10-Q: Nabors Reports Q2 2025 Results, Driven by Parker Acquisition Gain Amidst Mixed Segment Performance

Nabors Industries Ltd. reported a significant swing to net income for the first half of 2025, primarily boosted by a bargain purchase gain from the Parker Drilling Company acquisition, despite a decline in operating cash flow and U.S. market activity.

Summary

• Net income attributable to Nabors for the six months ended June 30, 2025, was $2.1 million, a substantial improvement from a net loss of $66.6 million in the prior year period.
• Operating revenues for the six months ended June 30, 2025, increased by $100.5 million to $1.6 billion, compared to $1.47 billion in the corresponding 2024 period.
• The company recognized a $116.5 million bargain purchase gain related to the Parker Drilling Company acquisition, which closed on March 11, 2025.
• Net cash provided by operating activities decreased to $239.5 million for the six months ended June 30, 2025, from $288.9 million in the corresponding 2024 period.
• U.S. Drilling segment operating revenues decreased by 9% and adjusted operating income decreased by 25% for the six months ended June 30, 2025, due to declines in the Lower 48 land rig market.
• International Drilling segment operating revenues increased by 9% and adjusted operating income increased by 50% for the six months ended June 30, 2025, partly due to acquired Parker operations.
• Drilling Solutions segment operating revenues increased by 66% and adjusted operating income increased by 54% for the six months ended June 30, 2025, primarily driven by acquired Parker operations.
• Rig Technologies segment operating revenues decreased by 19% and adjusted operating income decreased by 33% for the six months ended June 30, 2025, due to overall decline in U.S. activity.
• Total long-term debt increased to $2,672.8 million as of June 30, 2025, from $2,505.2 million as of December 31, 2024.
• The company repaid the Parker Term Loan of $177.8 million using its credit agreement.
• As of June 30, 2025, the company had $178.0 million in borrowings and $78.8 million in letters of credit outstanding under its $350.0 million 2024 Credit Agreement.
• The company was in compliance with all covenants under the 2024 Credit Agreement as of June 30, 2025, with an interest coverage ratio of 4.30:1.00 (required 2.75:1.00) and minimum guarantor value of 99.8% (required 90%).
• Impairment charges of approximately $26.5 million were recognized during the six months ended June 30, 2025, related to assets in Russia.
• The Supreme Court ruled in the company's favor on April 10, 2025, in an Algerian foreign currency exchange controls case, sending it back to a different court, with a potential loss of up to $13.8 million in excess of amounts accrued.
• The SPAC, Nabors Energy Transition Corp. II (NETC II), entered into a definitive agreement for a business combination with e2Companies LLC, and an extension to July 18, 2026, was approved for consummating an initial business combination.

Sentiment

Score: 4

Explanation: The sentiment is cautiously negative. While the company reported a net income for the period, this was primarily due to a non-recurring bargain purchase gain. Operational cash flow declined, and key segments like U.S. Drilling and Rig Technologies showed decreased revenues and adjusted operating income. The increase in long-term debt also adds a layer of concern, despite compliance with covenants.

Positives

• Net income attributable to Nabors significantly improved to $2.1 million for the six months ended June 30, 2025, from a $66.6 million net loss in the prior year.
• Operating revenues increased by $100.5 million, or 6.8%, for the six months ended June 30, 2025, compared to the same period in 2024.
• A non-recurring bargain purchase gain of $116.5 million was recognized from the Parker Drilling Company acquisition.
• International Drilling segment showed strong growth with operating revenues up 9% and adjusted operating income up 50% for the six months ended June 30, 2025.
• Drilling Solutions segment experienced substantial growth, with operating revenues increasing by 66% and adjusted operating income by 54% for the six months ended June 30, 2025.
• The company remains in compliance with all covenants under its 2024 Credit Agreement, demonstrating financial stability.
• The Supreme Court ruled in the company's favor in the ongoing Algerian legal proceeding, potentially reducing future liabilities.

Negatives

• Net cash provided by operating activities decreased by $49.4 million to $239.5 million for the six months ended June 30, 2025, compared to the prior year period.
• U.S. Drilling segment operating revenues decreased by 9% and adjusted operating income decreased by 25% for the six months ended June 30, 2025, reflecting a challenging domestic market.
• Rig Technologies segment operating revenues decreased by 19% and adjusted operating income decreased by 33% for the six months ended June 30, 2025, due to reduced U.S. activity.
• Long-term debt increased by $167.6 million to $2,672.8 million as of June 30, 2025, compared to December 31, 2024.
• The net income for the six months ended June 30, 2025, would have been a significant loss without the non-recurring bargain purchase gain, indicating underlying operational challenges.
• The SPAC (NETC II) had $186.7 million redeemed from its Trust Account in connection with an extension vote, indicating some investor redemptions.

Risks

• Geopolitical events, pandemics, global and regional conflicts, and their impact on operations, oil and gas markets, and prices.
• Fluctuations and volatility in worldwide prices of and demand for oil and natural gas.
• Fluctuations in levels of oil and natural gas exploration and development activities.
• Fluctuations in the demand for services.
• Competitive and technological changes and other developments in the oil and gas and oilfield services industries.
• Ability to renew customer contracts to maintain competitiveness.
• Operating risks inherent in the oil and gas and oilfield services industries.
• Possibility of the loss of one or a number of large customers.
• The amount and nature of future capital expenditures and how they are funded.
• The occurrence of cybersecurity incidents, attacks, or other breaches to information technology systems.
• The impact of long-term indebtedness and other financial commitments on financial and operating flexibility.
• Access to, and the cost of, capital, including the impact of a downgrade in credit rating, covenant restrictions, availability under secured revolving credit facility, future issuances of debt or equity securities, and the global interest rate environment.
• Dependence on operating subsidiaries and investments to meet financial obligations.
• Ability to retain skilled employees.
• Ability to realize the expected benefits of the Parker Drilling Company acquisition as well as other strategic transactions.
• Changes in tax laws and the possibility of changes in other laws and regulations.
• Possibility of political or economic instability, civil disturbance, war, or acts of terrorism in any of the countries in which business is conducted.
• Global views on and the regulatory environment related to energy transition and the ability to implement energy transition initiatives.
• Potential long-lived asset impairments, as evidenced by the $26.5 million impairment related to Russian assets.
• Changes to trade policies and regulations, including the imposition of trade embargoes, sanctions, or tariffs, by the U.S. or any other country.
• General economic conditions, including the capital and credit markets.
• Potential adverse reactions or changes to business relationships resulting from the completion of the merger with Parker.
• Ability to retain key personnel of Nabors and Parker.
• Significant costs required to integrate Parker's operations.
• Ability to successfully integrate Parker's business and to realize expected benefits, including synergies.
• The combined company's ability to utilize Net Operating Losses (NOLs).
• Voting power in some common shares held or controlled by the Board of Directors could limit a shareholder's ability to influence actions due to Voting & Lock-Up Agreements.
• The ultimate resolution of the Algerian foreign currency exchange controls litigation could result in a loss of up to $13.8 million in excess of amounts accrued.

Future Outlook

The company anticipates higher natural gas demand in the future, which could shift drilling activity. While caution has increased in oil-driven basins, the loosening of capital markets due to interest rate cuts is expected to become more apparent in coming quarters. The company expects to remain in compliance with all covenants under its 2024 Credit Agreement for the next twelve months based on current projections, but provides no assurance if underlying assumptions prove incorrect. The business combination with e2Companies LLC is subject to closing conditions, and no assurance can be given that it will be completed.

Management Comments

• Management believes the unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to state fairly the financial position and results of operations.
• Interim results for the six months ended June 30, 2025, may not be indicative of results that will be realized for the full year ending December 31, 2025.
• Management believes the likelihood that the company would be required to perform or otherwise incur any material losses associated with any of its guarantees is remote.
• Management believes that the company will have sufficient taxable income in the future to realize its recognized deferred tax assets.
• Management believes that the company will be able to access capital markets or otherwise obtain financing to satisfy any payment obligation that might arise upon maturity, exchange or purchase of notes and debt facilities, and that any cash payment due would not ultimately have a material adverse impact on liquidity or financial position.
• The company expects to remain in compliance with all covenants under the 2024 Credit Agreement during the twelve-month period following the date of this report based on current operational and financial projections, including after giving effect to the Parker acquisition.

Industry Context

The oil and gas industry continues to experience volatility driven by geopolitical dynamics and domestic policy changes. U.S. operators have reacted cautiously by reducing drilling activity, particularly in natural gas basins, though this trend appears to be shifting towards higher natural gas demand. Caution has increased in oil-driven basins. Global energy commodity markets have seen sustained volatility. The U.S. Federal Reserve's interest rate cuts, beginning in late 2024 and continuing into early 2025, are starting to loosen capital markets for energy producers. Despite reduced rig count, rig pricing discipline has remained intact, supporting dayrates and daily rig margins. Internationally, there's an expansion of production capacity and development of unconventional resources, driving increased oilfield activity, though the Saudi Arabian rig fleet has declined.

Comparison to Industry Standards

• The company's U.S. Drilling segment experienced a 9% revenue decrease and 25% adjusted operating income decrease, reflecting a broader trend of reduced drilling activity in the U.S. Lower 48 land rig market, which has seen operators react cautiously to market conditions.
• The International Drilling segment's 9% revenue increase and 50% adjusted operating income increase align with the broader industry trend of expanding production capacity and unconventional resource development in international markets, contrasting with the U.S. slowdown.
• The decline in U.S. rig count, as noted in the filing, is a general industry trend, but the company's ability to maintain rig pricing discipline and supportive dayrates suggests a stronger position compared to less disciplined competitors.
• The successful integration and significant bargain purchase gain from the Parker acquisition demonstrate effective strategic M&A execution, potentially positioning the company favorably against competitors seeking to consolidate or expand service offerings.

Corporate Governance

Legal Proceedings

• The company is involved in a lawsuit in Algeria related to alleged violations of foreign currency exchange controls, with a judgment of approximately $21.8 million (at June 30, 2025 exchange rates) initially entered against it. The Supreme Court has twice overturned rulings against the company, most recently on April 10, 2025, sending the case back to the Algiers Court of Appeals. The ultimate resolution could result in a loss of up to $13.8 million in excess of amounts accrued.

Related Party Transactions

• The SANAD joint venture is equally owned by Saudi Aramco and Nabors, with Nabors consolidating it as a variable interest entity (VIE) and being the primary beneficiary. Saudi Aramco's share of redeemable ownership interests is classified as redeemable noncontrolling interest in subsidiary.
• Nabors Energy Transition Corp. II (NETC II) is a SPAC co-sponsored by Nabors and Greens Road Energy II LLC, which is owned by certain members of Nabors management team and board members. Nabors is the primary beneficiary of the SPAC and consolidates it.

Stakeholder Impact

• Shareholders: Experienced a significant increase in net income per share, though largely driven by a non-recurring gain. The issuance of 4.8 million common shares for the Parker acquisition diluted existing ownership. The Voting & Lock-Up Agreements with Supporting Shareholders could limit influence for other shareholders. The share repurchase program remains active.
• Employees: Workforce costs and general operating costs increased due to the Parker acquisition and inflationary pressures. Severance and reorganization costs of $12.2 million were incurred for the six months ended June 30, 2025.
• Customers: The company's ability to renew contracts and maintain competitiveness is crucial. Changes in oil and gas prices and customer consolidation could impact demand for services. The largest customer in Mexico has a history of late payments, which could affect cash flows.
• Creditors: Long-term debt increased, but the company remains in compliance with all covenants under its 2024 Credit Agreement, indicating continued ability to meet obligations. The repayment of the Parker Term Loan demonstrates debt management.
• Suppliers: Changes in trade policies and regulations, such as tariffs, could increase the cost of components and raw materials in the supply chain, potentially impacting suppliers and the company's costs.

Next Steps

• Complete the purchase price allocation for the Parker acquisition during the 12-month period following the acquisition date.
• Continue evaluating the impact of ASU 2023-09 (Income Taxes) on financial statements and related disclosures.
• Continue evaluating the impact of the One Big Beautiful Bill Act on income taxes.
• Monitor the ongoing Algerian legal proceeding as the case moves to the Algiers Court of Appeals.
• Work towards completing the business combination between NETC II and e2Companies LLC by the extended date of July 18, 2026.
• Potentially seek to retire or purchase outstanding debt through cash purchases or exchanges for equity securities.

Key Dates

Recommendation

While the company reported a net income for the six months ended June 30, 2025, this was primarily driven by a non-recurring bargain purchase gain from the Parker acquisition. Operationally, net cash provided by operating activities declined, and the U.S. Drilling and Rig Technologies segments experienced revenue and income decreases. The increase in long-term debt also warrants caution. The strategic acquisition and growth in international and drilling solutions segments are positive, but the underlying operational performance suggests a 'Hold' until more consistent organic improvements are demonstrated and the impact of the bargain purchase gain is normalized.

Keywords

Oil and Gas Drilling, Land Drilling, Offshore Drilling, Drilling Services, Oilfield Services, Energy Transition, Rig Technologies, Drilling Solutions, SEC Filing, Quarterly Report, Parker Drilling Acquisition, International Operations, Saudi Arabia, Capital Expenditures, Debt Management