Nabors Industries Ltd. 2026 Q3 Earnings Call

Please go ahead. Good morning, everyone.

Thank you for joining Nabors' Third Quarter 2026 Earnings Conference Call. Today, we will follow our customary format with Tony Petrello, our Chairman, President, and Chief Executive Officer, and Miguel Rodriguez, 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, Miguel, 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 Miguel 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 morning. Thank you for joining us to review our third quarter results. Strong operational performance in the quarter drove higher free cash flow and further delevering. We also advanced several strategic initiatives that position Nabors for future growth. I will start with our financial results. Adjusted EBITDA totaled $246 million, a very strong performance that exceeded our expectations. We reached several milestones during the quarter. In Saudi Arabia, SANAD successfully brought its 17th newbuild rig into service. In Argentina, we started our 14th owned rig in the country. The rig was an idle unit in the U.S. We also managed a rig owned by our client, making 15 total rigs operating. We renewed rig contracts in Algeria, Kazakhstan, and Oman. These renewals added 20 rig years to our international backlog. We redeemed $100 million of outstanding debt, advancing our commitment to reduce gross debt. Miguel will provide the details.

We grew our geothermal footprint. For Quaise Energy, one of our rigs is currently drilling its Project Obsidian in Oregon. During the quarter, we increased our investment in Quaise. We are now its largest equity holder. We were also awarded a rig supporting Sage Geosystems, another U.S. geothermal developer. These U.S. rigs complement our ongoing work for geothermal client in Indonesia. Our Canrig TITAN automated rig floor wrench is rapidly gaining market acceptance. We delivered four units during the third quarter. Backlog for this next-gen tool exceeds 20 units. Finally, we received an award for a long-term project to refurbish and deploy our barge rig in Kazakhstan. Once the refurb is completed, this shallow draft unit will stand ready for relief well drilling if needed. It can also work on offshore drilling campaigns. Turning next to our international markets, I will outline where we stand and where we see growth.

Our international footprint focuses on key markets across the Middle East and Latin America. Saudi Arabia remains our largest market through SANAD, our joint venture with Saudi Aramco. Regional hostilities have impacted Saudi drilling activity. We believe as many as 15 land rigs across the industry have received notices to suspend operations. These include five SANAD rigs. The suspensions should be fully implemented this quarter. The scheduled startup of another SANAD newbuild rig will offset a portion of these reductions. SANAD plans to deploy this 18th newbuild rig during the fourth quarter. At the same time, a number of competitor rigs should also start work under a previous LSTK award. Together, these changes would bring the land rig count in Saudi Arabia to approximately 191 at year-end. That implies a net increase of one rig in this market in the fourth quarter.

SANAD ended the third quarter with 56 rigs working in the Kingdom. Three rigs have since suspended operations, bringing the current count to 53. Two more suspensions are scheduled this quarter. Including the planned 18th newbuild, we expect SANAD to end the year with 52 rigs. That would represent a market leading 27% share. Approximately two-thirds of Saudi land rigs target natural gas. SANAD exposure is concentrated with more than 80% allocated to gas. With 17 newbuilds already deployed, SANAD has 33 left under its 50 rig newbuild program. Discussions are still in progress for the fifth tranche of rigs, which will take the total builds to 25. We expect those to be finalized in the fourth quarter. Across the rest of the region, our rigs continue to deliver strong performance. In Kuwait, we operate three deep gas exploration rigs under long-term contracts.

Gas development offers room to expand. We are currently evaluating a tender for additional 3,000 horsepower rigs. In Oman, our four rigs continue to deliver sound results. A large ongoing tender could create substantial additional demand. NDS adds another source of earnings to our international business. It is the largest casing running contractor in Saudi Arabia and the UAE. In the Emirates, NDS's EBITDA increased by more than a third sequentially. That gain reflects deeper adoption of NDS in this important market. Next, I'll turn to Latin America. Momentum across the region remains strong. In Argentina, we currently operate 14 rigs plus one under an O&M contract. One of our 14 started in the third quarter. We secured a multi-year contract by successfully redeploying an idle U.S. rig, enhancing asset utilization. Our client base is diversified across five operators.

With a 33% market share, Nabors is the largest drilling contractor in the country. We are evaluating 10 new opportunities in this promising market. Nearly all of our working rigs in Argentina were formerly idle units in the Lower 48. Redeploying assets across geographies is central to our global strategy. It converts idle capacity into earnings and attractive returns without new build capital. In Argentina, NDS expands our opportunity beyond drilling. Nearly all of the rig prospects we are tracking include MPD. Our integrated MPD technology has gained broad adoption in the Vaca Muerta. NDS was recently awarded a multi-well program for its FracView and DrillView LWD solutions. This award extends our technology penetration with an established customer. Argentina continues to demonstrate exceptional potential as one of our key growth markets. Our rigs and technology position us to support further development of this world-class resource.

I'll finish my comments on the international markets with another developing opportunity, Venezuela. We were awarded a multi-year drilling contract there in the third quarter. We are bringing an idle U.S. rig back online to meet the client's schedule. The broader outlook in Venezuela is improving. Nine rigs are currently working in the country. That compares with more than 85 in 2013. We are tracking more than 20 additional rig opportunities, reflecting continued momentum in our growth initiatives. That excludes potential increases by vertically integrated operators with their own rigs. We are also evaluating how to service those clients as well. We have five idle rigs in Venezuela ready to respond to activity increases. We are encouraged by the quality of customers considering new long-term drilling programs. With the right commercial arrangements, Venezuela could quickly become a meaningful contributor to our international business.

Altogether, we have identified more than 80 incremental drilling opportunities across 11 countries in our international footprint, reflecting significant growth potential. Oman, Venezuela, Kuwait, Algeria, and Argentina account for the largest number of active tenders. Anticipated tenders would add further demand. The expanding range of prospects, including Venezuela's emerging recovery, is bolstering global rig utilization and driving positive momentum in pricing. We will remain selective and disciplined. Every award must meet our return thresholds and build long-term shareholder value. Across these markets, the priorities are clear. Arabian Gulf operations continue to generate strong performance. They draw on our talented staff, well-developed infrastructure, and deep customer relations. Saudi activity reductions will lower SANAD's near-term rig count. Scheduled new build deliveries support its market leadership position. For the medium and long term, our view of this market remains constructive. Argentina's expansion creates demand for both our rigs and our technology.

Venezuela's restart is taking shape. The growing pipeline points to a larger opportunity ahead. Now let's turn to the U.S. Lower 48. The Baker Hughes Lower 48 land rig count rose by 27 rigs or 5% during the third quarter. Last week, it remained at 577, surpassing the previous high of 568 in February 2025. This count is up 11% year to date. The Baker quarterly average increased by 24 rigs or 6% in the third quarter. According to Enverus, public operator activity was up slightly. Private operator activity showed a sequential increase of 8%. For the market as a whole, the public-private split stands at approximately 52 to 48. To summarize the quarter in the Lower 48, growth was concentrated in Texas markets. Smaller operators account for most of the increase. Our quarterly survey of large Lower 48 operators points to steady demand through year-end.