Good day, and welcome to the Q2 2024 Nabors Industries Ltd. Earnings Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining Nabors' second quarter 2024 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 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 today. Before I begin, I would like to acknowledge the challenging conditions impacting the communities in hurricane Beryl's path; a number of Nabors employees have suffered damage to their homes. It is a strong testament to our staff that we have been able to maintain operational continuity. I want to thank all of our employees, especially those facing difficult personal situations, for their efforts during this time. Now, I'll start with our results and outlook. Total adjusted EBITDA in the second quarter exceeded our expectations. Daily margins in the U.S. Lower 48 remained strong. Margins in our international segment were essentially in line with the first quarter. Demonstrating its broad reach, our Drilling Solutions segment outperformed the industry rig count in the Lower 48. I'll begin my detailed remarks with comments on the international markets. The strength of the international expansion is evident when looking at the considerable number of incremental rig awards and deployments. Nabors has been successful capitalizing on this environment. We've seen this in our own international rig count and our roster of pending deployments. In summary, as I'll detail in a few moments, we expect to deploy five more incremental rigs over the remainder of 2024. Lower 48 industry activity once again declined. The Lower 48 industry land rig count declined by 37 rigs or 6% during the second quarter. The average Lower 48 industry rig count decreased by approximately 4%. Notwithstanding the Lower 48 industry rig count performance, leading edge pricing for high performance rigs remains stable. Current pricing continues to support our daily rig margins at near record levels. Nabors' total adjusted EBITDA reached $218 million in the second quarter. Our global average rig count was essentially in line with the previous quarter. Our average international rig count increased by three rigs. Nabors Drilling Solutions and Rig Technologies segments generated a combined EBITDA of $40 million. This high free cash flow EBITDA increased from the previous quarter. These high tech operations accounted for more than 18% of total EBITDA in the quarter. Next, I will make some comments on the five key drivers of our results. I'll start with our International Drilling business. As I have said for some time, this international market is the strongest we have seen in 10 years. That strength is evident across many of our markets. We have been successful on recent tenders and negotiations. We are encouraged by the substantial number of pending opportunities. This environment enables us to remain highly selective. We are targeting high return opportunities that meet or exceed our free cash flow objectives. In the second quarter, we deployed the third rig of our earlier four rig award in Algeria. We expect the fourth rig to start in the current quarter. We have begun work towards the deployment of three incremental rigs in Argentina. These rigs, which we announced earlier, span multiple operators. We expect all three to commence operations around the end of 2024, the first two in the fourth quarter, and the final one in the first quarter of 2025. The three rigs for Argentina will utilize idle rigs in the Lower 48. In addition, we expect substantial Drilling Solutions content on all of the rigs. In Saudi Arabia, the sixth SANAD newbuild began drilling during the second quarter. The seventh finished its acceptance procedure and spud its first well in early July. The eighth and ninth newbuilds are now targeted for deployment in the fourth quarter of this year. At this point, another five are expected in 2025, and one more should start at the beginning of 2026. A quarter ago, we announced we were shortlisted for three rigs in a large market in the Middle East. We can now say we have received formal awards for the three rigs in Kuwait for work starting in 2025. Each of the rigs is currently in country. Kuwait is an important and challenging market. It requires high spec equipment and skilled crews. These are Nabors' strengths. We are well-positioned to capitalize on increasing demand there. With these developments, it is clear our prior optimism was well placed. I am confident we will report even more progress on this front. In the second quarter, several markets drove the sequential improvement in our international EBITDA. Our operation in Colombia returned to a more normal performance after experiencing some labor unrest in the first quarter. Algeria, Saudi Arabia and Kuwait improved as well. Let me finish by giving you a little more color on our activity in Saudi Arabia. Saudi Aramco recently announced $25 billion of overall contract awards for the development of natural gas. Nabors, and more recently through SANAD, have historically supported Aramco's natural gas production. Today, approximately 80% of SANAD's rigs are spec'd and actively drilling for gas. Next, I'll discuss our performance in the U.S. Daily rig margins in our Lower 48 rig fleet slightly exceeded our expectations. The market for our rigs remains resilient. We continue to focus on the portion of the market that values automation and performance. At the same time, pricing discipline remains our priority. From the start of the second quarter to the end, our own rig count outperformed the industry. Our reported Lower 48 daily rig margin reflects the financial results of just the rigs. NDS generates significant margin on top of that. I'll discuss this in more detail in a few moments. Next, let me discuss our technology and innovation. Our Drilling Solutions business continues to gain traction on international rigs. NDS's international revenue and EBITDA were each up sequentially by double digits. This performance demonstrates our growing success to extend NDS beyond the U.S. market. The growth was driven primarily by our casing running and managed pressure drilling solutions. Overall, NDS EBITDA exceeded our expectations. Next, I'll discuss the Lower 48 market specifically. The average daily margin from our Drilling and Drilling Solutions businesses combined was $19,100 in the second quarter. Of that, NDS contributed $3,500 per day. This second quarter NDS performance marks a slight increase over the first quarter. Penetration of NDS on Nabors rigs in the Lower 48 remained high in the second quarter. Penetration was equal to the first quarter. However, overall results in Nabors rigs were muted due to the decline in Nabors' rig count. In terms of specific services, NDS saw volume increases in managed pressure drilling and casing running. Our results for the second quarter validate our continued strategy to focus on the third-party market. This focus enables us to offset the effects of a sideways rig count in the U.S. Next, let me make some comments on our capital structure. During the second quarter, we amended our credit facility. We expanded the facility and extended its maturity by five years. More recently, we issued $550 million of seven-year notes. With those proceeds, we intend to retire the existing notes due in 2026. This financing extends our weighted average maturity by more than a year, from 3.6 years last quarter to 4.7 today. In the second quarter, we generated free cash flow and reduced net debt. Our priority remains reducing debt. I'll finish this part of the discussion with remarks on sustainability. Our energy transition portfolio focuses on improving operational performance and reducing emissions. In the second quarter, these solutions made a notable contribution to the results in our Rig Technology segment. The most impactful energy transition initiative remains our PowerTAP module. This unit connects rigs to the grid. It reduces diesel fuel consumption as well as related emissions. Where grid power is readily available, operators realize significant savings by running PowerTAP. With the performance and savings we demonstrated in the U.S., we see growing opportunity internationally. We expect to have the first three international units deployed by the end of the year. Traction in our energy transition portfolio remains strong in the U.S. On top of that, operators in our markets beyond the U.S. are gaining interest. Next, I will discuss the rig pricing environment. Our second quarter results in the Lower 48 showed resiliency in leading edge market pricing. With a focus on operational excellence, continued pricing discipline remains our mantra. Our Drilling Solutions portfolio plays an important role in this approach. In the international market, we still have visibility to additional near-term rig awards. They're spread across geographies, including Asia, MENA, and Latin America. These markets are seeking more than 30 rigs. Those are in countries where we work currently or that we consider attractive. With this volume, we can be selective when it comes to adding work. And with the increasing tender activity, as you would expect, pricing is showing signs of firming. We surveyed the largest Lower 48 clients at the end of the second quarter. Our survey covers 16 operators, which accounted for approximately 47% of the Lower 48 industry's working rigs at the end of the quarter. The latest survey indicates this group's year-end 2024 rig count will be modestly lower than the total at the end of the second quarter. Essentially, all of the projected decline relates to announced merger activity. The operators not involved in mergers project activity to remain at current levels. Aside from the mergers, we believe that clients remain cautious about their plans for 2024, particularly in gas-focused basins. At the same time, we expect the market to continue to exhibit a relatively high level of churn. For the international market, our view remains bullish. We are on track to add an additional five rigs in the second half of 2024. This yields a 10 rig increase in rig count compared to the end of 2023. What is particularly satisfying is that we already have good visibility for 2025, namely nine scheduled deployments including five rigs in Saudi Arabia, one in Argentina, and three in Kuwait. Next, I will share a couple of highlights from the quarter. In addition to those we announced in the press release, the common thread in all of our highlights is a strong element of our advanced technology solutions. A major operator in the Gulf of Mexico extended NDS casing running services for three years on six deep water units. This award solidifies Nabors' position in this market. We installed our SmartROS rig operating system on five third-party rigs for three different drilling contractors. These installations demonstrate the value that our advanced rig technology delivers across the spectrum of contractors and operators. We believe these SmartROS installs provide the basis to secure additional NDS content with these contractors. Let me finish my remarks with the following. Our performance in the second quarter exceeded our expectations. We are deploying the previously awarded rigs in our international markets. At the same time, our advanced technology continues to deliver industry-leading performance across our markets. Now let me turn the call over to William, who will discuss our financial results.

Thank you, Tony, and good morning, everyone. Overall, the second quarter financial EBITDA was slightly below our first quarter results as increases in our International Drilling segment, as well as Drilling Solutions and Rig Technologies were offset by the sequential decline in the U.S. drilling segment. In general, international activity for all of our segments almost compensated for the reduction in the Lower 48 markets. We are encouraged by the strength of our international activity and its future growth prospects, as well as by the recent stability in our Lower 48 rig count and by the resilience of our pricing in this market. Revenue from operations for the second quarter was $735 million compared to $734 million in the prior quarter. Our U.S. drilling segment decreased by $12.3 million or 4.5%, primarily due to rig count reductions in the Lower 48 market. Lower 48 decreased by 4.9% as the current market conditions drove a sequential three rig reduction. That being said, pricing held up well. Our daily revenue for the fleet came in at $35,334, only $134 below the first quarter. Revenue from our International segment increased by $7.4 million or 2.1% for the quarter. This improvement was primarily driven by our operations in Algeria with a startup of one more rig and by Argentina as a result of adjustments in our pricing. The impact of the deployment of an additional rig in Saudi Arabia was mitigated by the previously announced downtime linked to recertification work during the quarter. Revenue from our Drilling Solutions segment also grew by $7.4 million in the second quarter, a 10% improvement. This increase was driven by wellbore placement in the U.S. and by international growth in casing running and managed pressure drilling services. Performance-related revenue in the U.S. was hurt by our decreased rig count in the Lower 48 market. Despite the challenges in this market, we achieved a 22% sequential increase in third-party revenue. Additionally, in the international market, NDS expanded its sales by 18% as we continue to focus our efforts on growing this segment globally. Rig Technologies revenue was slightly below the first quarter level as strong aftermarket sales were more than compensated by sluggish capital equipment revenue, particularly in the U.S. Now turning to EBITDA and the outlook. Total adjusted EBITDA for the quarter was $218 million compared to $221 million in the first quarter. U.S. drilling EBITDA of $114 million was down by $6.4 million or 5.3%, driven primarily by the activity reductions in the Lower 48 market. Lower 48 drilling EBITDA of $92 million decreased by $6.8 million or 6.9% compared to the prior quarter. Our average rig count in the Lower 48 decreased to 68.7 rigs. The three rig reduction was one more than we expected. The Lower 48 market continues to exhibit high levels of churn, which in turn impacted our rig count. We exited the second quarter with 69 operating rigs. Average daily rig margins came in at approximately $15,600, down $400 from the first quarter, but somewhat higher than our forecast. Leading edge pricing remains stable with daily revenue in the low to mid 30s. We have been experiencing this leading edge price point consistently in this range for approximately a year now. Consequently, our average daily revenue has held at high levels. Given the pressure on rig utilization, this stability confirms a strong value proposition of our fleet, having high specification, high technology rigs. For the third quarter, we project our Lower 48 daily margins will come in between $15,100 and $15,200 as rigs roll to new contracts with leading edge pricing somewhat below our average for the fleet. We also anticipate a rig count in this market to tick up slightly and average approximately 70 for the third quarter. On a net basis, Alaska and the U.S. offshore businesses performed somewhat better than we anticipated. In the second quarter, the combined EBITDA of these two operations was $21.8 million, a slight sequential improvement. In the third quarter, combined EBITDA for these two markets should decrease by approximately $1.5 million as one of the smaller offshore rigs rolls off contract. This is typical for the season. Our International Drilling segment delivered EBITDA of $106.4 million, an increase of almost $4 million. International average rig count grew by 3.4 rigs with a start of two SANAD newbuilds in the second quarter, and the impact of three units redeployed in Algeria over the first half of the year. Average daily gross margin came in at $16,050, which is in line with the first quarter results. We expect international average rig count in the third quarter to increase by approximately one rig. During the period, we will benefit from the full quarter contribution of the two newbuild startups in Saudi Arabia. We expect to deploy two more SANAD newbuilds in the fourth quarter with deployments for the full year 2024 totaling four rigs. Another six rigs have already been requested by Aramco for deployment in 2025 and into 2026. In Algeria, we are targeting one rig startup during the third quarter for a total of four rigs deployed in 2024. Looking forward, we also expect the startup in the fourth quarter of two units redeployed to Argentina from the U.S. The third quarter rig additions may be partially offset by some idle time in another market as one of our rigs rolls to its new contract. We project third quarter international daily margins between $16,200 and $16,300, an increase from the second quarter. Drilling Solutions adjusted EBITDA grew by 2.1% to $32.5 million in the second quarter. Gross margin for NDS was just above 48%. Our margins were affected during the quarter by an unfavorable mix as revenue for a lower margin well replacement activity grew meaningfully. Despite the current performance of the U.S. drilling market, the international market continues to expand. Our focus on penetrating international markets is yielding positive results. We expect third quarter EBITDA for Drilling Solutions to increase by approximately 6% over the second quarter level. NDS gross margin per day for the Lower 48 was $3,500, a 2% increase compared to the first quarter. This improvement took our combined Drilling Rig and Solutions daily gross margin to $19,100. Rig Technologies generated EBITDA of $7.3 million, an improvement of 7.8% versus the first quarter. The sequential increase was primarily related to our capital equipment sales, aftermarket repairs, and energy transition businesses. These more than offset a decline in part sales, maintenance services and rentals as U.S. operators sought to reduce near-term costs. By these pressures, we expect Rig Technologies EBITDA to improve by approximately $1.5 million in the third quarter on the strength of our international activity. Now turning to liquidity and cash generation. Free cash flow totaled $57 million in the second quarter. This compares to free cash flow of $8 million in the first quarter. Improved working capital and lower cash interest payments contributed to the increase. Capital expenditures in the second quarter were $138 million, an increase of $26 million. This includes $56 million for SANAD newbuilds, which drove most of the total sequential CapEx increase. We are targeting CapEx between $190 million and $200 million for the third quarter and reiterate our expectation of approximately $590 million for the full year 2024. Net debt at the end of the quarter decreased by almost $50 million to $2.04 billion. We continue to be on track to deliver free cash flow of between $100 million and $200 million for the full year 2024. During the quarter, we replaced our $350 million credit facility that was scheduled to expire in 2026 with a new $475 million facility that expires in 2029. The facility includes $350 million for revolving credit and $125 million for letters of credit. Additionally, the accordion feature of $100 million was upsized to $200 million. More recently, Nabors issued this week $550 million in 8.78% priority guaranteed notes maturing on August 15, 2031. Proceeds of the transaction will be used to retire the $556 million outstanding in priority guaranteed notes maturing in January 2026. These two transactions have substantially improved our debt profile and provided us with a significant reduction in credit exposure. We have no further maturities until 2027 when our senior priority guaranteed notes mature. With that, I'll turn the call to Tony for his concluding remarks.

Thank you, William. I will now conclude my remarks this afternoon. As we look ahead, we see significant opportunities. From today, we expect five international rig startups over the remainder of 2024. These will all be working on multi-year contracts. In addition, we have visibility for an additional 10 total deployments in 2025 and 2026. Their economics should generate attractive financial returns. With these, we have secured a well-defined path to a significant growth in our international business and its free cash flow. Looking ahead, this market presents us with opportunities for even more rigs. Additionally, both our Drilling Solutions and Rig Technologies businesses are poised to capitalize on this environment. I'm looking forward to reporting on our progress. That concludes my remarks today. Thank you for your time and attention. With that, we will take your questions.

And the first question today comes from Kurt Hallead with Benchmark.

Hey, good morning guys.

Good morning, Kurt.

Good morning. How are you doing Kurt?

Hey, you guys laid everything out quite clearly. I think the one thing that really caught my attention was the commentary about the prospects for your U.S. rig count to modestly increase throughout the year, and this is in particular, I guess, positive contrast to the commentary that you provided related to that survey you did of E&P companies. So kind of curious as to what are the dynamics that are driving the demand for your rigs, say relative to the overall market?

Well, let's put some context on the thing. Obviously the U.S. market has been very challenged. In the last quarter you saw the rig count go down almost 40 rigs. And our goal, as you can see from our results, has been trying to maintain profitability and pricing. We haven't chased market share and we don't intend to. What we've really focused on is operational excellence and following the needs of the customer. I think there's been a lot of talk about the downside of customer consolidation, but there is a lot of upside to customer consolidation. One, of course, is that the consolidation makes the industry have a life to it. I mean, it provides viability for investors to see that our industry isn't dead by 2030, which a lot of the energy transition people keep talking about. So it's also good for larger contractors given who the players are. And I think what's happening is that this rationalization occurs and as they get digested over the course of the year, we think that'll create opportunities for us to really have a wider audience for our technology and our type of rig. And we've put a lot of effort into that as you know, and we think as the market tries to capitalize on making these new prospects even more profitable, what's going to happen is that the large operators are also going to focus on new solutions. And we have a pretty robust portfolio of other things behind us that we think also have good follow on. So I think in the short-term there's obviously ups and downs. We've said our number we're expecting for this quarter is based on conversations that are in place right now. It's definitely a challenge and it's also a challenge to do that while trying to maintain the results you've seen. But I think we've done a pretty good job so far and that's what we're targeting for this quarter.

Okay, that's great. Great color. And maybe one for William on free cash flow. It looks like you reaffirmed what you said last quarter about $100 million to $200 million free cash flow, obviously and then you have the debt dynamic where you're going to basically take out the existing notes. Now coming back full circle, maybe William in the context of the prospects, how do you think about the dynamics related to absolute debt reduction?

So, Kurt, the plans are to use all the cash and the proceeds that we got from the bond obviously to pay down the debt. So that will reduce the actual total debt. But all the cash that's going to be generated is going to be applied to reducing total debt. We're not going to leave the cash on the balance sheet; we're going to be paying down debt as we go forward.

Okay. That's awesome. Appreciate that color. Thank you.

Thank you. And the next question comes from Dan with Morgan Stanley.

Hey, thanks. Good morning. Just wanted to ask — so you guys have kind of reported somewhere in the ballpark of $220 million of adjusted EBITDA in the first half, in each quarter and the first half of the year. And then the guidance is in that same ballpark for the third quarter. I guess if I was thinking about the fourth quarter before your comments on this call, I would've thought maybe there could be some seasonality and maybe some budget impacts in the Lower 48 that could be offset by some international growth. And maybe the third quarter might be a good EBITDA baseline for the fourth quarter. But it sounds like maybe the earnings could be growing sequentially from the third to the fourth quarter. So I was just wondering if you could help us think about some of the puts and takes just directionally heading into the fourth quarter of this year across the segments and into that consolidated EBITDA line. Thanks.

Just from the schedule of rigs internationally, as I've articulated, the second half has five rigs. Of those five, four are taking place in the fourth quarter. So vis-à-vis international, obviously there's a ramp occurring in international that's back-loaded toward the latter part of 2024. I'll let William add more color to your comment though.

Yes, I mean, it's a good comment and there's a lot of focus on the fourth quarter because of the budget and seasonality. On the rig business, land drilling business, the Drilling Rig business, we don't really see that seasonality like some other businesses like fracking because the contracts tend to be longer term and we don't experience that seasonality. So in the U.S. in fact, Tony explained the reasons why he thinks we'll have more rigs through the fourth quarter, but this is based also on concrete awards that we expect and discussions and negotiations we're having with some of the larger clients that we think will benefit. So, we don't expect to see a drop off in the Lower 48. If anything, we expect activity to pick up with a little bit of erosion on the gross margin. So the U.S. will hold up well. And then of course, as Tony mentioned, internationally is going to expand very significantly.

Got it. Super helpful. I guess — fine if you don't want to comment, but could the full year adjusted EBITDA line have a nine handle on it?

We are comfortable with the consensus.

And then just a quick follow-up. Wondering if you could maybe break down some of the components of your CapEx budget outside of what you do explicitly give us, which is the SANAD newbuild component. But just wondering if you could talk through some of the maintenance CapEx assumptions across the other segments that feed into that $590 million number this year so that we could maybe — might help us dial in our extrapolations into the forward years. Just anything on maintenance CapEx across the segments, any growth investments, maybe in NDS or Rig Tech. But yes, anything outside of the SANAD newbuild CapEx that you could help us with, would be great.

We have said that U.S. rigs require somewhere between $1.2 million and $1.3 million a year in maintenance CapEx, and international rigs a bit more, maybe in the $1.5 million range or so. So you can do the math based on our average rigs. Obviously this year we do have some growth CapEx, as we have said before, due to the tremendous expansion we have experienced in international markets. As you start the new contracts, there are some costs that range anywhere between $4 million to $10 million, I would say, to get these rigs ready. So again, you could do the math based on the 10 rigs that Tony mentioned.

Got it. Super helpful. All right. Thanks a lot. I will turn it back.

Thank you. And the next question comes from Derek Podhaizer with Barclays.

Hey, good morning. I wanted to go back to the Lower 48 comments talking about your rig count to grow for the balance of the year versus your survey, which seemed like that was more flat to down. Can you provide more color on what you're seeing, whether it's the privates versus the public, oil versus gas, big different basins, like where do you see the most offset? I know you talked in your release about the Western region seeing some additional activity, but if you can give us a little more detail as far as where we can see some of these rig additions you're expecting in the back half of the year.

Sure. Well just to make clear the rig addition we're talking about is modest between the second and third quarter. But to give you more color, roughly in our customer mix over the course of the past year, it's definitely shifted to more of the public operators. To give you an idea, back in 2023, it was roughly 60% public; now it's almost three quarters. So that's a pretty good shift and that plays into the theme I just talked about.

The other point is that there is a continued high level of churn that we're facing. And so as William referred to, there's a rig count increase, but also there is some pricing margin erosion because of churn. And churn applies across all the basins. To give you an idea, West Texas, I would say is modestly up in churn compared to where we were in the first quarter. South Texas has actually improved; the environment improved a little bit, which also should have an effect on activity. East Texas, churn is up and Northeast and North Dakota, I'd say they're relatively flat. So, right now our gas rigs are at 13% and obviously that's not something that we're focused on, but I think the target market is the large operators I referred to, which is the fat part of the market and you can look at the consolidations that occurred. We're obviously trying to play to our strengths and promote our solutions with the post-merger companies and hopefully that will be recognized. And based on our track record and performance, we hope that's going to translate into what I've talked about: actually slightly increasing rig count as we're moving forward throughout the year.

I'll make a comment on that. The privates have also been a source of some positive trend — I've seen a lot of new clients on the client list that I hadn't seen before, and some of the smaller clients are providing a little bit of stability to our rig count. So we are happy to see some of those trends with the private clients. But as Tony mentioned, most of the increases that we're going to see, and again, this is not going to be more than a handful of rigs at most, are coming from some of the consolidation where we think that we have some advantages with some of those clients that have been the big buyers. So, we feel good about our prospects in the second half.

Got it. That's all. Really helpful color. Maybe on contract duration trends, are you starting to see some of your customers willing to sign up for multi-year agreements, or are we still on more of that like six months lots of well contracting? Just maybe some color around your conversations and where you're seeing trends as far as contract terms right now?

I think as these consolidations occur, companies are reassessing their entire portfolio. There are a bunch of initiatives by several of them to look at the issue of terming out things given where the market is and their new programs. And so the answer is yes. I think the market is becoming more amenable to some term contracts and we are looking at that as well.

Great. Appreciate all the color. I'll turn it back.

Thank you. And the next question comes from Waqar Syed with ATB Capital Markets.

Thanks for taking my question. When do you expect U.S. drilling margins to bottom out?

My goodness! Well, I think if you look at our average right now, it's about $35,300. And I think our leading edge probably averages around $33,000 to $34,000 revenue per day. So there's still some room to fall. However, we're getting pretty close to convergence and the stability we've seen in pricing and in rig count actually, to tell you the truth, gives us hope that we will continue to maintain our leading edge pricing where it is today. So, we still could drop, I would say toward the $15,000 per day level. But I would expect that to be the low point.

Great. Very helpful.

And when? Before year end.

Okay. So you think most of the drop is going to be this year and then it kind of stabilizes into next year?

Well, yes, we think so. And keep in mind that not everything changes at the same time. It's like a progressive rolling into new contracts. And we're starting to get longer term contracts, which we would be happy to sign because we are still very close to record all-time margins for Nabors in the Lower 48.

Right. Now, William, on the debt side, good to see that you would like to reduce the overall total debt number. So at Q2 end, total debt was $2.5 billion. Where do you expect the debt number to be, let's say by the end of this year and then perhaps by the end of next year?

So you're working back into the free cash flow, right, Waqar. Well, I did provide guidance. So if we hit the midpoint of the guidance, I think we could reduce our total debt this year by somewhere in the range of $100 million plus.

Okay.

And the next year, I have said before that we expect to do significantly better in free cash flow than this year. And again, that all that extra cash generation will be applied essentially to reduce our debt. The intention is not to leave the cash on the balance sheet. So we're going to use it to reduce debt as we have done in the past.

Okay, great. Well, thank you very much. Appreciate your comments.

Thank you, Waqar.

Thank you. And the next question comes from Keith MacKey with RBC Capital.

Hi, good morning. Thanks for all the color on the international rig additions. You've certainly laid out pretty clearly all the rigs you expect to add across the geographies. Just curious though, are there any notable expiries or churn that could come up in the next 18 months that might provide a headwind against getting to 102 rigs by the end of next year?

I mean, all these contracts are on three to five-year deals and there is maturity. I think in Saudi, we've renewed many of our rigs recently, so that's comforting. But, obviously in this market, depending on the macro, we're not immune even with these contracts to something occurring. But I think right now we feel pretty good. In Kuwait, we're going to have a hiatus of a rig during the time period from now to the startup period as we onboard the new rigs. So that's a little setback, but that's in the normal course. And when these rigs expire and they move on, there's always a gap. That's one of the things about international compared to U.S. where those gaps are a little more pronounced, a little longer than in the U.S. But having said that directionally, we're very comfortable with the direction, given the macro. And just to give you an idea of scale, when you add the backlog of the Argentina rigs and the Saudi rigs, the Argentina rigs represent about $300 million in backlog and the Saudi rigs for 2024 and 2025 represent about $1.2 billion, and the newbuilds equate about $230 million. So altogether that's a backlog of about $1.7 billion, which is pretty significant, okay? So just to give you an idea of what we're talking about here.

And, Keith, to your question about the 102 rigs, keep in mind that, if you look at our presentation, three of those rigs haven't been secured yet. So we have discussions with about nine more rigs, and we estimate that we probably get three of those, but we haven't secured those. So right now and based on the stuff that we have secured, we're looking more like at 99 rigs right now at the end of 2025.

Got it. No, that's super helpful. And for Q3, I must admit I was a little bit optimistic on the international daily cash margin. You're projecting to be about $16.2k to $16.3k per day. Can you just maybe give us a little bit more help on how we should be thinking about that number through '24 and '25 as you fold in some of these new rig contracts?

When the team forecasts the additions of the rigs, we always layer in a little bit of downtime because based on experience we see that happen with a new rig startup. So there is some underlying downtime forecasting those numbers. In addition, we did mention that we're going through a recertification process given all the extensions we've had in Saudi Arabia. So I would say there's right now some $300 to $400 per day in underlying forecasting for these events. So at the end, you add that on top of what we said for the third quarter, the underlying profitability is somewhat higher than that $16.2k to $16.3k that we're guiding for the third quarter. Tony has said it and I have said it that we expect in the fourth quarter to be approaching toward the $17,000 per day margin in the international markets, whether we hit it in November or December, as the new Saudi rigs come in. That's sort of our expectation. And then going forward, that $17k should be sustainable for 2025.

Got it. Okay. That's very helpful. Thanks very much.

Thanks, Keith.

Thank you. And the next question comes from Arun Jayaram with J.P. Morgan.

Yes, good morning. Tony, I was wondering if you could go through kind of the competitive balance in Saudi Arabia. Obviously one of your peers in the U.S. has entered the Saudi Arabian onshore rig market. Nabors or SANAD JV has scheduled to deploy 15 total newbuilds as part of that up to 50 rig program. Maybe talk to us about the prospects of signing up more newbuilds beyond the 15?

Yes. As we've previously spoken about, the newbuild program is part of a policy that was embarked upon several years ago by Aramco and leadership to industrialize the supply chain and onshore rig capacity. It's a long-term plan to add 50 newbuild rigs. We're seven delivered and working now; there's 43 to go. We've talked about the ones that are in process for 2025 and 2026. We fully expect that right now those plans will continue because they're part of a macro policy. Of course, there's always the vagaries of industrial policy and things can get temporarily suspended, but as far as we understand the commitments, they remain. You should be aware that the seven newbuilds delivered and working are all drilling gas wells today. And as I've spoken about before, the story on the rig count is such that this is a continued high priority for Aramco. So there's about 218 rigs in the Kingdom today. SANAD rigs are largely gas directed and the newbuilds are going to be focused on gas. We think we're in a really good relative position there and aligned with the country's objectives. So, for all those reasons, we think any adjustment will be tempered and temporary.

Great, great. And then just my follow-up, you guys have announced some rig awards in both Argentina and Kuwait. Obviously, Kuwait has been maybe a long-term disappointment in terms of global spending trends. Tony, what are your thoughts? Have you been down to Argentina recently? Any highlights on what's going on in Vaca Muerta and just thoughts on Kuwait — incremental demand from Kuwait?

As you correctly observed, both are really key long-term markets from our point of view. Kuwait, for many years, we've talked about the multi-rig tender that kept being rolled. We're very happy we finally got this award and we think it should be the beginning of additional upside. Also, our manufacturing businesses are getting awards in this latest round for top drives and wrenches on other rigs in the Kingdom. So there is additional upside to Nabors from Kuwait, making it a core market for us in terms of equipment supply as well. Argentina historically had a good resource but political and financial issues were encumbrances. Given recent changes, particularly on the currency side, that has improved the environment. One of the benefits is we're redeploying rigs from the U.S. market down there, making use of idle capacity. The rig contracts include U.S. dollar components. And one of the great surprises is how fast our NDS thesis is taking hold down there. NDS content on Nabors working rigs has really increased to the point where they're doing a lot of work as robustly as they are in the U.S., like managed pressure drilling and casing services. I think we have a great reputation right now and that's more upside. As that basin matures, those kinds of services will become more useful and there's a good upside path for us. So that's why we're working on both countries.

Thank you. And the next question comes from John Daniel with Daniel Energy Partners.

Hey, good morning, guys. Thank you for including me. I just have one. It's the comment you guys made in the press release about the four-mile lateral in the Delaware. I'm curious if that's a one-off with the customer, or how many more would be behind that and what the outlook for that would be just for next year?

I'm going to let Travis Purvis answer that for you.

Yes. Good morning, John. Good question. I don't think it's a one-off, for sure. A couple of things to comment. Customers with large acreage positions are the ones that are going to probably deploy that well design more often. It proved that there are real efficiencies to be gained and it has delivered real value. Secondly, our rigs are well-positioned in terms of our top drives; our Sigma top drives deliver the torque needed to drill those four-mile laterals. So it's a space where we're in the pole position. We're going to see more of those four-mile laterals, and some that are even longer than that. So more to come, but that's certainly not a one-off.

Okay. That's all I have. Thank you.

Thanks, John.

Thank you. And this concludes our question-and-answer session. I would like to turn the call back over to William Conroy for any closing comments.

Thank you, everyone, for joining us this morning. If you have any additional questions, please follow-up with us. We'll wrap up the call there. Thank you.

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