So if I focus just on the fourth quarter, the biggest shortfall was really working capital, Waqar, and that was about $50 million versus what we forecast. The working capital was higher. $40 million of that was our accounts receivable. We were planning to reduce our accounts receivable inventories for the quarter, but those increased during the fourth quarter, mostly in worst collections than we targeted. So the US was the main driver, but it was not the only one, by the way. We really have had a tougher time in the second half of this year collecting from our customers. I do suspect that interest rates have something to do with this. Nonetheless, it is true we need to adjust to this environment and find a way to bring this DSO down, and we are planning to do that to bring the DSO back to the records we had in the first half.
So I think that with the largest shortfall CapEx was also an issue this quarter, about $30 million to $40 million more than we targeted, all of that in Saudi Arabia. I think about $30 million of that was really legacy rigs. In Saudi Arabia, we will have about 20 rigs going through their four year recertification. In Saudi Arabia that’s a massive undertaking, because it’s not only the rig but all the related equipment. And lot of equipment after four years needs to be replaced, refurbished and upgraded. So we are preparing for that and we have ordered required components to make sure we minimize the downtime related to certification process. So I think AFEs for these certifications are about $1.5 million per rig, Waqar. So we had expected our suppliers to get this material ready at the beginning of the first quarter.
But based on our client schedules and requests, we have to move out some of the deliveries of these items, and that hit us pretty bad in the fourth quarter. So that was the lion’s share of the CapEx hit. Again, that’s something that we would have had to absorb anyway. So it’s not like an extra incremental CapEx, but it did hit us in the fourth quarter. And you may remember that we issued senior notes in November. So between fees and some carry on the cash for a bit more than a month, we had an extra outflow of about $50 million or so for the fourth quarter. So basically, if you add all that up, it’s about a $100 million shortfall, but half of that is really accounts receivable. And that’s where we — and inventory is and that’s the area of focus for us for 2024.
So we do have to get better at adjusting to the customers’ attempts to keep their cash, and we have a plan for materially reducing our inventory. So we expect those to have a very positive impact in 2024. I hope that answers your question, Waqar.
Waqar Syed: Just on 2024 CapEx, are you prepared to provide just the book ends on the kind of range? And I’m sure it’s a pretty wide range, because reactivations can be quite costly internationally. But maybe a broad range of if you don’t get a contract where they could be, and if you get additional then where it could go?
William Restrepo: We have our Board meeting today, and I mean, starting today until Friday. So we’re going to — obviously, these are important items right now. Because as you well know, CapEx and free cash is a very important topic for us, as you well pointed out. So until we have the Board blessing on what we can actually focus on and what they’re going to basically give us a green light to go for. I think giving some very wide range like a range that’s $50 million, $60 million different is not very useful at this point. So I think we’re going to — I’ll just say that we expect our CapEx to be a bit higher next year than it was this year. That’s all I will say at this point.
Tony Petrello: The only other comment I’d add to this, Waqar, is that if you look at our free cash flow for the year and you add back the in-Kingdom rigs, which is really a newbuild program investment, together that amount of free cash flow that we generate this year, I think, is really a remarkable total number. So it really shows the strength of the portfolio that — what we do have here as a company. So I’m pretty proud of that that we actually do a newbuild program that no one’s doing of the size that we’re doing here at all. But the fact that we could do that and still chip away at debt and do other things, I think, is a distinction that we have uniquely given our portfolio. So that’s the other thing I’d add.
Operator: The next question comes from Arun Jayaram with JPMorgan.
Arun Jayaram: Gentlemen, I appreciate the fact that you don’t have a Board approved budget for 2024, but the CapEx commentary was helpful. Tony, you mentioned seven to 10 incremental international rigs that you expect by year end. Can you give us maybe a little bit of a flavor of the type of rig that you expect to deploy. And what type of CapEx do you see on those, call it, reactivations and upgrades, are these rigs that are already located internationally or are you moving some capacity from the Lower 48?
Tony Petrello: The seven rigs that I’m talking about four — that are in hand that you’re going to see, the four are in Algeria, which are existing rigs with upgrades and the three of those are inked into newbuilds — newbuilds have a ticket more than 50 million a pop and the other ones are upgrades, and there’s upgrades of rigs that are on site in Algeria, they’re not being brought in the US. So when you look at — the size of those rigs are not equal to the average size of the goods rigs in Saudi Arabia. So when you actually look at blended margins, we are having some change in mix, because the Algeria rigs are a little bit small rigs, 1500 horsepower rigs that are little smaller than the other rigs that we have. Therefore, when you look at our margin for the first quarter that we’re talking about, there’s consensus, there is some change in mix and timing that affects margin as you work all the numbers through.
But those rigs are all — do not include anything from the US, but there’s no upgrades required from the US, which again, is unique to us because we have rigs in the international market already.
William Restrepo: So we did dial in a slight reduction in margin in the first quarter, because we’re going to have like seven rigs coming in, we took a little bit of a cautious view on deploying those rigs and the amount of uptime we’re going to get at the beginning until those rigs are fully operational. So there is a little bit of that included in the forecast for the first quarter.
Arun Jayaram: And maybe just one follow-up, Tony. One question that’s come in as you do deploy the SANAD newbuild as part of the JV, are these take-or-pay contracts and what kind of contract commitments do you have on those, because you are investing capital there?
Tony Petrello: Yes, these are 10 year contracts, six years take-or-pay and a four year renewal option as well — four year guaranteed renewal basically. So there are 10 contracts. That’s what’s unique about everything I’m talking about. No one have that kind of contract six years with a four year renewal guaranteed 10 year contract.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to William Conroy for any closing remarks.
William Conroy: Thank you all for joining us this morning. If there are any additional questions, please follow up with us offline. And Dave, with that, we’ll end the call there. Thanks very much.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
