Nabors Industries Ltd. (NBR) – North America’s largest onshore oil and natural gas driller – reported marginally better-than-expected first quarter results on the back of recovery in its North American business. Earnings per share, excluding one-time items, came in at 21 cents, beating the Zacks Consensus Estimate by a penny.
Revenue & Profitability
Compared to the first quarter of 2009, Nabors’ adjusted earnings per share declined 67.7% (from 65 cents to 21 cents) due to weakness in its international operations. Revenues were down 21.0% to $903.4 million as sales declined in most of the company’s segments.
Nabors’ main operating segment is ‘Contract Drilling’, which accounts for bulk of its revenues and operating earnings. Its operations are spread across 6 sub-segments: U.S. Lower 48 Land Drilling, U.S. Well Land Servicing, U.S. Offshore, Alaska, Canada, and International.
Contract Drilling Segment: Analysis
During the quarter, contract drilling revenues were down 25.9% year over year to $818.4 million, while the segment’s operating income declined approximately 47.1% to $156.9 million. The negative comparisons reflect lower activity levels during the quarter, which were down 17.8% to 302.8 rig years.
Both the U.S. Lower 48 Land Drilling and the U.S. Land Well Servicing sub-segments suffered year-over-year declines in their sales and profitability, affected by lower operating hours in the company’s area of operations and contraction in rig activity.
In Canada, revenues were up 1.7%, while operating income rose by a healthy 9.2%, as business improved during the seasonally busy first quarter.
Regarding international operations, revenues and operating income were lower-than-expected and declined year-over-year, by 28.4% and 48.0%, respectively. This primarily reflects lower activity, project deferrals, and contract execution delays in a number of places, the most significant being in Mexico and Saudi Arabia, followed by Algeria.
Nabors’ U.S. offshore operations recorded quarterly revenues, which were 36.8% below the year-ago level, while its operating income more than halved. The reasons for the underperformance were weather-related startup delays.
Alaska also posted weak quarterly results as revenues and operating income both went down from the previous-year period, adversely affected by fewer rigs operating.
Balance Sheet
At the end of the quarter, the company had $1.1 billion in cash and short-term investments and $3.9 billion in long-term debt, with a net debt-to-capitalization ratio of approximately 42.4%.
Outlook
Despite the lackluster natural gas price environment, management indicated that drilling activity is picking up in North America and will continue to post modest improvements in the coming quarters. Nabors further hoped that the first quarter represented the eventual bottoming of the international business. The market is expected to return to its pre-2009 robust growth trajectory from the second half onwards.
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