Nabors' Q3 2025: Contradictions Emerge on Saudi Tendering, U.S. Margin Trends, and Debt Strategy

Date of Call: October 29, 2025

Financials Results

• Revenue: $818.2M, down $14.6M or 1.8% sequentially (Q3 consolidated)

Guidance:

• Total EBITDA for Q4 expected to be essentially in line with Q3, excluding Quail.
• Lower 48 average rig count guided to 57–59; daily adjusted gross margin ~ $13,000; modest decline in average daily revenue on renewals.
• Alaska & U.S. offshore EBITDA ~ $25M (Q4) with scheduled maintenance.
• International drilling avg rig count ~ 91; daily adjusted gross margin $18,100–$18,200; one Saudi newbuild and two Argentina deployments expected.
• Drilling Solutions EBITDA ~ $39M (Q4, full quarter without Quail).
• Rig Technologies EBITDA ~ $5.5M driven by committed equipment deliveries.
• Q4 CapEx targeted $180–$190M; full-year CapEx revised to $715–$725M.
• Q4 adjusted free cash flow ~ $10M; full year adjusted free cash flow expected to be breakeven.

Business Commentary:

* Capital Structure Transformation: - Nabors completed the sale of Quail Tools for a total consideration of $625 million, which included a $250 million seller financing note. - The company used these proceeds to pay down approximately $330 million of debt, resulting in a pro forma net debt of $1.7 billion``, the lowest in more than 10 years. - This transaction is part of Nabors' strategy to reduce net debt by more than20%``` this year and improve its capital structure.

• International Drilling Segment Growth:
• In the International Drilling segment, adjusted EBITDA increased by more than 8% sequentially, mainly driven by strong activity in Eastern Hemisphere markets like Saudi Arabia and Kuwait.
• The increase was also due to the deployment of new-build rigs in Saudi Arabia and the start-up of a legacy rig in India.

• This growth reflects Nabors' strategy of focusing on long-term development markets and leveraging performance through technology.

• U.S. Drilling Market Outlook:

• The average rig count in the U.S. Lower 48 exceeded guidance, averaging 59.2 rigs, with a stable end of quarter count at 62 rigs.
• However, there are signs of pressure in some oil basins, especially in the Permian, due to clients adjusting activity levels.

• Despite the pressure, Nabors expects U.S. activity to stabilize and potentially see an uptick in the latter part of 2026.

• Saudi Arabia Activity Tendering:

• Saudi Arabia is considering adding back up to half of its previously suspended onshore rigs, which would represent 50% of cumulative suspensions.
• A tender was issued to drilling contractors, with Nabors' SANAD participating with its suspended units.
• The potential for new rig awards signifies an opportunity for Nabors to recover from past suspensions and benefit from increased activity.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a transformative Quail sale for $625M, adjusted EBITDA of $236.3M that exceeded post-sale expectations, pro forma net debt down to ~$1.7B / 1.8x leverage (lowest in >10 years), and plans to deploy proceeds to further debt reduction and expected cost synergies of $40M in 2025.

Q&A:

• Question from Daniel Kutz (Morgan Stanley): Against a broadly flat activity outlook, what are your expectations beyond Q4 for daily revenue, costs and margin trends in the U.S. Lower 48?
  Response: Expect leading-edge day rates to reprice to the low $30k range and sustain ~ $13k gross margin per day; priority is reducing OpEx/churn so more of incremental daily revenue (~$500 sequential increase) converts to EBITDA.

• Question from Daniel Kutz (Morgan Stanley): On Saudi onshore tendering, how much of the potential reactivation is net activity adds versus simply bringing back suspended rigs, and are Nabors/SANAD participating for your suspended rigs?
  Response: Market signals Aramco may reinstate ~50% of cumulative land suspensions; SANAD/Nabors submitted bids for its three suspended rigs and are awaiting tender results.

• Question from Derek Podhaizer (Piper Sandler): Is Aramco's tendering different this cycle—are they demanding new rig specs or more technology—and how is Nabors positioned?
  Response: No major rig-spec changes; customers seek more automation/software and performance upgrades—Nabors already deploys automation (PACE‑X Ultra, integrated automation) and is positioned to supply upgrades across U.S. and Middle East fleets.

• Question from Derek Podhaizer (Piper Sandler): With pro forma net leverage ~1.8x, what levers will you use to further delever given CapEx remains elevated?
  Response: Using Quail proceeds (including $250M prepayment) to pay down notes (gross debt down toward ~$2.1B); non‑SANAD businesses expected to generate ~$70M FCF in 2025 (mostly Q4) and further paydowns targeted toward a net debt goal of ~$1.1–1.2B while SANAD reinvestment continues.

• Question from Arun Jayaram (JPMorgan Chase & Co): Do you think Saudi reactivations are driven by gas capacity objectives, and what is your view on unconventional growth outside North America?
  Response: Reactivations are primarily gas-driven (condensate economics and 2027 capacity planning); Nabors sees global gas/unconventional upside (Argentina ramp to ~13 rigs, Algeria, Alaska) and expects increasing demand for gas-directed rigs and LNG-related activity.

Contradiction Point 1

Saudi Tendering and Rig Returns

It involves differing expectations and strategies regarding the Saudi tendering process and the return of suspended rigs, which impact operational planning and financial projections.

What are the current Saudi tender requirements and how do they differ from historical trends? - Derek Podhaizer (Piper Sandler)

2025Q3: A tender has been issued, with Nabors participating with their 3 suspended rigs awaiting results. - Miguel Rodriguez(CFO)

What risks does Nabors face with its legacy rigs in Saudi Arabia? - Waqar Syed (ATB Capital Markets)

2025Q2: Nabors has 18 rigs in Saudi Arabia, representing most of our Middle East fleet. They are diversified in a sense of having a mix of land, marine and offshore rigs and they are also a mix of gas and oil directed rigs. - Anthony Petrello(CEO)

Contradiction Point 2

U.S. Lower 48 Cost and Margin Trends

It involves differing explanations of cost and margin trends in the U.S. Lower 48 region, which affects financial performance and operational strategy.

Can you provide details on U.S. Lower 48 daily revenue, cost, and margin trends beyond Q4, given a flat activity outlook? - Daniel Kutz (Morgan Stanley)

2025Q3: The daily revenue increased sequentially by about $500 per day due to performance bonuses in contracts. The churn in the last quarter led to higher costs not falling to the bottom line. - Anthony Petrello(CEO)

Okay, let's see. The user wants me to simplify the question from a conference call. The original question is: "Can you reconcile the unchanged free cash flow guidance with reduced SANAD CapEx and other CapEx cuts?" First, I need to understand what the question is asking. The person is asking how the company can maintain the same free cash flow guidance even though they've reduced SANAD CapEx and other capital expenditures. The key elements here are the unchanged free cash flow guidance and the reduced CapEx.Now, the user wants the question to be concise, precise, and in American English. They also want to remove any unnecessary words. Let me check for any redundant terms. "SANAD CapEx" is specific, so that should stay. "Other CapEx cuts" is already concise. The original question uses "reconcile," which is appropriate here. The structure is "Can you reconcile A with B and C?" That seems correct. Maybe "SANAD CapEx" can be written as "SANAD capital expenditures" for clarity, but the original uses "CapEx," which is a common abbreviation. Since the user wants to keep the meaning and it's already in the original, I should leave it as is.So the simplified version would be: "How do you maintain the unchanged free cash flow guidance despite reduced SANAD CapEx and other capital expenditures?" Wait, but the original uses "CapEx cuts," so maybe "CapEx reductions" is better. Let me check the exact wording. The original says "reduced SANAD CapEx and other CapEx cuts." "Cuts" and "reduced" are similar, so maybe "reduced SANAD CapEx and other CapEx cuts" can be combined as "reduced SANAD and other capital expenditures." Putting it all together: "How do you maintain the unchanged free cash flow guidance with reduced SANAD and other capital expenditures?" But the original question uses "reconcile," so maybe keeping "reconcile" is better. However, "reconcile" is a bit formal. The user wants it to be concise and precise. "How do you maintain..." is more direct. Alternatively, "Can you explain how the unchanged free cash flow guidance aligns with reduced SANAD and other capital expenditures?" That might be more concise. The original question uses "reconcile," which means to make consistent or compatible. So the core is explaining the consistency between the unchanged guidance and the reduced expenditures. The user's example response was: "How do you maintain the unchanged free cash flow guidance with reduced SANAD and other capital expenditures?" That's a good version. Let me check if "CapEx" should be spelled out. The original uses "CapEx," so maybe keep it as is. But in the example, they used "capital expenditures." Hmm. The user's instruction says to keep the original meaning, so if the original uses "CapEx," it's acceptable. However, in formal writing, "capital expenditures" might be preferred. Wait, the user is a financial article author, so using "CapEx" is acceptable in this context. But the example response from the assistant used "capital expenditures." Maybe the user prefers the full term. Let me check the original instruction again. It says to ensure the output is in American English and to remove unnecessary words. "CapEx" is an abbreviation commonly used in finance, so it's acceptable. However, the example response used the full term. Maybe the user expects that. But the original question uses "CapEx," so it's better to keep it. Let me adjust accordingly. The example response used "capital expenditures," but the original uses "CapEx." To stay true to the original, maybe keep "CapEx." So the final simplified question would be: "How do you maintain the unchanged free cash flow guidance with reduced SANAD CapEx and other CapEx cuts?" Wait, but "CapEx cuts" can be "CapEx reductions." However, the original says "reduced SANAD CapEx and other CapEx cuts." The term "cuts" is a bit informal, so replacing it with "reductions" might be better. But the user wants to keep the original meaning. Since the original uses "cuts," maybe it's better to keep it. However, "CapEx cuts" is a bit redundant because "reduced" already implies a cut. So perhaps "reduced SANAD CapEx and other CapEx" is sufficient. Putting it all together: "How do you maintain the unchanged free cash flow guidance with reduced SANAD and other capital expenditures?" That's concise and precise. The user's example used "SANAD and other capital expenditures," which combines the two. The original mentions "SANAD CapEx and other CapEx cuts," so combining them as "SANAD and other capital expenditures" captures both. Yes, that's the correct approach. The final answer should be: "How - Grant Hynes (JPMorgan)

2025Q2: The leading-edge day rate has been stable for several quarters, staying above $13,000. Margins are expected to stabilize around $13,300 in Q3. - William Restrepo(COO)

Contradiction Point 3

Saudi Tender Participation and Rig Suspension Decisions

It involves the company's participation in Saudi tenders and the status of suspended rigs, which are critical for the company's international operations and future revenue projections.

What is the net activity adds compared to reactivating suspended rigs in Saudi onshore operations? Is Nabors participating in the bidding for the suspended rigs? - Daniel Kutz (Morgan Stanley)

2025Q3: There has been a cumulative suspension of over 80 rigs in land. Aramco may consider adding back around 50% of these. A tender has been issued, with Nabors participating with their 3 suspended rigs awaiting results. - Miguel Rodriguez(CFO)

Have you started incurring any debt in the SANAD JV? - Waqar Syed (ATB Capital Markets)

2025Q1: So we did these surveys before any of this tariff news hit us, and we did it in the U.S., in Mexico, in Canada, in the Middle East, and in Europe. And overall, we're, we're flat, we're flat. - Tony Petrello(CEO)

Contradiction Point 4

Debt Reduction Strategy and SANAD Cash Generation

It involves the company's strategy for debt reduction and the expected cash generation from the SANAD JV, which directly impacts the company's financial health and investor confidence.

What are the key drivers for further debt reduction, considering current cash flow and SANAD cash generation? - Derek Podhaizer (Piper Sandler)

2025Q3: The net debt is targeted to be reduced to around $1.1 to $1.2 billion. The balance of Nabors without SANAD is expected to generate $70 million annually. Cash flow will be used to pay down debt, with a focus on reducing it further. - Miguel Rodriguez(CFO)

Given deleveraging priorities, how do you view accelerating SANAD's value via an IPO? Should we consider it a potential lever if market conditions deteriorate? - David Smith (Pickering)

2025Q1: I think both parties are looking at it [IPO] as an option... It's the obvious path for us... But at the same time, we've got to make sure that it's done in a prudent fashion. - Tony Petrello(CEO)