Nabors Industries Ltd Q4 FY2024 Earnings Call

Good day, and welcome to the Nabors Industries Ltd. Fourth Quarter 2024 Earnings Conference Call. All participants, if you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note that this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Investor Relations. Please go ahead. Good morning, everyone.

Thank you for joining Nabors Industries Ltd.'s fourth 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 Industries Ltd. 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 Industries Ltd. 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. The presentation accompanying today's discussion includes important disclosures that apply to this call. Please also note this call does not constitute an offer to sell or buy or the solicitation of any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of section ten of the Securities Act of 1933. In connection with the proposed transaction, Nabors Industries Ltd. and Parker intend to file a registration statement on Form S-4 with the SEC, which will include a joint proxy statement and prospectus. Nabors Industries Ltd. and Parker will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decisions, investors and security holders of Nabors Industries Ltd. and Parker are urged to carefully read the entire registration statement and joint proxy statement and prospectus when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. With that, I will turn the call over to Tony to begin.

Good morning. Thank you for joining us today as we review our fourth quarter results. We will also comment on our prospects for 2025. Let me start with our performance. Free cash flow this quarter fell short. Like others in the sector, we had a very substantial receivable in Mexico outstanding at year-end, and the pace of new build delivery milestone payments in Saudi Arabia accelerated more than planned. William will provide further color on these in his remarks. Adjusted EBITDA in the fourth quarter totaled $221 million. The lower 48 market has remained at the levels of the prior quarters. This is disappointing; the market has not improved as we anticipated. That performance directly impacts our businesses, our own fleet rigs in the lower 48, and NDS, both our Nabors rigs and our third-party rigs. At the same time, margins in these two businesses remain solid. Pricing in the lower 48 drilling market continues to reflect the significant value that our rigs and NDS's portfolio generate. I will start my detailed remarks with the international markets. For Nabors, international markets have remained stable over the past few years. More recently, we have entered a period of robust growth. Our early rig awards are now progressing into deployments. In 2024, we activated a total of ten international rigs. For 2025, we previously announced nine startups. In addition, we expect to reactivate a recently idled rig in Colombia, so another ten deployments this year. On top of this total, we have a strong pipeline of additional tenders. These opportunities are in markets which meet our financial thresholds and are also in key geographies for oil and gas production. We are optimistic for incremental rig awards this year that would deploy in 2026. Turning to the US market, the weekly industry rig count masks an elevated level of rig churn. Even so, leading-edge pricing for high-performance rigs remained relatively stable. Daily rig margins in the fourth quarter remained at attractive levels, in line with our guidance. Our global average rig count declined slightly compared to the previous quarter. This decrease was almost entirely due to a reduction in our lower 48 rig count. Our technology-focused businesses, NDS and Rig Tech, generated combined EBITDA of more than $43 million. Together, their total EBITDA grew from the previous quarter.

A key element of our strategy is to grow the contribution from these capex-light segments. In the fourth quarter, contribution increased to 19.5% of the company's consolidated EBITDA. Now I will make some comments on the key drivers of our results. I will start with our international drilling business. Across multiple international markets, we see a large number of opportunities and tenders for additional rigs. This favorable backdrop offers the prospect to redeploy several currently idle rigs. At the same time, the broad market strength enables us to focus on prospects that recognize the value Nabors can deliver. Now I'll summarize the recent developments in our international drilling business. In the fourth quarter, we deployed two rigs in Argentina. These are part of the three rigs awarded last year. We are utilizing idle rigs in the US to meet this demand for unconventional development in Argentina. We are also providing a significant amount of NDS content on these rigs. In Kuwait, we expect the first of the three previously announced rigs to deploy later in the first quarter. The second and third rigs are scheduled to commence operations in the second quarter.

We see a considerable number of opportunities for additional rigs. They are spread across geographies, including Asia, MENA, and Latin America. Operators in these markets are collectively seeking more than fifty rigs. This number of additional opportunities supports our own rig count progression and pricing improvements in the international markets. We will maintain a disciplined approach to these opportunities to ensure we meet our 2025 free cash flow target. In Saudi Arabia, SANAD deployed its ninth new build during the fourth quarter. Another five are scheduled for 2025, with two of those in the first quarter. And one more should start at the beginning of 2026. That will bring the total working to fifteen. On top of these fifteen deployments, SANAD expects to receive awards this year for another five new builds. Upon award, construction on all five of these rigs will commence. I would like to make a few more comments on SANAD. Specifically, I'll address the new build rig program. This program, as you know, calls for fifty rigs built in the kingdom over a ten-year period. SANAD only places orders for rigs from the manufacturer when SANAD receives an award from the operator, Saudi Aramco. The rigs work under six-year initial term contracts. That contract is structured to ensure a return on invested capital in five years. The initial contract finishes, it is normally followed by a four-year renewal. That's at least ten years of firm utilization. SANAD is now entering the fourth year of the program. As the operator, Aramco continues to push ahead toward the total of fifty. As these rigs are deployed, each rig contributes significant EBITDA to SANAD. Early units generate more than $10 million per year. We expect the more recent ones to produce approximately $30 million annually. This increase primarily reflects some cost inflation as well as rig mix. Even with that, SANAD still recoups its investment within five years. Let me break down the status of the program. SANAD began 2025 with nine new builds working. Six more are currently under construction. Five of these six should start in 2025, with two scheduled for the current quarter. Altogether, we forecast the working new build fleet will generate adjusted EBITDA of more than $140 million in 2025, with another five expected to start in 2026. SANAD is looking at earning approximately $200 million in EBITDA in 2026 just from the new builds. The program reflects Saudi Arabia's strategic decision to build a sizable drilling rig fleet in the kingdom. We are proud to be part of this effort. Our partner and client is the largest player in the global energy industry. It is known for prudent long-term investments. In SANAD's case, together, we are building one of the preeminent drilling rig companies in the Middle East. We are not aware of another opportunity in the industry approaching the scale and certainty of the SANAD new builds. By our estimates, returns in this fleet are greater and lower risk than most other investments in the drilling rig business. While recognizing the capital requirement is significant, we see a path to free cash flow inside in the 2027-2028 time frame. That should lead to distributions to the partners. Longer term, we aim to capture the significant valuation afforded to drilling contractors in the Middle East. We are confident that would generate significant value for our shareholders. And it is important to note that this growth is built on top of a very healthy legacy business, which continues to generate strong positive free cash flow. Now I'll discuss our performance in the US. Our daily rig margins in the lower 48 rig fleet remained at high levels in the fourth quarter. Strong demand for high-performance rigs continues to support attractive pricing. While there is an active churn in the marketplace, and resulting friction on daily margins, pricing remains generally disciplined. Select operators are looking to longer lateral well designs in order to extract more value from their assets. Given our rig capabilities, several clients already use Nabors to drill their longest wells. The trend toward increasing lateral length continues. Our lower 48 operation is well positioned to capitalize on this trend now and even more so once we close the Parker acquisition. In this environment, even at current fleet utilization, our operation generates significant free cash flow. All of our comments on our lower 48 drilling results reflect only the rigs themselves. In addition to the margin on our rigs, NDS generates significant margin on its own. I'll elaborate on this in a moment. Next, let me discuss our technology and innovation. In the fourth quarter, NDS once again made an important contribution to our overall results. NDS's gross margin exceeded 54% in the quarter. This performance is a record. It demonstrates the benefits of the NDS portfolio to clients. In the lower 48 market, the average daily margin from our drilling and drilling solutions businesses combined was approximately $18,700, in line with the third quarter. Of that, NDS contributed $1,723 per day. This measure, NDS's lower 48 daily margin, increased by more than $100 per day. These NDS results validate our strategy. Next, let me make some comments on our capital structure. While our top priority remains the reduction of our debt, our fourth quarter was challenged by three main factors. First, in Mexico, significant delays in payments from our customer of approximately $50 million. We are working diligently to rectify the situation. We expect the customer to resume payments during the first half of 2025. Second, a lack of growth in the lower 48 market. And third, in Saudi Arabia, the pace of payments for new builds accelerated. This was due to faster milestone completion by the rig manufacturer. The ongoing investment in Saudi Arabia is significant. The US market remains sluggish. We will respond to this environment with actions to improve efficiency and align our cost structure. At the end of the fourth quarter, we surveyed the largest lower 48 industry clients. After a number of E&P mergers, our survey now covers fifteen operators. These clients account for approximately 46% of the lower 48 industry's working rigs at the end of the quarter. The latest survey indicates this group intends to reduce its rig count by 4% by the end of 2025. This expected decline is concentrated among three operators. Reasons for the decline include improved performance and concerns about the market environment. Outside of these three operators, the indication is to add a modest number of rigs. Consistent with my earlier comments, our view for the international market remains bullish. Our deployment plan includes four rigs in the first quarter of 2025. With these additions, we expect to end the quarter with eighty-nine international rigs working. For the full year 2025, including the four I just mentioned, we have ten total rigs scheduled to deploy. Five new build rigs in Saudi Arabia, three activations in Kuwait, one activation in Argentina, and one activation in Colombia. Early in the fourth quarter, we announced our agreement to acquire Parker Wellbore. Shareholders of both companies have approved the merger. While the antitrust review period in the US has passed, approvals in a few countries are pending. The teams have completed a substantial amount of integration planning. We are confident we will realize annualized cost synergies of at least $35 million in 2025. We are looking forward to adding Parker to the Nabors portfolio and to realizing significant strategic and financial benefits. Now let me turn the call over to William, who will discuss our financial results.

Thank you, Tony. Good morning, everyone, and thank you for joining us today. Before commenting on the financial results for the quarter, I would like to make some general remarks on our global markets. In the Middle East and North Africa, we deployed one more mobile rig in Saudi Arabia, which was offset by the three rig suspension we previously announced. We are preparing for six more new builds in that market and for the start-up of three rigs in Kuwait. We believe that in Saudi Arabia, natural gas activity on land will continue to expand both in traditional basins and for the more recent unconventional projects. We also expect to benefit from more natural gas opportunities in the MENA market during 2025. This regional expansion should benefit all our segments over the coming year. In Latin America, we recently deployed two rigs in Argentina and expect to add one more during 2025. This market should benefit from the ongoing expansion in the Vaca Muerta Basin as new pipelines and export facilities are underway. In addition, the current government continues to take action favorable to the business environment. We believe Argentina will provide a natural destination for more of the idle lower 48 rigs over the next couple of years. And our progress in drilling solutions should also continue. In Colombia, one of our rigs had downtime between contracts during the fourth quarter but is resuming operations in the first quarter. That market is expected to remain at current levels, with the government effectively limiting activity by our largest customer. In Mexico, Pemex has announced reduced activity for 2025, reflecting budgetary challenges. It's not clear at this point when the government will loosen restraints on our customer, but we expect this decreased investment to have some effect on our 2025 revenue. In the lower 48 market, the potential increases we previously expected failed to materialize, with operators continuing to demonstrate significant capital discipline in their oil-related drilling while delivering only muted improvements in gas basins. As longer-term contracts continue to expire, we experienced an elevated level of churn in the fourth quarter. We expect this trend to continue in the first quarter of 2025. At this point, we see limited indication of a near-term recovery in the lower 48 drilling rig market. Despite these headwinds, our revenue per day has held up relatively well, and our daily gross margin has remained around $15,000. The weakness in the general US drilling rig market, as well as our own reduced rig count in the lower 48, have also had an impact on our Drilling Solutions revenue. Nonetheless, we anticipate that increased penetration on our own fleet and on third-party rigs will help us compensate for the stagnant market activity. Revenue from operations for the fourth quarter was $730 million, a $2 million sequential reduction. Revenue from the three deployments in Saudi Arabia and Argentina was more than offset by the three rig Aramco suspension and by declining average rig count in the lower 48. The US drilling segment declined by $13 million sequentially, or 5.2%, driven by reduced rig count in the lower 48 market. A rig count in the lower 48 averaged sixty-six, a two-rig decrease. However, our average daily rates for the fourth quarter slipped by only 1% as we rolled our contracts onto the current market rates. Daily revenue came in at $33,400, a reduction of $1,400 sequentially. This decline was driven essentially by a drop in low-margin reimbursable revenue. While average rig rates barely decreased, leading-edge pricing remains stable. On our latest contracts, revenue per day remains in the low to mid $30,000 range. International drilling revenue was $371 million, an increase of $2.8 million. In Saudi Arabia, we successfully deployed the ninth Nabors rig, and we started two additional rigs in Argentina. These increases were somewhat offset by the suspensions in Saudi Arabia. At the same time, the cadence of SANAD's new build deployments remains unaffected. Drilling Solutions revenue of $76 million decreased sequentially by $3.6 million, or 4.5%. This decline was largely driven by the lower 48 market, which affected our well replacement activity. Revenue in our Rig Technologies segment reached $56.2 million, up $10.4 million, or 22.6%, driven by a robust increase in deliveries of capital equipment and parts sales in the Middle East. Total adjusted EBITDA for the quarter was $221 million, compared to $222 million in the third quarter. New rig deployments and a strong increase in rig technologies were offset by weakness in the lower 48 market and SANAD's rig suspension. US drilling EBITDA of $105.8 million was down by $2.9 million, or 2.7% sequentially. This deterioration reflected a two-rig reduction and a slight decrease in daily margins. Average daily margins came in just under $15,000, down around $100 from the third quarter. For the first quarter, we expect lower 48 daily margins of approximately $14,800 as our average fleet rates converge with leading-edge daily revenue. We anticipate our average rig count in this market to be approximately sixty-one. On a combined basis, Alaska and the US offshore businesses in the fourth quarter, the total EBITDA of these two operations was $21.4 million. First quarter EBITDA from these businesses should be similar to the fourth quarter. International EBITDA decreased by $4 million to $112 million in the fourth quarter on a stable average rig count of eighty-five. EBITDA from the new deployments was offset by the suspensions in Saudi Arabia. Daily gross margin was approximately $16,700, a $400 decrease. The deterioration was essentially driven by one-time items. Our first quarter forecast assumes a start-up of the tenth and eleventh SANAD rigs and the restart of our rig in Colombia. We anticipate average daily gross margin to increase to $17,000 in the first quarter. Average rig count in the first quarter should range between eighty-five and eighty-six rigs. Drilling Solutions delivered EBITDA of $33.8 million in the fourth quarter, down 1.5%. Among product lines, international improvements and managed pressure drilling were more than offset by some deterioration in casing running. Gross margin for this segment increased to more than 54%, up from 53% in the third quarter, and reflects a better mix. NDS gross margin per day for the lower 48 was $3,720, a 2.8% increase compared to the third quarter. This improvement took our combined lower 48 drilling rig and solutions daily gross margin to $18,660, in line with the prior quarter. For the first quarter, we expect NDS EBITDA of approximately $33 million. Better penetration on Nabors rigs, as well as revenue on third-party rigs, should offset reduced lower 48 drilling activity. Rig Technologies delivered EBITDA of $9.2 million in the fourth quarter, up sequentially from $6.1 million. First quarter EBITDA for Rig Tech should be approximately $5 million. Our EBITDA matched prior quarter levels. As we managed to compensate for the decline in the lower 48, our free cash flow disappointed in the fourth quarter. During the quarter, we consumed approximately $50 million, as compared to our expectations of generating close to $20 million. The largest component of this shortfall was the lack of collections in Mexico. Our client delayed $15 million of expected payment. In addition, CapEx for Saudi new builds was $40 million above forecast, as SANAD's supplier accelerated completion of construction milestones. Capital expenditures were $241 million in the fourth quarter, $123 million above the level of the preceding quarter. CapEx for the SANAD new builds was $143 million. CapEx for the full year 2024 was $610 million, about $20 million higher than we expected at the beginning of the year. Capital spending for the Saudi new builds totaled $171 million, $71 million more than what was targeted when we started 2024. Outside the Saudi deployment, CapEx was $338 million, $51 million below our original target. For the first quarter of 2025, CapEx should land between $195 and $205 million, with $80 to $125 million for the SANAD new build. The closing date on the Parker Wellbore transaction is not yet known as we await regulatory approvals, but we anticipate closing sometime in the first quarter. With the release of first quarter financials, we intend to provide guidance on our consolidated results for the company, including the impact of Parker Wellbore. We are preparing for a flat year ahead in the US market, for growth in international markets, and in drilling solutions, and for continued investment in Saudi Arabia. For the full year 2025, we anticipate lower 48 average rig count in the range of sixty-two to sixty-four, and daily gross margin of approximately $14,600. Total combined EBITDA from Alaska and offshore is expected to decline 5% year over year. International drilling, Nabors Drilling Solutions, and Rig Technologies should more than offset the expected US decline. International drilling, we are targeting average daily margin of $17,600, an increase of $1,100 or 6.8%, as we continue to deploy rigs at better pricing levels. Average rig count should land between eighty-eight and eighty-nine rigs. Anticipated deployments in Saudi Arabia and Argentina will be partially offset by the SANAD suspensions. Reductions in activity at Pemex could also impact our 2025 rig count. NDS is expected to improve by approximately 6% to close the year at $140 million. Rig Technologies EBITDA should improve slightly to come in at $30 million. Now turning to CapEx, we are currently forecasting our 2025 capital expenses in the range of $710 to $720 million. $360 million relates to SANAD, an increase of roughly $90 million from the spend in full year 2024, as we deploy five rigs compared to four last year. As we invest in our Saudi growth commitment, we continue to identify opportunities for overhead reductions. Another initiative is to improve free cash flow. Including these measures that total approximately $80 million, we expect around breakeven free cash flow for 2025. I would point out that our consolidated free cash flow projection includes negative free cash flow for SANAD of approximately $150 million. This implies that outside SANAD, our free cash flow will be around $150 million. We plan to use this cash flow outside SANAD to reduce our gross debt. The 2025 free cash flow forecast excludes the Parker Wellbore results. We expect the acquired business to generate considerable cash flow in 2025, even before the material synergies we have mentioned. Our 2025 projections also assume no favorable impact on lower 48 drilling from changes in policies by the new administration. Similarly, projections do not include any impact from incremental US gas drilling potentially driven by new infrastructure or from data center-related demand. Needless to say, improvement in US drilling would have a very significant impact on our free cash flow. We would benefit from significantly higher rig count, with very limited incremental CapEx, as well as from improved pricing and margin, compared to the levels in our current projections. With that, I will turn the call to Tony for his concluding remarks. Thank you, William.

I will now conclude this morning with a few remarks on our industry and Nabors in particular. As you know, our industry is characterized by short-term, often sharp fluctuations in demand and economics. These occur against the backdrop of sustained longer-term transformation and innovation. At Nabors, our objective is to manage near-term volatility while we develop and deploy enabling technology. In this environment, we are positioning Nabors for the future. With our joint venture in Saudi Arabia, we have a unique large-scale opportunity in one of the industry's most important markets. SANAD is currently in its investment phase, already generating long-term value. We are working towards completing the merger with Parker. Parker's drilling rig business dovetails neatly with our existing footprint, offering meaningful synergy potential. This addition widens our casing running business and expands our drilling solutions portfolio. It also adds a high-performance tubular rental business. As the growth of wellbore laterals increases demand for drill pipe, Parker should be immediately accretive to our free cash flow and have the potential to generate significant synergies. Thinking about Nabors, we have a very good lower 48 business. On its own, it generates significant free cash flow. At the same time, we are investing in growth in Saudi Arabia, which has its own dynamics. We are deploying new assets there on top of the very large existing operation that generates considerable cash flow. Nabors' consolidated free cash flow today masks the strength of our company away from SANAD. In 2025, without the EBITDA from new builds scheduled to deploy, or the CapEx for rigs under construction, we estimate our free cash flow to be more than $320 million higher. That's the real power of the existing business. This also shows our Saudi operation, without additional new investment, already generating substantial cash flow in excess of $200 million. And keep in mind, this number is expanding at about $50 million per year. Given the clear profitability and the inherent cash generation potential of the Saudi operation, we are reinvesting assets to continue to build for the future. This investment supports the long-term contracted growth plan that our partner, the largest operator in the world, is committed to deliver. So wrapped inside our company, we have a singular growth story which already has great value. SANAD also has a clear path to continued growth. Notwithstanding short-term pressure on our consolidated free cash flow, we believe this investment for growth creates significant long-term value for our shareholders. To summarize, we are positioning Nabors to not only capitalize on the future but also to drive it. I look forward to reporting our progress. Thank you for your time and attention. With that, we will take your questions.

We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, you may do so. Your first question today will come from Kurt Hallead with Benchmark. Please go ahead.

Hey. Good morning, everybody. Appreciate all that intel and info, especially on the SANAD front. Very helpful. I wanted to get a little bit more clarity around the commentary that you made in the press release and then again here in your conference call around free cash flow. And I think, William, the comment was we expect to be free cash flow positive and substantially reduce gross debt. So can you help assist me, kind of ring fence what you mean by substantially reducing gross debt?

So, Kurt, we have a few pieces within the company. One of them is SANAD, which is somewhat ring-fenced. In fact, most of the cash flow from that piece is going to be used for the growth program over the coming years. So in 2025, because we're spending about $360 million in CapEx in SANAD, we're going to be negative about $150 million in terms of free cash flow generation within SANAD. The fleet is generating over $200 million of EBITDA, but then we're spending $360 million on the growth going forward. What that implies, though, is that outside the SANAD legal entity, all our other legal entities are going to be generating roughly $150 million of free cash. Because we're forecasting a little over breakeven for the full year on a consolidated basis. So that money is usable for Nabors for whatever you want to do with it, and we're going to allocate that to reducing debt. So I would expect to see our gross debt next year in 2025 be reduced by approximately the $150 million that we're going to generate outside SANAD.

That's great. Thanks. That's great color. And then maybe just, again, a follow-up on the international outlook. Is it your read with respect to Saudi that their overall rig reductions are complete, and there is no expectation of any more additional rig releases, outside of what SANAD is doing, as the year goes on?

With respect to the market as a whole, there may well be some other releases coming. But as you can see, we were treated very well by Aramco in the past year. We didn't bear the big brunt of what others experienced. The big picture is that the same party is taking down rigs and the same party is building rigs with Nabors. That's the largest oil company in the world, which has the best long-term and short-term view of the market. They've decided with us that they want to continue the new build program notwithstanding rigs coming down in the short term. Whether that's because they believe these rigs will be preferred long-term or they believe there will be a market uplift, I can't answer that. But there's absolute commitment by them to maintain the current pace of the new build program. So you have the party deciding rig counts and planning telling us they want to continue investing, and we think they're a great partner. If I had my druthers, I might like to take a break for a year on new builds and use that $360 million to pay down some debt, but the absolute opportunity here is unique in the industry. Other people have announced deals with eight-year payouts that look like ten-to-twelve-year payouts on a free cash flow basis. This deal has five-year paybacks with ten-year contracts. It's unparalleled, and I don't think people fully appreciate what's going on. If you look at SANAD cash flow and you stopped new builds, using common valuation metrics in the region, you'd get valuations anywhere from $2.5 to $3.5 billion for SANAD today. So I think people may not appreciate the strategic importance of what's happening here and Aramco's guiding hand. They're guiding us on what they want to do. I hope that gives you some understanding of why we think we're making the right decision. We understand the short-term pressure. Given the unique opportunity, we think it's compelling. The good news is that, given what's happening not just there but elsewhere, you've seen from our announcements the ten rigs for 2025, including rigs outside Saudi. We've had good success in Latin America—Argentina and Colombia. We announced we have three additional rigs going on term contracts in Argentina: one current rig relocating in 2025 and two additional ones in 2026. The pipeline for additional opportunities is robust in MENA, Latin America, and some in Asia. All this supports pricing and a growth story. NDS has increased its share of EBITDA from 35% to 45% coming from international, reflecting the growth. Some of these new projects include managed pressure drilling and other technologies Nabors offers. So overall, we feel very comfortable about the international story.

Kurt, to add to Tony's comments on Saudi Arabia: we're very bullish on international. In Saudi Arabia specifically, the government and Aramco are focused on increasing natural gas production. Our fleet in Saudi Arabia is predominantly drilling for natural gas, which is part of the reason we've been treated favorably by our client regarding rig suspensions. We don't expect much further movement on rig count reductions. Of course, this is our assessment, but the fact that most of our rigs are now drilling for natural gas is helpful.

That's great. If you don't mind, one more follow-up on international. You laid out how you think the year will evolve. You're starting the year with international cash margin around $17,000 and averaging over $17,500. Is that a steady progression through the year, or is there a stair-step in a particular quarter to get to that average?

Since we're adding ten rigs at various times in the year and prices are improving in international markets, the new rigs coming in are better priced than our current average. We expect a gradual progression over the year.

Awesome. That's great. Really appreciate it. Thank you.

Thanks, Kurt. Your next question today will come from Scott Gruber with Citigroup. Please go ahead.

Good morning. Appreciate all the color. William, one for you: what's your outlook for working capital and cash taxes that's embedded in the breakeven free cash guide, pre-Parker? Did you incorporate Mexican collections? Is there a catch-up or continued delays? How are you thinking about it?

Three-part question. On the Mexico collections, we think those will be sorted out, but we've been told it will happen in the first quarter; knowing Mexico, it could be more like the first half. We're cautious in our forecast and are assuming some reduction in Mexico activity. If it doesn't happen, we'll have upside. Regarding working capital for 2025, we ended the year at a relatively high DSO, partially because of Mexico. Since overall revenue is not expected to rise substantially given the US trajectory, we expect DSO to decline a few days, including the Mexico impact. That will help keep working capital under control for the year. We don't expect huge growth in working capital. Finally, on cash taxes, it should be a similar level to this year, somewhere in the range of $50 million or so.

Got it. And just a quick follow-up: the business climate in Argentina has been improving, but cash extraction has historically been an issue. Is that improving, and how are you guys addressing that as you add assets there?

We have a new operating model there where we can extract cash and profits denominated in US dollars, which is one reason we've been able to accelerate in Argentina. That model is working well and has gotten good customer reception. For the new rigs, we have split contracts that help avoid getting cash trapped in the country. Additionally, recent changes to exchange control rules allow more flexibility in transferring money out using leasing mechanisms. These factors are converging to help us extract cash quicker than in the past.

Got it. Appreciate the call. Thank you.

Your next question today will come from Dan Cutts with Morgan Stanley. Please go ahead.

Good day. Wanted to see if you could help put the pieces together on the full-year 2025 guidance you gave. If I assume US and international G&A and the reconciling EBITDA line item are flat year over year, that gives roughly $900 million of Nabors standalone EBITDA. Would you endorse that, or can you share anything on G&A and the reconciling line item outlook for full-year 2025?

That's a fair approach. We've given many of the pieces to get to the number next year. On SG&A and R&D, we're working to improve efficiency and reduce those costs, so you could assume they may be somewhat lower in 2025 than in 2024. Operationally, we are confident we'll be higher than 2024 overall, given reductions in the US offset by improvements in NDS, international, and Rig Tech. All in all, you can assume 2025 will be higher than 2024 by some margin.

Great. Thanks. And on the SANAD new build budget, could you comment on whether the $360 million is for five rigs or six rigs? Just trying to triangulate new build cost per rig now. Also, you mentioned about $13 million of EBITDA for recent new builds and a mix factor—are gas-directed new builds higher margin versus oil rigs?

The $360 million number is milestone-based and not perfectly aligned to a simple per-rig five-rig count for the year. The total for the five rigs is closer to about $310 million, which is why the milestone timing caused some cash strain in Q4 when milestones accelerated. The original expectation was lower, but changes in specs and cost inflation increased costs. Importantly, Aramco approves these adjustments, and Aramco is paying for it under the program, so the economics and paybacks adjust accordingly. Regarding your EBITDA per new build comment, as rig costs change, day rates adjust so that the targeted five-year return is preserved. Thus higher-cost rigs generally have higher day rates and higher EBITDA per rig, reflecting the spec mix—bigger rigs for gas or other technical needs command different economics.

Great. Thanks a lot. I'll turn it back.

Your next question today will come from Keith Mackey with RBC. Please go ahead.

Thanks. On SANAD, you said you could likely break even on a free cash basis in 2027 or 2028. Would that effectively assume the five-rig new build cadence continues, spending roughly that $310 million a year and growing EBITDA commensurately?

Correct. Once you reach a base cumulative fleet size at that cadence, the existing rigs begin to fund the program and you get excess cash flow. The goal is to reach that breakeven point, which is why Aramco desires the current pace.

What are the decision points on the next batches of rigs? When would you know about the next five and the five after that? It sounds like you think they're likely, but curious about timing.

Typically, because these rigs take roughly nine to twelve months to construct, we would expect awards for the next batch sometime in the first half of this year. As soon as awards are made, we'll inform investors.

How many rigs do you have operating in Mexico, and what cushion have you baked into the year-end rig count assumption?

We have four rigs operating in Mexico. These are significant rigs, and their EBITDA contribution is considerable. We are modeling a reduction in activity that would reduce 2025 EBITDA by roughly $13 to $14 million compared to a scenario where those four rigs operated full year at full pace. So we are assuming some reduction and have built that into our outlook.

Your next question today will come from Arun Jayaram with JPMorgan. Please go ahead.

Regarding SANAD in 2026: you mentioned about $200 million of EBITDA from fifteen rigs. Is it fair to assume the run rate will be about $12–$13 million per new build rig, or does the $200 million include additional EBITDA from another tranche?

For fifteen rigs in that year, the average will be somewhere in the $12 million range per rig if you want to use that as a rule of thumb.

Understood. Thanks. And a follow-up on CapEx: you guided to about $715 million midpoint, with $360 million for SANAD. Can you break down the remaining roughly $355 million of CapEx buckets?

At the midpoint, the remainder is about $355 million. Of that, roughly $280–$285 million is sustaining CapEx for the year, including some category four recertifications. International contract-related CapEx in Kuwait and Argentina is about $56 million. NDS requires only about $5 million—it's capex light. The rest is corporate items like IT licenses and R&D prototypes, about $9 million. Last year we spent $339 million outside the in-kingdom investment; this year that number rises to about $355 million, primarily due to category four recertifications.

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, everyone, for joining us today. If you care to follow up, please reach out to us in Investor Relations here at Nabors. With that, we'll conclude the call.

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