Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total adjusted EBITDA in the second quarter exceeded expectations, reaching $218 million.
- International segment showed strong performance with an increase in rig count and new deployments in Algeria, Argentina, and Saudi Arabia.
- Drilling solutions and rig technologies segments generated a combined EBITDA of $40 million, accounting for more than 18% of total EBITDA.
- Successful capital structure management with an expanded and extended credit facility and issuance of $550 million in seven-year notes.
- Strong focus on sustainability with initiatives like the PowerTAP module, which reduces diesel fuel consumption and emissions.
Negative Points
- Lower 48 industry land rig count declined by 37 rigs, or 6%, during the second quarter.
- US drilling segment experienced a decrease in revenue by $12.3 million, or 4.5%, primarily due to rig count reductions.
- Lower 48 drilling EBITDA decreased by $6.8 million, or 6.9%, compared to the prior quarter.
- Revenue from rig technologies was slightly below the first-quarter level due to sluggish capital equipment revenue in the US.
- Continued high levels of churn in the Lower 48 market, impacting rig count and pricing margins.
Q & A Highlights
Q: What are the dynamics driving the demand for Nabors' rigs relative to the overall market?
A: Anthony Petrello, Chairman, President, and CEO, explained that despite the challenging US market, Nabors has focused on maintaining profitability and operational excellence. The consolidation among customers is seen as beneficial, providing opportunities for Nabors' technology and rigs. The company is targeting large operators and promoting its solutions to post-merger companies, expecting a modest increase in rig count.
Q: How does Nabors plan to manage its debt reduction strategy?
A: William Restrepo, CFO, stated that all cash generated and proceeds from recent bond issuances will be used to pay down debt. The company aims to reduce total debt by over $100 million this year and expects to generate significantly more free cash flow next year, which will also be applied to debt reduction.
Q: What are the expectations for Nabors' EBITDA in the fourth quarter of 2024?
A: Anthony Petrello indicated that international rig startups in the second half of 2024, particularly in the fourth quarter, will drive sequential EBITDA growth. William Restrepo added that the US market is expected to hold up well, with potential increases in activity and slight erosion in gross margins, while international expansion will significantly contribute to EBITDA.
Q: Can you provide more details on the expected rig count growth in the Lower 48 for the rest of the year?
A: Anthony Petrello noted that the customer mix has shifted towards public operators, which now account for almost three-quarters of Nabors' clients. The company expects a modest increase in rig count, driven by consolidation among large operators and new opportunities for Nabors' technology and rigs.
Q: What are the trends in contract durations for Nabors' rigs?
A: Anthony Petrello mentioned that the market is becoming more amenable to term contracts, especially as operators reassess their portfolios post-consolidation. Nabors is looking at opportunities for longer-term contracts to lock in new programs.
Q: When do you expect US drilling margins to bottom out?
A: William Restrepo indicated that while there is still some room for margins to fall, they are approaching convergence with leading-edge pricing. He expects margins to bottom out before the end of the year, with potential stabilization into next year.
Q: What is the outlook for Nabors' debt levels by the end of this year and next year?
A: William Restrepo expects to reduce total debt by over $100 million this year, with significantly better free cash flow next year, which will also be applied to debt reduction.
Q: Are there any notable expiries or churn in international rigs that could impact the rig count?
A: Anthony Petrello mentioned that most international contracts are three- to five-year deals, with recent renewals in Saudi Arabia providing comfort. While there may be some temporary gaps during rig transitions, the overall direction is positive, with significant backlog and visibility for future deployments.
Q: What are the prospects for signing more newbuilds in Saudi Arabia beyond the current 15?
A: Anthony Petrello explained that the newbuild program is part of a long-term policy by Aramco and NDS to industrialize the Kingdom, with plans to add 50 rigs. Nabors expects this commitment to continue, with newbuilds focused on gas drilling.
Q: What is the outlook for Nabors' operations in Argentina and Kuwait?
A: Anthony Petrello highlighted that Argentina's improved financial situation and favorable rig contracts are driving growth, with significant NDS content on Nabors' rigs. In Kuwait, recent rig awards and equipment supply contracts are seen as positive developments, making both countries key markets for Nabors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
