Good day. And welcome to the Nabors Industries Fourth Quarter 2023 Earnings Call. Please note, this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Business Development and Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining Nabors fourth 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'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 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 other 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 morning. Thank you for joining us today as we present our results and outlook. Adjusted EBITDA in all our segments exceeded our expectations in the fourth quarter. Daily margins in the US Lower 48 and international drilling improved. Our two technology segments once again performed well. As we forecasted, the industry rig count in the Lower 48 declined modestly in the fourth quarter. Our major international markets were essentially in line with our prior view. During the quarter, we deployed three rigs in these markets. One was a new build unit in Saudi Arabia. Leading edge pricing in Lower 48 was stable. This helped drive the increase in our daily rig margin along with outstanding expense control. For the fourth quarter, adjusted EBITDA totaled $230 million. Our global average rig count for the fourth quarter declined by two rigs. All of this decline occurred in the US. Our Drilling Solutions and Rig Technologies segments together generated EBITDA of $43 million, a record. As a portion of total EBITDA, these segments accounted for nearly 19% in the quarter, also an all-time high. Next, let me make some comments on five key drivers of our results. I'll start with our performance in the US. Daily rig margins in our Lower 48 rig fleet exceeded our expectations. They increased by almost $400 compared to the third quarter. Daily revenue in the fourth quarter increased slightly. Daily expenses declined by more than $300. I am pleased with this performance. These results demonstrate our team's ability to execute at an impressive level in this market environment. Our reported Lower 48 daily rig margin reflects the financial results of just our drilling rigs. The drilling solutions portfolio generates significant margins on top of that. I'll discuss this in more detail in a few moments. Now I'll discuss our international drilling business. Daily margin in this segment increased by nearly $900. This result exceeded our expectations. During the quarter, we stood up three rigs. We restarted two in Colombia, and another newbuild rig in Saudi Arabia also started up. With these additions, we have now deployed the first five of the ongoing international startups that I detailed last year. Margins increased in Saudi Arabia, where our SANAD joint venture operates 48 rigs. This fourth quarter improvement resulted from the contribution from newbuilds deployed during the third and fourth quarters of last year, plus strong operating performance across the entire fleet. Let me add a few more comments concerning the newbuild program in Saudi Arabia. The fifth rig started in the fourth quarter. The second tranche of five rigs is currently under construction in the Kingdom. We currently expect the first of this group to spud during the current quarter. Two of the remaining four rigs should be deployed by the third quarter of 2024. The last two rigs of that tranche are expected to spud in early 2025. We expect the first unit of the previously awarded third tranche to start around midyear 2025. The outlook for the balance of our international business, both in the Middle East and in Latin America, remains quite positive. Three of the four total rigs awarded in Algeria started this quarter. We see prospects to add additional rigs in a number of international markets. These include Kuwait and Algeria in the Middle East and elsewhere in the Eastern Hemisphere, and Argentina in Latin America. Let me finish this discussion on the international business with a few comments on the recent news from Saudi Arabia. SANAD currently operates 48 rigs there. Of these, 40 are working gas and the balance in oil. Contracts for the oil-directed rigs have really been extended for a four-year period. With the Kingdom's focus on developing the natural gas resource, we are very comfortable with our position there. As to the newbuild program, this was contemplated well before capacity expansion plans in Saudi Arabia. The newbuild program is also a key element of the Kingdom’s Vision 2030 plan. As such, we are confident in the program's future. Next, let me discuss our technology and innovation. Revenue grew sequentially in all three portions of our business, a Nabors Lower 48 rigs on third-party Lower 48 rigs and in international markets. The international business recorded the strongest growth with revenue up 13% sequentially. Revenue grew in the Lower 48, both on Nabors and third-party rigs. I would like to stress that our services grew faster than the rig counts in both of these market segments. Our EBITDA increased by 13%, which beat our expectations. This performance represents the highest sequential quarterly progress in all of 2023. From a product line perspective, casing running and performance software drove our growth. Next, I will detail the value that we generate in the Lower 48 market. The average daily margin in the Lower 48 from our drilling and Drilling Solutions business combined was over $20,000 in the fourth quarter. Of that, our services contributed more than $3,900 per day. This significant incremental margin contribution, a quarterly record, comes with limited capital spending. Returns on capital in our business are the highest in our company. In the fourth quarter, penetration of our services increased on Nabors rigs in the Lower 48 to nearly 7 per rig. Once again, we saw growth in our SmartSLIDE directional steering system and our SmartNAV directional guidance software. These installs were up 19%. The casing running job count also grew significantly, up 17%. As shown by the fourth quarter results, our multi-cloud growth strategy for our portfolio is proving successful. Looking ahead, we see increasing interest globally across product lines, particularly for our advanced technology solutions. Next, let me make some comments on our capital structure. With the proceeds from our recent debt offering, we redeemed the notes that were due in 2024 and 2025, pushing our next maturity to 2026. As we look ahead, our first priority for free cash flow remains reducing net debt and improving our credit ratings. I'll finish this part of the discussion with remarks on sustainability and the energy transition. Our energy transition initiatives, as you know, focus on improving operational efficiency and reducing emissions intensity. These technology solutions once again contributed visible margins to our Rig Technologies segment. The most impactful is our PowerTAP module. This unit connects rigs to the grid. In the fourth quarter, we had 24 modules running, more than 20% of those were on third-party rigs. In addition, two units are in transit to Argentina. These two are the first PowerTAP units incorporating a frequency converter for the international market. We have eight more units under construction, including two destined for the international market, one more for Argentina and the second for a large market in the Middle East. Our energy transition portfolio continues to gain traction. We are encouraged by the emerging opportunities internationally, complementing those in the US on both Nabors and third-party rigs. Geopolitical events in the Middle East, interest rates and lingering inflation concerns all make for the continued elevated volatility of commodity prices. In this environment, the operator response to restrain ambitions and exercise capital discipline. It is understandable why operators are looking at mergers in this environment. The near term effect of recently announced mergers is yet to be fully determined. Notwithstanding this uncertainty, international prospects, particularly those driven by National Oil Companies, remain very attractive. Our geographical position is unique in the global land drilling industry. It enables us to capture international growth. At the same time, we are positioned to capitalize on any emerging growth in the US. Next, I will discuss the pricing environment. Our fourth quarter results for the Lower 48 reflect continued stabilization of leading edge market prices. I want to reemphasize that the rates for our highest spec rigs exceed all of the pre-2023 market highs. Our focus in the Lower 48 market remains profitability while we stay committed to delivering superior value to our customers. As such, we continue to demonstrate the value of our technology portfolio. As I mentioned, in the international market, we have committed seven additional rigs in 2024. This growth should provide substantial uplift potential to our earnings. We believe there is room for additional rig deployments in the Eastern Hemisphere and Latin America. I will discuss these in a few minutes. We surveyed the largest Lower 48 clients at the end of the fourth quarter. Our survey covers 17 operators, which account for approximately 46% of the working rigs at the end of the quarter. During the fourth quarter, consistent with the prior survey results, this group added more than 10 rigs. The latest survey indicates this group's year-end 2024 rig count will be essentially in line with the year-end 2023. More than half of the group signals no change. The balance indicates minor additions or decreases. We believe that with the uncertainty in commodity prices, customers remain cautious about their plans for 2024. Our plan for our Lower 48 business this year fully contemplates the current environment. We continue to focus on maximizing free cash flow while we look for opportunities to put additional rigs to work. Our view of the international market is bullish. With the international additions already in hand, we would increase our international rig count by almost 10% by the end of 2024. We expect our segment revenue to grow by low double digits and our EBITDA margins to expand. Next, I will share some of our notable recent highlights and accomplishments. First, we were selected by a very large operator in the Middle East to install our advanced rig control and automation system on five working rigs. The multi-round award process was competitive. This award marks the first rig automation project in this market. It is notable that Nabors was chosen to lead this effort. Second, we commenced operations in Arkansas to drill wells supporting lithium production. ExxonMobil selected a Nabors PACE-X rig for this project. Third, another of our PACE-X rigs was awarded at the beginning of the year by one of the largest operators in the Permian for the second consecutive year. Competition for this award came from rigs operated by six other drilling contractors. Next, we are now providing support to a drilling contractor in Libya under a recently signed technical services agreement. Under the agreement, we are providing expertise but have no capital at risk. In addition to these highlights, I want to mention the agreement between Nabors and SLB. Together, we will collaborate to scale automated drilling solutions for operators and drilling contractors. This integration of both companies' platforms expands the breadth of drilling automation technologies available to customers. It also increases their flexibility to utilize existing rig control systems from either Nabors or SLB. And to wrap up, the SPAC sponsored by Nabors closed the previously announced business combination with Vast Renewables Limited. The combined company trades on the NASDAQ Exchange under the ticker VSTE. Let me finish my remarks with the following. We are encouraged by our operational performance as we close out the year. Looking ahead in 2024, we see significant opportunities, both in our global markets and for our advanced technology solutions. Now let me turn the call over to William, who will discuss our financial results.

Thank you, Tony, and good morning, everyone. Fourth quarter financial results surpassed our expectations with EBITDA for all segments increasing sequentially. In the US, we managed to maintain our Lower 48 daily revenue at the strong level we achieved in the third quarter, while our operational expenses decreased meaningfully, following measures to reduce our field overhead. Consequently, our daily margins improved materially rather than decreasing as we had anticipated. International drilling benefited from increased rig count in Colombia and Saudi Arabia, together with disciplined cost control across geographies. Drilling Solutions delivered strong results well above our expectations, bolstered by year-end sales of casing running tools as well as robust deployments of our software and data offerings. For Rig Technologies, we believe an upgrade and recertification cycle is developing as global rig count increases. The segment also overdelivered with strong year-end shipments of rig components together with higher-than-expected equipment rentals and sales of spare parts. In addition, the margin mix of our revenue contributed favorably to the healthy fourth quarter result for the segment. We expect the first quarter drilling activity in the Lower 48 markets to improve over fourth quarter levels, though at somewhat lower average pricing. We also anticipate that the international growth we have experienced should continue throughout 2024. Although we are forecasting positive trends for our Drilling Solutions and Rig Technology to persist in the first quarter, we will miss the impact of the seasonal year-end equipment sales. For the full year 2023, revenue from operations totaled $3 billion. This compares to $2.65 billion for 2022, a 13% improvement year-over-year. Our drilling solutions and Rig Technologies led the way with both delivering 24% growth. Our drilling rig segments also grew significantly. Lower 48 improved by 15% while international increased by 12%. For the fourth quarter, revenue from operations was $726 million or 1% below the third, a slight decrease, reflecting a decline in US average rig count. This impact was partially offset by strong increases in Drilling Solutions as well as incremental rig counts in Colombia and Saudi Arabia. Revenue for our US Drilling segment at $266 million was down $11 million or 4%. This decrease reflected a 3.4 rig reduction in our lower hole rig count. Daily revenue of $35,800 was up slightly versus the third quarter. Revenue from our International segment of $343 million remained essentially in line with the prior quarter. In Saudi Arabia, we successfully deployed the fifth newbuild rig and improved operating efficiency. In addition, two rigs restarted operations in Colombia. Revenue from this incremental activity was offset by a reduction in low margin reimbursable in certain geographies. Revenue from Nabors Drilling Solutions grew sequentially by $4.2 million, an increase of 6%. Despite the lower rig count in the Lower 48, NDS demonstrated resilience by continuing to add third-party revenue and expanding operations in international markets. Compared to the third quarter, NDS increased Lower 48 third party revenue by 8% and international revenue improved by 13%. Rig Technologies revenue decreased by $2.2 million or 3.5%, primarily due to lower capital equipment sales through the Nabors fleet. Nonetheless, we experienced a material increase in third party high margin rig component, rental and spare part sales. Full year 2023 EBITDA reached $915 million, increasing by 29% from $709 million in 2022. This growth was spread across all of our segments. The improvement was primarily driven by significant daily margin expansion in both our drilling businesses and rig count expansion in international markets. Drilling Solutions and Rig Technologies also contributed meaningfully. Combined, these two businesses grew EBITDA by $43.6 million in 2023, a 38% improvement year-over-year. For the fourth quarter, total adjusted EBITDA was $230 million, $20 million higher than the third quarter, a 9.6% improvement. All of our segments contributed to the growth. Despite decreased Lower 48 activity, US Drilling EBITDA increased by $1 million or 1% compared to the prior quarter. This improvement was driven by the M400 maintenance-related downtime in the third quarter and higher daily margins in the Lower 48 market. Lower 48 drilling rate EBITDA decreased by $1.2 million or 1.2% sequentially. Average rig count of 70.3 declined by 4.6%. Average daily rig margin of 16,240 was almost $400 higher than the prior quarter on a moderate increase in value revenue and a $300 per day reduction in operating expenses. The leading edge price environment continues to hold steady and our efforts to limit costs are proving effective. For the first quarter, we project our average daily rig gross margin at approximately $15,300. The expected sequential reduction reflects repricing of renewals as rigs roll to new contracts. During the fourth quarter, our rig count was 70.3 on average and we exited the quarter at 74 rigs. We anticipate a high level of churn during the first quarter. Consequently, despite an underlying favorable trend in activity, we expect rig count in the first quarter to average between 73 and 75 rigs. On a net basis, Alaska and the US offshore businesses performed better than we anticipated. In the fourth quarter, the combined EBITDA of these two operations was $18.7 million, an increase of $2.2 million. EBITDA rebounded following third quarter planned maintenance on our M400 rig in the Gulf of Mexico. The strong offshore results were partially offset by year-end maintenance on two Alaska rigs. Combined EBITDA for Alaska and US offshore should increase between $1.5 million and $2 million in the first quarter driven by a rebound in Alaska activity and partly offset by a one rig drop offshore. International EBITDA increased by $9.4 million or 9.7% to $105.5 million. Average rig count and average daily gross margin improved, largely driven by the additional three rigs deployed as well as by operating expense reductions and improved operational performance in Saudi Arabia. For the quarter, average rig count increased by 2.4 to 79.6 rigs. Average daily gross margin came in at $16,650, up almost 900 from the third quarter. We project international average rig count in the first quarter to increase by approximately two rigs, driven by new build start-ups in Saudi Arabia and the commencement of our contract awards in Algeria. For average daily gross margins, we are targeting between $16,100 and $16,300. The anticipated sequential decrease compared to the fourth quarter reflects potentially higher startup costs for several rigs during the first quarter. Drilling Solutions’ adjusted EBITDA grew by 13.4% to $34.5 million in the fourth quarter. Gross margin for NDS was 52.4%, up from 51.2%. We continue to see increased market penetration, particularly in third-party rigs and in international markets. Internationally, NDS grew EBITDA by almost 10% sequentially. In the US, casing running and performance software drove robust growth. We expect first quarter EBITDA for drilling solutions to come in between $30 million and $31 million, primarily driven by the absence of seasonally high equipment sales. NDS daily gross margin for the Lower 48 was $3,912, up 15% from the prior quarter. Our combined drilling rig and solutions daily gross margin reached $20,151, a 4.7% improvement. It is worth highlighting the NDS growth year-on-year. Comparing to full year 2022, NDS EBITDA increased by over 30%. NDS EBITDA's contribution to Nabors as a whole also increased, while gross profit margin widened. Rig Technologies generated EBITDA of $8.8 million, a 22% increase versus the third quarter. This growth was primarily related to high margin year-end capital equipment shipments, rentals and spare part sales. I would also like to point out that our energy transition business has started to contribute meaningfully to our Rig Technologies’ EBITDA. We expect Rig Technologies’ EBITDA in the first quarter of $5 million to $6 million. Now turning to liquidity and cash generation. Overall, our 2023 EBITDA was historically strong. It is true, however, that last year, we had a significant EBITDA shortfall in our US segment driven by the market. In Saudi Arabia, we delayed newbuild deployment. Notwithstanding these shortfalls totaling nearly $200 million in EBITDA, we still generated $111 million in free cash flow. Other factors did affect our free cash flow in 2023. Our CapEx for the year at $553 million was higher than we had forecasted by about $70 million, most of the variance coming from Saudi Arabia. In addition, we incurred capital expenditures from incremental international awards that required significant upfront investment spent well before the corresponding EBITDA generation. Also, we purchased our operating base in Vaca Muerta, Argentina, as our activity in that basin continues to expand. Interest expense was also higher than we planned with rates increasing sharply during the year. Finally, working capital rather than being a tailwind, actually increased in the second half of the year as clients held on to their cash for longer, likely driven by the higher interest rate environment. In terms of capital structure, we remain busy during 2023, addressing our debt maturity profile. During the year, we completed capital market transactions for a total of $900 million. Late in 2023, Nabors issued $650 million of senior priority guaranteed notes due in 2030. During January of this year, we retired $630 million of our near-term debt maturities, mainly our 2024 convertible debt and our 2025 senior unsecured notes. These transactions extend our next debt maturity into 2026. Free cash flow totaled $52 million for the fourth quarter. This result includes an increase in capital expenditures versus our projection and working capital headwinds. CapEx of $124.5 million in the fourth quarter fell by $32 million below the level of the preceding quarter, but was significantly higher than our target, mainly in Saudi Arabia. This amount included investments for the SANAD newbuild program of $42.9 million. For the first quarter of 2024, we expect capital expenditures of approximately $170 million to $180 million, including $50 million for SANAD newbuild. This should be the high water quarterly mark for the year. We will refrain from providing annual free cash flow and CapEx guidance at this point. We're currently considering a total of eight additional international tenders. In conclusion, the fourth quarter had many positives. First, our EBITDA rebounded close to the levels of the first half and was significantly above our expectations. Second, the Lower 48 was higher than we expected with very strong price and cost performance. We are seeing an increasing rig count in that market with stability in leading edge pricing. Third, international rig count increased and margins were also significantly stronger than expected, almost $900 over the prior quarter. Fourth, our service segment was strong in international and third-party sales with our gross margin profitability expanding. Fifth, our Rig Technologies also grew with signs that an upgrade rectification cycle is commencing and with encouraging performance from our IT business. And finally, I can say that the future bodes well with double-digit international revenue growth expected in 2024 and a base being built for further Lower 48 recovery. This improved drilling environment and further progress on our market penetration strategies should also continue to drive improved results for Drilling Solutions and Rig Technologies. Although at this point, we will not provide annual guidance, we expect Lower 48 rig count to recover throughout the year from the 2023 quarterly average. Our full year 2024 average should end up somewhere close to our average for the full year 2023. International average rig count should increase by somewhere between seven and 10 rigs, depending on the timing of deployments. We also expect Drilling Solutions and Rig Technologies to increase significantly compared to 2023. And during 2024, we expect to deliver a significant sequential increase in free cash flow. Of course, we are planning to allocate this cash generation towards reducing our net debt. With that, I will turn the call back to Tony for his concluding remarks.

Thank you, William. I will now conclude my remarks this morning. As we look ahead, we see significant opportunities. As mentioned previously, we have enhanced seven rig startups in 2024, which, combined with deployments in 2023 will yield sizable EBITDA contributions in 2024. Looking ahead, we still have in our pipeline additional opportunities, which we are evaluating. Those markets include Algeria, Kuwait, Argentina, and one more rig in a market in the Eastern Hemisphere. That totals eight rigs in these markets. On top of these eight, we have committed orders for seven more rigs in Saudi Arabia in 2025 and 2026. Altogether, these add up to 15 incremental opportunities on top of the seven committed rigs for 2024. We believe it is imperative to use our strong geographical position to take advantage of these favorable market opportunities. The Nabors portfolio is uniquely positioned to take advantage of multiyear contracts with attractive returns in international markets. Ultimately, when combined with the prospects for our services, this is one of the most attractive environments we've seen in years. This concludes our remarks today. Thank you for your time and attention. With that, we will take your questions.

Our first question comes from Kurt Hallead with Benchmark.

Thanks for that thorough assessment. So Tony, I'm really curious in the context you're right, it looks like there's this continued growth wedge between international and the US. And you kind of laid out how you think things are going to run. So when you think about the opportunities outside of Saudi, it seems like there’s always been something that kind of gets in the way that impedes timing or startup, or something along those lines. So just kind of curious on how you think about that with respect to the seven to 10 rig increase that you're thinking out through 2024 and what could be some of the risk factors again outside of Saudi?

Let's break it down first. To provide some context, in the latter half of 2023, we added five rigs internationally, including one in the UAE and two in Colombia, along with two new builds in Saudi Arabia. This is how we ended the year. For 2024, we have commitments for seven rigs, three of which are for Saudi Arabia and four for Algeria. We have a strong understanding of the Algerian market, and Canrig has a solid presence there, so we are confident in our infrastructure. We expect the three new builds to be operational in the first quarter. The organization has been preparing for this for some time and is ready to meet these demands. We have seven rigs confirmed for 2024, which are secured. Additionally, there are seven more rigs confirmed by Aramco for 2025 and 2026. Over the next two years, this amounts to 14 rigs, allowing for some overlap depending on timing. We have strengthened the Saudi organization, bringing in team members from Houston to support ongoing operations. We are well-positioned to scale up and ensure success, which is why we've reorganized the company to concentrate on key markets. During my last conference call, I mentioned about 10 or 12 markets, which currently have approximately 50 tender opportunities. We are focusing on refining our approach to these markets as noted in our presentation, which highlights 12 opportunities, although I referred to eight in my remarks. Our goal is to enhance our execution capabilities, which will depend on both economic factors and our ability to deliver efficiently. Ultimately, we have a unique geographical position and portfolio, balancing a significant presence in the US with international operations. We aim to capitalize on this advantage, especially considering the recognized upward trend in international markets.

No, that's really helpful. Now the second element of the question, you referenced the quarterly survey that you do with E&P companies. And again, if I heard you correctly, you referenced that those companies would effectively exit 2024 flat with year-end 2023, which from this point, would effectively represent no change in overall drilling activity. However, you referenced that you expect your rig count in 2024 in the US to average the same as it did in 2023, which by math would infer you're going to add anywhere around eight to 10 rigs between now and year-end. So the question is, are you displacing other contractors if the overall rig market is not expected to grow?

Let me put it this way. We get compensated for improving our performance, so we really need to enhance what we do. In this current market, operators seem less enthusiastic, which means everyone will be concentrating on optimizing their efforts. This likely involves embracing new technologies and potentially changing service providers. Given the ongoing churn, there’s an opportunity for us and some of our major competitors to strengthen our positions. We're ready to capitalize on that potential. Recently, acquisitions in the industry show that there is long-term value in the U.S. market, pushing companies to focus on profitability, which ultimately benefits us. Furthermore, as consolidation continues, larger players will seek our support to carry out their plans, and we aim to position ourselves accordingly. Listening to CEOs in these companies reveals that advancing their economics hinges on adopting superior technology, particularly advancements in wellbore intelligence and completions. We believe our diverse technology portfolio can address these needs effectively. I want to emphasize that while it may not currently seem the case, we do have the longest lateral in the market — approximately 32,900 feet for Exxon, with a lateral measurement over 22,000 feet. Our top drive and other equipment are well-equipped to handle this demand. That gives me confidence. However, it is important that the market supports us in achieving these numbers; that’s our aim for management this year. It's a significant challenge, but that’s our goal moving forward. Does that resonate with you?

The next question comes from Derek Podhaizer with Barclays.

I appreciate the comments regarding Saudi's recent announcement, and I understand that it should not impact your new build program. However, what about the potential slowdown in existing activity? Could there be a threat to the timing of your rig deployments and how you've previously managed them, particularly with three recent changes awarded? Is there any risk that this could be delayed from your current position?

The short answer is no. Let me explain why. There are currently 210 land rigs operating in Saudi Arabia and 87 offshore rigs. Conventional oil and gas represent 73% of the market, while unconventional resources account for about 10%, with 22 unconventional rigs in operation today. Right now, Aramco is in the process of awarding contracts for 2024 and 2025 for 20 additional rigs, and we've noted some announcements related to that. These 20 rigs are in progress, and we have not seen any indications that they will be impacted. The reasons for this are twofold. While I can't predict everything happening there, we believe there is increasing domestic consumption that natural gas needs to address, as well as the appeal of a growing export market. These factors are not influenced by the capacity issues that have been mentioned. Currently, SANAD operates 48 rigs, with over 75% directed at gas. In fact, this year, the only two rigs we have up for renewal are gas-directed rigs, which puts us in a strong position. The new build program you mentioned was established when we formed the joint venture over five years ago and is part of the Kingdom's long-term industrial policy linked to Vision 2030. Once these policies are set, they are difficult to change, so I don't foresee any significant alterations. It may affect the cadence slightly, possibly altering targets from four to five rigs per year, but so far we have not heard of any changes affecting the rollout. We currently have five newbuild rigs operational and 45 more on the way. We believe this represents an unprecedented growth opportunity, and when fully realized, could yield nearly $500 million in EBITDA just from these intended rigs. This is a significant endeavor, which is why we are investing the necessary capital, even though we have spent a bit more than planned this year due to timing issues. We see ourselves positioned in a unique market, and we are eager to capitalize on that as much as possible. We are pleased that Aramco has been a strong partner throughout this process, and we haven't encountered any reconsideration of our plans.

I appreciate all the detail. That is very helpful. Just switching over to the US. So you talked about the dynamic of repricing your rigs lower down the current market rate, which is putting some pressure on your first quarter margins. You've also talked about how current rates are remaining steady. So maybe just expand on that churn as your higher-priced rigs go down to the current market rates? And maybe when should that spread narrow from what you see in your blended average versus where we are at current rates, and then maybe talk about contracted versus spot exposure across the fleet today?

Let me start by saying that our guidance for the first quarter takes into account ongoing churn and current market pricing. To give you an overview of the market by region: in West Texas, churn is high and activity levels are down; in South Texas, churn is low and activity is flat; in East Texas, churn is medium with activity down; in the Northeast, churn is low and activity flat; and in North Dakota, churn is low but activity is flat, although Nabors has seen some recent positive activity. Since 44% of our rigs are located in West Texas, this influences our overall perspective on churn, which is a concern given the current market conditions. I see two positives in our results. Firstly, our customer base has shifted towards public operators, with about 72% of our clients being public as opposed to 61% last year. Secondly, the mix of our gas rig count has changed, decreasing from 30% in early 2023 to 14% today. Our guidance reflects this reality while maintaining a disciplined strategy regarding job selection, pricing, and customer engagement. We also aim to share our journey on technology deployment, which is crucial for achieving better returns. When assessing our returns, it’s important to consider both the service margin per rig and the base drilling margin. In the last quarter, the service margin was $3,900, which, when added to the drilling margin of over $20,000 per rig, indicates a strong position in the current market. Our goal is to preserve our outperformance by selecting customers aligned with these factors. Does that clarify things?

It does. And then maybe just quickly on the narrowing of your blended revenue per day and then just where the current spot is, like just as we think about the churn through the year. How is that going to narrow, maybe how wide it is now?

So I think the latest contracts that we are signing are somewhere a couple of thousand dollars in terms of revenue per day beyond where the blended average is. Now we do have a ton of contracts that are locked in already. I would say 30% have a lot of term remaining. So the other 70% are basically exposed to where the leading edge day rates are over the next six months. So on average, that's why we are forecasting a reduction of about $1,000 per day in the first quarter. At this point, we're not ready to look at the second quarter, but we think that prices have steadied and we are even managing to get leading edge prices in some cases that were higher than the prior contracts. So we think we're in a good situation right now. But undoubtedly, because of where our revenue per day and the fourth quarter was a bit of a surprise to us and how well we managed to renew our contracts and maintain the day rates at a pretty high level, we do think we'll see some deterioration in the first quarter. And we would hope that the second quarter we see some stability for the average day rate or the average revenue per day. So we're seeing the narrowing happening sometime and crossing over, I guess, sometime in the second quarter.

The next question comes from Waqar Syed with ATB Capital Markets.

My question relates to free cash flow. And that's the number question I'm getting from clients right now. You're not giving guidance for free cash flow for 2024. Is that because you're not sure of any additional contract wins internationally, or anything on what's driving the reason or what's the reason behind not providing guidance?

We're not providing guidance. I'll address that first because it's still very early in the year and we do have a very meaningful amount of contracts that are being negotiated and vendors outstanding, as Tony mentioned. Those can have a significant impact on EBITDA, but also on CapEx. So before we get the outcomes of those contracts, we feel it's a bit premature to go out on free cash flow for the year. But if you're referring to the fourth quarter, also, you mentioned that some clients are asking about it. What I'm focusing on is that our underlying cash flow generation was very strong from our operations. In fact, the underlying cash flow was strong and remained strong. Now we did have some unplanned items that fell in the fourth quarter. So if I focus just on the fourth quarter, the biggest shortfall was really working capital, and that was about $50 million versus what we forecast. The working capital was higher. $40 million of that was our accounts receivable. We were planning to reduce our accounts receivable inventories for the quarter, but those increased during the fourth quarter, mostly in worse collections than we targeted. The US was the main driver, but it was not the only one, by the way. We really have had a tougher time in the second half of this year collecting from our customers. I do suspect that interest rates have something to do with this. Nonetheless, it is true we need to adjust to this environment and find a way to bring this DSO down, and we have a plan for materially reducing our inventory. So we expect those to have a very positive impact in 2024. I hope that answers your question.

Just on 2024 CapEx, are you prepared to provide just the bookends on the kind of range? And I'm sure it's a pretty wide range, because reactivations can be quite costly internationally. But maybe a broad range of if you don't get a contract where they could be, and if you get additional then where it could go?

We have our board meeting today, which will continue until Friday. These discussions are crucial for us, particularly regarding CapEx and free cash, which are significant matters as you've noted. Until we receive the board's approval on what we can prioritize and what they will authorize us to pursue, providing a broad range such as a $50 million or $60 million difference would be unhelpful at this stage. I can say that we anticipate our CapEx will be somewhat higher next year compared to this year. That's all I can comment on for now.

I would like to highlight that when we examine our free cash flow for the year and consider the in-Kingdom rigs, which represent our newbuild program investment, the total amount of free cash flow generated this year is quite impressive. It reflects the strength of our portfolio as a company. I take pride in the fact that we are undertaking a newbuild program of this magnitude, which is unique in our industry. The ability to pursue this while also reducing debt and managing other initiatives is something that sets us apart, given our portfolio. That’s an additional point I wanted to make.

The next question comes from Arun Jayaram with JPMorgan.

Gentlemen, I appreciate the fact that you don't have a Board approved budget for 2024, but the CapEx commentary was helpful. Tony, you mentioned seven to 10 incremental international rigs that you expect by year-end. Can you give us maybe a little bit of a flavor of the type of rig that you expect to deploy? And what type of CapEx do you see on those, call it, reactivations and upgrades, are these rigs that are already located internationally or are you moving some capacity from the Lower 48?

The seven rigs I mentioned include four rigs in Algeria, which are existing rigs being upgraded, and three newbuilds. Each newbuild costs over $50 million, while the upgrades are already in Algeria and not being transported from the US. The sizes of these rigs are smaller compared to the average rigs in Saudi Arabia, which affects our blended margins. Specifically, the Algeria rigs are 1500 horsepower, smaller than our other rigs. Consequently, when considering our margin for the first quarter, there are variations in mix and timing that influence the margin calculations. Importantly, these rigs do not involve any units or upgrades from the US, which sets us apart since we already have rigs available in the international market.

So we did dial in a slight reduction in margin in the first quarter because we're going to have like seven rigs coming in; we took a little bit of a cautious view on deploying those rigs and the amount of uptime we're going to get at the beginning until those rigs are fully operational. So there is a little bit of that included in the forecast for the first quarter.

And maybe just one follow-up, Tony. One question that's come in as you do deploy the SANAD newbuild as part of the JV, are these take-or-pay contracts and what kind of contract commitments do you have on those, because you are investing capital there?

Yes, these are 10-year contracts with six years of take-or-pay obligations and a four-year guaranteed renewal option. There are a total of 10 contracts. This is what sets these agreements apart; no one else has contracts structured this way, with six years of take-or-pay and a guaranteed four-year renewal, resulting in a comprehensive 10-year contract.

This concludes our question-and-answer session. I would like to turn the conference back over to William Conroy for any closing remarks.

Thank you all for joining us this morning. If there are any additional questions, please follow up with us offline. And with that, we’ll end the call there. Thanks very much.

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