Nabors Industries Ltd Q1 FY2023 Earnings Call

Good day, and welcome to the Nabors' Industry's First Quarter 2022 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you for joining Nabors' first quarter 2023 earnings conference call. Today we will follow our customary format with Tony Petrello, our Chairman, President, and Chief Executive Officer; and William Restrepo, our Chief Financial Officer, providing their perspectives on the quarter 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 me, are 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 certain 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 adjusted free cash flow. All references to EBITDA made by either Tony or William during their presentations, whether qualified by the word adjusted or otherwise, mean adjusted EBITDA as that term is defined on our website and in our earnings release. Likewise, unless the context clearly indicates otherwise, references to cash flow mean adjusted free cash flow as that non-GAAP measure is defined in our earnings release. We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measures. With that, I will turn the call over to Tony to begin.

Good afternoon. Thank you for joining us as we present our results and outlook. Our segments continued to perform well in the face of a challenging environment in the Lower 48. Sequential growth in the drilling businesses drove the increase in EBITDA. For the first quarter, adjusted EBITDA totaled $240 million. This result was in line with our outlook for the segments on last quarter's call. Our global average rig count for the first quarter declined by 1 rig. Growth in the International segment was offset by a reduction in the U.S. Lower 48. EBITDA in Drilling Solutions once again grew sequentially, reaching $32 million. Combined, our Advanced Drilling Solutions and Rig Technologies segments accounted for 15% of total EBITDA. In the first quarter, we again generated free cash flow. We achieved this performance even with semiannual interest payments on most of our debt and seasonally high cash outflows as we start the year. Next, I will update the progress we made on our five keys to excellence. Our success in executing these strategies drives value creation across our stakeholder base. The five elements include enhancing our leading performance and technology in the U.S., expanding our international business with innovative solutions, advancing technology and innovation with increasing financial results, improving our capital structure, and our commitment to sustainability and the energy transition. Let me update each of these, starting with our performance in the U.S. Daily rig margins in our Lower 48 operation expanded in the first quarter. This measure reached $16,700, up from $14,600 in the previous quarter. This sequential growth of 14% reflects strong day rates in the quarter, which increased the fleet's average daily margin. This performance does not reflect the growing Lower 48 margin from NDS. Combined, that margin is significantly higher. I'll discuss this in more detail in a few moments. Now I'll discuss our international business. Daily margins in this segment increased in the first quarter, reaching $15,200. Profitability improved in several international markets, including most notably Saudi Arabia. I'll spend a few moments providing an update on the new build rig program in Saudi Arabia. The first two rigs deployed in the second half of 2022. They are performing well, which is encouraging for the broader new build program. Sanad expects to deploy 3 additional new builds over the remainder of this year. These rigs have attractive returns with 6-year initial contract terms. We expect construction of the previously awarded second tranche five rigs to commence in the coming months. Next, let me discuss our technology and innovation. The key focuses of our initiatives in these areas include automation, digitalization, and robotization. The initial deployment of our revolutionary RZR module has been successful. Recall that RZR is our robotic rig for module, which can be retrofitted on any existing rig. RZR advances the standard for consistent drilling performance and control. As important, RZR improves rig safety by removing rig hands from the red zone and from the working area. In our Drilling Solutions business, quarterly EBITDA increased sequentially to nearly $32 million. NDS' growth in the first quarter was led by managed pressure drilling and performance software. Let me detail the value NDS generates in the Lower 48 market. The combined average daily margin in the Lower 48 from our Drilling and Drilling Solutions businesses was almost $19,900 in the first quarter. Of that, NDS contributed just over $3,200 per day. That combined figure increased by 15% versus the fourth quarter. In the first quarter, the typical Nabors rig in the Lower 48 ran more than six NDS services. Additional penetration of the NDS portfolio represents a large opportunity. This increase is an important component of our NDS growth strategy. Our focus on automation and digital services is generating results in the market. In the first quarter, we saw growth in rig cloud instrumentation installs on both Nabors and third-party rigs, including a nearly 30% increase in Smart Plan and broad growth across the SmartSuite portfolio as well as Revit. In the first quarter, NDS revenue on U.S. third-party rigs grew by 10% versus the previous quarter. This performance matched the growth rate in the fourth quarter. Growth on third-party rigs is a key target area for NDS. These results demonstrate the broad appeal of the NDS portfolio across exploration and production clients and other drilling contractors alike. Recently, we announced an alliance between NDS and Qorvo. This collaboration will deliver a unique automated drilling solution that will create value for exploration and production companies and drilling contractors by improving performance outcomes. Next, let me update our progress to improve our capital structure. We made several notable accomplishments in this area in the first quarter. In the first quarter, we generated free cash flow of $37 million compared to negative $39 million in the first quarter of last year. We also completed the issuance of convertible notes, followed by redemption of high coupon notes, which were due in 2025. I'll finish this part of the discussion with remarks on sustainability and the energy transition. Our three focus areas include improving our own environmental footprint, capitalizing on related opportunities, and investing in adjacent leading-edge companies. Today, I will update several impactful technologies that are focused on reducing our own environmental footprint as well as on third-party rigs. First is our PowerTap module, which connects rigs to the grid. We now have 15 of these units deployed, including multiple units on third-party rigs. Second, our Smart Power Advisory and Control System optimizes utilization of the engines and reduces emissions. This solution is currently installed on all of our rigs in the Lower 48. Third, the NanO2 diesel fuel additive improves engine performance and reduces emissions. We have already successfully treated more than 17 million gallons of diesel to date. Quarterly revenue from this portfolio increased by 68% versus the prior quarter. Clients indicate strong interest in our solutions that reduce fuel consumption and emissions. We are now in field testing for a new technology, which uses hydrogen economically generated at the well site to reduce fuel consumption. We expect this product to become commercial later this year. Although still a relatively small part of our business, our clean energy initiatives are growing at a fast pace. Now I will spend a few moments on the macro environment. The recent volatility in commodity prices, particularly natural gas, has impacted activity levels. However, we believe that the current range of spot and future prices for WTI and Brent should continue to be supportive of oil-directed drilling activity in the Lower 48. Natural gas remains more challenged. While challenges may persist through next year, we believe the pipeline of several large LNG projects expected to come online in the next two years will support a burgeoning export gas market. Several factors in the current macro environment could impact our markets. On the negative side, demand destruction from higher interest rates and the possibility of recession looms. On the positive side, there is the potential for an acceleration of economic activity in China. Next, I will spend a few moments on day rates. Our first quarter results for Lower 48 reflect the pricing environment we saw through 2022. More recently, although dayrates for our high-spec rigs remain at historically high levels, we have experienced some softening in the predominantly gas basins. Notwithstanding this interim pressure, we expect average daily revenue in the Lower 48 to be essentially flat with the first quarter. In the current environment, we believe prioritizing revenue and margins is prudent. As such, we remain focused on realizing the value that our rigs and services delivered to clients. In the international market, we continue to see prospects for increases in the activity across many of our major geographies. This increase in demand supports generally higher day rates and margin expansion in both the Middle East and Latin America. Once again, we surveyed the largest Lower 48 clients at the end of the first quarter. This group accounted for approximately 34% of the working rig count. Our survey indicates a modest near-term dip in activity followed by an increase in the second half of the year. We believe this outlook primarily reflects the decline in natural gas prices balanced by constructive oil prices. Operators in several of our existing international markets are planning increases in their activity levels. We see potential opportunities to add rigs in multiple markets, both in the Middle East and Latin America, and we will continue adding new build rigs in Saudi Arabia. We estimate each new build will generate an annual EBITDA of approximately $10 million, with the first 10 awards in hand, Sanad is on the way to realizing EBITDA of more than $100 million per year from the new build program. Let me now wrap up my remarks with the following. The near-term commodity price volatility may give way to an improving market outlook as we look through and beyond 2023. We expect activity across our markets to increase over the second half of the year. Our advanced services and solutions fill the need for automation, digitalization, and improved sustainability; we see excellent prospects for growth across this portfolio. In summary, Nabors remains poised to deliver year-over-year improvements in financial results, increasing free cash flow, and greater returns to our investors. Now let me turn the call over to William, who will discuss our financial results and guidance.

Thank you, Tony. The first quarter results were encouraging with strong performance in several markets, offsetting a reduction in Lower 48 drilling activity. As anticipated during prior earnings call, the current environment in the predominantly gas basins in the U.S. had a noticeable impact on our Lower 48 rig count during the first quarter as contracts in these areas started to expire. The gas rig count dropped over the last several weeks, dragging down the overall rig count for the market. Although oil basins have remained supportive and have started to provide incremental activity, these increases have not been enough to accommodate the full redeployment of gas rigs. With the current level of oil prices and the fundamental imbalance between supply and demand, we expect additional increases in active oil rigs through the remainder of the year and a rebound in utilization for the market as a whole. Despite the rig count decrease we've seen in the market, pricing has remained at high levels. Although day rates have decreased in the predominantly gas basins, they have remained fairly firm outside those areas. Consequently, we managed to continue increasing our revenue per day on our drilling margins during the quarter. Even with a sequential reduction in average rig count, we delivered significantly higher Lower 48 EBITDA than in the fourth quarter. Outside the Lower 48, drilling rig markets were strong, as was Drilling Solutions, which also benefited from increased penetration and higher pricing in the U.S. Revenue from operations for the first quarter was $779 million compared to $760 million in the fourth quarter, a 2.5% improvement despite the shorter first quarter. Most segments, particularly U.S. Drilling and Drilling Solutions, contributed to the growth. U.S. Drilling revenue increased by $17.8 million to $351 million, a 5.3% improvement. Lower 48 revenue grew by almost 7%, reflecting an increase in daily revenue of over $3,700 or 11.4%. Average daily revenue for the first quarter was almost $36,500, up from $32,700 a quarter ago. Revenue from our International segment increased by $2.5 million to $320 million or about 1% up for the quarter. The improvement was driven primarily by higher day rates and activity, as well as performance improvements in Saudi Arabia. In Latin America, one of our Mexico rigs was off revenue due to a long move, and the rig we expected to deploy in March for a customer in Argentina was moved to mid-April. Drilling Solutions revenue also grew sequentially by $3.7 million to $75 million, a 5.2% improvement. Revenue in our Rig Technologies segment at $58.5 million was down $4.3 million or 6.9%. The decrease in revenue came primarily from delayed capital equipment deliveries, partially offset by headway made in our energy transition initiatives. Total adjusted EBITDA for the quarter was $240 million, $10 million higher than the fourth quarter, a 4.3% improvement. This was strong performance considering the $5 million unfavorable impact from the shorter first quarter. EBITDA margins of 30.8% increased for the fourth consecutive quarter. This is a 780 basis point improvement compared to the first quarter of 2022. U.S. Drilling EBITDA of $156 million was up by $12.3 million or 8.6%. This improvement was driven by our Lower 48 EBITDA, which rose by $13 million, a 10.3% improvement sequentially. Softening of the gas market drove a 1.8% sequential rig count reduction to 93.3 rigs instead of a slight increase of one rig that we expected. Daily rig margins in our Lower 48 business increased by $2,090 to $16,700 in the first quarter and are supported by higher pricing for our fleet. We exited the first quarter with 88 rigs operating as the reduction in gas activity started to bite and contracts expired for various rigs that are currently being redeployed. At this point, the pace of reduction in gas basin activity is exceeding the incremental opportunities in the oil basins. We expect average rig count in the second quarter to decrease by roughly three rigs from the first quarter exit rate and then to trend back up during the second half of the year as activity continues to increase. For the second quarter, we project our Lower 48 average daily margin to continue expanding to a range of $16,900 to $17,000. This is without the additional contribution from our Drilling Solutions business. On a net basis, EBITDA from our other markets within the U.S. Drilling segment remained steady. In the second quarter, the combined EBITDA of these two markets should improve slightly as the effect of one rig in Alaska rolling to cold stack in late first quarter is more than offset by a meaningful positive day rate reset on our MOS400-rig in the Gulf of Mexico. International EBITDA of $88.6 million was essentially in line with the fourth quarter despite slightly higher activity levels and increased margins. Again, the short first quarter impacted the sequential comparison. International rig count improved by about one rig with contributions from the second new build rig and the reactivation of a legacy rig in Saudi Arabia, both of which deployed late in the fourth quarter. These increases were offset by the Mexico rig move. Gross margin increased by about $300 to over $15,200 per day, principally due to higher day rates in Saudi Arabia related to contract extensions. We expect international average rig count in the second quarter to be in line with the first quarter. We now anticipate deploying the next Saudi new build rig early in the third quarter. One additional rig is scheduled for late in the third quarter and another one before the end of the year. We also expect the start-up of an additional rig in Argentina. However, we are now forecasting these increases to be offset by activity reductions in Colombia. We project second quarter international daily margins to be between $15,900 and $16,100. Drilling Solutions delivered adjusted EBITDA of $31.9 million, up $1.6 million from the fourth quarter. Gross margin for NDS exceeded 52%. We continue to see increased penetration of our Advanced Solutions, particularly in third-party rigs, with the largest contributions to growth coming from performance software and managed pressure drilling in the U.S. We expect second quarter EBITDA for Drilling Solutions to increase by approximately 3% over the first quarter level. NDS gross margin per day for the Lower 48 increased to just over $3,200, a $430 increase compared to the fourth quarter. This improvement takes the combined drilling rig and Drilling Solutions daily gross margin to $19,900, a sequential increase of over $2,500 per day. For the first quarter, Rig Technologies generated EBITDA of $5 million. The sequential decline was primarily driven by a reduction in capital equipment sales. For the second quarter, we expect Rig Technologies EBITDA to grow between $2 million and $3 million. Now turning to liquidity and cash generation. Free cash flow of $37 million in the first quarter exceeded our expectations since the first quarter does include higher cash interest payments on our notes. More of our coupon payments fall in the first and third quarters. In addition, at the beginning of the year, we paid several large general items such as property taxes and employee bonuses. Nonetheless, these outlooks were offset by the higher EBITDA and strong collections. Capital expenditures of $119 million in the first quarter were lower than anticipated. This amount included $37 million of investments supporting the Sanad new build program. For the second quarter, we expect capital expenditures of approximately $140 million, including $55 million for Sanad new builds. We are currently reviewing our capital expenditure plan for 2023 to reflect the current market environment. We expect CapEx reductions in the Lower 48 and Colombia. We are targeting second quarter free cash flow approaching $50 million. For the full year, we still expect to deliver free cash flow in the $400 million range. Lower capital expenditures and reduced working capital should mitigate any potential reductions in EBITDA. At the end of the first quarter, net debt remained below $2.1 billion. During the quarter, we issued $250 million in 1.75% convertible notes due in 2029. The notes' conversion share price is $212.51. We used the funds to redeem the 9% notes due in 2025. In addition to improving our debt maturity profile, we also reduced our annual interest payments by more than $15 million. Year-to-date, we have bought back $9.2 million of our 2024 convertible notes. In the second quarter, we plan to repay the $52 million remaining balance on our September 2023 senior notes. With that, I will turn the call back to Tony for his concluding remarks.

Thank you, William. I will now conclude my remarks this afternoon. First, let me summarize our first quarter highlights. Quarterly adjusted EBITDA reached $240 million. Free cash flow in the quarter was $37 million. Our Lower 48 daily margins reached a quarterly record of $16,690. And when combined with NDS, that measure is nearly $19,900. In the Lower 48, we remain disciplined in our approach to pricing. Current oil prices should eventually lead to higher oilfield activity, which in turn drives rig demand and supports rig pricing. In our International segment, the combination of growth in our major markets, coupled with pending new build deployments in Sanad, should lead to improving performance. In NDS, we remain focused on increasing our service penetration on both Nabors rigs and on third-party units. The international markets are also realizing the efficiency benefits from the NDS portfolio. We remain optimistic for material future growth in the segment. For all of 2023, we expect a material contribution from Rig Technologies, and we have high expectations for the energy transition initiatives, where the early results are very encouraging. Driven in large part by our expected free cash flow and with the debt transactions already completed, we are optimistic for material progress to improve our leverage and capital structure in 2023. I'm looking forward to reporting on our performance in the coming quarters. That concludes my remarks on the first quarter. Thank you for your time and attention. With that, we will take your questions.

Thank you. Today's first question comes from Kurt Hallead with Benchmark. Please go ahead.

Good afternoon, guys. That's a great summary. I really appreciate all the level of detail you've gone through. So I guess let's start off with the U.S. land business, Tony. So you indicated that there's going to be some softness in the natural gas basins. You're starting to see that here in the second quarter. As you go forward in the second half of the year, you talked about your survey of customers. Are you already getting indications from those customers that they want to start picking up some rigs? And maybe that's question number one. And question number two is how many rigs are you planning on moving out of gas basins into some of the oil basins?

Right. Well, let me first - let's start with the second question, and then we'll get back to the first. In terms of the gas markets, obviously, we have hit an air pocket here. In terms of the weakest markets, I would say the Northeast was one of them. Now we East Texas, Northeast and didn't see as large an increased activity when gas prices rose in the '21/'22 time frame because of the takeaway capacity and operators stayed within their core acreage and activity levels. With respect to East Texas, however, there were a lot of private operators that came in that drove the activity increase. And as we've remarked when the end of March came along, a lot of those guys just hit the halt button, and that's what's caused the air pocket. So that was, in part, ameliorated by people wanting to finish up pads and now you've seen some of that stuff roll off. But through all that, I think what we've tried to do is maintain our pricing discipline and leading-edge rates in the gas markets. I would say right now, all in, in the low 30s. And I think the good news, as you alluded to and picking up on William's comments, is that we are moving rigs from both East Texas and South to West Texas and in most of the cases, actually, the customers pay for all or a majority of the move costs into West Texas. So I think that process is underway, and we're actively managing that process right now. And longer term, I think, for the obvious reasons of LNG export capacity, I think we're constructive on still on the near term, and we're not going to be prepared to go in there and increase market share by buying down our rates now, but we will maintain our position in those markets because we believe the gas markets do have a long-term future here. So does that cover those questions for you?

That's really helpful. That's great. And then just one just incremental thing on that: you talked about the new build program finally kicking in for Sanad. You indicated that was $10 million of EBITDA per new build, and then you referenced something along the lines of $100 million of EBITDA. Can you just clarify that?

Sure, sure. So every rig incrementally is $10 million of annual EBITDA. Every new build rig on an annualized basis is $10 million in EBITDA. And so we have two tranches awarded right now. As they all get on stream, it will be 10 rigs and we will create a $100 million EBITDA business. And as William outlined, the progression is to start up already. The remaining three from the first tranche are going to be coming out later this year. And then we've been awarded the next five. The first of those will deploy towards the end of the year at the beginning of next year. And so we should get back to a cadence of five a year. But once those first ten get on, you have a $100 million EBITDA business, all with long-term contracts and a lot of runway after that and with additional upside. So it's a pretty robust story.

Okay. And then those 10 rigs should be fully up and running by the end of 2024?

The first five will be rolled out this year, and the remaining will be rolled out this year through 2024.

Got you. And you indicated now coming back to U.S. land, again, just real quick: you referenced gas pricing in gas basins in the low 30s, that must mean that pricing in the oil basins are still in the high 30s or so?

Pricing in the oil basins is in the mid- to high 30s. It's important to note that the utilization percentage of super-spec rigs is still around 80%. There is a distinction between those rigs and others, which is supporting the current pricing structure. This is why we remain positive about the overall environment. However, moving some rigs into the basin does create some downward pressure. As a point of reference, we had rigs pricing in the low 40s earlier in the quarter, but that has adjusted to the high mid-30s, which is still quite favorable. Given the utilization percentage, we are satisfied with the current situation.

So Kurt, just a comment to clarify that. When we talk about day rates, revenue per day is about $4,000 to $4,500 per day higher than those day rates. That includes reimbursables and the add-ons that the client may opt to buy or not. So keep that in mind when you're evaluating those numbers.

That's great.

Thank you. And our next question today comes from Derek Podhaizer with Barclays. Please go ahead.

Hey, good afternoon. Just continuing on those comments around the day rates, the gas going down to low 30s; you're seeing a little bit of pressure coming into the oil basins. How should we think about the daily margins as we work towards the back half of the year? You talked about bringing back some rigs. But then you'll have a mix of repricing rigs. You have a mix of softening rates in the gas markets, strength in the oil markets, and it looks like you have some elevated OpEx per day. Just a lot of moving pieces here. Should we see a downward inflection in your daily margins? Or would you expect continued strengthening as you work through the year, just given all the crosscurrents that are going on?

As you saw in our prepared remarks in the second quarter, we're actually going to maintain, in fact, go up a little bit. We're in the mid-30s there, getting a little closer to our average day rate. So it's going to be a little more stable in the second half, but we're really confident in that momentum. I'll let William expand on that. With respect to the cost numbers, bear in mind that those costs that you're referring to in the first quarter increased. Those costs were because of increasing content, not necessarily cost inflation. In fact, inflation has become less of a nuisance for us, as well as labor has become less than an issue for us. But I'll give a little more comment about the direction of the pricing for the remainder of the year.

Yes. Many of the rigs transitioning from the gas markets to stronger markets are doing so at favorable day rates. We anticipate that the second half will see a steady increase in oil activity, which should lead to stronger and more stable service prices. Therefore, we believe that in the second half, our margins per day will continue to rise. It’s important to note that when Tony mentions mid-30s, the revenue per day is approximately $39,000 to $40,000. Our costs range from $18,000 to $19,000 per day, so there is still potential for price increases and margin growth. The pace we experienced in the past three quarters will not be replicated in the upcoming three quarters, since our average per day is already at the $36,500 level. We initially thought we would peak around the $40,000 level without a significant rise in utilization. We are approaching the levels we anticipated, and it is unlikely we will see the $3,000 daily increases observed in previous quarters.

And the only follow-up that Ed mentions is to remember that if I had said a year ago that our combined NDS drilling margin rate would be $19,900, nearly $20,000, everyone on this call would have thought we were dreaming. That number is actually quite good. It's remarkable. This illustrates the strength of the portfolio and our current positioning. We are really pleased with what we can offer our clients in response.

I appreciate all the comments there very helpful. Just last one, a quick one for me. Just the $1 billion EBITDA guidance you guys put out, I think it was end of last year. Do you want to readdress that you still feel good about it? Any updates that we should be thinking about that target out there?

We feel very good about it.

Our next question today comes from Keith MacKey with RBC Capital Markets. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. I wanted to begin by discussing CapEx. I appreciate that you are evaluating the scenarios for your 2023 CapEx in light of the changes in activity levels in the Lower 48 and Colombia. When considering a framework for this adjustment, should we estimate that it will involve about $1 million a day in maintenance CapEx for each rig we exclude from our model? Is there additional activation CapEx that you believe will not need to be expended? Alternatively, is there another perspective we should consider regarding the factors affecting your revised capital spending?

Thanks. It's a great question. Yes, you're right on the $1 million per day in the U.S. Lower 48; internationally, it may be a little bit higher than that. The rigs tend to have more components in the international markets. So yes, there will be an automatic adjustment just because of the air pocket that we hit in the second quarter, as Tony mentioned. On average for the full year, we'll have less operating time, which would lead to, I would say, wear and tear cumulative on our rigs. That's part of the answer. We were planning on spending incremental money and reactivation early on. However, we do think that by the end of the year, we'll be back on track. Some of that money will be spent in 2023; if not all, maybe some will get pushed into 2024. But most of the cost is based on reduction in average working rigs during the year, which most of that will be in the first half, especially the second quarter.

Got it. Okay. So it sounds like we're talking about a reduction in the, I don't know, $20 million to $40 million range, and nothing more, nothing less necessarily. Is that like broadly how that should all shake out?

I think we haven't finished the analysis. Part of it is Colombia. As you know, the government there is not very helpful to our industry. So we don't know what's going to happen there, but certainly not growth that we thought we may have had this year. There's some uncertainty from Colombia, but I think most of it will be in the Lower 48. Yes, somewhere in the $20-plus million range is something we're targeting.

Okay. That's helpful. My second question is about the pricing mechanism rather than just the price levels. You have the base rig, along with rentals and other services, and of course, you have NDS, which is a high-margin, low capital expenditure business that you want to expand with more third parties. How do you approach pricing a rig when you plan to offer more NDS services on these third-party rigs or on your own rigs? Specifically, how do you consider pricing at the rig level? Has the intention to bundle some of these services affected the rig prices, or is that a completely separate discussion that you prefer to have with customers when pricing rigs alongside NDS services?

I think the whole reason why we've created NDS was to get away from this cutoff bundling. We believe that what we offer is unique value. Therefore, the conversation is about the extra value the NDS package offers. The fact that we're actually able to offer NDS to third parties further demonstrates the value of that portfolio on a stand-alone basis. Yes, we've purposely constructed this in a way to give you all some visibility as to what those numbers are rather than putting them all together. There are some other people in our sector that claim to put them all together, but one of the issues with doing that is they tend to first give things away and number two, not appreciate what the real value proposition is. That's why we've deliberately done it this way; we believe it’s the best way to show us creating value and showing the customer–it’s an incentive to grow that even more because this segment is capital light. I personally believe it deserves better valuation because of it, plus the growth prospects on top of it. When it comes to third parties, we try to price based on the value what those tools bring to the party. Our corporate announcement shows focusing on third-party growth is a core element of our strategy. Nabors has the best set of apps for the rigs; they also bring operator workflows. By combining forces here, we're hoping to create the industry premier platform to integrate everything, providing a one-stop shop for operators and we’re excited about that opportunity.

Let me also comment on something, Keith, because I think it's a very relevant question. If you look at the margins of drilling rigs alone without including other services but just the drilling rigs, we have had the highest for the last three years in the market, barring nobody and by a significant margin. So we have a couple of thousand dollars more than our closest peers and maybe 3,000 or even more versus some of the Canadian companies. I'd like to point that out because that proves to you that, in addition to the $3,000-plus of NDS that we're getting, we are still getting the highest margins from the drilling rigs alone in the Lower 48 and by a wide margin.

Perfect. That's very helpful. And you answered my core follow-up in that as well. So I appreciate the comments.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to William Conroy for any closing remarks.

Thank you all for joining us this afternoon. If you have any additional questions or would like to follow up, please contact us. Rocco, we'll end the call there. Thank you very much.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.