Nabors Industries Ltd. (NBR) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day. And welcome to the Q2 2021 Nabors Industries Ltd. Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead. William Conroy: Good morning, everyone. Thank you for joining Nabors’ second quarter 2021 earnings conference call. Today, we will follow our customary format with Tony Petrello, our Chairman, President and Chief Executive Officer; and William Restrepo, our Chief Financial Officer, providing their perspectives on the quarter’s results, along with insights into our markets and how we expect Nabors to perform in these markets. In support of these remarks, a slide deck is available, both as a download within the webcast and in the Investor Relations section of nabors.com. Tony Petrello: Good morning. Thank you for joining us as we review our results for the second quarter of 2021. This morning, I will begin with overview comments. Then I will follow with highlights from the quarter and the discussion of the markets. William will discuss our financial results. I will make some concluding remarks before opening up for your questions. Let me start by saying our operations performed quite well in the second quarter. We also made significant progress across multiple strategic initiatives. Adjusted EBITDA in the second quarter topped $117 million. Execution across all of our segments was strong. Our global rig count for the second quarter increased by seven rigs driven by growth in the U.S., drilling an International segment. Once again, we made progress on our priorities to generate free cash flow and reduce net debt. Free cash flow in the quarter approached $70 million after funding CapEx of $77 million. These results for the second quarter exceeded the expectations, which we laid out on our last conference call. William Restrepo: Thank you, Tony, and good morning, everyone. The net loss from continuing operations of $196 million in the second quarter represented a loss of $26.59 per share. Results from the quarter included a net loss of $81 million or $10.80 per share related to one-time impairments, which were largely attributable to the sale of our Canada Drilling assets and to reserves for tax contingencies in our International segment. Second quarter results compared to a loss of $141 million or $20.16 per share in the first quarter. Excluding the previously mentioned one-time items, the $26 million quarterly improvement primary reflects better operational results, as well as lower depreciation and income tax expenses. Revenue from operations for the second quarter was $489 million, a 6% improvement compared to the first quarter. Revenue continues to increase quarterly with a higher commodity prices. Revenue for all of our segments increased substantially both domestically and internationally, with the exception of Canada, which experienced its normal seasonal downturn. Total adjusted EBITDA expanded by almost $10 million to $170 million for the quarter. This was significantly higher than we anticipated, primarily reflecting the strong increase in revenue across our markets. This quarterly improvement is part of a trend that we expect to continue during the second half of the year. U.S. drilling adjusted EBITDA of $59.8 million was up by $1 million or 1.7% sequentially on a 14% increase in revenue. Although, our rig count increased, our average margins fell in the Lower 48 market. Lower 48 performance was in line with our expectations. Daily rig margins came in at $7,017, falling within our expected range. Nonetheless, leading edge day rates have inflected and high quality regularization continues to increase with markets tightening for those rigs. For the third quarter, we expect average daily rig margin to remain stable with second quarter, as market day rates continue to grind upward. Second quarter Lower 48 rig count averaged 63.5, a quarterly increase of 13%, which was somewhat above our expectations. Currently, our rig count stands at 67. We forecast an increase of four to six rigs in the third quarter versus the second quarter average. Adjusted EBITDA from our other markets within the U.S. Drilling segment improved moderately. For these markets in the third quarter, we expect to remain at the second quarter levels. International adjusted EBITDA gained almost $9 million in the second quarter or 14% sequentially. The improvement came primarily from higher activity markets with larger rigs, principally Saudi Arabia and Colombia, and generally strong operational performance in the eastern hemisphere. Tony Petrello: Thank you, William. I will now conclude my remarks this morning with the following. These second quarter results on the top core performances in the first quarter reinforced that our strategy is working and we’re making progress toward our goals. Once again, we made significant headway to delever. At the same time, we advanced our imperative to provide better execution with our portfolio of leading edge technologies. The resilience of our financial results through the depths of COVID and now into the recovery is testament to our robust portfolio of businesses. This process began years ago, as we continually reevaluate the portfolio. We sold assets and businesses, pressure pumping and well servicing most notably, and now we’re investing in digitalization and automation and the transition. This act of management has served us well and we expect it to continue. We have entered a new phase in the evolution of the global energy industry. Nabors has played a key role throughout the development of the drilling industry. We are investing now to extend this leadership in the future. That concludes my remarks this morning. Thank you for your time and attention. With that, we will take your questions. Operator: Thank you. Our first question comes from Taylor Zurcher with Tudor, Pickering, Holt. Please go ahead. Taylor Zurcher: Hey, everyone. Thanks for taking my question. My first one is on International, the guidance for Q3 was pretty clear from an activity perspective. But as we think in the back half of the year, you talked about a couple more rigs in Saudi, excluding the newbuilds potentially going back to work and as OPEC Plus starts to rollback some other production curtailment? I suspect activity in some of the core GCC countries is likely heading higher into the back half of the year. So just curious if you could frame for us, maybe thinking into Q4 and beyond, just any high level thoughts on how we should be thinking about the cadence of international activity and momentum from here? Tony Petrello: Well, what we currently have some visibility as we reported last quarter, in Saudi I think toward the end of the year there should be an additional three rigs and possibly two more earlier in 2022. I think it’s fair to say, given today’s climate and the decline in prices, we are seeing a lot of robust activity across the region there, particularly in the Emirates, as well as in places like Kazakhstan. So activities generally is picking up, it’s all conducive to entering in 2022 with an uptick in activity, places that’s across the Board, both in the Middle East, as well as in South American as well. So I think all the signs are positive looking forward to 2022. And as I said, we have visibility on several rigs right now looking towards the end of the year. William Restrepo: And I think one thing we have noticed in the market right now is that there’s been an uptick in tendering activity by clients. So we have more tenders and some of them quite significant, outstanding that we had. We’ve had in a long time. Taylor Zurcher: Okay. Understood. Thanks for that. And my follow-ups around the newbuilds the $10 million of annual EBITDA contribution is pretty clear, and certainly, probably, our margin accretive to the current business. My question is more around NDS and how that might fold into some of these saw on newbuilds? Is -- do you have the ability to fold in some of the various products and services around NDS into those newbuilder rigs moving forward? And maybe just more broadly speaking, how do you think about the pathway from here for further international penetration within NDS? Tony Petrello: Yeah. It’s excellent point. I think the expansion of NDS is now on our target radar for international really, it’s very hot for us right now. And it’s going to be two-fold. One, on -- in Saudi Arabia, in particular, our existing rigs, the NDS needs the platform, those existing rigs to be upgraded and we’re looking at that as the base case. And second, the newbuilds will provide a platform to add the NDS services to them. So Saudi, in particular, is a target market for NDS, but regionally I think as well, there’s a high degree of interest from other players in the region to duplicate the scale and optimization been going on in the U.S. And a lot of the operators in the -- in particularly the LCs want to get to a level of performance that duplicates that and NDS is viewed as a key element of that. So that’s one thing that we’re pushing really well. We’ve had some success with NDS already in Argentina. We’re working for a super major down there and NDS on some of the rig they have produced incredible performance gains for them. So NDS, as you know, particularly with our latest automation, our SmartDRILL application basically allows operators to automate the entire rig sequence from slip-to-slip, not just off bottom. So it’s a -- it’s something that the other products in the marketplace don’t do and plus it allows the other services to be integrated into a rig. So we think for International markets in particular, these things could really offer a high degree of value for the operator, and obviously, upside for us. So it’s a very high on our priority right now. Taylor Zurcher: All right. Good to hear. Thanks for the answer. Operator: Your next question comes from Dan Kutz with Morgan Stanley. Please go ahead. Dan Kutz: Hey. Thanks. Good morning. Tony Petrello: Good morning. William Restrepo: Good morning. Dan Kutz: Hey. So I just wanted to ask, appreciate the color on pricing and activity in the press release and on the call so far. I was just wondering if you could kind of characterize or kind of juxtapose what you’re seeing in terms of pricing traction in the U.S. versus International markets, and kind of what your outlook is for those two markets moving forward? Tony Petrello: Well, I think, the good news is in the U.S. it’s grinding higher on all fronts right now across all the regions. I think it’s fair to say the leading edge rates are moving to high-teens the low 20s. And as you see, we’re getting convergence between our average working rig rate today and the leading edge, which suggests that crossover should occur in the near-term. In the sector as a whole, as you know, you don’t get to a point of inflection till roughly 70% utilization. I think we and others, I think, we’re probably the highest in terms of utilization, super spec rigs right now, I think, we’re at like 61% today. I think some of our competitors are a little less than that. But as we all march toward that 70% utilization number, I think, we will approach the point of inflection on pricing, which is quoting maybe to another round 500 rig count roughly. So, hopefully, we will get there. In the meantime, I think, we had together with the other players was showing some good discipline in the market and they, as you know, constructive. The market in the U.S., obviously, given where we are today, it’s on the market where you’re going to lock up on term anytime soon given where things are. So which actually helps us right now in terms of being able to move our pricing up as things roll march forward. On the other hand, the International market, as you know, the good thing about International is, you have term coverage, so we have a portfolio of contracts in place, and therefore, you’re not going to see the same, you don’t see the same hockey stick up nor the same downside down, which as a company that served us really well in the downturn as we’ve marked, you looked at our combined -- our EBITDA compared to the combined EBITDA of our three largest competitors, we were exceeded that and that’s because of our International portfolio, which doesn’t have that volatility. So the prospect for pricing increases when they are -- your groups don’t termed out to -- at the average to move that quickly, it’s not going to happen. But that’s actually a good thing. That’s robust thing. But I think the good news is as the market does heat up, the quality -- the quantity of available good rigs to come into the market internationally doesn’t exist, in general. In other word, if you want to a new -- if you want to guess rig with all the bells and whistles today 3,000 horsepower rig, those rates do not exist, which means basically, it’s going to force the market to replacement cost pricing, which we think is constructive. So looking out for the International, I think, it directly it’s going to be higher in terms of translating to meaningful numbers is at the margins can be a creative and meaningful, but obviously, the ability to price up our whole fleet is going to be more limited. Tony Petrello: But I will point out that all the contracts that were signed recently, internationally are coming in significantly higher prices than the prior signings of say maybe a couple quarters ago. Dan Kutz: Got it. Thanks for all that color. And then so just to touch back on SANAD -- quickly on this SANAD newbuild program. So appreciate all the color you guys have shared in terms of capital spending plans this year. Just wondering if there is any kind of range that you could give us in terms of what CapEx might look like on a quarterly basis moving beyond 2021? Like is kind of the second half $35 million per quarter CapEx number, a decent run rate or could there be upside or downside to that, assuming the newbuild program moves on that five rig per year plan pace moving forward? Tony Petrello: So the five rigs a year and this time it is relatively easy to estimate, but it does hinge on Aramco providing those drilling contracts, right? So for now, it’s fully based on that, it’s not fixed. We have a guaranteed growth roadmap going forward, how much of CapEx is going to be. We are planning however, so we’re assuming in our plans we’re going to be adding five rigs a year over the next several years and that piece is pretty stable. We know how much the rig cost and how many rigs per year. The rest of our portfolio is really running very reasonably. That’s we said about a $200 million a year in -- for everything exceeding those newbuilds. Now, the CapEx, of course, is also linked to the number of rigs that are operating, we expect those to go up. So certainly next year, the numbers should be somewhat higher than $200 million, but in line with a rigs. We don’t have any major programs to increase our rig footprint. We have sufficient idle rig capacity to continue expanding next year without having to invest in additional rigs exceeding those in Saudi Arabia. Dan Kutz: Got it. Understood. Thanks for the color. I’ll turn it back. Operator: Your next question comes from Karl Blunden with Goldman Sachs. Please go ahead. Karl Blunden: Hi. Good morning. Congrats on the strong results again this quarter on both EBITDA and the cash flow side. Tony Petrello: Thanks, Karl. Karl Blunden: Just one question on your slides here, it looks like for the U.S. Lower 48. You mentioned there 64 rigs on revenue of, which high spec are 55. So when I look at that sequentially, it looks like most of the growth is coming outside of high spec. But you’re also reporting increased utilization of the high spec rig. So I was just hoping you could give a bit more color on that dynamic both the sequential change and then what you expect going forward, please? Tony Petrello: I don’t know what you’re actually looking at, the rigs -- all the rigs we’re operating today are high spec. So we actually -- and today the rig count is 67 rigs and we have 110 high spec rigs. So it’s 67 out of 110, which is 61% today. They’re all high spec. Karl Blunden: Got you. Maybe I’ll follow offline just to make sure I understand the numbers there. With regard to the warrants, you mentioned that a small amount of the warrants were exercised using bonds during the quarter. When you think about this longer term, and obviously, depending on where the share price is. Could you talk a little bit about the conditions under what you’d consider committing the warrants to essentially encourage them to the exercise and accelerate debt reduction? Tony Petrello: Well, I think, we need some time to let the mechanism work. So got to step back a second understand what this is all about. Basically, it was a means to allow the discount of the bond to be captured and to be shared with the shareholders. As you know, there is no market available where debt can be easily swapped with equity, don’t have it really happens in bankruptcy and that exchange usually results in the equity guys getting the short end of the stick. So what this really is a way of doing is allowing our shareholders in a normal fashion to be given the opportunity to capture that bond discount themselves through the exercise of the warrants. Now for that to be meaningful, what you got to do is do the calculations with the shares and updates where the exercise price, you get the bonus number of shares, you got to calculate the amount you value of the shares you get if you exercise using the value of the warrants of the bond at face amount. When you do the math, you’ll see that there is a lot of upside for debt holders for debt is trading at a discount to in effect get a premium to that current market price through that exercise. The good news is since it’s been announced there has been a really a huge volume of trading in the warrants. In fact, if you compare our warrant transaction to one that was done by us, I think the first day of trading we would double the amount of activity and volume compared to them. And so I think the warrants are now being put in position where the person owns whether it’s a shareholder, there is always some who is going to think about buying bonds or bondholders for the warrants. I think it’s being positioned that way the stock price gets into the zone, where it’s economic and where there’s upside, that they’ll be positioned to exercise. So we’re obviously not there yet. But as we march when we look at the matrix, once that happens that we’ll see. Once that happens then we’ll assess what the future of the warrants is, but we expect a good portion of the warrants we exercise to capture this discount. Karl Blunden: That’s very helpful and certainly in line with the debt reduction goals. Is there any kind of timing element around that and exercise their relative to extending the bank facility or those two disconnected transactions? Tony Petrello: That’s a great question. Obviously, we’d like to see where we end up with a warrant transaction and see where our balance sheet stands. We think we’ll be in a better position than we are today. In addition, we have the proceeds from Canada coming in and we think we’ll have a strong second half in terms of free cash flow generation. So I think all those dynamics will help us have a better more constructive discussion with our lenders. So I think -- I don’t think you should expect to see anything with respect to our credit facility within the next couple three months. There’ll be something more towards the end -- towards the fourth quarter, the end of the year. In addition to that, we will also explore options for issuing additional longer term debt to take care of the short-term maturities and maybe term out some of the expanding on a revolver. So those are some of the things you could expect, all that remains open. But, obviously, having a bit of benchmark, once the warrant transaction is completed will give us a better sense of what is achievable. Karl Blunden: Thanks. You anticipated a bunch of my questions. Really appreciate the time. Tony Petrello: Thanks, Karl. Operator: Our next question comes from Andrew Ginsburg with R.W. Pressprich. Please go ahead. Andrew Ginsburg: Hi, guys. Thanks for the color you provided so far. Most of my questions were answered. One clarification I wanted to make was around the proceeds from the Canadian Drilling segment. You guys mentioned that you guys are in use it for key strategic initiatives. Do you have any color on what proportion that’s going to be used for debt reduction versus other key initiatives? Tony Petrello: The overriding strategic initiative in terms of cash utilization is debt reduction. So… Andrew Ginsburg: Okay. Tony Petrello: So that -- we have made a couple of investments, minority stakes in some geothermal companies, but that’s a pretty single-digit number for those investments and -- single-digit in terms of millions. So… Andrew Ginsburg: Sure. Tony Petrello: … that’s easily accommodated within our existing cash flow. So I would say that the proceeds of Canada are fully going to be used to reduce debt. Andrew Ginsburg: Perfect. Thank you. That’s the only outstanding question I had. Thanks for your time guys. William Restrepo: Thank you. Tony Petrello: Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to William Conroy for any closing remarks. William Conroy: Thank you everyone for joining us this morning. That’ll wrap up our call. If you have any follow ups please contact us at Nabors and we’ll end the call there. Thank you. Operator: Conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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Nabors Industries Ltd. (NYSE: NBR) Faces Financial Setbacks in Q3 2024

  • Nabors Industries Ltd. (NYSE:NBR) reported a significant loss per share of -$6.06, missing the estimated EPS by a wide margin.
  • The company's revenue for the quarter was $743.31 million, slightly below the estimated $751 million, marking a 2.46% shortfall from the Zacks Consensus Estimate.
  • Despite the financial setbacks, Nabors' adjusted EBITDA saw a slight increase to $222 million, and the company remains optimistic about future growth, especially with the acquisition of Parker Wellbore.

Nabors Industries Ltd. (NYSE: NBR) operates in the oil and gas drilling industry, providing drilling and rig services. The company faces competition from other industry players like Helmerich & Payne and Patterson-UTI Energy. Nabors recently reported its financial results for the third quarter of 2024, revealing a challenging period with significant financial setbacks.

On October 22, 2024, Nabors reported an earnings per share (EPS) of -$6.06, which was significantly lower than the estimated EPS of -$1.73. This result marks a negative surprise of 93.64%, as highlighted by Zacks. Despite this, it shows an improvement from the previous year's loss of $5.40 per share. Over the past four quarters, Nabors has consistently failed to exceed consensus EPS estimates.

Nabors' actual revenue for the quarter was $743.31 million, slightly below the estimated $751 million. This represents a 2.46% shortfall from the Zacks Consensus Estimate. The company has only surpassed consensus revenue estimates once in the last four quarters. Compared to the previous year, revenue decreased slightly from $744.14 million.

The company experienced a net loss of $56 million for the quarter, translating to a loss of $6.86 per diluted share. This is a larger loss compared to the $32 million net loss in the previous quarter. The third quarter results included net charges of approximately $25 million, mainly due to the redemption premium on the 2026 notes and market adjustments on investments.

Despite these challenges, Nabors' adjusted EBITDA increased to $222 million from $218 million in the prior quarter. Anthony G. Petrello, Nabors' Chairman, CEO, and President, expressed optimism about the company's future, particularly with the announced acquisition of Parker Wellbore. He noted that the portfolios of both companies are highly complementary, suggesting potential synergies and growth opportunities.

Nabors Industries Shares Down 7%

Nabors Industries Ltd. (NYSE:NBR) shares were trading more than 7% lower Monday afternoon following the company’s 2021 Virtual Analyst Meeting, where the company delivered a series of presentations highlighting its industry outlook and vision through 2023 and beyond, operational priorities, balance sheet outlook, and Energy Transition strategy.

Despite the stock sell-off, analysts at RBC Capital said that they came away from the session with an enhanced appreciation for the technology capability within the company and believe continued execution on its strategic priorities could potentially lead them to become more constructive as a recovery in global land drilling activity unfolds.