8-K: Nabors Industries Reports Stronger Than Expected First Quarter 2024 Results Driven by International Growth

Nabors Industries exceeded expectations in the first quarter of 2024, driven by resilient pricing and lower costs in the Lower 48 drilling operations, as well as higher than forecast OEM repair revenue and energy transition revenue in the Rig Technologies segment.

Summary

• Nabors Industries reported first quarter 2024 operating revenues of $734 million, an increase from $726 million in the fourth quarter of 2023.
• The company experienced a net loss attributable to shareholders of $34 million, compared to a $17 million loss in the previous quarter.
• This translates to a loss of $4.54 per diluted share, compared to a loss of $2.70 per diluted share in the fourth quarter.
• Adjusted EBITDA for the first quarter was $221 million, down from $230 million in the fourth quarter.
• The company was awarded three rigs in Argentina on multiyear contracts and received commercial qualification for three rigs in the Middle East.
• Nabors' international rig count increased due to startups in Saudi Arabia and Algeria, with plans to deploy seven rigs in these countries during 2024.
• The Lower 48 average rig count was 72, up from 70 in the previous quarter, with a daily adjusted gross margin of $16,011, a slight decrease sequentially.
• International Drilling revenue increased by 9% compared to the first quarter of 2023, reaching $355 million.
• Adjusted free cash flow for the quarter was $8 million, with capital expenditures totaling $112 million.
• The company expects the international rig count to increase in the second quarter with new deployments in Saudi Arabia and Algeria.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with stronger than expected results and significant international growth opportunities. However, the net loss and slight decrease in EBITDA temper the overall sentiment. The company's focus on technology and sustainability is also a positive factor.

Positives

• Nabors' first quarter operating results were stronger than expected, driven by resilient pricing and lower costs in the Lower 48 drilling operations.
• The company's international segment is experiencing significant growth with new rig deployments and contract awards.
• Pricing in the Lower 48 market remained firm, with strong utilization of high-specification rigs.
• Nabors is seeing growing adoption of its advanced technology, both in the U.S. and international markets.
• The company has made significant progress in reducing net debt since 2018.
• Nabors is actively pursuing multiple international opportunities, with a focus on high-return projects.
• The company is focused on generating free cash flow and reducing net debt.
• Nabors is making progress in energy transition initiatives and sustainability.

Negatives

• The company reported a net loss attributable to shareholders of $34 million for the quarter, an increase from the $17 million loss in the previous quarter.
• Adjusted EBITDA decreased to $221 million from $230 million in the previous quarter.
• Daily adjusted gross margin in the Lower 48 market decreased sequentially to $16,011.
• Results in the Drilling Solutions segment reflected lower activity in the Lower 48.
• The company experienced downtime in the international segment due to rig certification requirements and labor unrest.
• The average rig count in the Lower 48 was slightly below estimates due to activity reductions in natural gas basins.

Risks

• The company's performance is subject to fluctuations in worldwide prices of and demand for oil and natural gas.
• There are competitive and technological changes in the oil and gas and oilfield services industries.
• The company faces operating risks inherent in the oil and gas and oilfield services industries.
• The company's financial position could be affected by the loss of one or more large customers.
• The company's performance is subject to geopolitical events, pandemics, and other macro-events.
• The company's access to and the cost of capital could be impacted by a further downgrade in its credit rating.
• The company's ability to retain skilled employees is a risk.
• Changes in tax laws and other regulations could impact the company.
• The company is subject to potential long-lived asset impairments.

Future Outlook

Nabors expects the international rig count to increase in the second quarter of 2024, with a newbuild in Saudi Arabia and the fourth rig in Algeria. The company anticipates a material increase in International EBITDA over the already targeted increase for 2025. In the Lower 48, the company expects sluggish activity in natural gas basins, keeping the average rig count slightly below the first quarter average. Capital expenditures are expected to be approximately $190 million for the second quarter, with approximately $70 million for newbuilds in Saudi Arabia, and full-year capital expenditures are estimated at approximately $590 million.

Management Comments

• Anthony G. Petrello, Nabors Chairman, CEO and President, commented, 'Our first quarter operating results were stronger than we expected, driven by resilient pricing and lower costs in our Lower 48 drilling operations, as well as higher than forecast OEM repair revenue and energy transition revenue in our Rig Technologies segment.'
• William Restrepo, Nabors CFO, stated, 'Results across our operations were higher than we forecast. The strength of the international drilling markets continues to surprise us to the upside with the recent awards in Argentina and the notification in another Middle East market, on top of the material ongoing deployments in Saudi Arabia and Algeria.'
• Mr. Petrello concluded, 'I am pleased with our early success to secure additional backlog in our international business. We are targeting several more opportunities and are optimistic for additional success. We also see growing adoption of our advanced technology, both in the U.S. on third-party rigs and in international markets. These developments validate our strategy and should drive future free cash flow.'

Industry Context

The announcement reflects a broader trend in the oilfield services industry where companies are increasingly focusing on international markets for growth, while also navigating the challenges of fluctuating commodity prices and the energy transition. Nabors' emphasis on technology and sustainability aligns with the industry's move towards more efficient and environmentally responsible operations. The company's success in securing international contracts and deploying advanced technologies positions it well in the current market environment.

Comparison to Industry Standards

• Nabors' performance in the Lower 48 market, with a daily adjusted gross margin of $16,011, is competitive with other major drilling contractors such as Helmerich & Payne (HP) and Patterson-UTI (PTEN), who also focus on high-spec rigs and efficient operations. However, specific comparisons are difficult without detailed financial data from these competitors for the same period.
• The company's international expansion strategy is similar to that of Transocean (RIG) and Valaris (VAL), who have also been focusing on international markets for growth. Nabors' success in securing contracts in Argentina and the Middle East is a positive sign, but the long-term profitability of these contracts will depend on market conditions and operational efficiency.
• Nabors' focus on technology and energy transition is in line with industry trends, with companies like Schlumberger (SLB) and Halliburton (HAL) also investing in these areas. However, the specific impact of these investments on Nabors' financial performance will need to be monitored over time.
• The company's adjusted EBITDA of $221 million is a key metric for comparison with peers, but a detailed analysis would require a full peer group comparison with companies such as Precision Drilling (PD) and Cactus (WHD) to assess relative performance.

Stakeholder Impact

• Shareholders may be encouraged by the stronger than expected results and international growth opportunities, but concerned about the net loss.
• Employees may benefit from the company's growth and expansion.
• Customers may benefit from Nabors' advanced technology and efficient operations.
• Suppliers may see increased business opportunities with Nabors' growth.
• Creditors may be reassured by the company's focus on reducing net debt.

Next Steps

• Nabors plans to deploy additional rigs in Algeria, Saudi Arabia, and Argentina later in the year.
• The company will continue to pursue multiple international opportunities.
• Nabors will focus on generating free cash flow and reducing net debt.
• The company will continue to advance its technology and innovation initiatives.
• Nabors will continue to focus on energy transition and sustainability.

Key Dates

Keywords

drilling, oilfield services, international, rigs, EBITDA, revenue, energy transition, technology, Lower 48, capital expenditures