Nabors Industries Ltd.
Q1 2018 Earnings Call Transcript

Published: 2 May 2018

[Operator:]

Good day, everyone, and welcome to the Nabors First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. And please do note that today's event is being recorded. I would now like to turn the conference over to Denny Smith, Vice President of Corporate Development. Please go ahead sir.

[Dennis A. Smith:]

Good morning, everyone, and thank you for joining Nabors first quarter 2018 earnings teleconference. Today, we will follow our customary format with Tony Petrello, our Chairman, President and Chief Executive Officer; and William Restrepo, our Chief Financial Officer, providing their perspectives on the results, along with insights into our markets and how we expect Nabors to perform in these conditions. In support of these remarks, we have posted some slides to our website which you can access to follow along with the presentation if you desire. They are accessible in two ways. One, if you are participating by webcast, they are available as a download within the webcast. Alternatively, you can download the slides from the Investor Relations section of nabors.com under the submenu Events Calendar, where you will find them listed as Supporting Materials under the Conference Call listing. Instructions for the replay are posted there as well under Teleconference Information. With us today, in addition to Tony, William and myself, are Siggi Meissner, President of our Global Drilling Organization; Chris Papouras, our President of Nabors Drilling Solutions; John Sanchez, our Chief Operating Officer for Canrig; and other members of 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 Exchange Acts of 1933 and 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 differ 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 adjusted operating income, EBITDA and adjusted EBITDA. All references to EBITDA made by either Tony or William 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. 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. Now, let me turn the call over to Tony to begin.

[Anthony G. Petrello:]

Good morning, everyone. Welcome to the call. We appreciate your participation as we review our operations for the first quarter of 2018 and our view of the market going forward. Our results took another step forward this quarter in terms of revenue and adjusted EBITDA, led primarily by the U.S. Drilling segment. I would like to point to the main drivers of our results. First, higher oil prices are continuing to boost rig count and dayrates in the lower 48. Next, our new MODS-400 rig began operations at the Bigfoot platform on April 1, which will noticeably impact our U.S. results going forward. In our other drilling segments, rig count also increased. Internationally and offshore, we see increased tendering activity supported by the current macro environment. Additionally, our Drilling Solutions revenue continue to grow. The casing running business acquired from Tesco played a key role in this growth. Finally, Rig Technologies fell from the fourth quarter. Manufacturing delays in our Tesco facility in Canada resulted in slippage of shipments into month of April. Nonetheless, the Tesco integration is proceeding as planned. We expect both the legacy Tesco casing running and equipment sales businesses to contribute positively to our results in the second quarter. With our super spec rig fleet in the continuing gains in technology penetration, we are confident in our competitive position. The investments we have made in recent years are now paying off. Our SmartRig units are pulling in higher margins, while our strong global platform continues to pull through our advanced drilling technologies. We are positioned to take advantage of the improving market with minimal investment. Now, let me turn to this quarter's results. In the first quarter, Nabors generated adjusted EBITDA of $168 million and operating revenue of $734 million. This performance compares to $163 million and $708 million respectively in the fourth quarter. The rapidly advancing U.S. business propelled the bulk of the increase, driven primarily by higher lower 48 average dayrates and margins. Peak seasonal activity in Canada and growth in Nabors Drilling Solutions helped to offset declines in Rig Technologies and lower margins in International. Rig Technologies was impacted by deferred deliveries of legacy Tesco orders. We believe this was an exceptional development related to the integration. Substantially, all of these deferred units have already been shipped. Nabors worldwide rig activity grew across all segments as oil prices gathered support. We are seeing increased contracting interests and activity from our clients worldwide. Our expectation for both Nabors and total U.S. rig count growth has shifted modestly higher from our previous call. There is developing interest internationally as well, although tightening high-end rig supply has yet to inflect (6

[William J. Restrepo:]

Good morning. The net loss from continuing operations attributable to Nabors of $144 million represented a loss per share of $0.46. Results from the quarter included costs for strategic transactions of $7 million or $0.02 per share. In addition, the quarter included non-cash tax expenses in jurisdictions with negative pre-tax income, resulting in a negative effective tax rate for Nabors. The first quarter tax expense was $46 million higher than in the fourth, a $0.15 per share impact. We expect this position to revert as pre-tax income continues to move towards breakeven and we adjust our legal structures. The first quarter results compare to a loss of $116 million or $0.40 per diluted share in the fourth quarter. In general, our results continued the trend of the fourth quarter. Strong overall drilling results, particularly in North America, and continued growth in NDS. Our international rig count is picking up fast, although pricing still lags. Finally, sluggish shipments of drilling equipment provided a temporary headwind, most of it from logistics and manufacturing issues at our Tesco Calgary facility. Revenue from operations for the first quarter was $734 million as compared to $708 million in the prior quarter, a 4% improvement. U.S. Drilling revenue increased by 3% to $241 million reflecting higher dayrates in the lower 48 and higher rig count, despite fewer drilling days in the quarter. Average rig count for the quarter increased by 5.5 rigs, as we put the remainder of our newbuild PACE-M1000 rigs to work in the lower 48 immediately upon delivery. We also put an incremental rig back to work in Alaska for the winter exploration season. International Drilling revenue decreased by 3% to $369 million, due primarily to lower dayrates on eight contract extensions in Latin America as noted on our previous call. In Canada Drilling, revenue increased by 60% to $32 million, driven by both higher rig count and higher average revenue per day. The seasonal breakup began in March and we are experiencing the usual drop in second quarter results. Drilling Solutions revenue increased 42% in the quarter to $63 million. The largest drivers were higher revenue for performance tools and improved casing running activity, both from our legacy services and from additional Tesco sales. Rig Technologies revenue declined by 18% to $65 million. Delayed shipments from our newly acquired Tesco Calgary facility accounted for this miss. The related logistics and manufacturing issues have been sorted out and we expect these delayed shipments to be incremental to our prior Q2 expectations. 80% of the units involved were already delivered in April. Adjusted EBITDA grew for the fourth straight quarter, reaching $168 million as compared to $163 million in the fourth quarter. The $19 million increase in the U.S. was driven primarily by the robust improvement in lower 48 margins, along with the increased rig activity, lower 48 adjusted EBITDA rose by $20 million as daily margins increased by 39%. As we look forward, we expect to see material growth from the MODS-400 initiation of drilling activity at the beginning of April. This growth will be supported by the eight incremental lower 48 upgrades, steadily joining the working fleet over the next six months. Increasing average dayrates for the lower 48 fleet should also provide a boost to our margins. Drilling margins for the lower 48 increased from just under $5,000 a day to just shy of $7,000, far exceeding our expectations for the quarter. We expect this upward trend to continue, though not at the same pace we saw this quarter. The improved margins reflected an additional $500 improvement in revenue per day as well as substantial reductions to our repairs and maintenance costs. We also addressed our operational support structure in the field, while benefiting from a reduction in startup amortization costs. Rigs continue to reprice to higher spot market rates. We expect this favorable dayrate trend to endure as contract rollovers reprice to market, pricing continues to firm and additional upgrades join the fleet. While Texas remains the tightest market, we are seeing incremental demand in the Rockies and the Bakken for super spec rigs, which is absorbing our upgrades in the region. Although most of our cost improvements are behind us, further reductions are still possible. At this time, we believe lower 48 margins should expand beyond $7,000 a day in the second quarter on higher dayrate, and average $8,000 in the fourth quarter of this year. Given the current level of customer interest and existing commitments, we expect to average between 107 and 109 working rigs in the second quarter. As a reminder, we have 106 working rigs in the lower 48 as of today. International Drilling margins of approximately $16,600 were in line with what we had anticipated. Adjusted EBITDA declined by $5 million to a total of $124 million in the first quarter as four additional rigs were more than offset by the price reductions mentioned before and by fewer revenue days in the quarter. While the potential sale of three working jackups would impact our second quarter rig count and margins, the startup of multiple rigs worldwide will grow our average working rig count in the second and especially third quarters. If we are able to divest these non-core, but higher margin jackups in the imminent future, we expect a decline of approximately $5 million of adjusted EBITDA for this segment in the second quarter depending on the timing of this divestiture. Given the contracted startups we anticipate in the second and third quarters and the increasing rig demand seen more generally internationally, we forecast a strong rebound to adjusted EBITDA for the segment thereafter. Canada Drilling adjusted EBITDA more than doubled from $4.3 million to $9.3 million, driven by another $1,200 growth in margin to $5,850 per day. While it is difficult to forecast beyond the spring breakup, this segment has been a bright spot for us. With a seasonal trough in Q2, we anticipate an average second quarter rig count of approximately 10 rigs and margins in the mid $6,000s as many of our most capable and self-sufficient rigs works through the breakup. Drilling Solutions posted an adjusted EBITDA contribution of $14.8 million, up from $12.6 million in the fourth quarter. The acquisition of Tesco's tubular services business has given us immediate scale in key markets such as Saudi Arabia and the U.S. We also now have a presence in several offshore markets. We remain confident in our $100 million annualized adjusted EBITDA target for this segment by the fourth quarter of 2018. The Rig Technologies segment, representing Canrig and the two technology developmental efforts, dropped from negative $4.3 million of adjusted EBITDA to negative $8.7 million in the first quarter. Given the underlying cause of this deterioration, we now expect the second quarter to be positive for the segment as deferred deliveries occur. We expect adjusted EBITDA for the segment to exceed $10 million by the fourth quarter of this year. We anticipate our rotary steerable solution and Canrig Robotics Technologies division being positive contributors to the segment by year-end. Now, let me review our liquidity and cash generation. Net debt increased by $200 million in the first quarter, which was $100 million more than anticipated. The timing of our semiannual major interest payments was expected to weigh on the first quarter's cash flow. But other items that should not recur in the second quarter, such as an increase of working capital associated with the initiation of SANAD operations, transaction costs and slower collections related to the Tesco acquisition, annual bonus incentive payments and fees associated with our bond issuance also played a role. CapEx for the first quarter was $84 million. We're still targeting CapEx for 2018 of around $500 million. So we would consider undertaking additional upgrade projects with customer pre-funding for the upgrade expense, long-term commitment and high return on capital invested. We still expect positive cash flow for the full year 2018. With a possibility of closing the sale of our jackups this quarter, we would receive about $90 million split 75% cash and 25% stock, with the stock subject to only a three-month lockup. Excluding proceeds from a potential jackup sale, we expect second quarter operating cash flow to be positive. With expanding U.S. margins and International activity, the start of the MODS-400, along with continued growth in Drilling Solutions and recovery in Rig Technologies, we expect to exit this year generating strong annualized cash flows. The next few years should bring material cash flow generation, which will be allocated primarily to debt reduction. This is our top priority and we're very much aware of its critical importance. With that, I will turn the call back to Tony for his concluding remarks.

[Anthony G. Petrello:]

Thank you, William. I want to conclude my remarks this morning with the following summary. As William noted, generating positive free cash flow during 2018 remains our top priority for the remainder of the year. With increasing operational results, minimal cash interest expense and contained working capital, we anticipate positive cash flow next quarter exclusive of any potential proceeds from a jackup sale. Our U.S. Drilling business clearly has undergone a rapid improvement. We expect its upward trajectory to continue with sizable incremental adjusted EBITDA contribution year-on-year. Meanwhile, although we have yet to see pricing increases internationally, the recent uptick in tenders that is now converting into contracts gives us confidence that this bedrock business is approaching the point of inflection. Getting incremental rigs to existing sometimes underutilized regions provides us with outsized (29

[Operator:]

We will now begin the question-and-answer session. And our first questioner today is Ken Sill with SunTrust Robinson Humphrey. Please go ahead.

[Ken Sill:]

Hey, good morning guys.

[Anthony G. Petrello:]

Good morning.

[William J. Restrepo:]

Good morning.

[Ken Sill:]

Thanks for taking time out of the busy OTC schedule for earnings. I got a question on the 3D rotary steerable. It's good that you got the pilot test and other ones coming. Is this thing going to have an outsized impact on margins per day once it gets commercialized? I'm assuming that's going to be more tools coming out next year for your other (31

[Anthony G. Petrello:]

Well, if you look at competitive offerings, I would say, absolutely yes. You know what the dayrates are today in the lower 48 for rotary steerable tools, upwards of $16,000 to $20,000 depending on who and location-wise. And so, a substantial part of that drops to the bottom line. Those margins basically are equal to the margin of a rig. So, that's one of the reasons why we're focused on it, to try to tap into that.

[Ken Sill:]

Okay. So, yeah, that's kind of what I was getting at. So, those are going to be a really significant driver once you see deployment of those tools on top of everything else.

[Anthony G. Petrello:]

That's why it's on our target list. Of course, we have a long way to gear-up in terms of building number of tools out et cetera, but that's the objective here. And the integration into our rig control system is other point where we believe the rotary steerable tool actually will be more effective with the Nabors Rigtelligent operating system that will help guide it and help you with the wellbore placement. So, that's another optimization feature that we're focusing on that will distinguish our rotary from other people.

[Ken Sill:]

Okay. And then just a follow-on question. Internationally, you guys are seeing some improvement in demand, kind of calling a bottom on the rig count here. Is there any particular area outside of the Middle East that looks better or that might actually improve faster?

[Anthony G. Petrello:]

Well, as we indicated on the call – in the remarks, I mean, we did sign four contracts in Colombia, one in Mexico and one in Argentina and in addition to Ecuador. So, the Latin American focus has been – Latin America is very active. Obviously, Argentina the Vaca Muerta play is looking for rigs. And interesting thing about that search for rigs is, they're actually looking for more U.S.-style shale rigs, which actually help drive incremental pricing because those rigs don't exist in country. And Colombia, as you know about – was a two years ago, we relocated X Rig down in Colombia, and and improved deck control (33

[Ken Sill:]

And then what about the platform rig business. You said, offshore showing better – is there any chance for that to upturn or is this kind of the offshore, in general?

[Anthony G. Petrello:]

Well, I think it's true there's – there have been green shoots. We just extended one rig, our M-200, and yesterday, we signed a new contract for previously staffed rig, a platform rig. So, we are seeing some green shoots. And of course, we are obviously very excited that M-400 is going on, on a full rate and as of April 1, so you'll see that increment in our numbers going forward. So, yes, I think the platform market is beginning to show some signs of additional green shoots.

[Ken Sill:]

Okay. Great. Thank you.

[Operator:]

And our next questioner today will be Marshall Adkins with Raymond James. Please go ahead.

[J. Marshall Adkins:]

Good morning, guys.

[Anthony G. Petrello:]

Good morning.

[J. Marshall Adkins:]

The Tesco integration, we had a little hiccup in Canada this quarter, but tell us how that integration is coming along? And then kind of adding to that, seems like this integration of the Tesco casing running stuff is a fairly big deal. So, could you comment on the relevance of that going forward?

[Anthony G. Petrello:]

Sure. As we said before, our vision of the future for drilling is the rig as a platform and we're looking at things that were lot – that historically, because the industry was so solid approached on only (35

[J. Marshall Adkins:]

All right. And kind of a similar, I guess, somewhat related question. Your cost came down a lot on the U.S. side, which is unusual since you're reactivating rigs. And we know across the industry, you have these labor issues. How the heck are you getting cost down in this environment? It seems like most everyone else is going the other way. So, give us some color on what's going on there.

[Anthony G. Petrello:]

Well, I'd like to say, it was a bottom-up – it was a top down approach. I said that we have to do it, and the guys responded and they made it happen. I mean, basically, we set a mission of ourselves to really look at every piece of workflow in the company and all our infrastructure and just start trying to simplify it and taking as much out as possible. The person running the U.S. Operations segment is Head of our Global Supply Chain, so we moved him into the U.S. – he's now running U.S. Operations, Edgar Rincon, and he brought a real discipline to it and we just really focused on it, and as you see, we think we've nailed it. I think there's still some little more to go. Obviously, there's not low-hanging fruit at this point because we're so successfully beyond, as we said before, our expectations. But that was the mission, Marshall, and I think the team delivered. And I would say that there's also some similar initiatives front in the company and other areas. But that's our mission today. As I said on the last call, we're at the point in Nabors, where I got – we want to extract more from the existing asset base, and our total focus is on that. And that – because doing that is the higher return of capital, we think, and more cash flow generation. And we think we have an unparalleled asset base right now. I think our rigs – in the U.S., our SmartRigs second to none. And I think internally, we all know that we have the best franchise internationally in the marketplace. So what I'm interesting doing is milking that as much as I can and having the team extract everything we can from it, and that's where the guys' focuses are today.

[J. Marshall Adkins:]

Thanks, guys.

[Operator:]

And our next questioner today will be Marc Bianchi with Cowen. Please go ahead.

[Marc Bianchi:]

Thank you. Wanted to clarify just one thing, first, on the international guide. William, the $5 million, if you do get the jackups sale done, that is excluded from the commentary about margins declining similarly to what they did in the first quarter. Is that correct?

[William J. Restrepo:]

I think that is what is driving the margin decline, Marc, actually.

[Marc Bianchi:]

Okay. Okay.

[William J. Restrepo:]

It's not a double whammy. It's just that is what is driving the decline for the second quarter.

[Marc Bianchi:]

Okay. Okay. And then, I guess, that sort of implies that rig count is flattish or maybe just down slightly from where you were in the first quarter?

[William J. Restrepo:]

We're going to get some additional rigs in the second quarter, but the big growth is in the third and the fourth.

[Anthony G. Petrello:]

I think is it's about maybe...

[William J. Restrepo:]

I think there's one.

[Anthony G. Petrello:]

...one rig here in the second quarter, and then those eight contracts I referred to, plus the other one we'll start in the third and fourth quarter.

[Marc Bianchi:]

Okay. Okay. And Tony, that one extra rig in the second quarter I would also be subtracting, I guess, three on a operating basis from that right?

[William J. Restrepo:]

Correct. So, that is in an average net number. The one plus – one-point-something, but that includes losing three jackups. Right? So, in reality, we're gaining rigs on land in the quarter (40

[Marc Bianchi:]

Got it. That makes sense. Okay. And then on the cash flow comment, can you guys remind us what you mean there? Is that operating cash flow? Is that operating cash flow minus CapEx, EBITDA minus CapEx? Just define the vocabulary there, if you could.

[William J. Restrepo:]

For the second quarter?

[Marc Bianchi:]

Yes.

[William J. Restrepo:]

So, we're shooting very hard to deliver stable net debt for the second quarter before the impact of a potential sale of the jackups in the second quarter.

[Marc Bianchi:]

Okay. Okay. That's great. And then if I could, just one more, as we think longer term with the Saudi JV, any incremental CapEx and borrowing that occurs there as you consolidate the business, I suspect it would add to the spending that that occurs. But I think it's occurring within the JV and any debt that occurs is going to be at the JV level and doesn't necessarily recourse to Nabors. Do I have that right or can you help us understand?

[William J. Restrepo:]

You have that right. But really, in our forecast, Marc, we're not seeing, over the next couple of years, any need for debt. In fact, the JV is going to be quite flush in cash.

[Marc Bianchi:]

Okay. Very good. I'll turn it back.

[Operator:]

And the next questioner today will be Jim Wicklund with Credit Suisse. Please go ahead. James Wicklund - Credit Suisse Securities (USA) LLC Good morning, guys. The free cash flow generation in the second half of the year and in 2019 is strong and impressive. I just look at the total debt load and wonder if it's enough or if there's anything you have to do. I'm thinking about how long the cycle would have to last before we roll over again for you to generate enough cash to making a meaningful pay-down. So, I guess, my question is, is there anything else you need to do or can do so, assets you can sell, deleveraging transaction? I'm just wondering if the only plan for the debt reduction is free cash flow generation over the next coming years.

[Anthony G. Petrello:]

I think the first thing I would say is, and thinking about going forward, when you put together all the pieces today that we've outlined and you see the direction of all the segments, I think we've laid out a roadmap where you can see that by 2019 year, we're going to have in excess of $1 billion of EBITDA. Okay. That's point one. And (42

[William J. Restrepo:]

So, I think some of the things that we're working on and, obviously, we do that all the time, obviously, is – so we're looking at our shorter-term maturities and opportunities to term that out. We're also talking already to our bankers on potential extension and modification of our revolving credit facility. So, it takes care of, I would say, the more tactical parts of the equation. We do think that the cash flow generation of 2019, 2020, and we don't expect the market to roll over in those two years, are enough to make a meaningful dent on our net debt. I don't think we will reach our final objective, which is somewhere in the low $2 billion net debt over the next couple of years, but we'll certainly put our company in a situation that is much better over the next two years. And we said before that we expect to deliver roughly $1 billion of free cash flow that will be allocated towards a debt reduction over that two-year period, James. James Wicklund - Credit Suisse Securities (USA) LLC Okay. And the rate (44

[Anthony G. Petrello:]

Yeah. James Wicklund - Credit Suisse Securities (USA) LLC Okay.

[Anthony G. Petrello:]

I would also say, we're always looking at our portfolio to see what other things are logical for us to have in the portfolio versus not in the portfolio. We've had a track record of doing some stuff like that. So, you can rest assure we're looking at things like that as well. James Wicklund - Credit Suisse Securities (USA) LLC Okay. I appreciate that. That's helpful. And my follow-up, if I could, one of the biggest issues, of course, in the market these days is people and personnel, and I think this might be the first cycle in my history of doing this where we've actually lost $1 of revenues because we couldn't find people. Permian, Midland unemployment is 2.1% and just paying the people more doesn't solve the industry problem. I'm just curious to know what you're doing or how you're doing in terms of adding people. Everybody needs people, and if there's a solution to the industry as opposed to just individual companies by paying a little bit more to move people around. What do we do and will the automation efforts that Nabors is trying to do on rigs, will that be soon enough to have an impact?

[Anthony G. Petrello:]

Well, obviously, one of the reasons why we're interested in automation is we'd like to open up a whole new access to a different kind of labor pool. Today, when one thinks about the drilling industry, for people outside, they have this picture of a bunch of guys lifting heavy (45

[Anthony G. Petrello:]

Well, I never said that it'd be one person. I think it'll be run – I think the rig floor itself will be run by a driller, and there won't any need for anyone to touch the pipe, tripping and casing, et cetera, can all be done on an automated fashion. And I'm hoping you're going to see that relatively soon. That's all I'm going to tell you. I mean, I'm working on it, and look at – and I would direct you to your picture – I would direct you to the two videos on the website right now. And you're going to see one is a plan for an offshore rig floor that's totally automated. I think, as we announced in our prepared remarks that we have signed an engineering contract with a major North Sea operator to redo his platform rig along the lines of our automation concept. And that video illustrates to you what that looks like, and you'll see it's something that doesn't exist today. And then similarly, there's a video of a land rig with – it's with a single bit (48

[Anthony G. Petrello:]

Thank you.

[Operator:]

And hour next questioner today will be Colin Davies with Bernstein. Please go ahead.

[Colin Davies:]

Hi. Good morning. I was wondering if you can give us a little more color on the walk as we step up the margin in the U.S. So, I think you said potentially over $10,000 a day by the fourth quarter. Trying to get some sense of how much you think that is lower 48 pricing? How much you think it is ongoing cost improvement where you guys have obviously made big gains? And how much is it just a blend of the offshore rigs coming in, the platform rigs coming in?

[Anthony G. Petrello:]

I think you can separate out – I think it's better for you to just look at lower 48, what we're saying about lower 48, lower 48, the increase that occurred this quarter to quarter was about $500 due to pricing, and about $1,500 due to costs, which equates (50

[Colin Davies:]

Okay, that's helpful. And then just on the solution side, any sense that you can give us as to how much of the growth over the next few quarters is coming from the acquired Tesco services and the growth of that into the Nabors rig portfolio? And how much of is it coming from the underlying NDS solution that you're adding progressively on to the rigs?

[Anthony G. Petrello:]

I don't have an exact number, but my guess is around 20% maybe, something like that.

[William J. Restrepo:]

Right. I think the Tesco casing running services should add something in the range of $15 million to $20 million of EBITDA year-on-year and the rest is all organic. But a lot of it is expansion into international markets, as Tony mentioned. We are getting now our first paid jobs in Saudi Arabia for directional drilling and our performance software continues to expand internationally. And in the U.S., new products, new offerings, including the rotary steerable, coming towards the end of the year.

[Colin Davies:]

That's great.

[Anthony G. Petrello:]

So when you think about NDS, one thing I'd observe is we said the penetration is 40% with five or more services on our rigs, which really is the – those are the rigs that are contributing the bulk of that $1,350 (52

[William J. Restrepo:]

So, I'll tell you another statistic, which is quite interesting to me, we look every week at the last 10 contracts that are awarded in the lower 48. And in the last 10 contracts, 7 of them had casing running services. So, that's the kind of penetrations that we're starting to see now from the Tesco acquisition. That's why we're so excited about the acquisition and how we can integrate and pull through that revenue into our rig platform.

[Colin Davies:]

That's great. That's helpful to see how the pull-through is working. Brilliant. Thank you. I will hand it back.

[Dennis A. Smith:]

Let's do one more question. We've got about five minutes left here.

[Operator:]

And the next question will be from Tommy Moll with Stephens. Please go ahead.

[Tommy Moll:]

Good morning. Thanks for taking my question.

[Anthony G. Petrello:]

Sure.

[Tommy Moll:]

So first, just a housekeeping item on your outlook for free cash flow. Are you expecting positive free cash flow ex the jackup sale in both 2Q and for the full year?

[Anthony G. Petrello:]

Yes.

[Tommy Moll:]

Okay. Great. And then, to round it out here with a macro question. It's good to hear you're increasingly optimistic on rig count in the lower 48. Do you discern any difference in maybe adjustments to drilling plans on the public side versus the private side in terms of your customer base? And specifically, on the public side, is your assumption on the rig count continuing to climb based on the CapEx budgets that have already been announced or more just folks who are looking at where WTI is trading today and maybe thinking about bumping that number up as we get into late Q3 or Q4? Thanks.

[William J. Restrepo:]

Okay. So, it's less based on CapEx and those sort of surveys than on specific market intelligence we get. We do have clients that together have – account for over a third of the rig count in the U.S. in the lower 48, and they give us good participation in our survey. So, we're projecting our own customer base to the total market. That's how we're reaching that conclusion.

[Tommy Moll:]

Okay. Thanks. That's all for me.

[Dennis A. Smith:]

We will wrap the call up now. Ladies and gentlemen, thank you for joining us. And if we didn't get your question answered, feel free to e-mail us or call us at your leisure.

[Operator:]

And the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.