Nabors Industries Ltd. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Positive Developments in Q2: Adjusted EBITDA totaled $248 million, in line with expectations. It included a full - quarter contribution from the Parker operations, improved results in the U.S. Drilling business, and 4 rig deployments in the Middle East.
• Parker Business Performance: Parker businesses performed well and were on track to achieve the $40 million cost synergy target for 2025. The legacy Nabors business excluding Parker improved in the quarter.
• Market Environment: Global oil demand remained strong and growing. U.S. trade policy gained clarity. Production increased in certain countries. The natural gas market was resilient due to increasing LNG exports.
• U.S. Business Performance: Offshore and Alaska businesses combined contributed nearly 30% of U.S. adjusted EBITDA, benefiting from the Parker acquisition. In the Lower 48, daily rig margins declined in Q2 but rig count increase offset the impact.
• International Markets: In Saudi Arabia, the drilling focus shifted from oil to gas. The SANAD joint venture deployed 2 newbuild rigs in Q2 and received awards for 5 more rigs. In Latin America, activity in Mexico was uncertain, while Colombia and Argentina had varying rig counts and opportunities.
• Technology and Innovation: Drilling Solutions had a gross margin of 53%, and Quail Tools was the largest revenue contributor in the NDS portfolio.
• Capital Structure: The highest priority was the reduction of debt. Approximately $14 million face value of notes was repurchased at a significant discount during Q2.

Segment Performance

• U.S. Drilling: Second quarter revenue was $255 million, a sequential increase of $25 million or 11%. The average rig count in the Lower 48 averaged 62.4, nearly 2 rigs higher than the first quarter.
• International Drilling: Generated revenue of $385 million, an increase of $3.3 million or 1% from the prior quarter, mainly driven by the full - quarter impact of Parker rigs.
• Drilling Solutions: Revenue was $170.3 million, an increase of $77.1 million or 82.7%, all due to the full - quarter impact of Parker Wellbore.
• Rig Technologies: Generated revenue of $36.5 million, a sequential decline of $7.6 million, mainly driven by strong prior - quarter capital equipment deliveries in the Middle East.
• Adjusted EBITDA: Totaled $248 million, including a full - quarter contribution from the Parker operations, improved results in the U.S. Drilling business, and 4 rig deployments in the Middle East.

Guidance

• Lower 48: Expected some continued pressure on pricing in the third quarter. Forecast Lower 48 daily rig margins of approximately $13,300. Expected a slightly softer drilling market in the third quarter than initially anticipated at the first - quarter conference call.
• Alaska and U.S. Offshore: EBITDA from these businesses was expected to total approximately $26 million in Q3, with some weather - related disruption to offshore activity.
• International Segment: EBITDA was expected to improve with additional rig deployments. Forecast average daily gross margin to increase to $17,900 and average rig count between 87 and 88 rigs.
• NDS and Rig Technologies: NDS EBITDA was expected to remain in line with second - quarter results in Q3. Rig Technologies EBITDA was expected to be up $2 million to $3 million from Q2.

Risks

• Mexico Receivables: Collections were below target for the quarter. There was some exposure to rig count due to the client's initiatives to reduce costs.
• Latin America Markets: Uncertainty in activity in Mexico and some slowdown in drilling programs in Argentina.
• Lower 48 Market: Potential pressure on pricing.
• Forward - Looking Statements: Subject to certain risks and uncertainties as disclosed in Nabors' filings with the SEC, which could cause actual results to vary materially from those indicated.

Question and Answer

• Q: Good to see the 5 - rig award from SANAD. Speak to incremental growth prospects into '27 and opportunities in other Middle East regions like Kuwait?

A: Sure. Virtually the entire fleet in SANAD are rigs well - suited to anywhere in the region. Certain rigs are of high specifications suitable for Kuwait. Our fleet in the Middle East is well - positioned.

• Q: Reconcile unchanged free cash flow guide with $70 million cut in CapEx, $15 million in U.S. and $10 million in Mexico uncertainty?

A: There are many moving pieces in SANAD. A $70 million cut in CapEx had an impact on cash flow of about $50 million. Adjusted for U.S. and Mexico uncertainties, roughly $40 million of EBITDA was cut from the forecast and there was a $50 million improvement in CapEx net of payables.

• Q: Risks to Nabors legacy rigs in Saudi Arabia?

A: Since the start of 2024, land rigs were idled and some suspended. Aramco was evaluating the production rate. SANAD increased the rig count by 4 rigs and had 52 rigs. SANAD's fleet had more than 75% gas - functioning rigs and was committed to the newbuild program.

• Q: U.S. Lower 48 drilling margins guidance for Q3. Think margins bottom here or more downside?

A: Encouraging that leading - edge revenue per day had stayed fairly consistent and above $13,000 for multiple quarters. Dialing in $13,300 for Q3 and should be able to sustain above $13,000.

• Q: 2026 CapEx potential. Drivers and expected increase?

A: CapEx was expected to be a bit higher in 2026 than in 2025 because the fleet would be larger. The SANAD newbuild program and sustaining CapEx per fleet contributed to this.

• Q: Mexico collections. Process and actions to increase?

A: Nabors' rigs in Mexico were viewed as core to PEMEX's production. A $7 billion to $10 billion financing was intended to address outstanding payments. Expecting substantial collections in Q3, assuming over $40 million.

• Q: Interest in production - oriented services. Any consideration of well service sector?

A: Interest in areas complementary to existing business, such as tools for intelligent fracking in EOR. Unlikely to revisit the well service sector like pressure pumping.