Q2 2024 Nabors Industries Ltd Earnings Call
[music].
Yes.
Yeah.
Okay.
[music].
Good day and welcome to the Q2, 'twenty 'twenty four Nabors industries limited.
Speaker Change: So what is the earnings call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star can you followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad twist.
To withdraw your question. Please press Star then two please note. This event is being recorded.
Now I'll turn the conference over to William Conroy, Vice President of corporate development and Investor Relations. Please go ahead.
Good morning, everyone.
Thank you for joining Nabors second quarter 2024 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 <unk>.
Our markets and how we expect nabors to perform in these markets in support of these remarks, a slide deck is available both as a download within the webcast and in the Investor Relations section of Nabors Dot com instructions for the replay of this call are posted on the website as well.
With US today in addition to Tony William and me or other members of the senior management team since much of our commentary today will include our forward expectations. They may constitute forward looking statements within the meaning of the Securities Act of $19 33, and the Securities Exchange Act of 1934 <unk>.
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.
As a result of these factors our actual results may vary materially from those indicated or implied by such forward looking statements also during the call. We may discuss certain non-GAAP financial measures such as net debt.
Adjusted operating income adjusted EBITDA and adjusted free cash flow.
All references to EBITDA made by either Tony or William during their presentations, whether qualified by the word adjusted or otherwise mean adjusted EBITDA as that term is defined on our website and in our earnings release.
Likewise, unless the context clearly indicates otherwise references to cash flow mean, adjusted free cash flow as that non-GAAP measure is defined in our earnings release, we have posted to the Investor Relations section of our website. A reconciliation of these non-GAAP financial measures to the most recently comparable GAAP.
Speaker Change: Measures with that I will turn the call over to Tony to begin.
Good morning, Thank you for joining us today before I begin I would like to acknowledge the challenging conditions impacting the communities and hurricane boroughs pass a number of nabors employees have suffered damage to their homes is it is a strong testament to our staff that we have been able to maintain operations.
Continuity.
Want to thank all of our employees, especially those facing difficult personal situations for their efforts during this time.
Now I'll start with our outlook.
Total adjusted EBITDA in the second quarter exceeded our expectations.
Daily margins in the U S lower 48 remained strong.
In our international segment were essentially in line with the first quarter.
Speaker Change: Demonstrating its broad reach our drilling solutions segment outperformed the industry rig count in the lower 48.
I will begin my detailed remarks with comments on the international markets.
Strength of the international expansion is evident when looking at the considerable number of incremental rig awards and deployment.
Nabors has been successful capitalizing on this environment we.
We see this in our own international rig count in our roster of pending deployment in.
In summary, as I'll detail in a few moments, we expect to deploy five more incremental rigs over the remainder of 2020 for lower 48 industry activity. Once again declined the lower 48 industry land rig count declined by 37 rigs or 6% during the second quarter.
The average lower 48 industry rig count decreased by approximately 4%.
Notwithstanding this lower 48 industry rig count performance, leading edge pricing for high performance rigs remained stable current pricing continues to support our daily rig margins at near record levels Nabors total adjusted EBITDA reached $218 million in the second quarter.
Our global average rig count was essentially in line with the previous quarter.
Our average international rig count increased by three rigs Nabors drilling solutions, our rig technologies segment generated a combined EBITDA of $40 million.
This high free cash flow EBITDA increased from the previous quarter.
These high Tech operations accounted for more than 80% of total EBITDA in the quarter.
Next I will make some comments on the five key drivers of our results.
I'll start with our international drilling business as I have said for some time. This international market is the strongest we have seen in 10 years.
That strength is evident across many of our markets. We have been successful on recent tenders and negotiations we are encouraged by the substantial number of pending opportunities.
This environment enables us to remain highly selective.
We are targeting high return opportunities that meet or exceed our free cash flow objectives in.
In the second quarter, we deployed the third leg of our earlier for rig award in Algeria, We expect a fourth rig to starting the current quarter we.
We have begun work towards an appointment of three incremental rigs in Argentina.
These rigs, which we announced earlier spanned multiple operators.
We expect all three to commence operations around the end of 2020 for the.
The first two in the fourth quarter and the final one in the first quarter of 2025.
The three rigs for Argentina will utilize idle rigs in the lower 48. In addition, we expect substantial drilling solutions content on all of the rigs.
In Saudi Arabia.
Senate Newbuild began drilling during the second quarter. The seven finished its acceptance procedure and spud its first well in early July.
The eighth and ninth new bills are now targeted for deployment in the fourth quarter of this year.
At this point another five are expected in 2025, and one more should start at the beginning of 2026 a.
Speaker Change: A quarter ago, we announced we were shortlisted for three rigs in a large market in the middle East. We can now say we have received formal award for the three rigs in Kuwait for work starting in 2025.
Each of the rigs is currently in country.
Kuwait is an important and challenging market.
Choirs high spec equipment and skilled crews. These are neighbors strengths, we are well positioned to capitalize on increasing demand there.
With these developments it is clear our prior optimism was well placed I am confident we will report even more progress on this front.
In the second quarter several markets drove the sequential improvement in our international EBITDA, our operation in Colombia returned to a more normal performance after experiencing some labor unrest in the first quarter.
Algeria, Saudi Arabia, and Kuwait improved as well let.
Let me finish by giving you a little more color on our activity in Saudi Arabia, Saudi Aramco recently announced $25 million of overall contract awards for the development of natural gas as.
As neighbors and more recently two Senate, we have historically supported our ramp gross natural gas production today, approximately 80% of sand as rigs are specs and actively drilling for gas.
Next I'll discuss our performance in the U S daily rig margins in our lower 48 rig fleet slightly exceeded our expectations the market for our rigs remains resilient.
We continue to focus on the portion of the market values of automation and performance at the same time pricing discipline remains our priority.
From the start in the second quarter to the end our own rig count outperformed the industry.
Our reported lower 48 daily rig margin reflects the financial results of just the rigs N D S generate significant margin on top of that.
Discuss this in more detail in a few moments.
Next let me discuss our technology and innovation are drilling solutions business continues to gain traction on international rigs.
<unk> International revenue and EBITDA were each up sequentially by double digits.
This performance demonstrates our growing success to extend N D S beyond the U S market. The growth was driven primarily by our casing running and managed pressure drilling solutions.
Overall, NDS EBITDA exceeded our expectations.
Next I'll discuss the lower 48 market specifically the average daily margin from our drilling and drilling solutions businesses combined with 19100 in the second quarter.
Of that MTS contributed $3500 per day.
Speaker Change: This second quarter NPS performance marks a slight increase over the first quarter pet.
Penetration of NDS on Nabors rigs in the lower 48 remained high in the second quarter.
Penetration was equal to the first quarter. However, overall results of Nabors rigs were muted due to the decline in nabors rig count.
In terms of.
Thank you for calling May have your first and last name and I'll return to the call.
You are now rejoining the main conference techs are a sideways rig count in the U S.
Next let me make some comments on our capital structure.
During the second quarter, we amended our credit facility, we expanded the facility and extended its maturity by five years more recently, we issued $550 million of seven year notes with those proceeds we intend to retire the existing notes due in 2026. This financing extends our weighted average maturity by more than a year.
From three six years last quarter to four.
$4 seven today.
In the second quarter, we generated free cash flow and reduce net debt.
Our priority remains reducing debt.
Speaker Change: I'll finish this part of the discussion with remarks on sustainability.
Our energy transition portfolio focuses on improving operational performance and reducing emissions in the second quarter. These solutions made a notable contribution to the results in our rig technology segment.
The most impactful ETE initiative remains our per cap module.
This unit connects rigs to the grid it reduces diesel fuel consumption as well as related emissions, where grid power is readily available operators realized significant savings by running power tap with the performance to savings we demonstrated the U S. We see growing opportunity internationally, we expect to have the first reentered.
National units deployed by the end of the year.
Speaker Change: Traction in our energy transition portfolio remained strong in the U S on top of that operators in our markets beyond the U S are gaining interest.
Next I will discuss the rig pricing environment.
Our second quarter results in the lower 48 showed resiliency in leading edge market pricing with a focus on operational excellence continued pricing discipline remains our mantra.
Our drilling solutions portfolio plays an important role in this approach.
In the international market, we still have visibility to additional near term rig awards, they are spread across geographies, including Asia, Mena and Latin America.
Speaker Change: These markets are seeking more than 30 rigs those are in countries, where we work currently or that we consider attractive with this volume we can be selective when it comes to adding work.
And with the increasing tender activity as you would expect pricing is showing signs of firming.
We surveyed the largest lower 48 clients at the end of the second quarter.
Our survey cover 16 operators, which accounted for approximately 47% of the lower 48 industry is working rigs at the end of the quarter.
Speaker Change: The latest survey indicates this group's yearend 2024 rig count will be modestly lower than the total at the end of the second quarter.
Essentially all of the projected decline relates to announce merger activity.
The operator is not involved in mergers project activity to remain at current levels.
I'm from the mergers we believe that clients remain cautious about their plans for 2024, particularly in gas focused spaces at the same time, we expect the market to continue to exhibit a relatively high level of churn.
For the international market. Our view remains bullish we are on track to add an additional five rigs in the second half of 2024.
This yields a 10 rig increase the rig count compared to the end of 2023 what.
What is particularly satisfying is that we already have good visibility for 2025, namely nine scheduled deployments, including five rigs in Saudi Arabia, one in Argentina and three in Kuwait.
Next I will share a couple of highlights from the quarter. In addition to those we announced in the press release the common thread in all of our highlights is a strong element of our advanced technology solutions.
A major operator in the Gulf of Mexico extended NDS casing running services for three years and six deepwater units. This award solidifies nabors position in this market.
We installed our smart Rof's rig operating system are five third party rigs for three different drilling contractors.
These installations demonstrates the value that our advanced rig technology delivers across the spectrum of contractors and operators. We believe these smart Ross installs provide the basis to secure additional NDS content with these contractors.
Let me finish my remarks with the following our performance in the second quarter exceeded our expectations. We are deploying the previously awarded rigs in our international markets at the same time, our advanced technology continues to deliver industry, leading performance across our markets now.
Let me turn the call over to William who will discuss our financial results.
You, Tony and good morning, everyone.
Overall, the second quarter financial EBITDA was slightly below our first quarter results as.
As increases in our international drilling segment as well as drilling solutions and rig technologies were offset by the forecast decline in the U S drilling segment in.
In general International activity for all of our segments almost compensated for the reduction in the lower 48 market.
We are encouraged by the strength of our international activity and its future growth prospects.
As well as by the recent stability in our lower 48 rig count and by the resilience of our pricing in this market.
Revenue from operations for the second quarter was $735 million compared to $734 million in the prior quarter.
Our U S drilling segment decreased by $12 3 million or four 5%, primarily due to rig count reductions in the lower 48 market.
Lower 48 decreased by four 9% as the current market conditions drove a sequential three rig reduction.
That being said pricing held up well our daily revenue for the fleet came in at $35334.
Only $134 below the first quarter.
Revenue from our international segment increased by $7 $4 million or two 1% for the quarter.
This improvement was primarily driven by our operations in Algeria with the startup of one more rig and by Argentina as a result of adjustments in our pricing.
The impact of the deployment of an additional rig in Saudi Arabia was mitigated by the previously announced downtime linked to recertification work during the quarter.
Revenue from our drilling solutions segment also grew by $7 4 million in the second quarter.
At 10% improvement.
This increase was driven by Wellbore placement in the U S and by international growth and casing running and managed pressure drilling services.
Performance software revenue in the U S was hurt by a decrease rig count in the lower 48 market.
Despite the challenges in this market, we achieved a 22% sequential increase in third party revenue.
Additionally, in the international market MBS expanded sales by 18% as we continue to focus our efforts on growing this segment globally.
Rig technologies revenue was slightly below the first quarter level, a strong aftermarket sales were more than compensated by sluggish capital equipment revenue, particularly in the U S.
Now turning to the down and the outlook total adjusted EBITDA for the quarter.
Was $218 million compared to $221 million in the first quarter.
U S drilling EBITDA of $114 million was down by $6 4 million.
Or five 3% driven primarily by the activity reductions in the lower 48 market.
Lower 48 drilling EBITDA of $92 million decreased by $6 8 million or six 9%.
Compared to the prior quarter.
Our average rig count in the lower 48 decreased to $68 seven routes.
The three rig reduction was one more than we expected.
The lower 48 market continues to exhibit high levels of churn, which in turn impacted our rig count.
We exited the second quarter with 69 operating group.
Average daily rig margin came in at approximately $15600 down 400 from the first quarter.
But somewhat higher than our forecast.
Speaker Change: Leading edge pricing remains stable with.
With daily revenue in the low to mid thirties.
We have been experiencing these leading edge price point consistently in this range for approximately a year now.
Consequently, our average daily revenue has held at high levels.
Given the pressure on rig utilization this stability confirms the strong value proposition of our fleet.
High specification high technology rates.
For the third quarter, we project, our lower 48 daily margins will come in between 15000 115000 to $100 as rigs roll to new contracts with leading edge pricing somewhat below our average for the fleet.
We also anticipate our rig count in this market to pick up slightly and average approximately <unk> 70 for the third quarter.
On a net basis, Alaska and the U S onshore businesses performed somewhat better than we anticipated.
In the second quarter, the combined EBITDA of these two operations was $21 8 million.
A slight sequential improvement.
In the third quarter combined EBITDA for these two markets should decrease by approximately $1 5 million.
As one of the smaller offshore rigs rolls off contract.
This is typical for the season.
Our international drilling segment delivered EBITDA of $106 $4 million.
An increase of almost $4 million.
International average rig count grew by three four rigs with.
With the startup of Tucson, and new builds in the second quarter.
And the impact of three units redeployed and Algeria over the first half of the year.
Average daily gross margin came in at $16050, which is in line with our first quarter results.
We expect international average rig count in the third quarter to increase by approximately one rig.
Speaker Change: During the period, we will benefit from the full quarter contribution of the tunable startups in Saudi Arabia.
We expect to deploy to more sand on <unk> in the fourth quarter.
The deployments for the full year 2024 totaling four rigs.
Another six rigs have already been requested by our ankle for deployment in 2025 and into 2026.
Nigeria, and we're targeting one rig startup during the third quarter for a total of four rigs deployed in 2024.
Looking forward, we also expect to start up in the fourth quarter of two units redeployed towards <unk> from the U S.
The third quarter rig additions may be partially offset by some idle time in another market as one of our rigs rolls to its new contract.
We project third quarter International daily margins between 16260.
$16300, an increase from the second quarter.
Drilling solutions adjusted EBITDA grew by two 1% to $32 5 million in the second quarter.
Gross margin for <unk> was just about 48%.
Our margins were affected during the quarter by an unfavorable mix.
As revenue for lower margin Wellbore placement activity grew meaningfully.
Despite the current performance of the U S drilling market <unk>.
The international market continues to expand.
Our focus on penetrating international markets is yielding positive results.
We expect third quarter EBITDA for drilling solutions to increase by approximately 6% over the second quarter level.
NDS gross margin per day for the lower 48 was $3500.
At 2% increase compared to the first quarter.
This improvement took a combined drilling Reagan solutions daily gross margin to $19100.
Rig technologies generated EBITDA of $7 3 million, an improvement of seven 8% versus the first quarter.
Speaker Change: The sequential increase was primarily related to our capital equipment sales.
Aftermarket repairs and energy transition businesses.
These more than offset a decline in part sales maintenance services and rentals as U S operators start to reduce near term cost.
Speaker Change: Despite these pressures, we expect rig technologies EBITDA to improve by approximately $1 $5 million in the third quarter on the strength of our international activity.
Now turning to liquidity and cash generation.
Free cash flow totaled $57 million in the second quarter.
This compares to free cash flow of $8 million in the first quarter.
Improved working capital and lower cash interest payments contributed to the increase.
Capital expenses in the second quarter were $138 million, an increase of $26 million.
This includes $56 million for Senate Bill.
<unk> drove most of the total sequential Capex increase.
We are targeting capex between $190 and $200 million for the third quarter.
And reiterate our expectation of approximately $590 million for the full year 2024.
Net debt at the end of the quarter decreased by almost $50 million to $2 4 billion.
We continue to be on track to deliver free cash flow of between 100 and $200 million for the full year 2024.
During the quarter, we replaced our $350 million credit facility that was scheduled to expire in 2026 with a new $475 million facility that expires in 2029.
Speaker Change: The facility includes $350 million revolving credit and 125 million for letters of credit.
Additionally, the accordion feature of $100 million was upsized to $200 million.
More recently Nabors issued this week $550 million in May and seven 8% priority guaranteed notes maturing in August 15 2031.
The proceeds of the transaction will be used to retire the $556 million outstanding and priority guaranteed notes maturing in January 2026.
These two transactions have substantially improved our debt profile.
And provided us with a significant reduction in credit exposure.
We have no further maturities until 2027.
When our senior priority guaranteed notes mature.
With that I will turn the call to Tony for his concluding remarks.
Thank you William I will now conclude my remarks. This afternoon as we look ahead, we see significant opportunities from today, we expect five international rig start ups over the remainder of 2024.
These will all be working a multiyear contracts. In addition, we have visibility for an additional 10 total deployments in 2020 five and 'twenty 'twenty six.
Their economics should generate attractive financial returns.
With these we have secured a well defined path to a significant growth in our international business and its free cash flow.
Looking ahead this market presents us with opportunities for even more rigs. Additionally, both our drilling solutions a rig technologies businesses are poised to capitalize on this environment I'm looking forward to reporting on our progress that.
That concludes my remarks today. Thank you for your time and attention with that we will take your questions.
Yes. Thank you has mentioned we will now begin the question and answer session.
I'll ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you're using a speaker phone please pick up your handset before pressing the keys.
Are you telling your question has been addressed and you would like to withdraw it. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question today comes from Courthouse said with benchmark.
Hey, good morning, guys.
Good morning, Kurt.
Hey, you guys laid everything out quite quite clearly I think the one thing that really caught my attention with commentary about the prospects for your U S rig count to modestly increase throughout the year and this is in particular I guess positive contrast to the commentary that you provided are related to that our survey data.
P company so.
Kind of curious as to what what are the dynamics that are driving the demand for your rigs say relative to the overall market.
Well, let's put some context on the thing obviously the U S market is very been very challenged.
Last quarter, you saw the rig count go down almost 40 rigs and our our goal as you can see from our results has been trying to maintain profitability in the pricing so and I think we've done a real good job of that we haven't chased market share and we don't intend to what we've really focused on is operational excellence and following the needs of the customer I think.
Theres been a lot of talk about the downside of customer consolidation, but there is a lot of upside to customer consolidation. One of course is that the.
Consolidation makes the industry have a have a life to it I mean, it provides viability for investors to see that there is.
Our halfway president she is at the end of 2030, which.
A lot of the people keep talking about so.
And it's also good for larger contractors, given who the players are and I think what's happening is that this rationalization occurs and as they get digested over the course of the year, we think that will create opportunities for us too.
We really have a wider audience for our technology and our type of rigs and we've put a lot of effort into that as you know and we think as the market tries to capitalized on making these new prospects, even more profitable what's going to happen is that the large operators are asking a focus on new solutions and we have a pretty robust portfolio of other things behind us that we think.
We also have good follow on so I think in the short term, there's obviously ups and downs.
Said.
We're expecting for this quarter is that's based on conversations that are in place right now.
It's definitely a challenge and it's also a chance to do that while trying to maintain.
The results you've seen but I think we've done a pretty good job so far and that's what we're targeting for this quarter.
Okay, that's great great color and maybe one for William on free cash flow like you reaffirm what you said last quarter about $100 million to $200 million free cash flow, obviously, and then you have some debt.
Dynamic where you're going to.
Basically take out the 20, Texas now coming back full circle Lady William and in the context of the prospect how do you think about the dynamics related to absolute debt reduction.
So.
So card that the plans are to use all the cash and the proceeds that we got from them on the bond obviously to pay down the debt.
So that will reduce.
The actual total debt.
But all the cash that's going to be generated is going to be applied to reducing total debt, we're not going to need the cash on the balance sheet and we're going to be paying down debt as we go forward.
Okay. That's awesome I appreciate that color. Thank you.
Andy: Thank you Andy.
The next question comes from Dan <unk> with Morgan Stanley.
Hey, Thanks, good morning.
I just wanted to ask Hum.
So you guys had kind of reported somewhere in the ballpark of $220 million of adjusted EBITDA.
First half in each quarter in the first half year and then.
The guidance is in that same ballpark for the third quarter.
So if I was thinking about the fourth quarter for your comments on this call I would've thought maybe there to be some seasonality in and maybe some budget exhaustion.
Speaker Change: In the lower 48, it could be offset by some international growth and maybe the third quarter might be a good.
<unk> EBITA bogey to think about it from the fourth quarter, but it sounds like maybe you know.
The earnings to be growing sequentially from the third to the fourth quarter. So I was just wondering if you could help us think about the puts and takes just directionally.
Heading into the fourth quarter of this year.
Across the segments in Amsterdam.
You bet.
Just from the schedule of rigs internationally as I've articulated.
The second half has five rigs of those five four taking place in the fourth quarter. So.
Vis vis international obviously, there is a ramp occurring in international that's.
That's loaded towards the latter part of 2024, I'll, let William add more color to your comment though.
I mean, it's a good comment there's a lot of focus on the fourth quarter because of the budget and seasonality on the rig business land drilling business.
Drilling rig business, we don't really see that seasonality like some other businesses like fracking coiled tubing and so forth because the contracts tend to be.
Longer term and Oh, we don't experience that seasonality so in the U S. In fact, Tony explained the reasons why he thinks will have more rigs.
Through the fourth quarter.
Speaker Change: But this is based also on concrete.
The award that we expect in discussions and negotiations, we're having with some of our larger clients, where we think we'll benefit. So so we don't we don't expect to see a drop off in the lower 48, and if anything we expect activity to pick up I think with a little bit of erosion on the on the gross margin. So the U S will hold up well.
And then of course as Tony mentioned internationally is going to expand very significantly.
Got it Super helpful I guess.
If you don't want to comment.
For the full year adjusted EBITDA on the nine handle on it.
We we are we're comfortable with the consensus.
Yeah.
And then just a quick follow up I'm wondering if you could maybe.
Break down some of the components of your Capex budget outside of what you do explicitly.
Switching some odd newbuild component, but just wondering if you could talk through some of them kind of like the.
Maintenance capex assumptions across the other segments that would feed into that $590 million number. This year, so that we could maybe.
Might help us dial in or extrapolation.
The forward years, just anything on maintenance capex across the segments any any growth investments, maybe in Mds or big Tech, but yeah anything outside of D.
This is not a newbuild capex that you could help us with would be great.
You have said that U S rigs.
Quire somewhere between 1213.
A million dollars a year in maintenance Capex and the international rigs a bit more maybe in the one five.
Range ourselves.
I mean, if you take our average rigs you can you can do the math for that.
Obviously this year, we do have some growth capex as we have said before due to the.
Tremendous expansion, we have experienced in international markets.
As you start the new contracts there are some costs that range anywhere between.
$4 million to $10 million I would say.
To get these rigs ready.
So so basically again you can do the math based on the 10 rigs that Tony mentioned.
Okay.
Got it Super helpful. All right. Thanks, a lot guys I'll turn it back.
Okay.
Thank you and the next question comes from Derek <unk> with Barclays.
Hey, good morning, I wanted to go back to the lower 48 comments talking about your rig count to grow for the balance of the year versus your survey helix, which seemed like that was more flat to down.
Can you provide more color on what you're seeing whether it's the privates versus the publics oil versus gas the big different basins like where do you see the most upside in how you talked in your release about the Western region.
Seeing some additional activity, but if you can give us a little more detail as far as where we can see some of these rig additions you're expecting in the back half of the year.
Sure well just to make clear.
Maybe this is a modest increase between first and second quarter here.
For the next quarter second and third quarter that we're talking about.
But give you some more color so roughly and our customer mix over the course of the past year. It has definitely shifted to more of the public operators give me an idea back in 2023. It was roughly 60% now it's almost three quarters. So that's a pretty good shifts and that plays into the theme I just talked about.
The other the other point is that.
There is a continued high level of churn that we're facing and so.
William: As William referred to.
Count.
Increased but also there is some some pricing.
Margin erosion because of churn and churn it applies across all the basins to give you an idea west Texas I would say is modestly up in churn compared to where we were the first quarter South Texas is actually <unk>.
Improved environment proved a little bit, which also should have an effect on activity.
East, Texas churn is up and north Eastern North Dakota, I'd say, they're relatively flat.
So.
Right now our guest our gas rigs are at 13% and obviously, that's not something that we're focused on but I think.
The target market is the large operators I referred to which is the fat part of the market and you can look at consolidations that occurred I think.
We would we're obviously trying to play to our strengths and promote our solutions in.
With the post merger companies and hopefully that will be recognized based on our track record and performance. We hope that's going to translate into what I've talked about is actually slightly increasing rig count as we're moving forward throughout the year.
So I'll make a comment on that I mean, the private the volatile been a source of.
Uh huh.
So I'm positive.
We have seen a lot of new clients on the client list that I haven't seen before and some of the smaller clients and are providing a little bit of stability to our rig count.
We're happy to see some of those strengths with our private clients.
But as Tony mentioned, I mean, a lot of the most of the increases that we're going to see and again. This is not going to be more than a handful of rigs at most but those are coming.
From some of the consolidation of where we think that we have some advantages with some of those clients that have been the big buyers. So so we feel we feel good about our prospects in the second half.
Got it that's all really helpful color.
Neither on contract duration trends are you starting to see some of your customers willing to sign up for year multiyear agreements or is are we still in more of that like six months well to well contract and just maybe some color around your conversations and what are you seeing trends as far as the contract terms like that.
I think as these consolidations occur I think it's causing each of the players have reassessed the entire portfolio and there are a bunch of initiatives by several of them to look at the issue of terming out things, given where the market isn't giving their aspirations of walking in their new programs and so the answer is yes, I think the market has become.
More amenable to some term contracts and we are.
William: Looking at that as well.
Great I appreciate all color I'll turn it back.
Yes.
Thank you. Our next question comes Waqar Sayed with a T V capital markets.
Thanks for taking my question.
When do you expect U S drilling margins to bottom out.
My goodness [laughter] I'll leave the difficult one.
Well I think I think if you look at if you look at our average right now it's about 35300.
And I think our leading edge probably averages around 33 34 revenue per day. So.
So theres still some room to two to fall.
William: However, we are getting pretty close to convergence and the stability we've seen in pricing.
And and in rig count actually to tell you truth.
It gives us hope that we will continue to maintain our leading edge pricing where it is today.
So you know, we still could drop I would say.
For the 15 K level.
But I would expect that to be the low point.
Alright.
And when before year end.
Okay. Oh, so you think most of the drop is going to be this year and then it kind of stabilizes into next year.
Speaker Change: Oh, Yeah, we think so I mean and keep in mind that not everything changes at the same time, so it's like a progressive right.
Rolling into into new contracts.
And we're starting to get longer term contracts by the way, which you know we would be happy to sign longer term contracts because we are still.
Very close to record levels.
All time margins for Nabors.
In the lower 48.
Right now.
William on the debt side, good to see that.
We'd like to reduce the total debt number. So at Q2 end total debt was $2 $5 billion.
Do you expect that number to be let's say by the end of this year and then perhaps by the end of next year.
So you're working back into the free cash flow right Waqar I did provide guidance.
So if we hit the midpoint of the guidance.
I think we could reduce our total debt this year by somewhere in the range of 100 plus million dollars.
Speaker Change: And and then next year I have said before that we expect to do significantly better in free cash this year.
And again that all of that all of that extra cash.
Cash generation will be applied.
Essentially to reduce our debt.
And the intention is not to leave the cash on the balance sheet.
Speaker Change: We're going to use it to reduce debt as we have done in the past.
Okay, great well. Thank you very much appreciate it.
Speaker Change: Comments.
Thank you Wolfgang.
Thank you and the next question comes from Keith Mackey with RBC capital.
Hi, good morning, Thanks for all the color on the international rig additions you certainly laid out pretty clearly all of the rigs do you expect to add across the geographies.
Just curious though are there any notable expiries or churn that could come up in the next <unk>.
18 months that might.
Speaker Change: Provide a headwind against the getting to the 102 rigs by the end of next year.
I mean, all these contracts are on.
Three to five year deals and there is a maturity I think.
In Saudi we renewed it like we said on the last call many of our oil rigs.
Recently so.
That's comforting but.
Obviously in this market depending on the macro.
We're not immune even with these contracts to something occurring but I think right now we feel pretty good.
Kuwait, we're going to have a hiatus of a rig during the time period from now to the startup period as we are.
Onboard the new the new rigs so that that's like a little.
A little setback, but that's in the normal course.
When these rigs expired they move on there's always a gap and that's one of the things about international compared to U S, where those gaps are a little more pronounced a little longer than in the U S. But having said that directionally, we're very comfortable with the direction given the macro and just to give you an idea of scale.
Speaker Change: One of the things you should be aware of I think I gave some numbers on the last call, but now given what I. Just said today just so you understand what the visibility is for these contracts in place now for Argentina, when you add the.
Yeah.
The backlog of the Argentine rigs into Saudi rates.
Uh huh.
Speaker Change: The Argentina rigs will represent about $300 million backlog and denied Saudi rigs for 'twenty four 'twenty five represent about $1 2 billion and the rigs in Kuwait about $230 billion of million. So altogether, that's a backlog of about one $7 billion, which is pretty breathtaking. Okay. So just give.
An idea of what we're talking about here.
And Keith to your question about the 102 rigs keep in mind that.
If you look at our presentation three of those rigs having been secured yet so we have discussions with about <unk>.
Nine more rates and we estimate that we probably get three of those but we haven't secured though so.
Right now and based on the stuff that we have secured we're looking more like a 99 rigs right now at the end of the year.
2025.
Got it.
That's super helpful.
For Q3, I must admit I was a little bit optimistic on the international daily cash margin.
Projected to be about 16, 2% to <unk> three per day can you just maybe give us a little bit more help.
Help on how we should be thinking about that number through 'twenty four 'twenty five as you fold in some of these new rig contracts.
Speaker Change: So when I when when the team forecast.
The additions of the rigs, we always layer in a little bit of downtime because.
Based on experience, we see it happen with a new rig startup. So so there is some underlying cost.
Or not or downtime.
Forecast in those numbers and in addition, we did mentioned that we're doing going through a recertification process given all the extensions we've had in Saudi Arabia. So.
I would say there is right now some 300 to $400 per day in underlying our forecasting for these events.
So if you add that on top of what we said for the third quarter with.
Speaker Change: The underlying profitability.
Is somewhat higher than 16 to 16, three that were guiding for the third quarter and we said before Tony has said it I've said it that we expect in the fourth quarter to be approaching towards the $17000 per day.
Margin.
In the international market.
Whether we hit it in November or December.
Saudi rigs come in.
But that's sort of our expectation and then going forward you know that that 17 case should be sustainable.
For 2025.
Got it.
Okay. That's very helpful. Thanks very much.
Thanks.
Thank you and the next question comes from Arun Jairam with J P. Morgan.
Yeah.
Good morning, Tony I'm wondering if you could go through kind of the competitive balance.
In Saudi Arabia, obviously, one of your peers in the U S is kind of entered the Saudi Arabian onshore rig market.
Labor or the Synod JV has scheduled to deploy <unk>.
<unk> total newbuild as part of that up to 50 rig program.
So maybe talk to us about the prospects of of of signing up more new builds would be on the 15th.
Speaker Change: Yeah, well as we've previously spoken about the Newbuild program is part of a policy that was embarked upon several years ago by.
Our ramp go in MBS to industrialize, the Kingdom and.
It's a long term plan to add 50 rigs of new builds.
And so were seven seven working now there's 43 to go when we've talked about the ones that are in process for.
25% and 26, but we fully expect that right now that those plans will continue unabated, because they're part of a macro or macro policy of course, there's always the vagaries of industrial policy and things can get temporarily suspended et cetera, but as.
As far as we understand that commitments there and you should be aware that the seven new builds have been delivered are all working gas rigs today and as I've spoken about before.
The story on the on the.
Rig count is such that that is.
We continue to be a high priority for ramp go. So there's about 218 rigs in the Kingdom say 31 of them are working on conventional of about 15% of the market as I mentioned eight more than 80% of authentic rig say our guests direct it and the new builds are going to be focused on gas. So we think we're in a really good relative position there.
And we think we have we are aligned with the country's objectives.
Speaker Change: I think all the all the stars are aligned so I can't say that we're not going to be immune from market conditions that ramp go does adjust recap of market conditions. There may may well be some other ones out there that theyre going to embark on but I should say that for all those reasons, we think any any adjustment will be tempered in temporary.
Speaker Change: Ari.
Great great.
And then just my follow up.
You guys have announced some some rig awards in both Argentina, and Kuwait, obviously, Kuwait has been maybe a long term disappointment in terms of global spending trends Tony.
Tony what what's your thoughts have you been down to Argentina recently about you know maybe some highlights on what's going on in the Vaca Morten and just thoughts on Kuwait.
Incremental demand from Kuwait.
As you correctly observed from my point of view, both are really key long term point of view.
For many years on conference calls, we talked about the 14 rig tender that was going to be coming out every time that finished just rolled over rolled over a bit of disappointment. We're very happy. We finally got this kind of.
Award here.
We're cementing and we think it should be at the beginning of some additional additional upside.
Just by way of.
Parenthetically comment you should also be aware that we're.
We're not going to just benefiting from the rig awards theyre actually can rig our rig manufacturing businesses getting awards.
In this latest round for top drives wrenches on competitive rigs in the kingdom. So there is additional upside to nabors from Kuwait and that makes it a a core market for us in terms of equipment supplying as well, Argentina, obviously, what's really happened there the three as it's always been a good resource but did see the political.
And financial situation of the country has always been a big encumbrance, but given the change that occurred there, particularly on the currency side down.
Thank you.
That's really helped us out and when things as I mentioned is with respect to the rigs that are going down there, we're getting a double benefit.
We are redeploying rigs from the U S market down there, making use of idle capacity and the rig contracts are.
In fact favorable compared to historical practices with.
U S dollar.
Components paid us.
Yes, and then lastly.
One of the great surprises to me is how fast our NDS thesis is taking hold down there and NDS content on the Nabors working rigs has really increased to the point, where they're doing a lot of lot of stuff as robustly as they are in the U S. In fact managed pressure drilling and casing services on those rigs.
We have a great reputation right now and Thats, where theyre more upside in that and Thats that basin matures those kinds of services will become more useful and I think there is.
Good upside path for us So that's why we're keen on both on both countries.
Okay. Thank you and the next question comes from John Daniel with Daniel Energy Partners.
Hey, good morning, guys. Thank you for including me.
I just have one.
The comment you guys made in the press release about the four mile lateral in the Delaware.
John Daniel: I'm curious if that's.
A one off with the customer or how many more would be behind that and what the outlook for that would be just for.
For next year.
<unk> purpose to answer that for you yes. Good morning, John Good question I don't think it's not a one off for sure a couple of things to comment customers with large acreage positions are the ones that are going to probably deploy that that well designed more often.
It proved that it had some real efficiencies to be gained by that to some real value secondly, our rigs are well positioned in terms of.
Of our top drives our Sigma top drive the amount of torque weekend, we could deliver to generate and deliver those four mile laterals. So it's a space that we're where I think where the pole position and we're going to see more of those four mile laterals and some that are even even longer than that so more to come but that's certainly not a one off.
Okay. That's all I had thank you.
Yes.
Thank you and this concludes our question and answer session I would like to turn the call back over to William Conroy for any closing comments.
Thank you everyone for joining us. This morning, if you have any additional questions. Please follow up with US Keith will wrap up the call. There. Thank you. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
Yeah.
Okay.
Sure.
[music].
Yes.