Nabors Industries Ltd. Q3 FY2026 earnings call

• Financial Excellence: Third-quarter adjusted EBITDA totaled $246 million, exceeding expectations and guidance on all key metrics. Margin expanded by approximately 100 basis points to 28.2%. Adjusted free cash flow was $115 million higher than outlook.
• Debt Reduction: The company redeemed $100 million of outstanding debt, specifically its highest-coupon notes due in 2030, lowering annual interest expense by over $9 million. Net leverage decreased to 1.7x, with a target of ~1.0x.
• International Momentum: Record daily margins in international drilling were driven by tight capacity and strong execution in Saudi Arabia, Argentina, and Indonesia. SanEd deployed its 17th new-build rig in Saudi Arabia, and the company started its 14th owned rig in Argentina.
• U.S. Market Strength: The U.S. land rig count rose 5% sequentially. Neighbors expanded its lower 48 rig count by 12 units year-to-date (19% growth), outpacing the market average. Daily margins surpassed $14,000, supported by longer contract coverage (nearly half of rigs have >6 months remaining).
• Technology Adoption: NDS EBITDA grew 10%, led by MPD and Rig Cloud solutions. The CanRig Titan automated rig floor wrench gained market acceptance with four units delivered and backlog exceeding 20 units.
• Strategic Expansion: Increased equity stake in Quays Energy (geothermal) to become the largest holder. Awarded a multi-year drilling contract in Venezuela, redeploying an idle U.S. rig to meet client schedules.
• Capital Discipline: Capital expenditures of $141 million were below guidance. The company shifted some new-build milestone payments to 2027 to support stronger current-year free cash flow.

International Drilling: Adjusted EBITDA of $185 million (estimated from total $246M less other segments), representing a 12% sequential increase. Margin expanded to 32%, with record average daily gross margins exceeding $19,000. This segment contributed significantly to the company's overall profitability.

U.S. Drilling: Adjusted EBITDA increased by $5 million (6% sequential growth). Average daily revenue rose to ~$34,800, and average daily margin surpassed $14,000. The lower 48 rig count grew to 74 rigs. This segment benefited from tight supply of high-spec rigs and extended contract terms.

Drilling Solutions (NDS): Adjusted EBITDA reached $44 million, up 10% sequentially and 5% above guidance. The segment achieved a 38% EBITDA margin, converting 72% of incremental revenue into EBITDA. Growth was driven by Managed Pressure Drilling (MPD) adoption and casing running services.

RIC Technologies: Adjusted EBITDA was $5 million, an improvement of $1.8 million sequentially. Performance was supported by part sales, equipment deliveries (including four Titan wrenches), and Kayen Drive Systems.

• Full-Year EBITDA: Raised to approximately $930 million, at the top of the prior range, implying a second-half run rate ~18% above the first half.
• Full-Year Adjusted Free Cash Flow: Raised to the $100–$110 million range, an $80 million increase from previous guidance, driven by shifted capital spending and better working capital.
• Q4 International Drilling: Expected average rig count of 92–93 rigs. Average daily gross margin expected to reach a record ~$19,500. Note: Five rig suspensions in Saudi Arabia are expected to reduce Q4 cash flow by $5–$6 million, already embedded in guidance.
• Q4 U.S. Drilling: Lower 48 average rig count expected at ~75, exiting at 76–77 rigs. Daily adjusted gross margin expected to rise to $14,500–$14,700.
• Q4 NDS: EBITDA expected to grow 5% to approximately $46 million.
• Q4 RIC Technologies: EBITDA expected to improve by $3 million to approximately $8 million.
• Full-Year Capital Expenditures: Updated outlook is $710–$720 million, including $295–$305 million for the SanEd New Build program. The 19th new build deployment is delayed to Q1 2027.

• Geopolitical Instability: Intensified hostilities in the Middle East have led to suspension notices for five SanEd rigs in Saudi Arabia, impacting near-term activity and cash flow.
• Operational Delays: Conflict-related equipment delivery delays have pushed the deployment of the 19th new-build rig from Q4 2026 to Q1 2027.
• Collection Risks: Approximately $50 million in delayed collections occurred in the Middle East during the quarter, though these were resolved at the start of Q4.
• Market Volatility: Uncertainty regarding natural gas prices in markets like East Texas could delay incremental growth if operators do not see the expected price recovery.

Q: Joe Leitch (Morgan Stanley) asked about the impact of Saudi rig suspensions and the outlook for 2027.

A: Tony Petrello explained that five SanEd rigs were suspended because drilling ahead of completion/fracking programs, reducing the net count by one to 52 rigs. He noted the broader industry rig count remains healthy (~191) despite hostilities. Crucially, he announced the fifth tranche of new builds has just been signed, resolving uncertainty and supporting long-term leadership. The 19th rig moves to early 2027, followed by the 20th.

Q: Derek Odiser (Piper Sandler) sought quantification of the financial impact of the five suspended Saudi rigs and details on reactivation timelines.

A: Miguel Rodriguez stated the Q4 cash flow impact is $5–$6 million, already included in guidance. He clarified that suspensions are likely short-term, driven by scheduling mismatches in Jafura projects. Exact return dates cannot be predicted, but the company expects phases to catch up eventually.

Q: Keith Mackey (RBC) inquired about the 2027 EBITDA trajectory and CAPEX plans.

A: Miguel Rodriguez outlined a base run rate of $1 billion EBITDA for 2027, driven by broad-based growth across all regions. CAPEX will be higher next year due to the delayed new builds and prudent growth investments. Tony Petrollo emphasized NDS’s exceptional 90% cash flow conversion rate as a key driver for capital-light growth and robust future cash flows.

Q: Jason Kim (JPMorgan) asked about the speed and capital efficiency of deploying additional rigs in Venezuela versus maintaining domestic demand.

A: Miguel Rodriguez highlighted that Venezuela offers significant accretive potential, with five idle rigs already in-country and one more being redeployed from the U.S. The company maintains a robust local footprint and can restart operations quickly based on customer schedules. They prioritize Venezuela opportunities where commercial terms meet strict return thresholds, leveraging idle assets to boost international margins.

Q: David Kim (Barclays) asked about the Lower 48 rig count trajectory for 2027 and the role of large public E&Ps.

A: Tony Petrollo noted that while small operators drove recent growth, large operators are showing 'green shoots' for adding rigs in 2027. However, discipline remains high. He cited third-party surveys suggesting 20–40 net additions. Smaller operators are squeezed by tight capacity, favoring larger clients who adopt advanced technology. The Northeast market has been exited due to limited upside, while West Texas and South Texas show strong pricing and demand.