The.
Tony: The strength of the international expansion continues to surprise us it's been over a decade since I've seen an environment as robust as this one.
Tony: We have a unique opportunity to strengthen our international footprint.
Tony: On our previous conference call I mentioned, we had scheduled the department of seven international rigs in 2024, three in Saudi Arabia and foreign Algeria.
Tony: In the first quarter, we started two of the rigs in Algeria, and so far in the second quarter. We started the third Algeria unit, that's the update on our previously expected deployments.
Tony: In addition, we have also been successful with we shouldn't negotiations for three rigs in Argentina, we expect to have those to go to work in 2024.
Tony: That leaves a total of six more rigs slated to start up over the remainder of 2024.
Tony: The third Argentina rig should commence operations in early 2025, I would like to point out that all three of these awards in Argentina have long term contracts with favorable pricing and high rates of return.
Tony: Additionally, we have been shortlisted for three rigs to go to work in the Middle East. These rigs would also have multiyear term contracts with favorable economics.
Tony: In the lower 48 industry activity has been disappointing we had hoped for a moderate increase during the first quarter from beginning to end the lower 48 industry land rig count declined by four rigs the average lower 48 industry count was essentially flat.
Tony: Nonetheless, leading edge pricing for the high performance technology focused rigs in the lower 48 with stable. This helps support our own daily rig margin one.
Tony: Once again, our expense control in the lower 48 was outstanding daily operating expenses declined.
Tony: In the first quarter total adjusted EBITDA for Nabors was $221 million.
Tony: Our global average rig count grew by four rigs this increase was spread across our operations.
Tony: Our drilling solutions, the rig technologies segments, together generated EBITDA of $39 million combined they accounted for more than 70% of total EBITDA in the quarter.
Speaker Change: Next let me make some comments on five key drivers of our results.
Tony: Start with our performance in the U S.
Tony: Daily rig margins in our lower 48 rig fleet exceeded our expectations the market for our rigs remains strong.
Tony: The above $16000 daily margin in the first quarter was higher than we expected.
Tony: Revenue was better than our projections expenses declined.
Tony: I am pleased with this performance these results demonstrate our team's ability to execute at an impressive level in this market environment.
Tony: We're working diligently to maintain if not improve this execution.
Tony: The industry rig count was essentially flat in the first quarter.
Tony: Our own rig count increased but it was below our target as we have said before pricing discipline remains our priority.
Tony: Our reported lower 48 daily rig margin reflects the financial results are just our drilling rigs the drilling solutions portfolio NDS generate significant margin on top of that.
Speaker Change: I'll discuss this in more detail in a few moments.
Tony: Now I'll review, our international drilling business as I said earlier. This international market is the strongest we have seen in a decade.
Tony: It is providing us with multiple high return opportunities to reactivate rigs.
Tony: We see tangible evidence in tendering and negotiating activity rig awards and deployments.
Tony: Third rig has since started.
Tony: We have also been awarded three incremental rigs in Argentina. These.
Tony: These awards across multiple operators should commence operations around the end of the year.
Tony: Two in the fourth quarter and one in the first quarter of 2025.
Tony: All three of the rigs are currently idle in the U S. We plan to transfer them to Argentina.
Tony: This redeployment as an excellent use of our existing assets.
Tony: In Saudi Arabia, the sixth Newbuild is currently finishing its acceptance procedure it should begin drilling imminently.
Tony: Two more will be deployed this year. Another five are scheduled for 2025 and the final two of the existing awards should start in 2026.
Tony: Finally, we were shortlisted for three weeks in a large market in the middle East.
Tony: The rigs that we bid are already in country.
Tony: This opportunity with cement our position in this important geography.
Tony: With these developments it is clear our prior optimism was well placed I am confident we will report even more progress on this front.
Tony: For the first quarter daily margin in our international segment was impacted by labor unrest in Colombia involving four rigs looking forward, we expect deployments and operational improvements to generate daily margin of approximately $17000 by the end of the year.
Speaker Change: Let me finish my remarks on our international business with a few comments on our activity in Saudi Arabia.
Tony: Several offshore drilling contractors in the Kingdom have announced the temporary suspension of operations on a number of rigs.
Tony: As for sentence outlook, we are bullish aramco as development the natural gas resource is expanding its focus on the unconventional land reserves is increasing.
Tony: <unk> fleet overwhelmingly targets gas. Moreover, the recent Newbuild awards are for rigs capable of drilling for gas.
Tony: The international expansion for Nabors still has legs.
Tony: Beyond our announcements today, we see prospects for additional rigs in international markets. These include units in Kuwait more opportunities in Algeria rigs in Argentina.
Tony: Mexico and elsewhere in the eastern Hemisphere.
Tony: Next let me discuss our technology and innovation NDS as revenue grew sequentially on nabors own lower 48 rigs and on international rigs. This growth was offset by a decline in lower 48 third party market.
Tony: Overall, NDS EBITDA exceeded our expectations from a product line perspective managed pressure drilling and rig cloud drove the segment's first quarter performance.
Tony: Next I will detail the value of the NDS generates lower 48 market.
Tony: The average daily margin in lower 48 from our drilling and drilling solutions businesses combined with $19440 in the first quarter.
Tony: Of that NDS contributed more than $3400 per day.
Tony: This incremental margin is significant we generate this margin with limited capital spending so the returns are impressive.
Tony: In the first quarter penetration of NDS services on Nabors rigs in the lower 48 remains high.
Tony: On third party rigs, we saw growth in smartphone directional steering.
Tony: Our rebit stick slip mitigation and our smart side smart NAV directional guidance software.
Tony: NDS as first quarter results demonstrate the value of its portfolio and its focus on both nabors owned and third party rigs.
Tony: Looking ahead, we are making significant inroads with smaller contractors interested in adding neighbor solutions to their portfolios at the same time international clients are increasingly recognizing the performance improvements in the U S. They too are accelerating their adoption of Nabors advanced technology.
Speaker Change: Next let me make some comments on our capital structure.
Speaker Change: Early in the first quarter, we redeemed the notes that were due in 2024 and 2025 we.
Tony: We accomplish this with the proceeds from the $650 million of notes issued at the end of 2023.
Tony: Our next maturity is in 2026.
Tony: As we look ahead, our first priority for free cash flow remains reducing net debt and improving our credit ratings.
Speaker Change: I'll finish this part of the discussion with remarks on sustainability and the energy transition.
Tony: Our energy transition initiatives as you know focus on improving operational efficiency and reducing emissions intensity.
Tony: These technology solutions made a significant contribution to our rig technologies segment results.
Tony: The most impactful remains our power type module.
Tony: This unit can X rigs to the grid greatly reducing diesel fuel consumption as well as related emissions with the appropriate availability of grid power operators can realize cost savings by employing power tap.
Tony: And a significant development the first power tap unit deployed outside the U S is running in Argentina.
Tony: This unit incorporates a frequency converter for international applications, we have additional units under construction, including two destined for international clients interest in our energy transition portfolio remains strong in the U S on top of that we see growing opportunities overseas.
Tony: Next I will discuss the rig pricing environment.
Tony: First quarter results for our lower 48 operation reflect continued stability and leading edge market prices.
Tony: Our approach to the lower 48 market is to exercise pricing discipline and support activity levels, while delivering superior value to our customers.
Tony: <unk> is an integral element in this approach.
Tony: In the international market, we are growing visibility to additional near term rig deployments pricing on these pending deployments is attractive reflecting the strong conditions, we see across the international domain.
Tony: We surveyed the largest slower for your clients at the end of the first quarter.
Tony: Our survey cover 17 operators, which accounts for approximately 45% lower 48, working rig count at the end of the quarter.
Tony: The latest survey indicates this group's year end 'twenty 'twenty four rig count will be modestly lower than the total at the end of the first quarter essentially all of the projected decline relates to announce merger activity from our past experience combined activity usually drops immediately after the merger is completed.
Tony: Over time, though we have generally seen a return to prior activity levels for the combined companies. We anticipate the same behavior by our customers. Following this latest burst of mergers.
Tony: Aside from the mergers we believe that clients remain cautious about their plans for 2024, particularly in gas focused basins.
Tony: Our view of the international market is bullish with the international additions now in hand, we would increase our international rig count for all of 2024 by nine rigs that's up by two versus the seven we had previously announced so seven is now nine for 2024 and for 2025, we have six expected deployments.
Tony: Including five in Saudi Arabia, and one in Argentina, the perspective, Middle East rigs, where they had three on top of that 2025 total.
Tony: Next I will share other notable recent highlights and accomplishments in addition to the rig awards in Argentina.
Tony: Can rig received an order from an existing client in the middle East for six land drilling packages disorder demonstrates can rigs outstanding reputation in the international end markets.
Tony: It also evidences the wide breath of the international expansion.
Tony: And in the lower 48 drilling contractor as began standardizing its entire fleet to nabors rig cloud platform.
Tony: This development is a significant endorsement of rig cloud.
Tony: And it clearly demonstrates the value of Nabors and third party strategy.
Tony: Let me finish my remarks with the following our performance in the first quarter exceeded our expectations, we're making meaningful progress capturing the significant opportunities in our international markets and for our advanced technology now.
Tony: Now, let me turn the call over to William who will discuss our financial results.
William J. Restrepo: Thank you Tony and good afternoon, everyone.
William J. Restrepo: During the first quarter, our global markets continue to diverge with a strong expansion driving international markets, while the U S maintained its flat to downward trend our international rig count improved as we deployed rigs in Saudi Arabia in Algeria.
William J. Restrepo: At the same time, we were awarded three rigs in Argentina and in another tender in the Mena region pending Finalization of the technical review, we were successful commercially in an additional three rigs.
Tony: The U S market somewhat disappointed with fewer rigs added than we targeted but pricing was higher than we anticipated and despite the weakening industry rig count in the lower 48 market drilling solutions in our rig technologies beat our forecast.
Tony: Revenue from operations for the first quarter was $734 million compared to 726 million in the prior quarter.
Tony: One point to 1% improvement U S drilling revenue increased by two 3% to $272 million, primarily driven by additional activity in Alaska.
Tony: Lower 48 drilling and offshore drilling also contributed to the increase.
Tony: Our average rig count in the lower 48 was 71.9, an increase of 1.6 rigs sequentially.
Tony: Average daily revenue held at approximately $35500.
Tony: Revenue from our international drilling segment was $349 million or one 9% improvement over fourth quarter results.
Tony: This increase was driven by a Nobel startup in the fourth quarter and operational improvements in Saudi Arabia as well as deployments of the first two of four rigs awarded in Algeria.
Tony: Revenue from Nabors drilling solutions declined sequentially by $1 $5 million due to lower activity in the U S lower 48 market.
Tony: Despite flat average industry rig count in the U S. We grew NDS sales on Nabors rigs by three 6%. We also expanded our presence in international markets by almost 2%.
Tony: Rig technologies revenue decreased by $9 $1 million or 15, 4%.
Tony: Following strong seasonal year end deliveries.
Tony: Turning to EBITDA and the outlook.
Tony: Adjusted EBITDA for the quarter was $221 million compared to $230 million in the fourth quarter.
Tony: EBITDA in U S drilling increased to $120 million from $118 million, a 2% gain compared to the prior quarter driven by higher activity in Alaska and higher in lower 48 rig count however.
Tony: Slight reduction in daily margins somewhat offset these gains.
Tony: Lower 48 drilling EBITDA decreased slightly.
Tony: 48 results demonstrated the ongoing trends of the fourth quarter.
Tony: Average rig count of $71 nine reflected an increase of nearly two rigs from the prior quarter and a market that is continuing to exhibit high levels of activity churn.
Tony: Ultimately the pending E N P. Mergers should result in a healthier and more sustainable lower 48 environment.
Tony: However in the short term these consolidations have put pressure on the total rig count as operators absorbed their acquisitions.
Tony: In addition gas focused drilling has continued to weaken we anticipate our rig count in this market to average approximately 70 for the second quarter.
Tony: The leading edge price environment continues to be stable and our average daily revenue held up well.
Tony: Our efforts to limit costs remain effective average daily rig margin at $16011 was a moderate $229 below the prior quarter.
Tony: For the second quarter, we project, our average daily rig gross margin at approximately $15500.
Tony: With leading edge revenue per day in the low to mid $30000 range. The expected sequential reduction reflects repricing of renewals.
Tony: On a net basis, Alaska and the U S offshore businesses performed better than we anticipated.
Tony: In the first quarter. The combined EBITDA of these two operations was $21 $4 million, an increase of $2 7 million. This improvement was primarily driven by activity in Alaska.
Tony: Combined EBITDA for Alaska, and U S offshore in the second quarter should be similar diverse quarter levels.
Tony: Internationally, EBITDA decreased by $3 million or two 9% to $102 $5 million.
Tony: Average rig count increased to 81 in the first quarter from 79.6, reflecting the startup of a new build in Saudi Arabia, and the commencement of two rigs going back to work in Algeria late in the quarter.
Tony: The gain in rig count was offset by a 600 dollar deterioration in daily margin, reflecting a union strike in Colombia.
Tony: During the quarter, we saw the commencement of recertification work for several rigs recently renewed in Saudi Arabia.
Tony: This process normally results in some lost revenue.
Tony: For the second quarter, we project International average rig count to increase between two to three weeks driven by the full quarter impact of the recent editions in Saudi Arabia in Algeria.
Tony: As well as startups for incremental rigs in those countries.
Tony: For average daily gross margin, we're targeting approximately $15700 the anticipated modest decrease as compared to the first quarter.
Tony: Primarily reflects an increase in loss revenue from continued recertification activity in Saudi Arabia.
Tony: Drilling solutions adjusted EBITDA declined by seven 9% to $31 $8 million in the first quarter.
Tony: The fourth quarter of last year was particularly strong with several projects that came to an end late in the year.
Tony: Gross margin for NDS was almost 52%.
Tony: While we saw some softness in the lower 48, we continue to see increased penetration in international markets internationally NDS EBITDA grew by over 7% sequentially. We expect second quarter EBITDA for drilling solutions to come in essentially in line with the first quarter.
Tony: Rig technologies generated EBITDA of $6 $8 million or.
Tony: 2 million decline versus the fourth quarter, mainly related to lower capital equipment and parts sales nor.
Tony: Normally these items are seasonally strong at the end of the year.
Tony: We expect with technologists EBIDTA in the second quarter to increase by approximately $2 million.
Tony: Now turning to liquidity and cash generation in the first quarter free cash flow as we anticipated was slightly above breakeven.
Tony: As I have mentioned previously the first quarter for Nabors has the heaviest cash outflows in the first quarter, we incurred several annual payments, including property and other taxes as well as employee incentive bonuses together these payments, which should not recur during the remainder of the year amounted to a proxy.
Tony: Similarly $23 million.
Tony: In addition interest expenses on our senior notes are higher in the first and third quarters of the year.
Tony: Capital expenses of $112 million, including 35 million for the sand that Newbuild program.
Tony: We are a bit lower than forecast, but collections of customer receivables in certain large international markets were sluggish.
Tony: Fed the lower Capex.
Tony: For the second quarter of 2024, we expect capital expenditures of approximately $190 million, including roughly 70 million for signing new bills.
Tony: We had expected the first quarter to be the high watermark for Capex for this year. However, some other spend anticipated to occur in the first quarter for Latin America, Saudi Arabia in the U S started slower than we had targeted.
Tony: For 2024, we anticipate full year capital spend to total approximately $590 million the increase as compared to 2023 reflects higher maintenance Capex and increased international rig count and preparation expenditures for a significant number of international awards from Reis.
Tony: <unk> tenders in negotiations.
Tony: Although capex from these recent awards should weigh on our free cash flow for 2024, we expect these long term contracts to add over 15 million in EBITDA over a full year.
Tony: In addition, Saudi Arabia, EBITDA is expected to increase by another $50 million to $60 million per year as the Newbuild program proceeds.
Tony: In concluding I would like to point out that in addition to the international rigs who are planning to deploy in 2024 and 2025, we still have a number of open international tenders and active negotiations.
Tony: It is increasingly evident that the remarkably robust international segment should continue to provide us with many more opportunities to redeploy existing rigs.
Tony: These are coming with high returns and with very short payback periods.
Tony: That being said, we intend to remain prudent.
Tony: We will remain focused on generating free cash flow and reducing our net debt.
Tony: With that I will turn the call back to Tony for his concluding remarks.
Tony: Thank you William I will now conclude my remarks. This afternoon as we look ahead, we see significant opportunities from today, we have six rig startups over the remainder of 2024.
Tony: More are on tap for 2025, this group should contribute significant incremental EBITDA over their multi year contracts.
Tony: To detail the many deployments as of today, we have 10 in Saudi Arabia with three in 2024, followed by seven over 2025 and 2026 three.
Tony: Three rigs in Argentina with two in 2024, and one in 2025 and one more in Algeria in 2024 altogether.
Tony: These add up to 14 pending deployments on top of these 14, we enter prospect for an additional three in 2025.
Tony: This magnitude represents a rare opportunity one that we are committed to capturing.
Tony: Our investment in this environment now provides the foundation for increased free cash flow and greater financial returns in the future.
Tony: Looking ahead, we are evaluating additional opportunities in Latin America, the middle East and elsewhere in the eastern Hemisphere.
Tony: Each of these opportunities will contribute significant free cash flow.
Tony: As I've said before we are able to use existing rigs to capitalize on this environment in tandem with these rigs, we see very attractive prospects to materially expand the NDS business with limited incremental investment.
Speaker Change: That concludes my remarks today. Thank you for your time and attention with that we will take your questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
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Tony: At this time, we will pause momentarily to assemble our roster.
Tony: Our first question today comes from Dan.
Dan: With Morgan Stanley. Please go ahead.
Dan: Hey, Thanks, a lot and good afternoon.
Dan: Okay.
Dan: I just wanted to come back to the free cash flow comments and I appreciate that.
Dan: This year, you're kind of at the full run rate for this not Newbuild program, there's a lot of.
Speaker Change: A lot of investment required for the wave of deployments that you have a break deployments that you have coming in.
Tony: You also mentioned the higher maintenance Capex, but I was just wondering if you can help us think through some.
Speaker Change: Some of the other components that might impact free cash flow conversion Hum this year outside of outside of the Capex guidance that you gave us whether it's you know working capital expectations cash taxes, even just if I look over the last five years I think your average net free cash flow conversion is in the kind of.
Speaker Change: 30% to 35% range should we be thinking about significantly below that this year, but.
Speaker Change: Is that a potentially achievable target in the coming years, just anything you could you could share to help us think through the free cash line and free cash conversion.
Speaker Change: Thanks, Dan and that's that's a good question I think a lot of people are.
Speaker Change: I was hoping for some answers on the free cash flow for 2024.
Speaker Change: So as you know we had to wait a little bit because we had a few or several.
Speaker Change: Important tenders to be decided and.
Speaker Change: And certainly needle moving in both EBITDA and Capex. So we.
Speaker Change: We hesitated to give something until we have more visibility on those tenders.
Speaker Change: You know what I can what I can do is tell you a little bit the main components of free cash flow for the full year.
Speaker Change: And.
Speaker Change: And most important is EBITDA.
Speaker Change: And.
Speaker Change: So we do think that the rigs in the U S. Lower 48 will fall some six rigs versus the prior year.
Speaker Change: We were hopeful to retain.
Speaker Change: At the same average rig count in 2020 for US we had in 2023, but that just didn't happen in the market just moved down instead of going up as we thought so.
Speaker Change: So that that has some significant impact and in addition, we do think that as contracts rolling to the leading edge pricing, which has stabilized. So unfortunately, but it's a rolling to those new leading edge prices, we're going to see a maybe an erosion of $600 year on year.
Speaker Change: And if you look at that that just math that gets you somewhere in the range of $50 million reduction year on year.
Speaker Change: In terms of the U S.
Speaker Change: Fortunately a lot in terms of lower 48, I'm, sorry, but in terms of Alaska and offshore markets, we're going to see an increase of about $5 million.
Speaker Change: So year on year. So that's a 45 million reduction for the U S into.
Speaker Change: Internationally, we hope to increase by roughly $50 million.
Speaker Change: And that's.
Speaker Change: Partially due to these new awards, but also the Saudi Arabia increase in activity.
Speaker Change: So drilling overall on a global scale is going to be about $5 million higher than the prior year.
Speaker Change: And then we think NDS is probably going to be about 5% higher.
Speaker Change: Versus the prior year with the Internet with a U S market.
Speaker Change: Being a bit of a drag but the international market performing very very strongly.
Speaker Change: And finally rig tech is going to be like a $10 million improvement year on year.
Speaker Change: And that is based on the fact that internationally, we are expanding quite a bit Tony mentioned some of the awards we've seen recently.
Speaker Change: But also energy transition is going to contribute to that to that number.
Speaker Change: So all in all we think that we're going to beat last year's $915 million.
Speaker Change: And the range that we can offer at this point and again take these numbers with a grain of salt the uncertainty in the U S is still high so we don't really have fantastic visibility given the the shortness of the contracts that we have today and that's a trend for the whole market.
Speaker Change: Think 900 $920 million to $930 million as an EBITDA range that we'd be comfortable with.
Speaker Change: And then if you look at the Capex interest expense is going to be about $180 million.
Speaker Change: Our cash tax about $50 million.
Speaker Change: That takes you somewhere into a 100 million plus for the company as a whole.
Speaker Change: But in that number we have a negative 60% right.
Speaker Change: So we're looking for about 160 plus.
Speaker Change: <unk> million dollars outside of China for the company as a whole for those numbers alone and then we expect working capital to provide.
Speaker Change: <unk> two our free cash flow this year.
Speaker Change: And of course, I haven't mentioned the pre funding that we get on our Capex as well that is paid in 2024.
Speaker Change: So if I were to put a number out there I would say that our free cash flow for the company as a whole would be somewhere between 100 and $200 million in 2024.
Speaker Change: Now keep in mind that we do have some $60 million.
Speaker Change: That are going to be.
Speaker Change: Filmed in Saudi Arabia in salmon.
Speaker Change: Outside of sand that that number would be somewhere between 160 and $260 million. So that's a range of free cash flow that we would have available to bring on bring down our debt in 2024.
Speaker Change: Does that answer your question it does and I think it probably answered a lot of our potential subsequent questions as well. So thanks for the Super helpful color there.
Speaker Change: Maybe just.
Speaker Change: A question.
Speaker Change: One.
Speaker Change: International Con.
Speaker Change: Contracts, rolling and and just I'm trying to think through outside of <unk> and outside of the idle rigs that you're redeploying.
Speaker Change: For the rest of the international fleet, that's working right now.
Speaker Change: Basically driving at is you know 2024 or some here in the future a year where Ah.
Speaker Change: A big percentage of those rigs roll in and would have the opportunity to kind of.
Speaker Change: Mark to leading edge and in those international markets.
Speaker Change: Are the years that you'd call out as being I guess significantly above or below what.
Speaker Change: It would be like a normal contract roll if you know just for argument's sake yeah.
Speaker Change: International contract is four years and 25% of the rigs would roll year.
Speaker Change: Would you point to this year or any of the coming years as being above or below what.
Speaker Change: What the normal.
Speaker Change: You know contract roll periods.
Speaker Change: Yeah.
Speaker Change: Looking forward for the next year, we will get about 20% actually of the rigs are rolling right now and I think the good news is with that number that given the market and given the amount of tenders out there I think in terms of repricing. It does offer the prospect of maybe moving up leading edge pricing because all of these contracts do require.
Speaker Change: Our capital and all the capital is going to be at market prices.
Speaker Change: Some of these projects are significant amounts of capital. So I think the whole the whole sector is actually being.
Speaker Change: Being pushed internationally up to up to market pricing and thats. Good for us So that right now that would be a number I would I would refer to about the opportunity to reprice about 20% of the fleet.
Speaker Change: Awesome.
Speaker Change: Exactly what I was driving that thank you very much I'll turn it back.
Speaker Change: Yeah.
Speaker Change: The next question comes from Keith Mackey with RBC capital markets. Please go ahead.
Keith MacKey: Hi, good afternoon, and thanks for the color on the on the EBITDA and free cash flow was definitely super helpful.
Keith MacKey: First question is just in Argentina, So you've got the three new rigs or sending over there can you just discuss what youre seeing in that market generally where rig counts trending in activity levels trending and what is the spec of rig you're sending down to Argentina.
Speaker Change: Well I think she has been a great success for us because we've exported our technology in the U S.
Speaker Change: And right now things are going down or what we call the F rigs which are.
Speaker Change: 500 horsepower rigs with.
Speaker Change: A higher hook load than a normal 500 horsepower rig and.
Speaker Change: The performance there has been outstanding until that has gained us a great credibility in the marketplace. There I think the good thing about the E R.
Speaker Change: <unk> rewards is the fact that the next three are going to be redeployed out of the U S. So that obviously shrinks the asset base here and shows that we have other advantages other ways to redeploy that capital and the second point is these contracts.
Speaker Change: Actually you are going to have a significant component in U S dollars, which is also a big change in terms of where we are to make it makes us even more.
Speaker Change: Optimistic about the market down there so.
Speaker Change: In terms of the.
Speaker Change: The orange.
Speaker Change: RCC contracts in general I think.
Speaker Change: The backlog the backlog for those just those three contracts would be about revenue back on about 200 $230 million just give you a frame of reference.
Speaker Change: And as I said I think the performance.
Speaker Change: That we've demonstrated down there we've now.
Speaker Change: Oriented the whole marketplace to NDS as well, which has really been a good driver for us. So it's not just.
Speaker Change: The rig, but also our software applications and managed pressure drilling and casing running integrated into the rig are actually gaining a lot of traction there and I think we have really good market position in both of those in the country and.
Speaker Change: That's a real success story real.
Speaker Change: Conversion from this broke away that the markets looked at a drilling contractor and that's what's driving some of the.
Speaker Change: The move to shifting stuff to nabors.
Speaker Change: Awesome I appreciate the comments there just sticking with the international markets. So the guidance for daily margin. In Q2 is about 15 seven per day I think he made a comment about getting that to 17000 by end of the year can you just give us a bit of a burn.
Speaker Change: Rich in terms of how you get there.
Rich: So Keith.
Keith MacKey: As I'm sure you've you've you've learned by following our results. When you have a significant burst of deployments you have to automatically be a little bit cautious on what sort of things.
Keith MacKey: Guy of guidance, you've put out there for the margin because its always.
Keith MacKey: <unk> down periods and things like that that.
Keith MacKey: And that hurt the margins a little bit. So we are trying to be a little bit cautious we do have some more deployments coming in and and some recent deployments a lot of rigs are being added to our fleet and in the first and second quarter. So that's part of that but.
Rich: There is also.
Rich: The fact that we renewed contracts in Saudi Arabia recently, and as part of that commitment we have to do some re certifications of multiple components in the rig and that takes a couple of weeks away from each of those rigs in terms of revenue generation. So so we are being in this in the first half of the year.
Rich: We do have some things that are going to disappear in the second half as all of those deployments are completed in Saudi Arabia in Algeria and at the same time the rigs in Saudi Arabia do have significantly higher.
Rich: Margin potential than our legacy rigs they tend to BMD.
Rich: Near the top of margin generation, particularly the new rates that were deploying as part of our.
Rich: The agreement with Saudi Aramco. So so those are the main drivers. So we do have a little bit of extra cost in the first half and secondly, the rigs coming in in the second for the full year that are going to be fully impacting our results in the second part of the year do have higher profitability than than our legacy rigs.
Speaker Change: Okay. Thanks, very much that's it for me.
Speaker Change: Yeah.
Speaker Change: The next question comes from Kurt <unk> with benchmark. Please go ahead.
Kurt: Hey, good afternoon everybody.
Kurt: Right.
Kurt: I appreciate all that.
Kurt: Color and detail.
Kurt: With regard to free cash flow, so I guess.
Kurt: The international markets right. So clearly.
Kurt: <unk>.
Kurt: And you have a lot of opportunities as you look out into 'twenty five 'twenty six.
Kurt: I'm just trying to reconcile something you guys said about.
Kurt: 52.
Kurt: A 50 plus million dollars of incremental EBITDA.
Kurt:
Kurt: Again this is more like going out with like 25 than what you just said for 2024, so thats kind of help out my contacts you can get five new Saudi rigs in those five rigs could add $50 million EBITDA and then they've got another handful of break outside the Saudis.
Speaker Change: Got it help connect those dots.
Speaker Change: Let me just do some gross some gross calculate calculus here, let's put this way so the Argentine rigs plus the Algeria rigs represent about $200 million in backlog and just by way of background those the investments there and those rigs have around it.
Speaker Change: Payback.
Speaker Change: A two year payback on.
Speaker Change: Those rigs then when you layer on top of that the Saudi rigs, which have a backlog of about 1 billion.
Kurt: $1 1 billion and the shortlist, assuming we got the shortlist that $230 billion and $230 million, rather that that represents backlog the entire package of all of those rigs combined when they are all on board would be an EBITDA run rate of at least $125 million.
Kurt: At the end of 2025.
Kurt: That's why we're so excited.
Speaker Change: That's correct.
Speaker Change: 825 million, obviously on top of your base of whatever you're going to do in 2024, Okay correct.
Kurt: Obviously, it depends if the market stays stable in all of the stuff is truly incremental.
Kurt: All of these things are incremental so yes.
Speaker Change: Okay, Okay, great and then so in the context of the prospects.
Kurt: Taking idle rigs and moving them into internationally how many.
Kurt: Aggregate right.
Kurt: Beyond even what you.
Kurt: I already know you're potentially going to be moving how many idle U S rigs are feasible options to be upgraded and 10.
Kurt: International.
Kurt: I think at the kind of numbers that we're talking about I mean, I think if you listen to what I just said.
Kurt: Our payback on adapting these rigs is lifted two and a half year payback to move our regulatory international lease type of rigs and I think we have another 10 of those available.
Kurt: Uh huh.
Kurt: And of course, the market depends on every market is different in every market has different DLP requires which drive was plus five is of course higher but generally we have about 10 10 more rigs that fit easily into the international marketplace from from the U S.
Speaker Change: That's great and that kind of gets to the crux of the question Toni which was then beyond those 10.
Speaker Change: For them to acquire our settlement and requires some element of Newbuild right and number right now.
Speaker Change: Sure.
Speaker Change: I'm, just giving you the numbers out of the low hanging fruit I think we have a bunch of a bunch of iron out there.
Kurt: And depending.
Kurt: One that we were in <unk>.
Kurt: Cost is hopefully of concluding right now the three that I'm talking about those rigs are actually in country. So.
Kurt: Makes it even easier for those so yes, we have we have additional assets internationally as well not just in the U S. But.
Kurt: It depends on the opportunity some subset if it's.
Kurt: Deep gas with.
Kurt: With heavy DLP stuff than you needed an internet existing international rig if it's something more like.
Kurt: Version of the unconventional like in Argentina, then we could take one of our Prime U S rigs and move it down there without a lot of incremental expense. So it really doesn't you can't just.
Kurt: One size fits all kind of concept, it's more complicated than that.
Kurt: By the way, it's not a good rest of the rigs could not be transferred the reason, where we say tenants because the remainder of the fleet is more.
Kurt: As more adapted and has been adapted to use drilling so we wouldn't want to transfer those.
Kurt: At this point, but the other ones can also performed very well in the U S. But.
Kurt: Have some some characteristics that make them more adapted and easier to move to international markets.
Speaker Change: That's great I appreciate all that no one follow up.
Kurt: There's been a lot of discussion about the prospect.
Kurt: Incremental rigs needed in the U S.
Kurt: Satisfy the LNG export capacity coming on in 2025, and then there's been a lot of discussion here of late about incremental gas demand needed for the data center build out you guys got any rough numbers as to what the incremental rig demand could be from those two factors.
Kurt: I would say at this point is pure speculation I mean, we believe in the thesis that the export market is real on LNG, we believe in the macro the macro thesis about the drivers for gas globally and in particular for our growth.
Kurt: Growth in non OECD.
Kurt: Non OECD countries and particularly in terms of gas in particular for for AI. I mean, if you look at the electricity production in the U S for the past roughly 15 years I think it's been relatively flat and thats because <unk>.
Kurt: When we are able to rely on efficiencies in.
Kurt: Use of electricity to offset the demand, but with this new AI stuff. That's coming out is so intensive debt I think the only clear answer is actually for Baseload power is in fact gas you saw the announcement to tell you about.
Kurt: Amazon I think on the data centers that they're doing and these data centers are going to be huge consumers and therefore, we think we as I said. These are all reasons why we really strongly believe in it and we've been disappointed it has happened earlier, but we think as you go through this year, we think it should become more visible and obviously, we're well positioned.
Kurt: To handle that.
Kurt: Our guests fixed have obviously moved dramatically from where we were.
Kurt: But for the reasons Youre identifying I think.
Kurt: Prospects are bright going forward.
Speaker Change: That's great well I appreciate your courage and even even with all the transfers that we have made and are making of rigs out of the U S. We still have a significant number of rigs that we could ramp up in the U S with very limited costs in very short lead times.
Speaker Change: I appreciate that guys. Thanks.
Speaker Change: The next question comes from Derrick pod Hazer with Barclays. Please go ahead.
Speaker Change: Hey, I just was hoping you guys could refresh us on your exposure in the Saudi Arabian market, specifically gas versus oil and more specifically the unconventional gas given it looks like an area of growth in the kingdom. So just maybe some comments around your growth prospects and that unconventional gas plants being built out there.
Speaker Change: Okay, well today, we have.
Speaker Change:
Speaker Change: Roughly 80% of our rigs are in gas and of that about 80%.
Speaker Change: Yeah.
Speaker Change: About.
Speaker Change: Just doing the math in my head here.
Kurt: Sure.
Kurt: 20% of the 80% is in the unconventional today of what we have and.
Kurt: That the unconventional.
Kurt: Obviously, the order or the new bills that are being built are all can be yes, directed its up to our ramp of what they want where they want to put him. So far they haven't moved many of them to be unconventional because they have so many other needs right now, but obviously, we could easily handle that so.
Kurt: Footprint for US today, 80% is in.
Kurt: In gas and.
Kurt: The market as a whole I think that the numbers for onshore today Conventionals 84 gas unconventional 'twenty to an exploration 37 oil 70. So it gives you an idea of what how the market breaks down right now but.
Kurt: Let me make a comment though on the 20% most of those could be redeployed to gas to gas activity.
Kurt: Yes.
Kurt: We really do have the strongest suite in terms of gas capabilities deep.
Kurt: High pressure wells in the Kingdom.
Speaker Change: Got it that makes sense, so no issues as far as being able to move your existing equipment over there in the unconventional field, if that's where the demand pull view those rigs are ready to go and just you know that could be slotted either conventional or unconventional absolutely absolutely. Okay. Great. That's helpful.
Speaker Change: And then a question for you William on the $590 million of Capex.
William: Could there be any upside surprised of that does that feel contained at this point or how should we think about potential moving pieces that could push that higher outside of you know me.
William: Capex with activity, but anything on the horizon that behind the scenes that could surprise to the upside.
William: Obviously, obviously international basket like I was referring to is robust still I think at the end of the third quarter I told people there were about 55 opportunities in the marketplace that we're looking at.
William: Sorting through and at the end of the fourth quarter that number was around 53 decline today that number is 30, so there's still 30 out there obviously.
William: We sort through them and we'll see if anything really fits in like the last person who asked the question. Obviously, we have some equipment that could be really deployed attractively, but right now where our hands are pretty full with what we got.
William: We're still evaluating that but the good news is that that pipeline does show the robustness of the market and that number outstanding is demonstrates the how broad it is.
Kurt: And as I said in my remarks, I think the can rate.
Kurt: Henry.
Kurt: Award is another example of that showing how.
Kurt: How deep this recovery is in the international Rep cyclists and in terms of the pricing on the Capex.
Kurt: I think the fact that we manufacture a lot of those components.
Kurt: Relatively long lead times.
Kurt: We're pretty much set for the pricing this year and we were not that concerned about pricing increases on.
Speaker Change: Got it.
Speaker Change: I guess any color guys I'll turn it back thanks. Thank you.
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 Cornelius Conroy: Thank you everyone for joining us today, if you have any questions. Please follow up with us Betsy will wrap up the call there. Thank you.
William Cornelius Conroy: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
William Cornelius Conroy: Yeah.
William Cornelius Conroy: [music].