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Nabors Industries First Quarter 2021 Results

Share Print Bookmark    |    Thursday,April 29,2021

Nabors Industries Ltd. reported its Q1 2021 results.

Nabors reported first quarter 2021 operating revenues of $461 million, compared to operating revenues of $443 million in the fourth quarter of 2020. The net loss from continuing operations attributable to Nabors common shareholders for the quarter was $141 million, or $20.16 per share. This compares to a loss from continuing operations of $112 million, or $16.46 per share in the prior quarter. The fourth quarter included $162 million of pretax gains from debt exchanges and repurchases, partially offset by charges of $71 million mainly from asset impairments, for a net after-tax gain of $52 million, or $7.40 per share. Excluding the above unusual items, the net loss improved by $23 million, reflecting lower depreciation and interest expense.

Anthony G. Petrello, Nabors Chairman, CEO and President, commented, "Our first quarter results exceeded our expectations, as we maintained our strong execution across the portfolio. First quarter adjusted EBITDA of $108 million was in line with the strong fourth quarter. We benefitted from activity increases in our North American and International markets and our Drilling Solutions business improved significantly. Margins in our largest drilling businesses and Drilling Solutions were consistent with our expectations.

"We had an outstanding quarter in terms of free cash flow generation. We also made progress in cutting our total debt. The entire Nabors team deserves credit for this performance.

"During the first quarter, global oil inventories drew down further. This action contributed to the rise in commodity prices. Oilfield activity responded, with increases across markets. The Lower 48 land drilling market grew by 28% on average in the first quarter. Activity also strengthened during the quarter in international markets, notably for Nabors in Saudi Arabia and Latin America. As commodity markets rebalance, we expect continued increases in drilling activity both in the U.S. and internationally. In tandem with improved utilization, we would also expect pricing to generally increase in the second half of 2021.

"The quarterly growth in our Drilling Solutions segment was impressive. Revenue and adjusted EBITDA both increased sequentially by nearly 12%. We delivered continued growth in Performance Products, notably our SmartDRILL^TM sequencing and process automation app, and Managed Pressure Drilling in our international markets. Drilling Solutions continues to gain market traction, while also helping drive the performance of our global drilling rig business.

"In summary, the growing global economy, combined with continued rebalancing of worldwide oil supply and demand, is supportive of commodity prices, which justify higher drilling activity. Nabors is well positioned to capitalize on this prospect."

Consolidated and Segment Results

The U.S. Drilling segment reported $58.8 million in adjusted EBITDA for the first quarter of 2021, a 5% reduction from the prior quarter. For the quarter, Nabors' average Lower 48 rig count, at 56, increased by almost three rigs, or 5%. Average daily margins in the Lower 48 narrowed, to $8,466, driven principally by the shift in mix towards rigs priced at current market rates. The U.S. Drilling segment's rig count currently stands at 69, with 64 rigs in the Lower 48. Based on the Company's current outlook, the second quarter average Lower 48 rig count is expected to increase by approximately six to seven rigs over the first quarter average.  Nabors expects second quarter drilling margins to exceed $7,000, reflecting the continued migration of the fleet's pricing to current market rates. In the second quarter, for the U.S. Offshore and Alaska operations, the Company expects adjusted EBITDA somewhat higher than the first quarter.

International Drilling adjusted EBITDA declined from the prior quarter by $1.9 million, to $62.6 million. The rig count averaged 65 rigs, a 4% increase from the fourth quarter. This improvement was driven primarily by the resumption of drilling rigs that had been temporarily idled in Saudi Arabia. Average margin per day was $12,917, a decline of approximately 4%, driven by the absence of early termination revenue realized in the fourth quarter.

The second quarter outlook for the International segment includes an increase of three to four rigs, mainly reflecting rig starts in Latin America and the full impact of the first quarter activity resumptions in Saudi Arabia. Sequentially, Nabors expects daily margins in the second quarter to soften by up to $500.

Canada Drilling reported adjusted EBITDA of $9.7 million. Rig count increased by 41% from the fourth quarter, as drilling activity reached its seasonal peak. Daily gross margin increased by more than $3,500 primarily driven by the stronger activity and a governmental wage subsidy. For the second quarter, following the seasonal activity peak, the Company expects an average rig count of slightly more than six rigs versus almost 14 in the prior quarter. This compares to just over two rigs in the second quarter of 2020.

In Drilling Solutions, adjusted EBITDA of $11.5 million increased by $1.2 million compared to the fourth quarter, due to increased volumes across services. The main contributors to the improvement were the performance drilling offerings and managed pressure drilling. The Company expects second quarter Drilling Solutions adjusted EBITDA to be in line with the first quarter. 

In the Rig Technologies segment, first quarter adjusted EBITDA was a loss of $0.5 million, compared to adjusted EBITDA of $0.5 million in the fourth quarter. The decline was mainly due to a change in sales mix on capital equipment and parts. The Company expects second quarter adjusted EBITDA for Rig Technologies slightly above breakeven.

Free Cash Flow and Capital Discipline

Free cash flow, defined as net cash provided by operating activities less net cash used by investing activities, as presented in the Company's cash flow statement, totaled $60 million in the first quarter after funding capital expenditures of $40 million. These results include the impact from semiannual interest payments on the Company's senior notes, which are paid in the first and third quarters. The Company cut total debt by $70 million during the first quarter and reduced net debt, defined as total debt less cash, cash equivalents and short-term investments by $6 million. During the first quarter, the SANAD joint venture completed the distribution of approximately $50 million to each partner.

William Restrepo, Nabors CFO, stated, "Overall market activity has responded favorably to the improving macroeconomic conditions. We remain focused on our target markets, which value performance and technology. Our fleet of high-specification drilling rigs and our portfolio of innovative apps and services are uniquely positioned to serve this segment.

"The Lower 48 market continues to strengthen, as clients take advantage of the more favorable commodity price environment. As utilization increases, we would expect spot pricing to firm. We are further encouraged by the growth in our International activity and the progress we've made on Drilling Solutions.

"We remain firmly committed to cost and capital discipline, as demonstrated by our strong free cash flow generation in the most difficult quarter of the year. In addition to our continued cost and capital measures, robust collections from our customers provided a significant boost to our liquidity. We will maintain our discipline in the second quarter."  

Mr. Petrello concluded, "I am pleased with the first quarter results and our start to 2021. In particular, our free cash flow exceeded our own internal expectations. This solid performance validates our strategies aimed at the twin goals of generating free cash flow and improving leverage.

"We have also made progress on our commitment to reduce our carbon footprint. We continue to evaluate multiple technologies in the areas of carbon capture and sequestration, power management and storage, and emissions reduction. The initial results, both from field deployments and prototype testing, are promising.

"As we look to the future, we envision complementing our current portfolio of advanced digital solutions with more data intensity. Because the energy industry is a prodigious generator of data, we believe it is a prime candidate to benefit from such expertise.

"In the near term over the balance of 2021, we foresee market fundamentals continuing to improve. With this backdrop, I am confident that with outstanding execution and our portfolio of innovative technology, we will make substantial progress on our financial goals this year."