But our impression is there’s a growing domestic consumption that natural gas is needing to solve for. And then, of course, the attraction of having a burgeoning export market. And those two things are not affected by the capacity issue you’ve heard about. Now SANAD currently operates 48 rigs and more than 75% of them are gas directed. And in fact, this year, the only two rigs we have up for renewal are two gas-directed rigs. So for this year, we’re looking pretty good. The newbuild program that you referred to, of course, was done back when we did the joint venture more than five years ago. And it’s part of a longer term industrial policy for Kingdom part of 2030 and those long term policies are sort of like act of God. Once they’re in place, they’re hard to move, they’re like dirt barges.
So I really don’t see things changing. Will it affect some cadence? Yes, I’m sure, over time, depends on what happens, it could be some cadence about whether it’s four rigs or five rigs, which is the target per year, that could get affected. But we have not heard anything. We haven’t heard anything that affects any of the rollout so far at all. So today, as you know, we have five rigs, newbuilds that are on the ground working, we have 45 to go. Our view is that this is an unparalleled growth opportunity that we’re just beginning to see the fruits of. And we think when realized what the numbers are this thing could approach $500 million in EBITDA just from these intended rigs when all 50 of them are on board. So it’s a huge thing that we’re playing to and that’s why we’re spending the capital to do it, which obviously is truing into our free cash flow.
We spent quite a bit — a little bit more than planned for this year because of timing issues. But we think it’s in a play in a unique market and we have a very unique position that we need to take advantage of and exploit as much as possible. And so we’re really happy that Aramco has been part and parcel has been a great partner along the way. And as I said, we haven’t seen any second guessing of this at all.
Derek Podhaizer: I appreciate all the detail, that is very helpful. Just switching over to the US. So you talked about the dynamic of repricing your rigs lower down the current market rate, which is putting some pressure on your first quarter margins. You’ve also talked about how current rates are remaining steady. So maybe just expand on that churn as your higher priced rigs go down to the current market rates? And maybe when should that spread narrow from what you see in your blended average versus where we are at current rates, and then maybe talk about contracted versus spot exposure across the fleet today?
Tony Petrello: Well, let me start. Yes, I think our guidance for the first quarter does reflect some continued churn and the current market pricing. Let me first comment by basin, just give you a feel for the market, maybe that makes sense. West Texas, I would describe the rate of churn is high and activity level is down. South Texas, I would call the churn low and activity flat. East Texas, I would call the churn medium, activity down. Northeast, I’d call that low and activity flat. And North Dakota, I’d say low but activity flat but Nabors because recent activity had some upturns there. 44% of our rigs are in West Texas. And so that does affect the overall thinking in terms of — we got to be concerned about churn given that market today, and that’s why you see the numbers where we are.
I think there’s two positives in our numbers. The first is that our customers has shifted more to public operators from last year. So year end, this year, we’re exiting around 72% our client base is public versus 61 before. And then the second point is our gas rig count change mix has changed. It was 30% in early 2023 and we’re down to 14% today. So I think our guidance reflects the fact that to deal with that and to maintain a disciplined approach on selection of the jobs and pricing and find customers and also — that we can share our journey to on technology as well technology deployment, which is key to us realizing even better returns. And as you know, when you measure us for returns, you got to make sure you add the NDS margin per rig to the base drilling margin.
When you do that NDS margin this last quarter is 3,900 and you add that to the margin of over $20,000 per rig, which I think is pretty good in this market. And so the goal is try to maintain our outperformance and to try to select customers that play into those factors I just talked about. Does that make any sense?
Derek Podhaizer: It does. And then maybe just quickly on the narrowing of your blended revenue per day and then just where the current spot is, like just as we think about the churn through the year. How is that going to narrow, maybe how wide it is now just as [Multiple Speakers]…
William Restrepo: So I think the latest contracts that we are signing are somewhere a couple of thousand dollars in terms of revenue per day beyond where the blended average is. Now we do have a ton of contracts that are locked in already. I would say 30% have a lot of term on them remaining. So the other 70 are basically exposed to where the leading edge day rates are over the next six months or so. So on average, that’s why we are forecasting a reduction in about $1,000 per day in the first quarter. At this point, we’re not ready to look at the second quarter, but we think that prices have steadied and we are even managing to get leading edge prices in some cases that were higher than the prior contracts. So we think we’re in a good situation right now.
But undoubtedly, because of where our revenue per day and in fact, the fourth quarter was a bit of a surprise to us and how well we managed to renew our contracts and maintain the day rates at a pretty high level, but we do think we’ll see some deterioration in the first quarter. And we would hope that the second we see some stability for the average day rate or the average revenue per day. So we’re seeing the narrowing happening sometime and crossing over, I guess, sometime in the second quarter.
Operator: The next question comes from Waqar Syed with ATB Capital Markets.
Waqar Syed: My question relates to free cash flow. And that’s the number question I’m getting from clients right now. You’re not giving guidance for free cash flow for 2024. Is that because you’re not sure of any additional contract wins internationally, or anything on what’s driving the reason or what’s the reason behind not providing guidance?
William Restrepo: We’re not providing guidance. I’ll address that first because it’s still very early in the year and we do have a very meaningful amount of contracts that are being negotiated and vendors outstanding, as Tony mentioned. And those can have a significant impact on EBITDA, but also on CapEx. So before we get the outcomes of those contracts, we feel it’s a bit premature to go out on a free cash flow for the year. But if you’re referring to the fourth quarter, also, you mentioned that some clients are asking about it. What I’m focusing on is that our underlying cash flow generation, Waqar, was very strong from our operations. In fact, the underlying cash flow was strong and remained strong. Now we did have some unplanned items that fell in the fourth quarter.
