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Nabors Industries Ltd. (NYSE:NBR) Files An 8-K Announces Third-Quarter Results

Nabors Industries Ltd. (NYSE:NBR) today reported third-quarter 2016 operating revenues of $519.7 million, compared to operating revenues of $571.6 million in the second quarter of 2016.  Net income from continuing operations, attributable to Nabors, for the current quarter was a loss of $99.0 million, or $0.35 per diluted share, compared to a loss of $183.7 million, or $0.65 per diluted share, last quarter.

Anthony Petrello, Nabors’ Chairman, President, and CEO, commented, “After a challenging downturn, we are experiencing significant utilization increases in our Lower 48 market, although spot market pricing continues to remain competitive.  Similarly, our international markets are showing signs of impending activity increases.  We are very encouraged by our customers’ acceptance of our newest rig, the PACE®-M800.  We now have contracts for the first four PACE®-M800s, with two already deployed, and awards for two more.   Likewise, the high demand for our PACE®-X rigs has brought the utilization of that fleet to over 80%.  This increased demand is beginning to exert upward pressure on pricing for these top-end rigs, although, in the near-term, our fleet average margins will remain under pressure due to expiring long-term contracts.  We are also implementing a cost-effective plan to enhance other classes of our existing AC rig fleet to incorporate most of the features of these rigs.  Regardless of how the recovery unfolds, we expect our reduced cost structure, improved performance and our various technology initiatives to significantly increase operating leverage across our global fleet.

“We recorded a sequential decline in adjusted operating income, as a modest increase in Rig Services was more than offset by reduction in one-time gains in Drilling, as compared to the second quarter.  We expect this trend in operating income to continue into the beginning of 2017 driven by lower U.S. Drilling margins and International utilization.”

Segment Results

Adjusted operating income for the Company was a loss of $72.0 million during the quarter. Drilling and Rig Services adjusted operating income was a loss of $38.4 million compared to a loss of $25.0 million in the second quarter.  Quarterly adjusted EBITDA for the Company decreased sequentially to $148.7 million, a 10% decline from the previous quarter due to a reduction in certain revenue items that were discrete to each quarter.  For the quarter, the Company averaged 163.5 rig years operating at an average gross margin of $14,029 per rig day, compared to 159.1 rigs at $15,850 per rig day in the second quarter and 187.9 rig years at an average gross margin of $13,407 per rig day in the first quarter.

International adjusted EBITDA decreased by 1% sequentially to $148.8 million.  A reduction of four  rig years in this segment was mostly offset by an increase in margin.  Compared to the third quarter, the Company expects quarterly adjusted EBITDA to remain under pressure in the near term.  The Company is encouraged by planned startups at the beginning of the year, as well as, increased tendering activity with mid-2017 start dates.  Canada operations should reflect the seasonally stronger winter activity, although the rebound should be less robust than usual.

The U.S. Drilling segment posted adjusted EBITDA of $37.3 million for the quarter, reflecting further margin erosion offset by a 7% increase in rig years.  The Lower 48 operation saw a 13% increase in rigs working compared to the second quarter, with an average rig count of 50.  The Company is currently working 61 rigs in the Lower 48 operation.  The recent start-up of rig CDR-3 and seasonal winter activity will benefit near-term Alaskan results.

Rig Services, which consists of the Company’s manufacturing, directional drilling, and complementary services, reported a loss in adjusted EBITDA of $4.3 million, representing a $6.1 million improvement over the second quarter.  This increase is primarily attributable to reduced costs and higher revenues from service and repair operations.  The Company expects this trend to continue.

William Restrepo, Nabors’ Chief Financial Officer, stated, “Third-quarter performance by our company has confirmed the trends we had foreseen after the second quarter. First, our International business has remained healthy and continues to provide strong cash generation. Second, our rig count in the Lower 48 market has rebounded. Our working rigs have increased by 66% since our trough in early April, and we have gained market share, mainly on strong demand for our PACE®-X rigs. Third, as anticipated, the daily margins for our Lower 48 rigs eroded some more, as some term contracts expired, and we added more rigs at the currently lower spot rates. We expect this deterioration to continue near-term. Finally, our focus on costs at all levels of the organization has paid off, as we have mitigated the impact of average dayrate declines in the U.S., contained our SG&A expense in the face of an uptick in rig count and controlled our capital expenditures.”

Mr. Petrello concluded, “Recent increases in Lower 48 activity and stabilizing oil prices are encouraging.   We are experiencing utilization increases across many of our AC rig classes, particularly our pad-optimal PACE®-X and M800 rigs, which are rapidly approaching full utilization.  All of our new-build rigs are deployed with our new Rigtelligent™ modular-code operating system and we have commenced retrofitting most of our AC fleet.  This operating system effectively automates routine tasks and integrates downhole processes with the rig.  The incorporation of this operating system, together with ongoing enhancements to our other AC rig classes, will give us 100 pad-optimal, high-specification, automated rigs by mid-2017.  We believe these actions position us well to address the changing market dynamic both in the United States and internationally.”

About Nabors

Nabors Industries (NYSE:NBR) owns and operates the world’s largest land-based drilling rig fleet and is a leading provider of offshore platform rigs in the United States and numerous international markets. Nabors also provides directional drilling services, performance tools, and innovative technologies throughout many of the most significant oil and gas markets. Leveraging our advanced drilling automation capabilities, Nabors’ highly skilled workforce continues to set new standards for operational excellence and transform our industry.

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