Nabors Industries LTD. (NBR)

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Nabors 2Q 2012 EPS Equals $0.38, Excluding Non-cash Charges

HAMILTON, Bermuda, July 24, 2012 /PRNewswire/ -- Nabors Industries Ltd. (NYSE: NBR) today announced its financial results for the second quarter and first six months of 2012. The Company posted adjusted income derived from operating activities of $230.4 million for the current quarter which compares to $177.5 million in the second quarter of 2011 and $321.2 million in the first quarter of 2012.

Net income from continuing operations, excluding certain non-cash charges, was $109.7 million ($0.38 per diluted share) compared to $70.9 million ($0.24 per diluted share) in the second quarter of 2011 and $188.9 million ($0.65 per diluted share) in the first quarter of 2012. Operating revenues and earnings from unconsolidated affiliates totaled $1.7 billion in the current quarter compared to $1.4 billion in the second quarter of last year and $1.9 billion in the first quarter of this year.

For the six months ended June 30, 2012, adjusted income derived from operating activities was $551.6 million compared to $385.1 million in the first six months of 2011. Net income from continuing operations for the first six months of 2012 was $298.6 million ($1.03 per diluted share) compared to $165.4 million ($0.57 per diluted share) in 2011. Operating revenues and earnings from unconsolidated affiliates totaled $3.6 billion for the first six months of 2012 compared to $2.7 billion for the first six months of 2011. Net income from discontinued operations for the current quarter was $24.7 million ($0.09 per diluted share), reflecting gains realized upon the sale of our remaining E&P operations in Colombia.

Including the $293.0 million ($0.72 per diluted share) of non-cash charges incurred in the quarter, GAAP net income from continuing operations was a loss of $98.7 million ($0.34 per diluted share). The largest of these charges was $145.5 million, representing the Company's portion of impairments to the reserve valuation in its NFR Energy joint venture as a result of the quarterly ceiling test, which applies the 12-month trailing average natural gas price. The balance of the non-cash charges consisted of $75.0 million from elimination of the intangible asset value of the Superior Well Services trade name, $46.2 million in asset retirements, and goodwill elimination of $26.3 million in our International and US Offshore operations.

Tony Petrello, Nabors' Chairman and CEO, commented, "Second quarter results, while short of our expectations in Pressure Pumping and International operations, illustrate the capacity of long-term contracts to limit downside exposure and sustain healthy levels of operating cash flow in weakening market conditions. As we saw with falling natural gas prices in the first quarter, the second quarter drop in prices for crude oil and natural gas liquids is further constraining customer cash flow and spending. These spending reductions, combined with the entry of newly built rigs without term commitments, are resulting in an increasingly competitive land rig market. The near term impact is diminished by our term contract coverage, but that mitigation dissipates with time. Fortunately, the longer term outlook for our business remains promising as expanded shale development will require continued drilling to offset decline rates, leading to higher demand for our services.

"Our Pressure Pumping and International segments notwithstanding, our second quarter results were in line with or modestly ahead of our expectations. The best sequential performance came from our US Well-servicing operations where we mitigated the impact of a declining Northeast market by quickly reducing costs and repositioning excess equipment into more active areas. The majority of our shortfall was in Pressure Pumping where lower revenues and higher costs disproportionately affected margins. Similarly, our International unit also fell short of expectations with startup delays and significantly higher costs.

Drilling & Rig Services

"Operating income in Drilling and Rig Services decreased by approximately $80.8 million sequentially with the sharp seasonal decline in results in Canada and Alaska combined with a decrease in our International results.

"Income of $126.5 million in our US Lower 48 land drilling operations was down $5.0 million quarter to quarter as favorable operating costs were more than offset by increased depreciation associated with the commencement of 11 new rigs during the quarter, all with long-term contracts. This brings the total of new rigs deployed in the first half of 2012 to 18. The average rig count and margins per rig day were essentially flat with the first quarter as 12 rigs were idled. During the latter part of the quarter there was a noticeable downturn in prospective customer spending levels in response to the decline in crude oil and NGL prices. Over the balance of this year, we expect moderate deterioration in our rig count and increasing pressure on spot pricing as competitors offer new and existing rigs at lower rates and minimal terms.

"Income from our International operations declined $4.7 million sequentially to $16.4 million, reflecting further delays in the startup of higher cash flow projects exacerbated by higher operating costs. The largest cost increases were attributable to unreimbursed labor increases for our indigenous workforce in certain Middle Eastern countries and higher repair and maintenance expenses, some of which are non-recurring. The delayed rigs have all commenced operations since the end of the quarter which, when combined with some cost improvement and additional utilization, leads us to expect improving results over the course of the year. However, the timing and magnitude of this prospective improvement continues to be difficult to assess. For example, we recently won a 10 rig tender for the renewal of five rigs and an incremental five new rigs that was subsequently deferred, apparently due to budgetary constraints in one key international market. Similarly, in another country, several rigs that commenced operations in recent quarters will be shutting down at a time yet to be determined to accomplish contractual upgrades, which the customer has deferred to facilitate its schedule. Nonetheless, there is ongoing demand for rigs in several countries, although these markets remain highly competitive and subject to ongoing cost pressures.

"Canada reported a loss of $3.7 million during the quarter, down $53.0 million from the seasonally high first quarter. The normal late second quarter recovery in rig activity that typically follows the Spring thaw did not materialize due to a very wet June. The forecast for the rest of the year has deteriorated somewhat, but remains targeted to approximate the results achieved in 2011.

"Our US Offshore operations generated $9.9 million in operating income for the quarter, a modest improvement over the $7.7 million reported in the prior quarter. Gradually improving activity resulted in an increase of two rig years quarter to quarter, but margins were down approximately $900 per day due to a higher proportion of smaller rigs operating. Results in the third and fourth quarters will be negatively impacted by hurricane season, as many operators are electing to defer activity due to regulatory requirements. We anticipate further improvement in the fourth quarter with the return to work of four rigs that have already been placed on stand-by rates in anticipation of deployment. Construction of two new deepwater platform rigs continues, with deployment anticipated in the first quarter of 2013.

"Our Alaska drilling operations reported operating income of $8.9 million, down from the $27.4 million recorded in the seasonally high first quarter, but up slightly from the $8.3 million reported in the second quarter last year. A number of new independents are entering the market and are expected to drive a strong exploration season in 2013. The state legislature again failed to reduce the oil tax progressivity, which continues to limit capital spending in legacy fields. The longer term outlook remains positive with several projects likely to commence if favorable revisions in the state tax structure are enacted early next year.

"Rig Services income of $28.2 million was down slightly from its $29.8 million record first quarter as seasonally weak results in our directional drilling operations in Canada were offset by a moderate increase in Canrig and a favorable settlement in our Alaska heavy construction joint venture.

Completion & Production Services

"During the quarter, Nabors Completion & Production Services was formed by combining our US well-servicing and pressure pumping operations under one management structure. We expect this integration to improve our operational efficiency and customer interface. We will be focused on realizing costs savings in the next few quarters as we consolidate yards and facilities and further integrate services.

"In our US land well-servicing operations, operating income of $28.6 million was up substantially from the $21.9 million recorded in the first quarter and the $16.5 million posted in the second quarter of 2011. Utilization of both rigs and trucks increased as equipment was moved from the Northeast to more active areas in Texas and North Dakota. Rig pricing was up slightly. On the other hand, fluid service truck rates declined as we moved trucks out of the higher rate Northeast market, but that decline was more than offset by the increased volume for this this equipment. The longer-term outlook is encouraging for this primarily oil-focused business as the large number of oil wells being added, particularly workover intensive horizontal wells, will convert to artificial lift systems over time and will require increasingly frequent maintenance.

"Our Pressure Pumping operations reported operating income of $46.1 million for the second quarter, down from $64.9 million in the prior quarter but up slightly from the $43.9 million recorded in the second quarter of 2011. The first and second quarters reflect $1.9 and $1.6 million, respectively, in startup costs associated with the two new spreads in Canada that commenced operation subsequent to the end of the quarter. The negative results were mitigated by the 13 crews we have on long-term contracts, although some of these units were utilized closer to minimum commitment levels during the quarter. The spot market has continued to deteriorate, and the resulting lower utilization is creating unrecoverable costs for labor, fuel and transportation. Our guar gel costs peaked in July and our average cost should decline throughout the next quarter as the market returns to its historical supply/demand balance. Meanwhile, we continue to focus on improving our operational efficiency, particularly the inventory, transportation and logistics elements of our cost structure. Our visibility with respect to the near-term pressure pumping market is limited, but we continue to look for opportunities to expand this business into other markets by leveraging Nabors' global footprint.

"Our Oil and Gas segment now consists solely of our portion of NFR Energy's income, which was $5.1 million for the quarter, excluding the quarter's ceiling test impairment charges. All other holdings are now reflected in discontinued operations, which include the previously mentioned $48.5 million gain on the sale of our remaining operations in Colombia early in the quarter.

"Our efforts to improve our balance sheet and increase our financial flexibility through reduced capital expenditures and non-core asset sales are progressing in spite of potentially lower operating cash flow due to the weakening environment. Our commitment to free cash flow generation remains continuous and our targeted level of net debt reduction still appears to be achievable, but may rely increasingly on asset sale proceeds or require additional time given the current environment. Although our efforts to monetize non-core operations are progressing slower than we prefer, we are focused on completing additional significant sales by year end.

"In summary, we remain focused on generating operating cash flow despite emerging market weakness and the recent underperformance of certain businesses. The severity and duration of the current weakness in our markets is not clear, so we continue to scrutinize all expenditures, particularly sustaining capital. We have coped with these changing markets many times and we are well resourced. We have previously used these times as opportunities to better prepare ourselves for the future and we will do so again."

The Nabors companies own and operate approximately 513 land drilling rigs throughout the world and approximately 600 land workover and well-servicing rigs in North America. Nabors' actively marketed offshore fleet consists of 40 platform rigs, 12 jackup units and 4 barge rigs in the United States and multiple international markets. In addition, Nabors is one of the largest providers of hydraulic fracturing, cementing, nitrogen and acid pressure pumping services with over approximately 805,000 hydraulic horsepower currently in service. Nabors also manufactures top drives and drilling instrumentation systems and provides comprehensive oilfield hauling, engineering, civil construction, logistics, and facilities maintenance and project management services. Nabors participates in most of the significant oil and gas markets in the world.

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