8-K: Nabors Industries Reports Fourth Quarter 2024 Results, Highlights Parker Wellbore Merger and International Growth

Nabors Industries announces its fourth quarter 2024 results, noting a slight decrease in operating revenues and net loss, while emphasizing the pending merger with Parker Wellbore and expansion in international markets.

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.
• This translates to a loss of $6.67 per diluted share, compared to a loss of $6.86 in the third quarter.
• Adjusted EBITDA for the fourth quarter was $221 million, slightly down from $222 million in the third quarter.
• Shareholders of both Nabors and Parker Wellbore approved the merger, expected to close in the first quarter of 2025 pending regulatory approvals.
• Nabors secured awards for three rigs in Argentina and one in Colombia, supporting growth and asset utilization.
• SANAD, the joint venture with Saudi Aramco, deployed its ninth newbuild rig and anticipates deploying two more in the first quarter of 2025.
• The company is planning for stable market activity through the early part of 2025 and is taking actions to improve efficiency and align its cost structure.
• For the full year 2024, capital spending is forecast at $710 to $720 million, with approximately $360 million directed to SANAD newbuild construction.
• The company projects 2025 consolidated adjusted free cash flow at just over breakeven, with SANAD consuming approximately $150 million.
• Nabors expects the Lower 48 average rig count to be approximately 61 rigs in the first quarter of 2025, with a daily adjusted gross margin of approximately $14,800.
• The international average rig count is expected to be 85-86 rigs, with a daily adjusted gross margin of approximately $17,000.
• Drilling Solutions adjusted EBITDA is expected to be approximately $33 million, and Rig Technologies adjusted EBITDA is expected to be approximately $5 million for the first quarter of 2025.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company reported a net loss, it highlighted strategic initiatives like the Parker Wellbore merger and international expansion, suggesting potential for future growth. The breakeven free cash flow projection for 2025 indicates stability, but the challenges in the U.S. market and the collections shortfall in Mexico temper the overall outlook.

Positives

• Shareholder approval for the Parker Wellbore merger is a positive step towards strategic objectives.
• Awards for rigs in Argentina and Colombia indicate growth opportunities and improved asset utilization.
• SANAD's expansion and projected increase in adjusted EBITDA contribution highlight a strong investment opportunity.
• Leading edge pricing in the U.S. market remained steady, supporting daily margins at relatively high levels.
• Drilling Solutions gross margin expanded, topping 54%.
• Rig Technologies adjusted EBITDA reached $9.2 million, a 51% increase compared to the third quarter.

Negatives

• Operating revenues slightly decreased from $732 million in Q3 to $730 million in Q4 2024.
• The company reported a net loss attributable to Nabors shareholders of $54 million for Q4 2024.
• U.S. drilling activity faced challenges due to operators modulating activity levels in oil basins.
• Consolidated adjusted free cash flow in the fourth quarter was a use of $53 million, resulting in part from a temporary halt in payments by a client in Mexico and by higher capital expenditures.
• Collections shortfall in Mexico totaled approximately $50 million in the fourth quarter.
• SANAD consumed $90 million in cash during the fourth quarter.

Risks

• The market environment in the U.S. presents challenges due to operators modulating activity levels.
• 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.
• Uncertainty exists regarding the closing conditions of the Parker Wellbore merger and potential adverse reactions.
• The company's ability to realize the expected benefits of the merger with Parker is subject to risks.
• The company's ability to retain key personnel of Nabors and Parker is subject to risks.
• The company's ability to complete, and realize the expected benefits of, strategic transactions is subject to risks.
• The company's ability to renew customer contracts in order to maintain competitiveness is subject to risks.
• The company's ability to retain skilled employees is subject to risks.
• The company's access to and the cost of capital, including the impact of a further downgrade in our credit rating, covenant restrictions, availability under our revolving credit facility, and future issuances of debt or equity securities and the global interest rate environment is subject to risks.

Future Outlook

Nabors anticipates stable market activity in early 2025 and expects international deployments to drive higher margins. The company projects breakeven adjusted free cash flow for 2025, excluding the impact of the Parker Wellbore merger, which is expected to provide incremental free cash flow.

Management Comments

• Anthony G. Petrello, Nabors Chairman, CEO and President, stated, '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, 'Two main factors impacted adjusted free cash flow. First, in Mexico, the collections shortfall totaled approximately $50 million in the fourth quarter. Second, our capital expenses were $241 million, $10 million above our target.'

Industry Context

The announcement reflects the ongoing consolidation in the oilfield services sector, with Nabors' acquisition of Parker Wellbore aiming to create synergies and strengthen its position. The focus on international expansion, particularly in Saudi Arabia, aligns with the industry's shift towards regions with more robust drilling activity. The emphasis on technology and sustainability also reflects broader industry trends.

Comparison to Industry Standards

• Nabors' adjusted EBITDA margin of approximately 30% (based on $221 million EBITDA on $730 million revenue) is comparable to other major drilling contractors such as Helmerich & Payne (HP) and Patterson-UTI Energy (PTEN), although specific comparisons would require detailed analysis of their respective Q4 2024 results.
• The focus on SANAD and Saudi Aramco aligns with the strategy of companies like Schlumberger (SLB) and Halliburton (HAL) who have also invested heavily in the Middle East market.
• The daily adjusted gross margin for Lower 48 drilling of approximately $14,940 is competitive, but needs to be benchmarked against peers to determine relative performance.
• The company's efforts to reduce carbon intensity and invest in green technologies are in line with the broader industry's response to energy transition pressures, similar to initiatives undertaken by Baker Hughes (BKR) and Weatherford International (WFRD).

Stakeholder Impact

• Shareholders will be impacted by the Parker Wellbore merger and the company's efforts to create value.
• Employees may experience changes due to the integration of Parker Wellbore and the company's restructuring efforts.
• Customers will benefit from the company's advanced technology and expanded service offerings.
• Suppliers may see changes in demand based on the company's capital expenditure plans and international expansion.
• Creditors will be impacted by the company's debt management and free cash flow generation.

Next Steps

• Complete the merger with Parker Wellbore, pending regulatory approvals.
• Integrate Parker's operations with Nabors' existing business.
• Continue deploying rigs in Argentina, Colombia, and Saudi Arabia.
• Expand SANAD's newbuild program and increase its contribution to adjusted EBITDA.
• Improve efficiency and align cost structure in response to market conditions.
• Focus on advanced technology and innovation to drive solutions.
• Pursue multiple decarbonization pathways and invest in green technologies.

Key Dates