Good day, everyone, and welcome to the H&P Fiscal Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask questions by pressing the star and one on your telephone keypad. You may withdraw your question by pressing star two. Please note this call has been recorded, and I will be sending by should you need any assistance. It is now my pleasure to turn the conference over to Dave Wilson, Vice President, Investor Relations. Please go ahead.

Thank you, Nikki, and welcome everyone to H&P's conference call and webcast for the second quarter of fiscal year 2025. With us today are John Lindsay, President and CEO, and Kevin Vann, Senior Vice President and CFO. Both John and Kevin will be sharing some prepared comments with us, after which we'll open the call for questions. Before we begin our prepared remarks, I'll remind everyone that this call will include forward-looking statements as defined under the securities laws. Such statements are based on current information and management expectations as of this date and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks on our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to publicly update these forward-looking statements. We also make certain non-GAAP financial references, certain non-GAAP financial measures such as segment operating income, direct margin, adjusted EBITDA, and as some other operating statistics. You'll find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsey.

John Lindsey Thank you, Dave. Hello, everyone, and thanks for joining us today. With the KCAD acquisition now complete, we believe H&P is well positioned for the future. This acquisition results in H&P having the largest active rig count in the industry and establishes the company as a global leader with the scale and capabilities needed for future expansion into the premier international markets. It's been a little more than 100 days since the transaction closed and the integration is going well. Taking a long-term perspective, particularly considering the industry's current state, we are very well positioned for the future. Now we must demonstrate that we can execute on our international growth strategy. I want to assure you that is what we are focused on. I want to commend our people. Two legacy organizations have come together as one team and are delivering significant value for customers. There are some noteworthy headwinds facing the industry, stemming from several factors, including OPEC Plus production increases and US tariff initiatives that have created global economic uncertainty. Even so, we remain bullish about the long-term outlook for oil and gas markets and believe demand will continue to increase over time. The oil and gas production decline curve continues, and the only way to maintain and grow production is by drilling more wells. H&P is the most efficient driller in the U.S., and we plan to demonstrate we can do the same in international markets. I believe that our rigs, technology, people, and commercial models drive the best outcomes for our customers, and our differentiated solutions will drive our success in the future. Next, I'll spend a few minutes reviewing each of our operating segments. Our North America solutions segment remains resilient, as our customer and operational performance focus and best-in-class execution allowed us to maintain a steady rate count and realize margins that were better than our expectations going into the quarter. Looking ahead, we expect softer oil prices will lower the industry rate count as market volatility overrides any potential incremental demand. Over 50% of our customers continue to prefer performance-based contracts and technology solutions remain a critical component of our overall contracting strategy. Our technology solutions are focused on automating processes that were previously more manual operations. These technologies drive greater efficiency, safety, and reliability for our customers. The combination of performance-based contracts and technology solutions offer advantages for both our customers and H&P by providing a mutually beneficial value proposition. Kevin will give more details in his remarks about our North America Solutions financials. Our international solutions segment reflects the inclusion of the legacy KCA DOJTAG operations, and our team is working diligently to fully integrate international operations into a single cohesive business unit. We believe the combined cultures of performance, discipline, and customer focus coupled with learnings from our North America solutions experience, including our technology and commercial models, position us for success over the long term. During the quarter, we experienced challenges in our Saudi operations with startup delays with the legacy H&P flex rigs, which we believe have now been mostly resolved. The additional rig suspensions in the legacy KCA fleet were impactful as well. On the positive side, we have already started to reap the benefits of the expertise, infrastructure and scale of the legacy KCAD operations in Saudi. It is gratifying to see the strong partnerships with customers we have in our international solutions business. In my recent visits to RIGS and the countries where we operate, I am confident that in the future H&P can grow the business. In discussions with customers, it's become evident that there is a strong demand for the operational excellence, safety, and technology solutions that H&P delivers, despite near-term softening in the industry. Given the current outlook, direct margins in the international solutions segment in the third fiscal quarter will fall short of where ultimately we want to be. Our teams are working closely with our customers, and we do expect to see improvement in the results on a sequential basis as we continue to progress our integration efforts, especially in Saudi. We have a laser focus on getting this right, and Kevin will go into more details about what is driving our Q2 results and Q3 outlook. Now looking at our offshore solutions segment, which continues to produce strong and steady cash flows. H&P's legacy offshore experience dates back more than 50 years, and the inclusion of the legacy KCAD fleet has added significant scale and geographic expansion to our offshore segment. Together, we are the largest global offshore operation and maintenance partner in the world. Our offshore solutions segment delivers drilling solutions, workovers, P&A, and rig modifications and asset management on platforms and jackups. ACA's first offshore contract started in 1972 in Norway. Our offshore business has low capital intensity and a blue chip customer base that we are very familiar with. And it's encouraging to see the growth opportunities emerging again in this segment of our business. In closing, having successfully accomplished the important strategic objective of expanding internationally, particularly to achieve scale in the Middle East, we are now entering the phase of enhancing value and performance for our customers and shareholders. For our customers, this means prioritizing safety, drilling efficiency, and reliability, which in turn drive financial performance for our shareholders the oil and gas industry has always been cyclical and likely will remain so but H&P has always been adept at navigating these cycles and coming out stronger on the other side throughout our 105 year history the company has faced many challenges in the industry and the enduring imperative is always to keep our core businesses performing well. In the upcoming quarters, we will focus on realigning our cost structures, securing value add synergies, and reducing debt on our balance sheet. We are extremely optimistic about the future and our ability to scale in the most prolific oil and gas producing regions in the world, while also acknowledging that there may be temporary growing pains. And as I said previously, now we must demonstrate that we can execute on our international growth strategy. Before turning the call over to Kevin, I want to express my gratitude for the effort our people have put forth over the past year. With the acquisition and continuing to run the day-to-day, everyone has worked very hard. The H&P organization is comprised of loyal and talented individuals whose dedication and support and focus on our customers are the key ingredients to our success, and I want to thank them. And now I'll turn the call over to Kevin.

Thanks, John. Today I will review our fiscal second quarter 2025 operating results, which includes a partial quarter from our expanded international and offshore businesses resulting from the close of our KCA deacquisition in January. Provide guidance for the fiscal third quarter, update remaining full-year 2025 guidance as appropriate, and finally comment on our financial positions. Let me start with a few highlights. The company generated quarterly revenues of just over $1 billion. Total direct operating costs were $702 million, and general and administrative expenses were approximately $81 million for the quarter. Our G&A cost included one-time charges associated with the Voluntary Early Retirement Program. Gross capital expenditures for our second quarter were $159 million, which was in line with our expectations as the program was more heavily weighted to the front half of the year. Second quarter cash flow from operations was $56 million, which was negatively impacted by significant non-recurring transaction-related one-time costs in addition to some working capital challenges with our unconventional startup business in Saudi. However, we expect future quarter's cash flows to be more reflective of our underlying business as those costs and issues have been substantially resolved. Turning to our three segments, beginning with North American Solutions, we averaged 149 contracted rigs during the quarter, which is right in line with the rig count for the quarter. The exit rig count was 150, which was within our guided range of 146 to 152. Revenues of $600 million were essentially unchanged since the first quarter. Segment direct margin was approximately $266 million, which was a bit stronger than the first quarter. The realization uplift from performance-based contracts continued to enhance our margins and provide additional value to our customers utilizing them. This alignment of customer incentives and our performance resulted in industry-leading margins. In addition, over half of the U.S. active fleet is on a term contract. Our international solutions activity ended the second fiscal quarter with 76 rigs working, with approximately $4 billion of contracted drilling backlog. In Saudi, our flex rig unconventional startup is nearly complete as seven rigs are currently working, and the eight should commence operations any day. As a whole, our international solutions business generated a direct margin of $27 million. As John indicated, the RIC suspensions in Saudi had a large negative impact on the quarterly results. To that effect, we are aggressively reviewing and taking action to minimize our operational costs and to quickly and effectively integrate the resources, ideas, and expertise that we now share across KCAD and HMP operations. Finally, to our offshore solution segment, which generated 26 million indirect margins, We are very pleased with the performance of our steady and stable offshore business, which has current backlog of $2.5 billion. Much of this business was required through the KCAD acquisition, which included asset light offshore management contract operations located in the North Sea, Angola, Azerbaijan, and Canada. Looking ahead to the third quarter of fiscal 2025 for North American Solutions, we expect to average between 143 and 149 contract rigs. Revenue backlog from our North American Solutions fleet is roughly $700 million for rigs under term contract, which is consistent with where we were at the end of the first quarter. $500 million of this total will be recognized in our fiscal year 2025 with a balance in 2026. Again, we are focused on providing customer-centric solutions and believe direct margins in Fiscal Q3 to range between $235 and $260 million. As the broader energy industry continues to face the near-term headwinds associated with commodity pricing and potential cost increases associated with tariffs, we will remain focused on providing our customers with mutually beneficial performance incentives and innovative technical solutions. As we look toward the third quarter of Fiscal 25 for International, as we mentioned in the price release, we expect direct margins from our international solutions to be between $25 and $35 million, exclusive of any foreign exchange gains or losses. Further we expect the average rig count to be approximately 85 to 91 contracted rigs, of which 68 to 74 are expected to be generating revenue. Again, we are managing the impacts of the rig suspensions and believe the Saudi flex rig startup costs are substantially behind us now. We are integrating the best possible outcomes associated with legacy KCAD operations and the unconventional startup. This includes operations, people, processes, technology, and systems. Coming out of these near-term headwinds, we will be positioned to be a leading provider of drilling services in the Middle East. Now turning to guidance for our offshore solution segment, we expect to generate between $22 and $29 million in direct margin in the third quarter, with average management contracts and contracted platform rigs to be around $30 to $35. Outside of our core operating segments, we do have some businesses that generate direct margin, and collectively, those are expected to contribute between $2 and $5 million in the third quarter. Now let me update full year fiscal, full year 2025 guidance items. As I stated earlier, our CapEx spend was weighted to the front half of the year and fully expected to moderate now for the balance of the year. As such, we are still estimating capital expenditures for the full fiscal year to be between $360 and $395 million. Just to remind you that last quarter we were unable to provide a good projection for depreciation expense as the initial allocation of purchase price for KCAD had not been completed. Now that the initial assessment has been finalized, we are projecting depreciation expense to be around $595 million for the full year. For general and administrative expenses, with the addition of KCAD numbers, we still expect the full fiscal 2025 year to be approximately $280 million. As we have discussed, we are already capturing some synergies post-close of acquisition and have identified additional cost savings that will put us in excess of the original $25 million by 2026. As we get deeper into integration, the opportunities not only for commercial opportunity expansion but for cost reduction continues to materialize. We are also evaluating broader cost reductions across the enterprise and have a line of sight on $50 to $75 million in total 2026 run rate savings between synergies and other permanent cost reductions. We are still projecting a fiscal year 2025 cash tax range of $190 to $240 million, which includes additional taxes resulting from the expanded international business. And lastly, nothing has really changed in regards to interest expense, and we are projecting around $50 million for the remainder of the fiscal year. Now looking at our financial position, H&P had cash and short-term investments of $196 million at March 31st. With our undrawn credit facility of $950 million and the remaining cash on hand, we have adequate liquidity to not only cash-efficiently fund the 2025 operations, but continue to generate ample cash to fund our base dividend and pay back the $400 million term loan. As a matter of fact, we are anticipating that by the end of this calendar year, we will have repaid at least $175 million on it. H&P maintains an investment-grade credit rating. We have a long history of responsibly managing our balance sheet and balancing the interest of debt and equity holders. We will continue to do so. Yes, the markets are murky right now. However, collectively, this leadership team has lived and managed through the turbulent energy markets for decades now. We won't let the grass grow under our feet watching them unfold around us. And with that, I'll turn it back to the operator to open it up for questions.

Thank you. At this time, if you would like to ask a question, please press star and one on your telephone keypad. You may withdraw your question by pressing star 2. Once again, to ask a question, please press star and one on your telephone keypad. We'll take our first question from Keith McKee with RBC. Please go ahead, your line is open.

Hi, good morning and thanks for taking my questions. Maybe just to start out on the international, what is your sense of the Saudi market today? I know there were some suspensions this quarter. Do you think that the suspension cycle is primarily complete or is there likely some additional actions to be taken there I wish I could say for certain what what

you know we don't have direct insight into that I mean we have had some conversations and and at least at one point it it seems like that you know the suspensions were were behind us we just don't have any clear insight into that I I wish I could give you some better clarity into that. One of the things that we have seen in the past, and of course we weren't working in Saudi then, but obviously the KCA employees were, and if you just go back to 2015 timeframe, 2020 timeframe with COVID, there were rig suspensions then, and again, I think just based upon how the market was then, it was a very dramatic drop in a much different environment than what we see today, but nevertheless, there was still a need to pull back on spending and rig count, particularly in the oil markets. So I say that because what we do know is that there's a track record of having suspensions and then rigs going back to work. So obviously that's no guarantee, but I do think that at least, you know, again, what we hear from Aramco is that, you know, this has happened before. And over time, rigs will go back to work. We just don't know when, you know, at this particular time. And as far as additional, again, we've seen the same thing. We've seen, you know, one or two here along the way, different contractors, but really don't have a sense for if they're finished or not at this point.

Okay, fair enough. And maybe just to follow up on the international, you've given Q3 guidance, which looks like there's some impact of some more suspensions or the recent suspensions coming on, but also some of the legacy HP rigs starting up. um can you just give us a bit of a sense of how that dynamic should play out for fiscal q4 i would imagine that if the suspension impact you know full impact is felt in q3 of what you know today and then you start to get the uh the benefit of the the legacy hp rigs then q4 should be set for a decent inflection in in margins for the international but can you just maybe give us a little bit more color on how we should think about those pieces. This is Kevin, and I think

you're right. I think, you know, if you look at our legacy, unconventional startup operations in Saudi, you know, again, as I mentioned earlier, we're still waiting on one rig to be operational any day. But if you think about the third quarter, not all, some of those rigs were coming online. So for the third quarter, you're really not going to see the full impact, the full operational mode for those eight rigs until the fourth quarter. So, to your point, you should see a pretty good positive inflection by the time we get to the fourth quarter and how much revenue per day those rigs are going to be contributing to the overall international kind of EBITDA stream. And then on the rig suspensions, I believe at 331 at the end of the second quarter, we were still operating of the 17 total rigs that have been suspended to date five of those have were still operating as of 331 so you're going to see during the third quarter that start to come down more but then again assuming and again obviously as john said it's a it's a big assumption but if there were no more rig suspensions then you should see that kind of flatten out and see the full impact, but, you know, offsetting some of the revenue reduction there, as we've mentioned a couple of times so far, is that really the cohesiveness and the integration of the legacy KCAD operations team with the FlexRig H&P legacy startup team, we're starting to see that catch stride and minimize and reduce some of the cost and just how they navigate operating in country. And I think by the fourth quarter, you'll really see a start to catch a stride there too, not only on the flex rig side, but just how we're managing cost and sharing

resources. Yeah, I think that's really good comments, Kevin. And as you think about the delays, there's no doubt some of the delays have been in our control, but there's also been a lot of delays that have just been completely out of our control that have caused some of these later spud dates than what we were expecting. But the teams are definitely getting some momentum, and as Kevin said, I feel good about where we are and where we're heading. And again, we're all pushing very hard, as I said in my comments, to make certain that we get, you know, we get those rigs earning at the level that they should. I appreciate the comments.

I'll turn it back. Thank you.

Thank you. Our next question comes from Mark Bianchi with TD Cohen. Please go ahead. Your line is open.

Hey, thanks. Chris, maybe just quickly, since we were talking about the flex rigs in Saudi, can you refresh us on what the ultimate contribution should be from the eight rigs once we're sort of behind all these startup costs and, you know, what the run rate ought to be?

Yeah, and what we've historically told people is around, let's call it full year, $25 million a year. I think that number could go up or should go up given, again, just some of the synergies operationally that we're going to be able to leverage from the historical legacy KCAD team. Again, we're already identifying other ways to kind of reduce some of the in-country overhead that's there. And so, you know, I think that number could go up, but what we've been telling people is somewhere around $25 million for those eight rigs.

Great. And then I guess, so Keith kind of asked a question on international and about sort of what the exit rate and how 4Q could look like. And, you know, if we talk about the other two segments for North America and for offshore, we've got average lower in fiscal 3Q, which would suggest that the exit might be even lower than that. Can you kind of talk about, you know, where the outlook is for June in those segments from an activity and margin perspective and how we should be thinking about that progressing beyond June?

Well, Mark, I'll start with North America solutions. I mean, as you can imagine, we're in constant communication with our customers trying to understand their needs. Obviously, oil prices are lower than what our expectations were three months ago. And, you know, as you've seen, there have been releases from some customers, or at least announced releases, you know, rig here, two rigs there, just trying to balance budget. But I do think that, you know, what we see as a positive, again, depending on the macro, is that our partnerships are strong. We continue to have very strong conversations with our customers. And we have a lot of belief that if the commodity price will hang in there, then we'll be in good position. But the reality of it is that's another one of those areas that we don't know. We know customers want to continue to reduce costs of their wells. We're doing that with, you know, working very closely with our customers to help them do that. A lot of that is through performance-based contracts and deploying technology, and that's obviously delivering a lot of value. What would you add?

I think that, yeah, and you mentioned June. I mean, obviously, given that we're at May 8th now, we've got a pretty good line of sight on what April and May are going to look like based upon our internal estimates. June for the third quarter is a little bit of the wild card just because it would be kind of silly not to at least moderate our expectations for June given everything that you're seeing, we're seeing, the whole market's seeing in regards to what the potential impact is going to be on activity because of lower pricing, could be higher cost depending on all the uncertainty around tariffs. And so we felt like it was the prudent thing to do is kind of moderate our guidance a little bit until some of this kind of clears the air. So, you know, June, again, as John mentioned, we're going to, we're working with our customers to figure out what's the right solutions given their activity levels. But, you know, it's difficult for the EMPs and our customers just to slam on the brakes immediately. But we're going to work with them on kind of what makes economic sense in their portfolio to make sure that they're meeting their objectives and allow us to meet our objectives as well. On the offshore front, we're still chasing new business. We really like that business. It's a little bit lower margin, but it's really steady. And we've got some, as John mentioned, blue chip customers that we continue to have discussions So, yeah, it may be a little bit moderated toward the lower end of where we landed for the second quarter was a little bit toward the lower end of our guidance range, but we still think it's pretty healthy there. But again, we're working with customers on where they might potentially add activity. But again, oil prices being another, global oil prices being kind of another moderator of until some of that clears through the system, we don't exactly know how all those contracts and new business might play out. Okay. Thanks, guys. I'll turn it back. Thank you.

Thank you. Our next question comes from Eddie Kim with Barclays. Please go ahead. Your line is open.

Hey, good morning. John, you mentioned that softer oil prices will likely lower the industry rig count in the U.S. land market. The rig count currently stands at about 570 rigs or so today. If oil prices stay at this kind of $60 a barrel level for WTI through year-end, do you think we could maybe see about 20 or 30 rigs come out of the market? I just wanted to get your thoughts, your early estimates on kind of magnitude of rig count decline if oil prices stay at current level.

Well, Eddie, you know, we were waiting for the OPEC Plus announcement. We got that. there have been at least some responses from some U.S. E&Ps. Again, it sounded to me like that their release counts were very modest, very, you know, on the low end. And so it's very hard to say whether it's 20 or 30 rigs. I mean, I think your guess is as good as any one's. You know, at least in my experience, you know, the oil price needs to be at a level for some period of time. So if oil were to stay in the 50s for a period of time, I think we would have some a little bit longer, you know, longer term implications. But right now, you know, again, we talk about this internally. We've talked about it on previous calls. A few folks over time have said, hey, we're in a downturn. Well, we're really not. We haven't seen this. It's not a downturn environment. It's definitely we're seeing some correction and there's some volatility. We were hopeful that we would see more activity coming up on the gas side. I think there is some gas work that's upcoming. Most of the challenges are in the oil markets. But, you know, we don't have an actual number in mind on what we're modeling. I think it's very hard. Obviously, what we're most focused on is our customers and our rig count and how we're maintaining, you know, our count and how we do that. Of course, as we've said before, it's through performance, being the safest contractor, the highest-performing contractor, and then deploying technology solutions that are really a differentiator. So I wish I could give you a direct number, but I don't think anybody can. I think at this stage it's too early to determine what that rig count number is going to be.

Yeah, understood, understood, and I understand that.

And I'll add just, I mean, if you look at the forward oil curve, I think that's sending the market a message that they believe this, you know, and again, there's a lot of factors that will influence ultimately where 2026 ends up trading on a spot basis. But the forward oil curve being in Catango tells you that how much of this is being driven in the short term, but the fundamentals would still tell you that there is going to be, that demand is going to be there for oil. And there needs to be, basically, the energy industry needs to be ready to supply that. I don't know. you know, you look at what Saudi has done with these rig suspensions. At the same time, they're adding oil into the market. It's a little bit of a mixed message just in regards to how do we as a drilling company stand ready and poised to be able to respond to that. But I think the market is telling us that at least right now, even though the oil prices are kind of at that inflection point where you're going to see some drop in activity, still seems to be that there's this right skew perception that there's going to be that demand and we need to be ready in order to deliver the demand, deliver to meet the demand. Understood. Thanks for that caller. And yeah,

fully appreciate that the crystal ball is a bit murky right now. Just shifting over to the KCA DOITAC suspensions, and apologies if I missed this, but last quarter you mentioned, I mean, all these suspensions are one year in duration and the first rig was suspended back in August. At this point, do you expect that first rig that was suspended to resume work in about three months here, or do you think it's probably more likely that that suspension gets extended for a few more months, just given where commodity prices are today?

We don't have any indication that those first rigs are going to go back to work in July, August timeframe we also don't know that you know that that it could happen but we are we are not having discussions right now I mentioned earlier I don't know if you were on the call but what we do know about the suspensions is that you know Saudi Aramco has done this before through the cycles and they suspended rigs and suspended rigs went back to work I don't know what the timeframe was I'm sure they were one year suspension period then I did not ask that question but there is a track record for this process and the the rigs have gone back have gone back to work in the past so that that's really our expectation and about the best we can do right now in terms of trying to understand what the you know what the future looks like in terms of reactivations got it

understood thank you very much i'll turn it back thank you our next question comes from

david smith with peaker and energy partners please go ahead hey good morning it's just a

quick housekeeping question i just had a quick housekeeping question the the full year guidance for SG&A. The 280 implies a decent step down in the fiscal second half. So, I just wanted to ask how you see the fiscal Q4 exit rate for SG&A and maybe how we should think about the future run rate with the currently contemplated synergies. Yeah, I'll contemplate on the future run rate.

I mean, again, as I mentioned earlier, we have a pretty good line. Most of the synergies and permanent cost reductions that we have talked about are really in the form of GNA. There's going to be other cost savings that come in the form of operating cost. Given the tariffs, the supply chain synergies that we were once looking at, they're a little, with that fluid situation, they're a little bit more uncertain at this point. And so once that tariff, once some of this tariff nomenclature clears the system, we'll be able to put our pencil back to the paper on supply chain synergies. But most of the synergies that we're talking about now in permanent cost reductions, I think we'll be somewhere in that 50 to 75 million for full year fiscal 2026 run rate, lower G&A. In terms of the run rate, kind of the exit rate for gna for the fourth quarter uh let me do a little bit of math and i can get back to you on

that one day very much appreciate it but sounds like it's it's fair to say the higher synergy estimate does not include savings uh from from lower costs on the suspended savvy rigs

that's correct perfect thank you very much thanks david thank you we will move next with Wakar Zayed with ATB Capital Markets. Please go ahead. Thank you.

John, you know, your goal is eventually to provide the same kind of operating performance on international rigs that you've been doing domestically in the U.S. market. Now, as you proceed towards that goal, do you think that the rigs that you acquired from KC they're ready for that or would you need to apply some capital to that, make some changes, add some technology?

Well, Kar, you know, we're really talking about two completely different markets and starting points. You know, you really have to go back. Let's think about FlexRig performance today and, you know, 10 years ago, 10 years ago, 15 years ago, in deploying the FlexRig capability, and of course, that was an unconventional. Most of the work that we have internationally is conventional work, so there are some differences, but I do believe that our performance culture, process excellence, we're already working on ways to deploy some of our technologies to rigs. The great news is we have customers that have interest in deploying technology and doing more. So it's a long game. It's going to take a really long time, but I think there are some immediate benefits for customers that are going to position us to grow the business in the future. Hopefully that helps.

That helps. And then secondly, you know, as we look, I think the view that's developing is maybe you get like 30 to 40 net decline in RICs in the coming months. In that kind of environment, Do you see some pressure on day rates in the domestic market? And maybe if you could talk about some supply-demand fundamentals for super spec rigs. You've got some neat data in the presentation. Maybe you could talk about that?

Well, if you just think about the super spec market in general, it's very tight. And the rigs that have – so it's one thing to say what's the total available Superspec fleet in the U.S. Well, that's a much larger number than the rigs that are working today, but you have to consider the rigs that have been idle for really over two years, three years. So, the rigs that have been active recently is not much more than the 580, you know, that you mentioned. So, I do think that it's a relatively tight market. I mean, let's face it, we continue to have conversations with customers. We've seen other drillers and, you know, there's been some softness in pricing. At the end of the day, we're working very closely with our customers and trying to drive the best value proposition for them. Our belief is you don't get to lower costs with low day rates. You get to lower costs by having the most efficient rigs, the highest technology, and delivering fewer days per well, which really impacts the cost side of the equation. So your reference to 30 or 40 rigs, as we said earlier, it's clearly possible. We don't see that right now. There have been, again, some publicly announced releases of rigs in the U.S. with some of the E&Ps reducing their rig count for budgetary reasons, and that's all very understandable. I haven't heard of anything else past that. Kevin, you have anything, anybody?

No, I think that's fair. I mean, again, if you look at that, I think you're referencing the slide that we have in our deck, and there's a high degree of utilization of super spec rigs based upon ones that are available to go into use, I forget what, call it upper 80s in terms of the current utilization, right?

Yeah, so it's, you know, this cycle, this one is very different than other cycles that we've had in the past and in my career, and again, we've been flat activity, we at H&P have had in this range bound 145 to 155 for almost two years. And that historically hasn't happened. And so again, you've got a fleet of rigs that have been idle for some period of time that aren't going to be able to go back to work anytime soon. So that creates the working fleet being at that 80% plus activity level, utilization level, and that historically has supported stronger pricing if you look at it from that perspective.

Makes sense. Thank you, sir. Appreciate the color.

Thank you.

Thank you. Our next question comes from Doc Becker with Capital One. Please go ahead.

Thank you. John, several of the offshore joint contractors have moved their suspended jackups to other markets. There definitely seems to be pockets of some strength in the Middle East. Are there prospects to relocate some of the land rigs currently in Saudi Arabia to other markets in

the Middle East? If you look at it on a longer term basis, absolutely. If there was a situation where some of these rigs don't go back to work, then yes, there would be the opportunity to move to other neighboring countries in the Middle East. And, you know, we've got a nice operation in Oman. We've got a nice operation in Kuwait. You know, there's some other potential opportunities. I mean, we know it's possible. We're sure not making plans for that, but you're right. There have been offshore rigs that have left the region and have gone other places.

we have that same capability. And switching to the U.S., curious if there's potential to see the percent of performance-based contracts increase, and just the thought being that if a customer wants to see a lower headline rate in a declining activity environment, that might be a win-win situation where you can provide a lower headline rate but still maintain your margins. Do you see potential for that or just kind of think about it as the 50% level it's been for a while?

Well, you know, I think we've been in this 50 to 60% range for a couple of years now. The good news for us at H&P is we continue to have customers adopt performance-based contracts, and every customer is a little bit different in how they, you know, design the performance-based contract, but, you know, there's clearly a time element. There's other KPIs that are involved, but at the end of the day, as I said a few minutes ago, if we can reduce a day on the job then that's a large cost improvement and so being able to do that is beneficial and then I think even more important that we hear from customers day in and day out is what's most important is the reliability component, the ability to do that well after well after well, not having the outlier wells. And that's where technology solutions enhance that capability. You know, I've talked about in my remarks, you know, essentially our technologies are removing some of the human element, the daily human interaction with directional drilling as an example. and we're using software to directionally drill as opposed to a human making a decision on guiding the well. And those sorts of things, as you can imagine, as a 24-hour operation, that provides some significant advantages to us and to our customers in the ability to do that. So, you know, I think there's a lot of opportunities for that, and you combine those technologies with a performance-based contract. you're driving greater reliability. Again, we've described it as being mutually beneficial for us and our customer. And, you know, at the end of the day, that's what we want. We're making big investments in our fleet. We're making big investments in our technologies. And we, you know, again, like our customers, we just want to get, you know, make a return

on those investments but it sounds like no reason to expect a particular

increase in those contracts more we are we are always pushing we are always pushing to go that that direction so don't don't hear me say it's not possible I just don't have it you know clear clearly in in sight we don't we haven't we don't see that in the in the near-term outlook but I wouldn't say that it wouldn't or couldn't happen.

And I would add that H&P, since we've been doing performance-based contracts for several years now, the internal competency that we've developed across all various facets of the organization, it definitely differentiates us in regards to, because these contracts aren't easy, they're not, you know, they require some negotiation. I say negotiation, it's working with our customers to figure out what's the right blend of KPIs and other things that they want, but then it's also being able to administer it from a back office perspective, and we've got five years of doing it. So, I think that's key.

Makes sense. Thank you.

Thank you. And we will take our last question from Jeff LeBlanc with TPH. Please go ahead. Your line is open.

Good morning, John and team. Thank you for taking my question. I wanted to clarify, are you saying that you're making pricing concessions today or are you willing to seed market share in a maintained margin?

Well, we're not, you know, we're not, well, our market share has grown and our pricing is, you know, again, it's market-based pricing and we're having discussions with customers every day. And so I think just by virtue of our guide, you can see that we're forecasting both fewer regs and some pricing reduction just as a result of the market. But again, at times, depending on the quarter, we'll have an increase in margins due to our performance-based contracts, and that's difficult to sometimes predict. Do you have any additional questions?

No, and I think that's what, you know, if you look at the guidance we gave last quarter and where we came in with margins, you know, it's a constant, our sales and marketing team are in constant discussions with our customers about what makes sense. And, you know, again, we're going to continue to push for performance-based contracts where it makes sense for our customers. Because as John mentioned, it's not about the single well. It's about a 10-well program and making sure that you don't destroy the economics for the 10-well program because you have two really bad wells, but the other eight could have been done cheaper, you know, if you were to be utilizing something other than a performance-based contract. They're looking at the well economics across all 10 wells. And so, you know, it's fluid, but, you know, we've got a lot of headwinds right now that our sales team is working with our customers collectively. It's an energy industry problem and not just a drilling services problem. We just need to make sure that we're working with our customers as partners.

Yeah, Jeff, the reality is we acknowledge that there's pressure. I mean, there's pressure across the whole energy value chain to lower costs. We're going to continue to work very closely with our customers. We've got to understand their needs. Again, it comes back to being customer-centric and making certain that we're helping them deliver on their goals. And that's one of the key elements of our differentiation, our differentiated offering. And so, again, we're going to continue to work very closely with our customers and, you know, try to continue to deliver the value proposition that we're delivering. But, again, we recognize there's a lot of pressure in the industry. There has been now for a couple of months.

Thank you very much for the call. I'll hand the call back to the offering.

Thank you. And these will conclude our Q&A session. I will turn the call back to John Lincey for closing remarks.

Thank you. Again, thanks for joining us today. I've mentioned this, but just to reiterate, we believe the acquisition of KCA is a game changer for our business long term. Overall, the integration has gone well. Of course, we're continuing down that path of integration. I have been very pleased to see customers' excitement about the future, both IOCs and NOCs that we're working with today. There are some macro headwinds that we've talked about that are slowing some of that progress. But, you know, we're bullish on energy long term. You know, obviously, there's a lot of predictions out there that energy demand is going to continue to grow. There's thousands and thousands of wells that are going to need to be drilled globally for years to come, and I believe that we're very well positioned to take advantage of that opportunity globally. As I said earlier, we're taking a long-term perspective, particularly considering the industry's current state. We think we're positioned well for the future. We also, again, I want to stress it, we also must demonstrate that we can and will execute on our international growth strategy. That's our plan. We've deployed new technologies and new commercial models and all sorts of things over the years, and we've been very successful. I want to assure you that we are continuing our focus on that. So thank you again for your interest, and have a great day. Thank you.