Global land drilling contractor
Nabors Industries Ltd.
) reported mixed third-quarter 2012 results, owing to greater
contributions from U.S. Land Well Servicing and International
operations plus favorable tax rate. These were partially negated
by reduced domestic drilling activities along with the effects of
natural calamities and seasonal fluctuations.
Earnings per share from continuous operations (excluding special
items) came in at 42 cents, breezing past the Zacks Consensus
Estimate of 36 cents. However, comparing year over year, results
dropped 6.7% from 45 cents (adjusted) earned in the year-ago
Revenues of $1,674.1 million were above the third-quarter 2011
sales of $1,642.9 million, aided by strong activities across some
of the business units. However, the result was below the Zacks
Consensus Estimate of $1,706.0 million.
Nabors reports its operations into two major segments: Drilling
and Rig Services - comprising U.S. Lower 48 Land Drilling, U.S.
Offshore, Alaska, Canada, and International; and Completion and
Production Services - including U.S. Well Land Servicing
and U.S. Pressure Pumping.
During the quarter, Drilling and Rig Service segment revenue was
up 7.8% year over year at $1,209.5 million, while the segment's
operating income nudged up approximately 1.9% to $184.6 million.
The company's rig years remained flat at 364.4 compared to third
The company's U.S. Lower 48 Land Drilling division - which faces
competition from peers like
Patterson-UTI Energy Inc.
Helmerich and Payne Inc.
) - registered year-over-year upsides in its sales (up 7.2%) and
profits (up 9.5%).
Nabors' U.S. Offshore operations recorded quarterly revenues of
$66.7 million, up 44.7% from the year-ago level. However, the
segment experienced a loss of $3.7 million, as against a profit
of $2.5 million in the third quarter of 2011 due to the freeze of
operations in many locations for the hurricane.
The revenue of the Alaska operations remained almost at the same
level as that of the prior-year quarter, while operating income
improved 30% year over year.
Although the Canadian market registered a year-over-year decline
of 6.7% in revenue at $135.8 million, operating profit increased
6.0% to $22.9 million with the help of better rig activity.
The company's international operations saw a substantial
improvement in revenue generation (up 16.9% year over year) and
operating income moved up 4.5% from third-quarter 2011. Payments
received due to early termination of contracts aided the
Revenue of the U.S. Land Well-servicing segment of Nabors
improved 17.2% year over year, while operating income escalated
43.9% from the prior-year quarter. The results were influenced by
higher average rates rigs and trucks.
U.S. Pressure Pumping posted revenue and operating income of
$381.2 million (up 10.9%) and $47.2 million (down 27.5%),
As of September 30, 2012, the company had $619.6 million in cash
and short-term investments and $4,679.3 million in long-term debt
(inclusive of current portion), with a debt-to-capitalization
ratio of approximately 44.4%.
Nabors expects to see slight improvement in its performance in
the last leg of 2012, with much better result coming in from
2013. The entry of new rigs along with enhanced utilization rates
and less of pricing pressures will likely boost the results
toward the end of the year.
However, not-so-favorable situations in the international circuit
and cautious outlook for offshore drilling will remain major
roadblocks in the coming months. The weakness in the North
American onshore rig count is also anticipated to persist for
Moreover, with natural gas fundamentals remaining weak, we do not
see any robust driving factor for the Nabors stock, going
forward, and maintain our long-term Underperform recommendation
on the stock, supported by a Zacks #5 Rank (short-term Strong
HELMERICH&PAYNE (HP): Free Stock Analysis
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