Nabors Announces Second Quarter Results

HAMILTON, Bermuda, July 23, 2013 /PRNewswire/ -- Nabors Industries Ltd. (NYSE:NBR) today reported its financial results for the second quarter and first six months of 2013.  Adjusted income from operating activities was $90.9 million, compared to $225.3 million in the second quarter of 2012 and $149.6 million in the first quarter of 2013.  Operating cash flow (EBITDA) was $361.1 million for the second quarter, compared to $486.4 million in the same quarter last year and $423.0 million in the first quarter of this year.  Net income from continuing operations was $29.3 million ($0.08 per diluted share), compared to a net loss of $98.7 million (-$0.34 per diluted share) in the second quarter of 2012 and $97.2 million ($0.33 per diluted share) in the first quarter of 2013.  Operating revenues and earnings from unconsolidated affiliates for this quarter totaled $1.49 billion, compared to $1.60 billion in the same quarter of the prior year and $1.58 billion in the first quarter of 2013.  For the first six months ended June 30, 2013, adjusted income derived from operating activities was $240.5 million compared to $540.9 million in the first six months of 2012.  Net income from continuing operations for the first six months of 2013 was $126.4 million ($0.41 per diluted share) compared to $44.0 million ($0.16 per diluted share) in 2012.  Operating revenues and earnings from unconsolidated affiliates totaled $3.07 billion for the first six months of 2013, compared to $3.42 billion for the first six months of 2012. 

Tony Petrello, Nabors' Chairman, President & CEO, commented, "Our second quarter was disappointing as seasonal declines in our Alaska and Canada operations were compounded by a weather-induced drop in the utilization of our eight Bakken Shale frac spreads and a further slowdown in Canrig's capital equipment shipments.  These developments have dampened our full-year outlook and mask a number of positive developments that support our continuing expectation of improving results in the second half of this year.  

"We reduced debt by another $300 million during the quarter, despite the shortfall in operating cash flow.  We also received long-term contract awards for 11 major rig projects, including two additional new PACE®-X rigs in our U.S. Drilling operations and nine substantial rig upgrades internationally, six of which are for shale projects in Argentina.  Three of these rigs will be PACE®-F rigs exported from our U.S. operations.  In aggregate these contracts, which average 3.2 years in duration, should generate over $600 million in revenue.  Returns on the approximately $150 million in associated capital are well within our capital allocation criteria.  Three of these rigs have recently commenced operations, and the remaining rigs are expected to commence in the second half of next year."   

DRILLING & RIG SERVICES
Operating income in the Drilling and Rig Services business line was $102.1 million, representing a sequential decline of approximately $35.2 million.  Operating cash flow of $322.0 million also reflected a decline of $34.7 million compared to the first quarter.  Significant improvements in International and U.S. Offshore drilling operations were more than offset by the usual seasonal declines in Canada and Alaska, and a relatively small decrease in the U.S. Lower 48.  Rig Services accounted for one-third of the decrease with roughly equal declines in Canrig due to fewer capital equipment shipments, and Peak Oilfield Services with its usual falloff in activity following the seasonally high first quarter. 

International operations showed significant improvement, resulting from a small increase in working rigs and a more meaningful increase in average margins, which reflect initial improvement in the extraordinary costs that have characterized recent periods.  Improvement in these costs should continue, although they will likely take until the end of next year to fully normalize.  The near- and longer-term outlook internationally has improved, and the supply of suitable rigs in selected markets is becoming tighter.  This is leading to improving rig rates and the potential for new high-specification rigs, particularly in the Middle East.  International cycle times are much longer, causing a lag in the pace and magnitude of the financial impact from these favorable trends.  They can also be subject to unexpected delays and extraneous events, as has been the case in recent years.  Nonetheless, the nine recent long-term contracts are evidence of the improving market environment.  In addition to the six rigs for shale projects in Argentina, three are committed to long-term projects in Northern Iraq and Kazakhstan.  

Canada drilling operations were down sharply compared to the first quarter with the arrival of the spring thaw.  Results were significantly improved compared to the same quarter last year despite fewer rigs working.  This was attributable to higher average margins due to the proportion of deeper, higher margin rigs working through the breakup period.  While the near-term outlook for this operation remains tepid, the longer-term promise of LNG exports is beginning to emerge.  This operation recently deployed four rigs for early-phase LNG-directed drilling, which will likely grow into a much greater requirement for deeper rigs in the various British Columbia gas fields over the next few years. 

U.S. Drilling operations declined, principally due to the cessation of peak winter activity levels in Alaska and a less significant decrease in the Lower 48 operations attributable to lower average margins.  These declines were partially offset by a meaningful improvement in the Gulf of Mexico.  The PACE®-X rig continues to gain recognition and is outperforming expectations.  Two new term contracts for this technologically advanced rig bring the total number of new rig awards to 21 in 18 months.   Discussions are ongoing with several customers regarding contracts for additional units. 

Improvement in utilization is progressing at a measured and disciplined pace in order to avoid adversely affecting spot market rates.  The rig count in the lower 48 portion of this operation has increased by 18 from the mid-February low point of 165 rigs to 183 rigs on revenue today, only 4 of which were new PACE®-X deliveries.  This represents an 8 rig increase from the second quarter average of 175 rigs on revenue.  Third quarter income should improve as higher rig activity offsets the impact of slightly lower average margins, which should be more reflective of current spot market pricing thereby limiting further downside.  Challenges persist as efficiency gains and speculative new building by competitors exacerbates capacity excesses in this market. 

Increased platform and workover jackup rig activity in the second quarter resulted in an improvement in results from the Gulf of Mexico operations.  Third-quarter offshore results should be significantly lower however, with the seasonally lower activity levels associated with hurricane season.  The recently completed new MODS® 400 rig should commence operations by the second quarter of 2014, significantly bolstering the longer-term outlook for this operation.  Similarly, Alaska should see seasonally softer results for the balance of 2013, with an improving outlook in 2014 and beyond as activity improves following the recent favorable tax revisions. 

Rig Services posted a loss in the second quarter, with the usual seasonal slowdowns in both Peak Oilfield Services in Alaska and the directional drilling operations in Canada, amplified by a sharp drop in capital equipment shipments by Canrig.  The third-quarter results for this segment should improve as Canrig delivers a higher number of capital equipment components.

COMPLETION &  PRODUCTION SERVICES
Operating income in the Completion and Production Services business line was $30.3 million, representing a sequential decline of approximately $13.4 million.  Operating cash flow of $81.5 million reflected a decline of $16.3 million compared to the first quarter.  Significant improvement in the U.S. portion of Production Services was more than offset by the seasonal decline in Canada, contributing nominally to the sequential decrease in the combined results.  The large drop in Completion Services comprised the majority of the decrease as extraordinarily adverse weather in the Bakken exerted an inordinate impact on the combined results.  While the outlook for the third quarter is more favorable, with significant increases anticipated in both segments, the fourth quarter is usually characterized by lower results because the onset of winter and holidays limit available work days.  In addition, certain customers appear increasingly concerned that a fourth-quarter slowdown may result from efficiency gains depleting budgets at a faster than planned pace.      

In Production Services, rig rates were essentially flat while hours increased in areas other than Canada and the Bakken, where breakup and the unusual weather also affected operations.  Trucking hours were also up significantly on flat pricing.  For this business overall, rig and truck hours are expected to increase further in the third quarter with pricing remaining flat.  Certain regions, such as West and South Texas, remain more competitive in both utilization and pricing due to the large number of competitors and excess capacity.  Longer term, this segment is expected to continue growing as the expanding population of maintenance-intensive oil wells continues to grow and age.  The number of mothballed rigs is dwindling, and industry utilization is approaching the point where new builds are warranted and pricing momentum materializes.   Furthermore, the demand for higher capacity rigs is growing with the increase of long horizontal well sections. 

Completion Services continues to suffer from a large overhang of capacity and, while industry activity is increasing, an apparent inflection in efficiency is limiting any upside in the near term.  Pricing appears to be stable in the northern regions, but remains very competitive in South Texas and even more so in the Permian Basin.  While the third quarter is expected to show marked improvement, visibility remains quite limited for the foreseeable future absent any improvement in natural gas and liquids directed activity.

SUMMARY
Mr. Petrello concluded, "We expect this quarter to represent the low point in our results, and we anticipate a progressively upward trend over both the near and longer term, moderated somewhat by a cautious outlook for Completion Services.  Continuing cost and activity improvements in International Drilling, seasonal recovery in Canada, return to normal operations in Completion & Production Services, higher rig activity in U.S. Drilling, and recovering order flow in Canrig will drive near-term improvements.  Longer term, the success of our PACE®-X rig, our recent international awards, multiple high-specification new build opportunities, and a secular growth trend in Production Services combine to indicate significant upside potential.  Meanwhile, we continue to focus on improving execution, controlling our costs, and extracting more from our asset base." 

ABOUT NABORS
The Nabors companies own and operate approximately 472 land drilling rigs throughout the world and approximately 544 land workover and well servicing rigs in North America.  Nabors' actively marketed offshore fleet consists of 36 platform rigs, 5 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 approximately 800,000 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.

For further information, please contact Dennis A. Smith, Director of Corporate Development & Investor Relations, at 281-775-8038.  To request investor materials, contact Nabors' corporate headquarters in Hamilton, Bermuda at 441-292-1510 or via email at mark.andrews@nabors.com. 

SOURCE Nabors Industries Ltd.