425: Nabors Industries Announces Mixed Q3 2024 Results, Highlights Parker Wellbore Acquisition

Nabors Industries reported a net loss for Q3 2024, but adjusted EBITDA increased slightly, and the company is moving forward with the acquisition of Parker Wellbore.

Summary

• Nabors Industries Ltd. reported Q3 2024 operating revenues of $732 million, slightly down from $735 million in Q2 2024.
• The net loss attributable to Nabors shareholders was $56 million, compared to a net loss of $32 million in the previous quarter.
• This translates to a loss of $6.86 per diluted share, compared to a loss of $4.29 per diluted share in Q2.
• Q3 included net charges of approximately $25 million, primarily due to the redemption premium on the 2026 notes and market adjustments on investments.
• Adjusted EBITDA was $222 million, up from $218 million in the previous quarter.
• Nabors announced an agreement to acquire Parker Wellbore, which is expected to generate $180 million in EBITDA this year.
• The acquisition is expected to yield $35 million in annualized run-rate synergies within 12 months of closing.
• Nabors will acquire all of Parker's outstanding common stock in exchange for 4.8 million shares of Nabors common stock and assume approximately $100 million in net debt.
• International Drilling adjusted EBITDA totaled $116.0 million, compared to $106.4 million in the second quarter.
• The U.S. Drilling segment reported third quarter adjusted EBITDA of $108.7 million, compared to $114.0 million in the second quarter.
• Drilling Solutions adjusted EBITDA increased to $34.3 million, compared to $32.5 million in the second quarter.
• Rig Technologies adjusted EBITDA was $6.1 million, versus $7.3 million in the second quarter.
• Adjusted free cash flow was $18 million in the third quarter compared to $57 million in the preceding quarter.
• Capital expenditures totaled $118 million, including $37 million supporting the newbuilds in Saudi Arabia.
• Total interest payments for the quarter were $82 million, compared to $31 million in the prior quarter.
• Nabors expects Lower 48 average rig count of approximately 68 rigs and daily adjusted gross margin of $15,000 for Q4 2024.
• Nabors expects average rig count of approximately 84 rigs and daily adjusted gross margin of approximately $17,000 for International in Q4 2024.
• Full-year adjusted free cash flow is expected to be between $100 and $130 million.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company reported a net loss, the acquisition of Parker Wellbore and growth in the International Drilling segment are positive developments. The forward-looking statements are cautiously optimistic.

Positives

• Acquisition of Parker Wellbore is expected to increase scale, provide incremental growth, and improve leverage metrics.
• International Drilling segment achieved daily margins exceeding $17,000, earlier than expected, demonstrating earnings power.
• There is a path to substantial international growth with 13 rigs scheduled to deploy through early 2026.
• Drilling Solutions business experienced growth due to international market revenue and performance software deployment.
• SANAD's rig supplier has improved its performance in reaching manufacturing milestones, leading to earlier delivery of rigs.

Negatives

• Net loss attributable to Nabors shareholders increased to $56 million in Q3 2024 from $32 million in Q2 2024.
• Rig Technologies adjusted EBITDA decreased to $6.1 million from $7.3 million in the second quarter.
• Adjusted free cash flow decreased to $18 million in Q3 2024 from $57 million in the preceding quarter.
• The company experienced a 12-month suspension of three lower-margin rigs in the Kingdom.
• The company now expects full year free cash flow to close the year between $100 and $130 million.

Risks

• The failure of Nabors shareholders or Parkers shareholders to approve the proposed transaction.
• The risk that the conditions to the closing of the proposed transaction are not satisfied.
• The risk that regulatory approvals required for the proposed transaction are not obtained or are obtained subject to conditions that are not anticipated.
• Potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed transaction.
• Uncertainties as to the timing of the proposed transaction.
• Competitive responses to the proposed transaction.
• Costs and difficulties related to the integration of Parkers businesses and operations with Nabors business and operations.
• The inability to obtain, or delays in obtaining, cost savings and synergies from the proposed transaction.
• Unexpected costs, charges or expenses resulting from the proposed transaction.
• Litigation relating to the proposed transaction.
• The inability to attract, retain or motivate key personnel.
• Changes in the market value of Nabors common shares as a result of the announcement of the proposed transaction.
• Any changes in general economic and/or industry specific conditions.
• Other risks and uncertainties described in the Nabors periodic reports on Forms 10-K and 10-Q that Nabors files with the SEC.

Future Outlook

Nabors anticipates an improvement in Lower 48 drilling activity in 2025 and expects to deploy 13 rigs internationally through early 2026. The company forecasts full-year adjusted free cash flow between $100 and $130 million.

Management Comments

• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'We are excited as we move forward with our announced acquisition of Parker Wellbore.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'Our companies portfolios are highly complementary.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'Parkers recent track record speaks for itself.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'Quail Tools, already the leader in its space, plays a key role as operators extend the lengths of their wellbore laterals.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'The transaction increases our scale, provides incremental growth and improves our leverage metrics.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'Our third quarter operating results matched our overall expectations.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, concluded, 'The results from our International Drilling segment demonstrate the value we are building in this business.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, concluded, 'With our pending rig deployments across markets, our path to future growth is well defined.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, concluded, 'Our success is driven in large part from our advanced technology.'
• Anthony G. Petrello, Nabors Chairman, CEO and President, concluded, 'We see the global client base increasingly embracing the benefits of our solutions.'
• William Restrepo, Nabors CFO, stated, 'Last week we signed an agreement to acquire Parker Wellbore.'
• William Restrepo, Nabors CFO, stated, 'The transaction is well aligned with our long-term strategy.'
• William Restrepo, Nabors CFO, stated, 'It grows our capex-light NDS business, expands our international footprint, and helps us delever Nabors.'
• William Restrepo, Nabors CFO, stated, 'Additionally, Parker is on track to earn meaningful EBITDA this year, totaling $180 million with attractive growth.'
• William Restrepo, Nabors CFO, stated, 'Finally, Parker comes with low debt and it generates positive cash flow.'
• William Restrepo, Nabors CFO, stated, 'This is before targeted annual synergies of $35 million.'
• William Restrepo, Nabors CFO, stated, 'We are excited about the addition of Parker to the Nabors platform.'
• William Restrepo, Nabors CFO, stated, 'Nabors third quarter results met our outlook.'
• William Restrepo, Nabors CFO, stated, 'Daily adjusted gross margin in our International Drilling segment expanded by more than $1,000.'
• William Restrepo, Nabors CFO, stated, 'We reached the $17,000 daily margin target a quarter ahead of schedule, driven by exceptional performances in Saudi Arabia and Latin America, which both increased daily margins, by $1,200 and $1,300 respectively.'
• William Restrepo, Nabors CFO, stated, 'We have three rigs scheduled to deploy in the fourth quarter, each with attractive economics.'
• William Restrepo, Nabors CFO, stated, 'These deployments will be somewhat offset by the 12-month suspension of three lower-margin rigs in the Kingdom.'
• William Restrepo, Nabors CFO, stated, 'Strength in the international markets also led to sequential growth in our Drilling Solutions business.'
• William Restrepo, Nabors CFO, stated, 'We experienced an increase in international casing running jobs, augmented by greater deployment of performance software products, driving the segments gross margin above 53%.'
• William Restrepo, Nabors CFO, stated, 'In our Lower 48 drilling business, pricing discipline and strict expense control maintained our average daily margin above $15,000 and in line with our forecast.'
• William Restrepo, Nabors CFO, stated, 'We expect relative stability in the fourth quarter in both margin and rig count.'
• William Restrepo, Nabors CFO, stated, 'Our rig count forecast is dependent on stable oil prices, a similar level of churn, and stability in the overall market.'
• William Restrepo, Nabors CFO, stated, 'Our capital spending target for the fourth quarter is now $230 million, with capital expenditures for SANAD newbuilds forecast at $105 million.'
• William Restrepo, Nabors CFO, stated, 'The resulting annual capital spending forecast for 2024 is now $600 million, including $230 million related to the SANAD newbuilds.'
• William Restrepo, Nabors CFO, stated, 'SANADs rig supplier has improved its performance in reaching manufacturing milestones.'
• William Restrepo, Nabors CFO, stated, 'We now expect earlier delivery of our rigs going forward.'
• William Restrepo, Nabors CFO, stated, 'This has accelerated approximately $40 million of newbuild capital spending into 2024.'
• William Restrepo, Nabors CFO, stated, 'We are targeting reductions in various markets to offset this increase.'
• William Restrepo, Nabors CFO, stated, 'Given the SANAD newbuild capital expenditures moving forward to 2024, the recent rig suspensions by Saudi Aramco and the slightly lower U.S. activity in the fourth quarter, we now expect our full year free cash flow to close the year between $100 and $130 million.'

Industry Context

The acquisition of Parker Wellbore reflects a trend in the oilfield services industry towards consolidation to achieve greater scale, expand service offerings, and improve financial performance. Nabors' focus on international growth and technology solutions aligns with the industry's need for efficient and innovative drilling practices.

Comparison to Industry Standards

• Nabors' adjusted EBITDA margin of approximately 30% (based on revenue of $732 million and adjusted EBITDA of $222 million) is comparable to other major drilling companies such as Helmerich & Payne, which has seen adjusted EBITDA margins in a similar range.
• The company's focus on high-spec rigs and technology solutions mirrors strategies employed by competitors like Patterson-UTI Energy, which are also investing in advanced drilling technologies to improve efficiency and performance.
• The international expansion strategy is similar to that of Transocean, which has a significant presence in international markets and is focused on deepwater and harsh environment drilling.
• The SANAD newbuild program is comparable to Saudi Aramco's broader efforts to modernize its drilling fleet and increase domestic oil and gas production.

Stakeholder Impact

• Shareholders: The acquisition of Parker Wellbore could positively impact shareholder value through increased scale and synergies, but the increased net loss could be a concern.
• Employees: The acquisition may lead to integration challenges and potential job losses or restructuring.
• Customers: The acquisition could lead to a broader range of services and improved technology offerings.
• Suppliers: The acquisition may lead to changes in supplier relationships and procurement strategies.
• Creditors: The assumption of Parker's debt could impact Nabors' credit profile.

Next Steps

• Complete the acquisition of Parker Wellbore.
• Deploy 13 rigs internationally through early 2026.
• Focus on growing NDS revenue on Nabors U.S., third party, and international rigs.
• Continue to drive healthy margins in Lower 48 Drilling.
• Reduce carbon intensity through energy transition and sustainability expansion.

Key Dates