Good day, and welcome to the Nabors First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you for joining Nabors' first quarter earnings conference call. Today, we will follow our usual customary format with Tony Petrello, our Chairman, President, and Chief Executive Officer, and William Restrepo, our Chief Financial Officer, providing their perspectives on the quarter's results, along with insights into our markets and how we expect Nabors to perform in these markets. In support of these remarks, a slide deck is available, both as a download within the webcast and in the Investor Relations section of nabors.com. Instructions for the replay of this call are posted on the website as well. With us today, in addition to Tony, William, and myself, are Siggi Meissner, President of our Global Drilling Organization, and 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 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to risks and uncertainties, as disclosed by Nabors from time to time in our filings with the Securities and Exchange Commission. As a result of these factors, our actual results may vary materially from those indicated or implied by such forward-looking statements. Also during the call, we may discuss certain non-GAAP financial measures, such as net debt, adjusted operating income, adjusted EBITDA, and 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 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 measures. Now, I will turn the call over to Tony to begin.

Good afternoon. Thank you for joining us as we review our results for the first quarter of 2020. Our format this morning will diverge somewhat from our usual. I will begin with comments on our actions in light of the current environment. Then I will follow with a discussion of the markets, our results, and the outlook. William will follow with the financial highlights, and I will then wrap up. Let me begin by commending our team for its tireless efforts to ensure the health of our global workforce, and to maintain the continuity of our worldwide operations. Our primary focus has been to protect the safety of our employees and our rigs, at operating locations, and in our offices. The Coronavirus pandemic has presented an extraordinary challenge to the global population and economy. At Nabors, we mobilized our worldwide crisis response team early on. The quick actions and detailed preparations of the Nabors crisis management team, in close cooperation with customers and local authorities, have minimized the impact for our people and the business. To date, we have experienced fewer than 10 cases among our 14,000 employees. The current business environment, with significant demand destruction resulting from the fast-striking pandemic, is without precedent. The now interrupted battle for market share between two leading oil exporters exacerbated the drop in oil prices over the past months. Our customers in the U.S. have reacted swiftly and decisively, cutting activity deeper and faster than we have ever seen previously. These sharp reductions and the current uncertainty on the duration require equally swift and decisive actions by oilfield service providers. Nabors is no exception. We have seen several deep downturns before. We have proven experience managing sharp declines in activity by lowering costs and navigating through the additional challenges posed by deteriorating capital markets. In line with the reduction in drilling activity, we have put in place the normal reductions in variable costs. In addition, we have implemented a number of specific actions targeted at materially cutting our overhead costs and supporting our free cash flow. These actions include, first, several actions related to our fixed cost structure. We have adjusted our corporate structure, temporarily reduced compensation throughout our company, and right-sized our field support organization. We expect to realize savings of $85 million over the remaining three quarters of 2020 from these actions. Second, in late March, we announced a reduction in 2020 capital spending, totaling $75 million below our 2020 plan. That brought our estimated annual CapEx to a range of $275 million to $295 million. We are now targeting additional cuts of $45 million that will take our 2020 CapEx to $240 million. This compares to $428 million in 2019. Lastly, the management team made a recommendation to the Board of Directors to suspend the dividend paid on common shares. This suspension should save over $7 million for the balance of 2020, and double that amount annually. As mentioned, all of these actions are aimed at mitigating the impact of lower industry activity on our financial results, while supporting the generation of free cash flow and our targeted reduction in net debt. Our strategy focuses on technology automation and integration. We aim to generate additional value for our customers, while delivering higher margins and reducing capital intensity. This combination improves our competitiveness and enables us to generate free cash flow, even in difficult markets. In summary, we are significantly better positioned today than we were approaching the 2015 downturn. Among the most significant initiatives, we improved our competitive position in the Lower 48. We invested in innovative and cost-efficient rig designs. We now have a fleet of the industry's highest specification rigs. Just as importantly, we invested in systems and processes, which have generated industry-leading drilling performance, and we have led the market in the development of drilling automation software. These actions have helped us strengthen and expand our relationships with our customers. This translates into enhanced revenue opportunities, improved margins, and more resilient market share. We have also expanded the breadth of the NDS and Canrig service and product lines with the acquisition of Tesco. The addition of this higher return, lower capital intensity portfolio improves our penetration with customers. Our track record in these businesses adds to our competitive leverage in the current market. Our SANAD joint venture in Saudi Arabia increased the unique alignment of interests between Nabors and the world's largest energy company. This alignment should continue to prove beneficial to the JV, especially in the current environment. Finally, we made significant progress in liability management. In the last few months, we effectively pushed out the maturity of approximately $1 billion of our debt by more than four years. We also amended our revolver with more relevant terms to provide us with more flexibility. All of the above actions create a foundation for moving forward through today's challenges. We intend to aggressively add to our playbook to manage the impact of this downturn and to emerge as an even stronger company. With that, let me now touch on the macro environment. At current commodity prices, industry-wide activity is stressed severely. In the Lower 48, operators have reduced activity sharply. The rig count decline only began in earnest in the back half of March. Since then, the decline has accelerated, as announced capital spending cuts by operators start to take hold. From beginning to end, during the first quarter, the Lower 48 industry land rig count declined by 73 rigs or 9.4%. The rate of decline has increased substantially since the end of the first quarter, with steep decreases in active rigs through the last week. In our international markets, activity has held up better, despite disruptions from the pandemic. These disruptions are particularly acute in Latin America where some governments have imposed strict lockdowns. Historically, volatility internationally has been lower than in the Lower 48. However, we expect that this unique combination of both demand and supply challenges will have some impact on international markets. I will conclude my comments on the macro with the following. This current combination of supply and demand challenges is unprecedented in its magnitude. In the short term, the industry will suffer a painful hangover from the extraordinarily high levels of oil inventory. With the global economy beginning to resume activity and operators holding back or shutting in production, we will begin to work off these excess inventories. At the current time, it is just too early to state with confidence when we will emerge on the other side. We believe in markets, and the problem will be fixed. But in the meantime, we will keep managing ourselves through these challenges with the playbook outlined above. Next, I will summarize our results. First quarter adjusted EBITDA of $188 million held up well, despite the reductions in U.S. activity. Our Lower 48 average rig count declined by approximately eight rigs. Daily gross margin declined by $327 to just under $9,900. This reduction was due primarily to costs relating to the maintenance of our rigs, as activity declined sharply towards the end of the quarter. Our revenue per day, before reimbursable expenses, held steady compared to the fourth quarter. In our international segment, adjusted EBITDA decreased by about $5 million to $92 million, roughly in line with expectations. Rig count was stable, as deployments in Mexico and Kuwait were offset by lower rig count in other Latin American markets. International results were impacted by excess startup costs on the commencement of a couple of deployments in Russia. In addition, temporary virus-related lockdowns resulted in reductions of approximately $2 million. In our other segments, Canada improved, reflecting its usual seasonal pattern. Drilling solutions adjusted EBITDA declined by $5 million to $19 million, reflecting the drop in U.S. drilling activity, which affected both volume and pricing, particularly involving third parties. Rig technologies declined, as equipment and aftermarket sales weakened. Now, let me discuss our view of the market in more detail. At the end of last week, the Lower 48 land rig count stood at 389. That is down by 385 rigs since the end of last year, a 50% decline. In comparison, Nabors' rig count has declined by 38% over the same time period. We think our advances in technology and systems have solidified our position as the leading performance driller. So far, this relative outperformance in the rig market supports that premise. We have spent significant time trying to understand the plans for our largest Lower 48 customers. Currently, these clients account for more than 75% of Nabors' rig count. Among these clients, based on our latest information, we are targeting our market share to increase from approximately 18% to above 20%. This increase in share should help us cushion the expected reduction in rig count. At this point, all of our working rigs are high-spec. The increasing concentration of our working fleet at the top end of the market has supported pricing and rig margins. We expect that support to continue, even with the recent decline in market utilization and downward pressure on rates. In our international markets, industry rig activity has proved more stable than in the Lower 48. However, we expect the continuing disruptions related to the virus, as well as low oil prices, to affect drilling activity materially over the coming quarter. In the other segments, we see growing interest in our advanced technologies in drilling solutions. But the declining rig count and pricing reductions are challenging. Notwithstanding that, we expect our penetration to continue to improve as customers embrace the benefits of our innovative products and services. We achieved some notable highlights during the quarter. First, we started two impactful rigs in our international segment. The first was an offshore platform rig in Mexico. The second was a large rig in Kuwait. And in early April, the forty-third in our SANAD joint venture with Saudi Aramco commenced operations. Second, thanks to our early planning, we took advantage of an opening in the debt markets in early January. We issued $1 billion of notes due in 2026 and 2028. With those proceeds, we successfully tendered for more than $950 million of existing notes due in 2021 and 2023. These two transactions significantly lessened the maturity of a meaningful portion of our debt. Third, during the first quarter, we opportunistically bought back approximately $135 million of our outstanding notes in open market purchases. We believe that this purchase of predominantly short maturity bonds was a prudent use of cash, especially considering the notes were purchased at a discount. Now to the outlook. Given the rapidity of change in the rig markets and the uncertain magnitude of the market volatility, we will offer abbreviated guidance for the second quarter. In U.S. drilling for the second quarter, we believe our average Lower 48 rig count should decline by approximately one-third, as compared to the first quarter level. We expect Lower 48 daily margins to be impacted by declining leading edge day rates and increasing costs to stack rigs. In the international segment, we anticipate declines in activity in the short term. This drop comes as our customers cope with government-imposed restrictions and falling oil prices. That concludes our remarks on the first quarter results in the current market. Now, I will turn the call over to William for his detailed discussion of the financial results.

Good afternoon. The net loss from continuing operations attributable to Nabors of $395 million in the first quarter represented a loss of $56.72 per share. Results from the quarter included $260 million or $36.86 per share in impairments and other charges primarily related to impairments of fixed assets, intangibles, and goodwill. All of these numbers reflect the recent one for 50 reverse stock split. Revenue from operations for the first quarter was $718 million, essentially in line with the prior quarter. Increased international revenue and the seasonal recovery in Canada partially offset significant reductions in U.S. rig count, which affected not only drilling rig revenue, but also drilling solutions activity and Canrig aftermarket sales and services. U.S. drilling revenue at $275 million decreased by $14.6 million, as our average rig count in the Lower 48 declined by 8.5 rigs, one more rig than we had anticipated. Daily rig revenue in the Lower 48 at $27,199 increased by more than $700, primarily from reimbursable items with limited margin. Excluding the increase in these reimbursable items, our revenue per day was essentially stable during the quarter. International drilling revenue at $337 million increased by $5.4 million, primarily due to rig deployments in Kuwait, Mexico, and Russia. These additions were partly offset by reductions in Venezuela, as our main customer winds down their operations, and in other Latin American countries where COVID-related lockdowns resulted in significant downtime. Canada drilling revenue at $25.6 million increased by $6.2 million. This was driven by the usual seasonal ramp-up in activity, increasing from an average of 12.3 rigs in the fourth quarter to 16.8 in the first quarter of 2020. Drilling solutions revenue of $55.4 million declined by $5.1 million from the previous quarter. This was driven by a reduction in activity, reflecting primarily the 15% reduction in Lower 48 industry rig count. We also experienced some reduction in pricing. Our international footprint helped us mitigate the extent of the reduction in our U.S. markets. Revenue in our rig technology segment was $10.5 million lower at $42.2 million. Our sales of spare parts and repairs were impacted by the sharp reduction in U.S. drilling activity. Adjusted EBITDA for the quarter was $188 million, compared to $203 million in the fourth quarter. This decrease was driven mainly by activity reductions in the Lower 48, which affected several segments, the COVID-related lockdowns in our international segment and by unexpectedly high start-up costs for new projects in Russia. U.S. drilling adjusted EBITDA of $101.8 million was down by 10% sequentially. In the Lower 48, average rig count of 89 fell by 8.7%, while daily margins decreased by just over $300 per day, closing at an average of $9,891. Although average day rates for our fleet were stable as compared to the fourth quarter, our base daily cost increased, driven mostly by higher stacking expenses. We expect average rig count in the second quarter to be down approximately one-third from the first quarter average of 89. Our current rig count totals 58 in the Lower 48. We anticipate daily rig margin to tail off somewhat to around the $9,000 mark in the second quarter, driven by market price erosion, as well as by additional cost increases related to stacking idle rigs. Although we are addressing our field support structure, we would nonetheless expect these costs to have a higher impact on our daily operating expenses, as a result of a significantly lower rig count. International adjusted EBITDA decreased by $4.6 million to $91.5 million in the first quarter, reflecting mainly the COVID disruptions and excess cost for a Russian project start-up. The average rig count was stable. However, international daily gross margin declined from approximately $14,100 to $13,500. The current environment presents challenges in attempting to provide guidance. We expect activity to be affected for several months by the current pandemic. The unprecedented drop in oil prices is certain to have an impact in some markets. Although we anticipate our international activity to be significantly more resilient than our North American business, we would also expect our EBITDA to decrease in the second quarter due to the existing headwinds. We expect to have more visibility on the extent of this reduction over the next few weeks, as the virus concerns diminish. Canada adjusted EBITDA increased by $2.6 million to $7.9 million. Rig count at 16.8 was 4.5 rigs higher, and daily margin increased from $5,500 per day to $5,700 due to seasonality. Canada is currently experiencing its usual seasonal breakup. But the seasonal reduction in activity is much more marked than in the prior year. We anticipate a difficult second quarter for our Canadian business. Drilling solutions posted adjusted EBITDA of $19.4 million, down from $24.8 million in the fourth quarter. The adjusted EBITDA margin for this segment decreased to 35% from 41%. The U.S. activity decline, both for Nabors and third-party rigs, affected volumes for this segment. In addition, pricing pressure has also become an issue for most of this segment's service lines. For the second quarter, we are expecting additional reductions in adjusted EBITDA, as the Lower 48 drilling activity continues to fall. Rig technologies reported an adjusted EBITDA loss of $3.2 million in the first quarter, somewhat worse than fourth quarter results. As for other segments, the drop in Lower 48 rig count has affected our U.S. revenues materially. As rig count continues to fall, we have adjusted our cost structure in this segment to help us mitigate the impact of the lower expected revenue. For Nabors as a whole, the second quarter will be difficult, with some remaining uncertainty. We will not provide a range of guidance on our EBITDA at this point. Given the uncertainty of further government actions, the concerns about the trajectory of oil prices, and the possibility of further cuts by our customers, forecasting our revenue in the short term is a futile task, both in terms of volume and pricing. In addition, we have implemented a large number of cost initiatives that will reduce both our variable and fixed costs. These measures, which we can control, should significantly mitigate the expected erosion in our results. As activity falls, we will continue to reduce our variable costs. Our management team has vast experience in these exercises. We expect cuts in the hundreds of millions of dollars during the remainder of the year for drilling activity alone. We will also reduce our overhead expenses by an estimated $85 million over the remainder of 2020. As part of our continuing focus on capital discipline, we are targeting cuts in our CapEx of $120 million, in addition to the reductions we had already targeted at the beginning of the year, and we have proposed the suspension of our dividends for an additional $7 million impact this year, and $14 million in 2021. These actions on overhead and capital allocation amount to a $212 million impact for this year. Now, let me review our liquidity and cash generation. In the first quarter, free cash flow, defined as net cash from operating activities less net cash used for investing activities, totaled a positive $8 million. Our first quarter is usually a low point. This reflects the timing of our semiannual interest payments on our bonds, as well as disbursements for employee bonuses, property taxes, and other beginning of year outflows. In comparison, last year, our first quarter free cash flow was negative $75 million. This year-on-year improvement highlights our sustained focus on generating cash flow. Capital expenditures for the first quarter reached $61 million, approximately flat with the fourth quarter. We have cut our targeted 2020 CapEx to $240 million. This number could be adjusted further if a rig count trends lower than we expect. In early January, we addressed nearly a billion dollars of our near-term debt maturities. Nabors completed a $1 billion offering of notes and used the proceeds to address $953 million of senior notes maturing in 2021 and 2023. This transaction came shortly after we amended our credit facility to give us more covenant flexibility. These actions have provided us with significantly reduced exposure as we navigate the upcoming disruption through the industry. Our cash balances and revolver availability totaled approximately $1 billion. During the first quarter, we repurchased approximately $135 million of our shorter maturity notes in the open market. The outstanding balances on our 2020 and 2021 senior notes now stand at $139 million and $173 million, respectively. Despite the current environment and the expected reduction in our activity, we believe that the actions we have already implemented, in addition to other measures being taken over future quarters, will support our target to continue reducing our net debt in 2020 and to further reduce our total debt. With that, I will turn the call to Tony for his concluding remarks.

Thank you, William. I will now conclude my remarks this morning with the following. I want to reiterate that I'm very proud of our team's focus and timely response to this unique challenge to our industry. Their collective effort, sacrifice, and performance are paying dividends in our results. This bolsters my confidence going forward. Our immediate focus remains the health of our employees, the continuity of operations, and the preservation of capital. We have taken decisive actions on all three of these aspects. This cyclical downturn will no doubt prove trying and arduous. It brings us to stark relief the value of our digital technology portfolio. Over the past several years we have commercialized multiple initiatives with our integrated services, automated processes, and digitalization. For example, since the appointment last year, we have drilled over 1,100 wells with our Navigator directional guidance platform. Of that total, 450 were drilled with our fully automated slide drilling directional solution, the ROCKit Pilot directional system. We lead in the fully automated drilling space with more than twice the number of jobs of the closest similar offerings. Currently in our casing running service, half of our jobs are completed with our integrated offering. That's up from less than 10% a year ago. This environment is one of cost optimization. As such, E&P operators are likely to increase their receptiveness to the benefits of our technology. This down cycle will further illustrate the value we offer with our digital portfolio. There is an additional value apparent in all forms of remote operations, namely, to the health and safety of employees at the rig site. In addition to moving our personnel out of harm's way, personal distancing is proving useful to limit the spread of COVID. Nabors technology portfolio achieved all of our customer goals while at the same time creating value for Nabors. With all the steps we have taken, the company is in a strong position to weather the storm. At the same time, we will maintain our single-minded concentration on generating free cash flow. Looking farther ahead, I am excited about the future of Nabors. The business of drilling for oil and gas will increasingly require digital expertise. We have been the leader at developing and deploying these innovative technologies. We fully expect to enhance that position. That concludes my remarks this afternoon. Thank you for your time and attention. With that, we will take your questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Kurt Hallead with RBC. Please go ahead.

Hey, good afternoon. Hope everybody in your respective families are doing well.

Thank you.

Thank you, Kurt.

I appreciate the business summary and the outlook dynamics and I understand how challenging it is to try to take a look into that crystal ball, but there has been a significant emphasis on the Nabors part over the last few quarters and you emphasized again today on free cash flow. To the extent that you can give or not in a position to give EBITDA guidance, can you just walk us through the dynamics around free cash flow? What the key drivers of generating net free cash flow could be for this year and maybe more specifically, what do you expect in terms of contribution to working capital?

Okay. I'll let William step through it. I think we've done a lot of planning. We've adopted an approach of planning for the worst and then working backwards to the number that we feel coupled with generating positive free cash flow. I'll let William step through those steps.

So, Kurt, obviously, you're absolutely right, I mean the next quarter is going to be quite difficult to forecast particularly in international markets, because a lot of moving pieces including the cost cuts, including discussions with clients on what revenue levels are appropriate during the lockdown period, how do we share the pain with the clients, and we don't know the duration of what this COVID would be. So there is obviously a range of outcomes. What we've done is basically taken the worst possible scenario we can think of for the following quarter. And then, for the U.S., we have looked at our actual contracts and exploration maturities and assumed that nothing that expires is going to come back to work. So we took a fairly, I would say— I wouldn't call it bearish but I'll say very, very conservative view of the world from here to year-end and we use those results to put in place the measures that we mentioned before, and we believe that with these measures and of course, including some working capital improvement. And that's a pretty simple exercise to do, if you look at the revenue and you assume based on the DSO where you're going to end up, keep in mind that most of our working capital is really accounts receivable. We don't have that much in inventories. So using those measures and the targets that we put in place, the CapEx and the cost cuts are meant to allow us to provide meaningful cash flow this year, a meaningful debt reduction. So those targets are not accidental, they're based on what we expect is going to happen this year, a pretty rugged scenario in activity. Of course, if activity turns out to be a bit worse than we expect, we still have some more things that we can do in terms of CapEx and some other cost items. So we will continue monitoring the environment, and if we think that things are going to be worse than this scenario we put in place, we'll continue ratcheting down, but you can be sure that our target is to make sure that this year, we reduce debt by a meaningful amount and we generate positive cash flow and we will do whatever is necessary to get us there.

Okay, I appreciate that detailed commentary. So in this scenario in which you've described, with the cash flow generation that you expect, any debt reduction you expect, can you just give us a general sense as to where you might top out in terms of your covenant ratio on the revolver?

So based on our scenarios, and keep in mind that we have assumed a pretty bad 2020 and some level of recovery in 2021 versus the levels of the second half of 2020, our models don't forecast any trouble with covenants.

Thanks. And Tony, maybe a follow-up for you, your presentation here shows that you've substantially increased your market position with the major oil companies that are operating in the U.S. land business. You've identified a pretty substantial increase in market share opportunity as you move forward. Is the contractual dynamics that you have with the major oil companies, pretty much locked tight here for the remainder of the year or is your viewpoint on market share reflective really of only the very near term in the second quarter?

We'd like to think it's much more than just the near term. These relationships take a lot of effort on both sides and there's a lot of effort being put on actually moving all our work to another level with the kinds of things we have in the end of the pipeline. So I can't ever say they're locked because I don't want to take any customer for granted; we have to earn our keep every day, but there's a lot of mutual investment in these relationships right now. And even in this downturn with some of these clients, we're actually talking about increasing our NDS content as part of the rig, with all our performance tools as well. So in this environment, where people are looking for value-add, that portfolio, I think people are recognizing is a differentiator, and that's one of the reasons why we're getting people's attention, apart from the fact that our rig base is so much different than it was five years ago at the last downturn.

That's the other point I'd like to emphasize to you, is that people talk about 600 super-spec rigs in the U.S.; there's roughly that number you hear bandied about and people are panicking saying, well, it's never gets below with all this competition. I think when you think about super-spec rigs, the first thing I think about in terms of phased work or in terms of the pad drilling is what we call the pad-optimal rig. If you go back to our Analyst Meeting in 2016, November 2016, we outlined to you what a pad-op of that rig was and we're very clear what it meant. It meant four engines, three mud pumps, 25,000 ft of 5' and tracking of drill pipe and X, Y walking, and at the time people were wondering what the hell we were talking about. We didn't get any traction on it for years. Remember on these conference calls you were all debating with us whether a skin rig was equal to an XY rig. All those are counted by the way; now the marketplace has endorsed that those are the required for pad-optimal rig. The point I would make is that the 58 rigs we have working today at Nabors plus another roughly 42 rigs or 52 rigs, almost 110 rigs, all beat that definition of pad-optimal. In other words, every rig is configured to do that today in the marketplace. No additional CapEx is required. Now, when you talk about other people saying they have super-spec rigs, read the fine print, do those rigs actually have all those line items? And I would ask all these to go out and really check the inventory of those rigs and you'll see that actually there's a wide difference between what we've been talking about versus what others talk about. The way most people define super-spec, the super-spec rig is nothing more than a legacy rig with the option of putting that stuff in there, which will actually cost CapEx when they actually do it. And the point I'm making to you is that we've already spent the CapEx. All these rigs are optimized for the U.S. today. So we don't see any further investment to have the best rigs out there. In addition, we introduced the concept of a smart rig back then, over at that Analyst Meeting. Today, a smart rig means you have a pad-optimal rig, plus you have an operating system. People talk about NOVOS; we have Nabors version of our operating system, which is NOVOS on steroids, in my opinion, plus we have—the rig comes directional drilling really casing integrated and MPD ready and that's a unique combination of a portfolio of technology married with the rig supported by people and processes to deliver that performance. So that's why I think we are starting to make inroads and showing how we're differentiated against other people and that's what some of our major operators are thinking about now today. That's a long-winded answer but I think I wanted to lay out for you what you really need to do. So when you think about the marketplace, don't think about terms like super-spec without looking at the fine print, but you really need a pad-op rig and what we're talking about is the things I've talked about in terms of criteria. I'd like to make a comment on that from the point of view of numbers, dollars. I mean, if you look at our Lower 48 day rates for the fleet, it is the highest in the market by over, I would say, a couple of thousand dollars, and if you compared with anybody else, maybe somebody comes close, but not quite. And then in terms of margin, we had the highest margin in the market, daily margin for the Lower 48, despite the fact that we don't have additional sources of revenue, like our ROCKit and all those are counted as part of NDS. So I think our strategy to upgrade our fleet and make sure that we create those relationships with the clients that give us a bit of an edge in terms of both market share and premium pricing has been paying dividends. And I think it will continue to pay dividends in the future.

That's great, great color and I appreciate the time and the detailed answers. Thank you.

Our next question comes from Connor Lynagh with Morgan Stanley. Please go ahead.

Yes, thanks, I appreciate it. This is pretty uncertain times, but I was wondering if you can give a little additional color on the international outlook, maybe just some broad strokes in terms of different geographies, maybe you could compare and contrast the Middle East region with the Latin America and other regions, but any comments around activity or pricing indications from your customers. Does that vary by region?

Let me just give you some broad comments here. I mean, as you know, international is generally more resilient to these economic shocks; with this COVID thing there's a new twist on things and COVID on top of the OPEC price cuts is a unique combination. So I think first of all, with respect to COVID, I think there are effects particularly in Latin America because of COVID, there are some effects as well in places like Kazakhstan, Algeria, the Middle East has largely not been affected too much there so far. So everything has to be cautionary here today because this is an evolving process, and that's the main thing that we indicate here, which is why we're being so reluctant to say where we're going here because we understand the actions that we're talking about are not told by the economic; they're driven by other externalities of each local country, in particular by other health considerations of the country and other priorities. So that's what makes it difficult right now. In terms of the actual rigs, we have 83 working today, international rigs. And I think the thing we have going for us is we have signed a significant portion of the fleet to multi-year contracts, our average duration of rigs in international is two years and the vast majority of them work through this year. So we have a pretty good backlog here and that puts us in a pretty good position. But as I said, we have the COVID, but we also have OPEC. I think in this environment, there is no question, people will look at pricing and pushing back on pricing, given everything that's going on; none of that has really played out yet, but I think some of that's coming as well. So those are the headwinds we face, but as I said, we sit with a pretty good portfolio and I think great market positions, and I think in the medium term, once we the COVID passes, we'll sort things out. But right now, it's too early to say.

Okay, that's fair. Could you maybe on that last point on the pricing, have any of your major customers specifically requested a pricing adjustment and if so, how large the magnitude or what would be sort of a good placeholder assumption from our perspective for how much that could affect your margin?

So we have received from a couple of clients, it's similar to what happened last time back in the last downturn; we're seeing a couple of guys asking for reductions, but at this point we're not seeing anything above 5%, and in some cases, significantly below that. This business has to be a little bit different from auto, the jack-ups and so forth. It hit very hard, land rigs much less so. And keep in mind, this is existing contracts. It's not new tenders or anything like that. We're talking about existing contracts with clients asking you for some help.

Yes, understood. Thanks very much.

Our next question comes from Taylor Zurcher with Tudor Pickering Holt. Please go ahead.

Good afternoon. In the Lower 48 you're guiding to rig count down by about a third sequentially, and at the same time I think you said your market share, at least with your big customers, going from 18% to 25%. Do you have any visibility as to where your rig count might exit the quarter? And then, more broadly over the balance of 2020, could you help us think about where contract coverage sits in that segment today?

So given our contract coverage and what we already experienced. So we know pretty much what's coming and the second quarter, we have a lot of certainty because everything we put in the guidance is basically things covered by contract, right? So we think that we will be roughly around the 50 mark at the end of the second quarter and we believe also that most of the cuts have already happened and we don't really have a lot of speculative rigs in the third quarter and very few in the fourth quarter. So we think—but we do think that most of the damage will be done by the end of the second quarter.

Okay, understood. The second question just on the CapEx budget. I think you said in the prepared remarks that the $240 million budget for 2020 could potentially move lower if activity moved lower than what you're currently thinking. Is there any way to frame for us where maintenance CapEx, maybe on an exit Q2 level basis, sits for the business today and then over the remainder of 2020 and even looking into 2021, are you going to have any kind of chunky buckets of CapEx associated with the SANAD JV?

Well, with the SANAD JV obviously is out there and it only gets triggered when Aramco decides to broaden out its need to start adding the five incremental rigs and that hasn't happened yet. It's going to be up to Aramco and the rig manufacturing JV. When they do, we're ready to perform and execute but that hasn't happened yet, and with their timeframe, some things seem to be slipping. So with respect to that. In the $240 million number, there is probably about 15% of that roughly that is not maintenance stuff for this year and some of that even though the other stuff depends on what happens with international activity there could be some sustaining CapEx depending on what happens to the rig count there as well. But that should give you some feel for how much is part of the base case versus how much is actually not much remaining in the $240 million of anything besides maintenance CapEx. We do have some commitments for a big rig in the Asian market that we are deploying long-term contracts but what we will see is some of that will be deferred into 2021. We do have a facility in Saudi Arabia where we were expecting to spend about $39 million this year and I think together with SANAD we're considering deferring some of that into the following year. But the rest is just going to be sort of linear with the rig count. If the rig count goes down, we can continue cutting CapEx.

All right, that's helpful. Thanks, guys.

Your next question comes from Marc Bianchi with Cowen. Please go ahead.

Thank you. Do you guys have any rigs that are stacked on rate currently and what's the expectation for that in the second quarter here?

We do, but that's the distinction we're at because the cash flows there are equally contributing to our margin.

If I understand you, Tony. Are you saying that if those rigs were to not be stacked on rate or if they were to just be let go at the end of their contract, the margin, the $9,000 margin wouldn't be any different? So if we excluded those rigs then out in the second quarter.

That's not what we're saying. What we're saying is that right now we have a certain number of stacked rigs on rate that continue to be counted in our rig count and those rigs are getting pretty similar margins as the operating rigs. Any rig that is stacked on rate whose contract matures has already been taken into account when we give you our guidance for the second quarter. What I said earlier about the second half. We're now assuming those are going to be in any way renewed. If the contract expires, it expires and the rig will be idle, then we're not assuming that somebody else is going to take it up. Some of that may happen but for working model and for our forecast that we used to put in place, our cost reduction initiative, we are taking the conservative assumption.

If we excluded all of those rigs during the second quarter, the margin would still be pretty close to the $9,000?

Yes, correct. I think with that it doesn't matter. That's the point.

Well, I think we will see some more erosion from year to year-end. So what I was commenting and said will be lower in the second half than in the third quarter in average rig count, but we do expect some return to the—anything I tell you that nobody knows really the answer is, but we are assuming a slight increase from the levels of the second half in 2021 not very dramatic in the U.S. markets. Remember that most of our EBITDA is not coming from the U.S. markets anymore.

Right. Any anticipation is international is slightly higher as well in 2021 versus that second half 2020?

Absolutely. We do expect that and we also we will not have to the air pockets and the bogeys in our results from the health-related lockdowns that we've experienced this year. At least, we'll know how to handle that better next year than this year so we're not expecting the same level of missing revenue from COVID disruptions next year.

Makes sense. Thanks, gentlemen. I'll turn it back.

Our next question will come from Sean Meakim with JPMorgan. Please go ahead.

Great. Thank you. Just a couple of notes here. You touched on idle but contracted rigs. How about early termination payments? Could those have an impact on margin or more importantly, the cadence of your cash flow?

We haven't experienced much or if anything really in the past couple of quarters in terms of early termination payments. Obviously, if those early termination payments affect us, they would be incremental potentially to 2020 margins but we haven't. We're not expecting any at this point and we haven't forecast any in the next quarter.

The $9,000 doesn't include early termination?

No.

Got it. That's helpful. And then just I think about the overall U.S. drilling business, didn't hear much about Alaska and Gulf of Mexico. Could we maybe just get a quick update on where that handful of rigs stand in terms of expectations looking forward.

It's a bit more than a handful. It's eight rigs?

Both markets are challenged, but we have contractual coverage on some high-impact rigs in both markets. I think the second quarter for the Gulf of Mexico we should look pretty good compared to the prior quarter, for example. Interestingly, Sean, if you look at our EBITDA in offshore and you annualize our last quarter's number, I think it's more than both of offshore drillers' entirety. It's pretty amazing actually. I don't think people realize how big a contributor it is and it's really great from a return on capital and free cash flow position. Alaska we're going into a slow season but as I said, we have at least one high-impact rig there and so you may see the recap go down a little bit, but other than that, that's where it stands.

Great, very helpful. Thank you.

Let's go ahead and wind up the call there. Thank you very much, ladies and gentlemen, for participating with us this afternoon. If you have any questions or wish to discuss anything please feel free to give us a call or email as always.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.