Nabors Industries LTD. (NBR)

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Nabors Announces First Quarter 2013 Results

Tuesday , April 23, 2013 16:02ET



HAMILTON, Bermuda, April 23, 2013 /PRNewswire/ -- Nabors Industries Ltd. (NYSE:NBR) today reported its financial results for the first quarter of 2013. Adjusted income derived from operating activities was $149.6 million, compared to $315.5 million in the first quarter of 2012 and $149.8 million in the fourth quarter of 2012. Operating cash flow (EBITDA) was $423.0 million for the first quarter compared to $563.2 million and $427.0 million, respectively, in the first and fourth quarters of last year. Net income from continuing operations was $97.2 million ($0.33 per diluted share), compared to $142.6 million ($0.49 per diluted share) in the first quarter of 2012 and $129.3 million ($0.44 per diluted share) in the fourth quarter of 2012. Operating revenues and earnings from unconsolidated affiliates for this quarter totaled $1.58 billion, compared to $1.82 billion in the comparable quarter of the prior year and $1.60 billion in the fourth quarter of 2012. First quarter results included a gain on the sale of a large portion of marketable securities net of charges related to the previously disclosed CEO employment contract restructuring. The quarter's results also benefited from a lower effective tax rate, principally attributable to the settlement of a long outstanding tax dispute.

Tony Petrello, Nabors' Chairman, President & CEO, commented, "Operating income and cash flow were essentially flat compared to the fourth quarter, as improved results in Production Services coupled with the seasonal peak in Canada were offset by a sharp decline in Completion Services and more moderate declines in our U.S. and International drilling operations. The anticipated seasonal trough in Completion Services was exacerbated by the slow restart of activity following the holidays and the series of late winter storms across the areas where a majority of our operations are located. Despite the slow start, we expect our performance to improve later this year as we begin to restore operating leverage across our Production Services and drilling operations."

"Our initiatives to streamline and consolidate our operations are reflected in an enhanced reporting format beginning this quarter. This format reflects the way in which we now analyze our businesses and provides better visibility into the cash contribution of each of our segments."

To facilitate historical comparisons, the Company will post a downloadable Excel worksheet with three years of reformatted results to its website at www.nabors.com.

DRILLING & RIG SERVICES
In the Company's Drilling & Rig Services business line, revenues were essentially flat with the fourth quarter at $1.1 billion, as were operating cash flow and income at $356.7 and $137.3 million, respectively. Aggregate rig activity increased sequentially from 346 to 352 rigs, while daily per rig margins declined approximately $153 to average $11,987.

U.S. Drilling
Improved results in the Gulf of Mexico coupled with seasonally higher results in Alaska mostly offset the anticipated sharp decline in the U.S. Lower 48 portion of this segment. Revenues for the quarter were $484.8 million, generating $184.9 million in operating cash flow and $77.6 million in operating income. The U.S. Lower 48 rig count bottomed in mid-February at 165 rigs and has since increased by 16 to 177 rigs, three of which are recently deployed PACE(®)-X rigs. An additional two PACE(®)-X rig commitments were secured during the quarter, bringing the total number of PACE(®)-X contract awards to 19 since the beginning of 2012 and the total number of contract awards for new rigs to 23 during the same period. This segment expects to see even lower results in the second quarter as the Alaska winter season winds down and spot market pricing impacts on revenue become fully realized in the U.S. Lower 48 operations. Activity in the Gulf of Mexico is gradually improving, although seasonally weak activity is expected from June through October due to hurricane season. The new 4,600 horsepower deepwater platform rig we are building is in the final stages of commissioning after which it will be used for training until its planned mobilization later in the year. The recent passage of favorable tax legislation in Alaska is expected to spur plans for new activity, with Nabors in line to be a major beneficiary. Activity should begin later this year and increase for at least two or three years. Regaining lost market share in the U.S. Lower 48 is a priority and should result in increasing operating leverage as rig count is restored, especially since a large portion of the fleet has already been renewed at spot market rates.

Canada Drilling
The first quarter represented the customary seasonal peak in Canada, although results were short of expectations and historical highs as customers curtailed plans and concluded projects earlier than usual, despite favorable weather. Cash flow constraints continue to limit this market, with little upside expected until natural gas prices improve or LNG export timing becomes more visible. Despite the challenging market, a new rig was recently deployed under a term contract, and two deep capacity rigs have been readied for a recent award. Inquiries for rigs to drill in support of anticipated LNG exports have increased and Nabors is well positioned to capitalize on these opportunities.

International Drilling
Sequential results were down slightly in our International operations, as startup and unfavorable rig move costs offset the initial contribution of the increase in rig activity which was comprised of one land and 2.4 offshore rigs. Extraordinary and unanticipated cost issues offset a number of recent positive developments. Among the more significant issues are excessive costs in Iraq and Yemen, higher labor costs in the Middle East and North Africa, delays in restarting rigs in Algeria and lower activity in certain Latin American countries. These issues are beginning to dissipate and should be gradually extinguished over the intermediate term.

A number of positive developments are emerging. Availability of high specification rigs is becoming limited in the Middle East region, and rates are improving significantly as contracts renew. The Company has received incremental inquiries for a large number of high-specification rigs, with more anticipated in the near future. The number of available rigs in this class is insufficient to meet this prospective demand, causing the Company to anticipate significant demand for new or upgraded rigs. Nabors is well suited to meet new build requirements, and also owns the majority of the rigs eligible for upgrading. The Company recently received awards for the startup of two existing offshore platform rigs in Latin America, resumed operations with one of its idle jackups in the Arabian Gulf, is restarting rigs in Algeria and is achieving improvements in Iraq and Yemen. The impact of these developments should begin to be reflected in second-half results.

Rig Services
Sequential results in Rig Services improved with seasonally strong activity in Alaska oilfield hauling and construction more than offsetting lower results in Canrig. Fewer capital equipment shipments and reduced rental and field services activity in Canrig were in line with the lower levels of land rig activity and reduced new build construction in the U.S. and Canada. The second quarter is expected to show lower results with the end of winter activity in Alaska, despite some improvement in Canrig.

COMPLETION & PRODUCTION SERVICES
In the Company's Completion & Production Services business line, revenues decreased to $513.7 million compared to $544.2 million in the fourth quarter. This decrease resulted in a significant decrease in both segment EBITDA and operating income, which were $97.8 million and $43.8 million, respectively. The lower results were attributable to lower seasonal utilization in Completion Services, resulting in suppressed margins due to higher unrecovered costs. This more than offset the increase in Production Services as it recovered from its seasonally weak fourth quarter.

Completion Services
First quarter results in the completion services segment were even weaker than expected with the slow restart of activity exacerbated by the recent series of late winter storms. While industry activity is improving modestly, the competition for each incremental project is still intense. Modest improvement is expected in the second quarter as utilization and margins recover, although the potential for continued pricing pressure exists.

Production Services
This operation saw a modest improvement sequentially, with improving activity in the U.S. and seasonally high activity in Canada, despite a slow start to the year in the U.S. following the late fourth quarter stall in activity and difficult weather in its northern districts. Modest improvement is anticipated in the second quarter on higher expected activity in the U.S., even though the recent release of a large number of rigs by a major operator in multiple areas has disrupted the market and seasonality will weaken Canada results. Longer term, the outlook for this segment remains promising as the population of oil and liquids wells continues to grow.

Summary
Mr. Petrello summarized the results and outlook, "We remain focused on our goal of improving our performance, both financially and operationally. Our financial position remains solid despite lower operating cash flow and over $200 million in cash outflows during the quarter for semi-annual interest payments, a technology acquisition and other less significant one-time expenditures. Operationally, we continue to set records across numerous areas, and develop and adopt numerous performance enhancing technologies.

"We believe technology differentiation will be increasingly relevant in the future and will consist of both increased automation of the surface-based rig functions, and ultimately the downhole drilling processes. Nabors has all of the relevant resources under one roof to be a leader in this effort. To date we deployed three of our new PACE(®)-X series of rigs and are approaching completion of our sophisticated deepwater platform rig. All of these rigs incorporate the latest performance-enhancing technology, most of which is produced by Canrig. Our U.S. Lower 48 customers are increasingly incorporating pad drilling capability into their requirements and we continue to invest in not only new pad capable rigs but also in the retrofitting of our existing fleet. Pad drilling is expanding rapidly and is a differentiator over the near term. Nabors pioneered pad drilling in the 1970s and has the largest complement of the industry's pad-capable rigs, particularly walking style rigs.

"The near term remains challenging across all of our markets. Although cost issues are beginning to abate internationally, North American contract renewal and spot rates remain under pressure across all classes of rigs and all regions, as we have articulated since last summer. Despite these challenging conditions, we are encouraged by the increasing visibility of a meaningful improvement in our results later this year."

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