425: Nabors Industries Announces Fourth Quarter 2024 Results and Merger Approval

Nabors Industries reports Q4 2024 results with operating revenues of $730 million and announces shareholder approval for the merger with Parker Wellbore, expected to close in Q1 2025.

Summary

• Nabors Industries Ltd. reported fourth quarter 2024 operating revenues of $730 million, a slight decrease from $732 million in the third quarter.
• The net loss attributable to Nabors shareholders was $54 million, compared to a net loss of $56 million in the previous quarter.
• Adjusted EBITDA for the fourth quarter was $221 million, nearly the same as the $222 million in the third quarter.
• Shareholders of both Nabors and Parker Wellbore approved the merger, with the closing expected in the first quarter of 2025 pending regulatory approvals.
• The company secured awards for three rigs in Argentina and one in Colombia, aiming to improve asset utilization.
• SANAD, the joint venture with Saudi Aramco, deployed its ninth newbuild rig and plans to deploy two more in Q1 2025.
• Nabors expects stable market activity in early 2025 and is taking steps to improve efficiency and align its cost structure.
• The company projects 2025 consolidated adjusted free cash flow at just over breakeven, with SANAD consuming approximately $150 million.
• Nabors anticipates generating positive adjusted free cash flow of at least $150 million outside of SANAD in 2025, allowing for debt reduction.
• For Q1 2025, Nabors expects a Lower 48 average rig count of approximately 61 rigs and a daily adjusted gross margin of approximately $14,800.
• International average rig count is expected to be 85-86 rigs with a daily adjusted gross margin of approximately $17,000 for Q1 2025.
• Capital expenditures for 2025 are projected to be approximately $710 $720 million, with $360 million allocated to SANAD newbuilds.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the financial results show a slight decrease in revenue and a net loss, the company is optimistic about the merger with Parker Wellbore and its international expansion, particularly in Saudi Arabia. The focus on technology and efficiency improvements also contributes to a moderately positive outlook.

Positives

• Shareholder approval for the merger with Parker Wellbore is expected to enhance the company's position, particularly in the Drilling Solutions segment.
• Awards for rigs in Argentina and Colombia provide capital-efficient growth opportunities and improve asset utilization.
• SANAD's expansion in Saudi Arabia presents a significant investment opportunity with potential for substantial cash generation.
• Leading edge pricing in the U.S. market remained steady, supporting daily margins at relatively high levels.
• Drilling Solutions gross margin expanded, topping 54%.
• The company is taking actions to improve efficiency and align its cost structure in response to market conditions.
• The company is projecting positive adjusted free cash flow of at least $150 million outside of SANAD in 2025, allowing for debt reduction.
• Rig Technologies adjusted EBITDA reached $9.2 million, a 51% increase compared to the third quarter.

Negatives

• Operating revenues slightly decreased to $730 million from $732 million in the previous quarter.
• The company reported a net loss attributable to Nabors shareholders of $54 million.
• Collections shortfall in Mexico totaled approximately $50 million in the fourth quarter.
• Capital expenses were $241 million, $10 million above target, primarily due to SANAD's newbuild spending exceeding forecast by $40 million.
• Consolidated adjusted free cash flow in the fourth quarter was a use of $53 million.
• The market environment in the fourth quarter provided some challenges in the U.S., as operators continued to modulate their activity levels in oil basins, mainly driven by recent mergers.

Risks

• The merger with Parker Wellbore is subject to certain international regulatory approvals.
• The company faces challenges in the U.S. market due to operators modulating activity levels in oil basins.
• International success places pressure on capital expenditures.
• The company's businesses depend on the level of spending by oil and gas companies for exploration, development and production activities.
• Sustained lower oil or natural gas prices that have a material impact on exploration, development or production activities could also materially affect our financial position, results of operations and cash flows.
• The company's forward-looking statements are subject to a number of risks and uncertainties, as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission.

Future Outlook

Nabors expects stable market activity through early 2025 and projects consolidated adjusted free cash flow at just over breakeven for 2025, with positive free cash flow of at least $150 million outside of SANAD.

Management Comments

• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'We are looking forward to adding Parker to the Nabors portfolio. Our integration planning reinforces the Parker attributes that we identified earlier. We are confident that this acquisition will advance our strategic objectives while creating value for our stakeholders.'
• Mr. Petrello concluded, 'Nabors commitment to advanced technology is helping us navigate this current environment. The addition of the Parker business will strengthen our position, especially in our Drilling Solutions segment. Our investments today support our current operations as well as large scale growth, specifically in Saudi Arabia. Our opportunity in the Kingdom is unique in the drilling industry. It has potential for substantial cash generation as well as for transformational value creation for our shareholders.'
• William Restrepo, Nabors CFO, stated that two main factors impacted adjusted free cash flow: collections shortfall in Mexico and higher capital expenses.

Industry Context

The announcement comes amid a challenging market environment in the U.S., where operators are modulating activity levels due to recent mergers. Nabors is focusing on international expansion and technology to navigate these challenges and capitalize on growth opportunities, particularly in Saudi Arabia.

Comparison to Industry Standards

• Nabors' focus on international expansion, particularly through the SANAD joint venture with Saudi Aramco, mirrors strategies employed by other major oilfield service companies like Schlumberger and Halliburton, who are also investing heavily in the Middle East.
• The company's emphasis on technology and automation aligns with industry trends towards improving efficiency and reducing costs, similar to initiatives undertaken by Baker Hughes and Weatherford International.
• Nabors' efforts to reduce carbon intensity and invest in green technologies reflect a broader industry push towards sustainability, with companies like Transocean and Noble Corporation also exploring alternative energy solutions.

Stakeholder Impact

• Shareholders are expected to benefit from the merger with Parker Wellbore and the potential for increased value creation.
• Employees may experience changes due to the merger and the company's efforts to improve efficiency.
• Customers are expected to benefit from the company's focus on technology and automation, leading to improved drilling performance.
• Suppliers may be impacted by the company's efforts to align its cost structure.
• Creditors may see a reduction in gross debt due to the company's projected positive free cash flow outside of SANAD.

Next Steps

• Closing the merger with Parker Wellbore, pending regulatory approvals.
• Deploying additional rigs in Saudi Arabia through the SANAD joint venture.
• Continuing to pursue international expansion opportunities.
• Improving efficiency and aligning cost structure in response to market conditions.
• Focusing on technology and automation to enhance drilling performance.
• Reducing carbon intensity and investing in green technologies.

Key Dates