Nabors Industries Ltd. Q2 FY2026 earnings call

• Strategic Milestones and Product Innovation • San Antonio Venture (Sanad) placed its 16th new build rig into service and returned a second previously suspended rig to work, leaving only one suspended rig yet to return. • Drilling commenced on Quaze Energy's Project Obsidian in Oregon, the first commercial application of super hot enhanced geothermal systems targeting gigawatt-scale power generation. • Two high-specification PACEX Ultra Rigs were commissioned for Catarists in South and East Texas, fully outfitted with NDS technology, generating daily revenue over $40,000 per rig. • CanRig launched its first fully automated advanced Titan Rig Floor Wrench into commercial service, with early field results showing unmatched performance and lower cost of ownership. • NDS's Rocket Drill String Oscillation Software secured a competitive win displacing an incumbent competitor on multiple third-party rigs, demonstrating its technology leadership.

• International Market Operations • Saudi Arabia: The Saudi land rig count increased 4 quarter-over-quarter to 196, up 35 from the 2025 Q3 low; Sanad operates 55 rigs (28% market share, the largest contractor in the Kingdom) with nearly three-quarters of its activity focused on natural gas, aligning with Saudi Aramco's expansion plans. 34 additional rigs remain to be delivered under the 50-rig new-build program. • Gulf Cooperation Council: Three deep gas rigs operate on long-term 2025 contracts in Kuwait, with ongoing tender activity for additional high-spec rigs; four rigs operate in Oman with multiple active tenders for future work. All Gulf operations have continued without disruption amid regional geopolitical conflict. • Argentina: Neighbors operates 14 rigs (after mobilizing an additional rig this quarter) holding 30% market share (the largest position in the country); 46% of Argentina H1 2026 EBITDA comes from NDS, demonstrating the success of the rig-as-a-platform integrated strategy that combines drilling and technology for higher returns. • Venezuela: Activity outlook has improved materially, with large operators expressing interest in restarting drilling programs; Neighbors holds five idle rigs in the country and is well positioned to capitalize on future activity growth.

• U.S. Lower 48 Operations • The U.S. land rig count increased 31 rigs (6%) quarter-over-quarter, with growth concentrated in oil directed activity driven by private operators in Texas basins. • Neighbors added 5 rigs in Q2, diversified across regions and customer types including two contracts with supermajors; nearly 70% of its working Lower 48 fleet now serves publicly traded operators, which provide longer contract durations and higher earnings visibility. • Sequential average daily revenue increased over $900, with more than 45% of rigs holding at least six months of remaining contract duration, expected to rise to ~50% in Q3.

• Technology and Growth Strategy • Neighbors' core strategy is to develop technology that improves drilling performance, increases customer returns, and lifts earnings per rig; NDS revenue grew 11% on Neighbors rigs and 12% on third-party rigs in Q2, outpacing fleet growth, driven by high-value solutions like MPD and RigCloud. The integrated rig-as-a-platform model creates higher margins, deeper customer relationships, and stronger differentiation than standalone businesses.

1. International Drilling: Revenue of $432 million, up $13 million (3.1% sequentially). EBITDA of $131 million, up $9 million (7.6% sequentially). EBITDA margin expanded 127 bps to 30.2%. This segment contributed 53% of consolidated Q2 2026 revenue.
2. U.S. Drilling: Revenue of $252 million, up $11 million (4.7% sequentially). EBITDA of $94 million, up $6 million (6.8% sequentially). EBITDA margin expanded 75 bps to 37.3%. Within this segment: Lower 48 revenue hit $207 million, up $15 million (7.8% sequentially); combined Alaska and U.S. offshore revenue was $46 million with EBITDA of $15 million and a 33.5% EBITDA margin, in line with guidance. This segment contributed 31% of consolidated Q2 2026 revenue.
3. Drilling Solutions (NDS): Revenue of $111 million, up $4 million (4.2% sequentially). EBITDA increased 3.5% with an EBITDA margin of 36.2%. This segment contributed 14% of consolidated Q2 2026 revenue.
4. Rig Technologies: Revenue of $37 million, up 37.7% sequentially. EBITDA reached $3.2 million, modestly exceeding guidance. This segment contributed 4.5% of consolidated Q2 2026 revenue.

Consolidated Q2 2026 revenue was $815 million, up $31 million (4% sequentially), with adjusted EBITDA of $222 million and an EBITDA margin of 27.2%, up 107 bps sequentially.

• Q3 2026 Guidance: • International Drilling: Average rig count expected between 94 and 96, exiting the quarter at 96 rigs; average daily gross margin expected to improve to $18,100 to $18,400, despite ongoing Middle East conflict cost pressures. • U.S. Drilling: Average Lower 48 working rig count expected to rise to ~73, exiting the quarter at 74 rigs; daily adjusted gross margin expected to remain flat sequentially at ~$13,800 due to limited near-term renewal opportunities. • Combined Alaska and U.S. Offshore: EBITDA expected to be ~$11 million, reflecting lower offshore activity. • Drilling Solutions: EBITDA expected to increase 5% sequentially to ~$42 million, driven by continued technology adoption. • Rig Technologies: EBITDA expected to improve to a range of $5 million to $6 million. • Capital expenditures: Expected to be $245 million to $255 million, including ~$130 million for Sanad new builds; consolidated adjusted free cash flow expected to be negative ~$40 million, including ~$65 million of cash consumption by Sanad. • Consolidated EBITDA margin is expected to expand ~100 basis points sequentially.

• Full Year 2026 Guidance: • Full year 2026 EBITDA is guided to $920 million to $930 million, an upward revision from prior expectations, and above 2025 full year results. • Full year 2026 capital expenditures are guided to $710 million to $730 million, including $325 million to $335 million for the Sanad new build program (a downward revision to the Sanad build outlook due to milestone delays pushing into early 2027). • Full year adjusted free cash flow is now expected to be $20 million to $30 million, an upward revision from prior guidance.

• 2027 Initial Expectations: • Capital expenditures are expected to be in line with or slightly higher than 2026 levels, driven by ongoing Sanad new build activity and potential growth capex for identified strategic opportunities.

• Regional geopolitical conflict in the Middle East creates cost pressure and operational uncertainty, though Neighbors operations have remained uninterrupted to date and cost impacts have been in line with guidance. • U.S. Lower 48 upstream operator capital discipline limits near-term pricing gains, with fewer near-term renewal opportunities preventing sequential margin growth in Q3 2026. • Collection delays in Mexico and the U.S. created a temporary headwind to Q2 2026 adjusted free cash flow, though management expects this to normalize over the second half of 2026. • Future activity growth depends on market conditions and operator capital allocation plans, with actual results potentially differing from forward-looking guidance due to these variable factors.

Q: Analysts asks for Neighbors' outlook on U.S. Lower 48 activity and pricing for Q4 2026 and 2027, and confirms the mid-$30,000 average daily revenue target. / A: Management notes major operators continue to maintain capital discipline in the market, with recent activity growth driven largely by private operators. Utilization of high-spec super-spec rigs is increasing, and once it hits a critical threshold, pricing will begin to accelerate. Management expects activity and pricing momentum to accelerate in the second half of 2026, and the mid-$30,000 daily revenue target will be reached by the end of the year. The analyst also asks for an update on the fifth tranche of new Saudi Sanad rigs. Management confirms Aramco remains fully committed to the expansion program, and discussions on the next tranche are expected to conclude within the next quarter. Additional upside exists from potential reactivation of 10 more suspended Saudi rigs, which will also benefit Neighbors' leading NDS casing running business in the region.

Q: Analyst asks for perspective on U.S. super-spec rig supply tightness and the potential for overall market and Neighbors rig count growth in 2027, with stable ~$70/bbl oil prices. / A: Management declines to give a formal 2027 rig count forecast, noting that large operators overwhelmingly demand high-spec rigs for longer lateral drilling programs. Most existing lower-spec rigs will require upgrades to meet operator demand, and Neighbors is uniquely positioned for this work because its CanRig division manufactures most required upgrade equipment internally. Management expects half a dozen rig upgrades over the next 12 months, and will focus on improving utilization and pricing for its current fleet as the market tightens. The analyst also asks about upside from the Quaze Energy geothermal project. Management explains Neighbors invested in Quaze early for its differentiated MIT-developed millimeter rock destruction technology that enables accessing supercritical hot rock, which would make geothermal power ubiquitous globally. Quaze's first 50MW well for a 250MW Google contract is underway using conventional drilling to lay infrastructure for future millimeter technology testing, and Neighbors' in-house rig manufacturing capability lets it modify rigs to integrate the new technology, creating unique upside.

Q: Analyst asks how Neighbors approaches the balance between longer-term contracted rigs and spot rigs in the U.S., and what the right target percentage is for contracted backlog. / A: Management states there is no fixed target percentage, but a 60% long-term contracted share is a reasonable long-term level. The most important factor for entering long-term contracts is the customer type: Neighbors prioritizes long-term operators that are willing to adopt its bundled technology solutions, rather than just chasing the highest near-term price. Bundled technology contracts create additional incremental upside for NDS products, and align with Neighbors' rig-as-a-platform strategy. Performance-based pricing is now a standard feature of almost all Neighbors contracts, especially for NDS services which are priced based on performance improvements. NDS maintains a 90% EBITDA-to-free cash flow conversion rate, demonstrating the high capital efficiency of the technology business.

Q: Analyst asks for initial thoughts on 2027 capital expenditure levels relative to 2026, especially for Sanad new build activity. / A: Management notes that while it is early, 2027 capex is expected to be in line with or slightly higher than 2026. Sanad is expected to deploy 5 rigs in 2027 and begin construction on another 5 new rigs, putting Sanad capex in the ~$330-350 million range. In addition to sustaining capex, Neighbors is evaluating multiple strategic growth opportunities in its pipeline that could require additional growth capex in 2027. Management adds that the H2 2026 EBITDA run rate is ~$1 billion, 17% higher than H1 2026, and this outlook is based on already contracted activity and planned deployments, so downside risk to the outlook is very low.