(Nabors, 7.Feb.2023) — Nabors Industries Ltd. (NYSE: NBR) today reported fourth quarter 2022 operating revenues of $760mn, an increase of approximately 10%, compared to operating revenues of $694 million in the third quarter of 2022. The net loss attributable to Nabors shareholders for the quarter was $69mn, or $7.87 per share. This compares to a loss of $14mn, or $1.80 per share, in the third quarter. The fourth quarter results included a non-cash charge of $36mn, or $3.98 per share, related to mark-to-market treatment of Nabors’ warrants. The third quarter results included a non-cash gain for the warrants of $34mn, or $3.74 per share. Excluding the impact of the Nabors warrants on each quarter’s results, the net loss improved sequentially by $15mn. Fourth quarter adjusted EBITDA was $230mn, a 21% increase compared to $191mn in the previous quarter.
Anthony G. Petrello, Nabors Chairman, CEO and President, commented, “Our fourth quarter performance and financial results were impressive. Once again, all segments contributed to strong sequential growth. Total adjusted EBITDA was the highest quarterly level since 2015. The U.S. Drilling segment drove most of our growth, highlighted by unprecedented daily margins in the Lower 48 market. Daily margin and adjusted EBITDA also improved in our International segment. In Drilling Solutions, growth accelerated with the annual adjusted EBITDA run rate surpassing $120mn, as gross margin set another record at nearly 53%. Rig Technologies had its best quarter in seven years.
“In the Lower 48, we successfully repriced the majority of our rigs during the quarter. As a result, daily rig revenue increased by more than $3,500. Almost all of that increase flowed through to daily gross margin, which improved by nearly $3,500, to $14,600, an all-time high. Notwithstanding this growth, leading edge daily revenue in this market remains substantially higher than our fourth quarter average.
“In our International segment, SANAD deployed its second newbuild rig, of the initial five awards, late in the quarter. The remaining three units are expected to commence operations by the third quarter. In addition, SANAD has been awarded five more newbuild rigs, bringing the total awarded to date to 10. Deployment of this second tranche of five is expected to begin around the end of 2023 at the earliest. We also reactivated an existing rig in Saudi Arabia, and in Papua New Guinea our advanced rig contributed a full quarter at its operating rate.
“Revenue in our Drilling Solutions segment accelerated in the fourth quarter. Adjusted EBITDA increased by 18% sequentially, driven by growth across most product lines. NDS revenue on our U.S. rigs, third-party U.S. rigs, and International rigs all saw double-digit growth in the quarter.
“In our Rig Technologies segment, all product lines contributed to the increase in segment EBITDA. The most significant increases were in aftermarket parts, and rentals.
“Demonstrating our commitment and progress supporting the energy transition, Nabors was awarded the Energy Transition Award – Upstream at the 24th Annual Platts Global Energy Awards in December. Our strategy has taken shape since we announced it a year ago. We have deployed multiple energy transition solutions on our rigs, as well as on third party units. Also, we are developing advanced technologies focused on responsible hydrocarbon production, hydrogen, and carbon.”
Segment Results
The U.S. Drilling segment reported $144.1mn in adjusted EBITDA for the fourth quarter of 2022, a 26% increase from the prior quarter. Nabors’ average Lower 48 rig count, at 95, increased by three rigs. Daily adjusted gross margin in the Lower 48 market averaged $14,600, 31% higher than the prior quarter.
International Drilling adjusted EBITDA totaled $88.8mn, a 3% increase from the prior quarter. Improved performance across Latin America and in Saudi Arabia drove the growth. The International rig count averaged 75.7, up one rig sequentially. Daily adjusted gross margin for the fourth quarter averaged $14,902, up $313 from the prior quarter.
Drilling Solutions adjusted EBITDA increased sequentially by 18% to $30.3mn. Growth was strong across most product and service categories, notably Managed Pressure Drilling, Casing Running, and Performance Tools.
In Rig Technologies, adjusted EBITDA increased by 57% to $7.6mn in the fourth quarter. Revenue increased by 24% sequentially, to $62.8mn, mainly due to higher aftermarket sales, reflecting increased rig and equipment utilization across the industry.
Adjusted Free Cash Flow
Adjusted free cash flow totaled $101mn in the fourth quarter, primarily driven by higher financial results across all segments, strong collections, and disciplined capital spending. For the full year, adjusted free cash flow was $154mn. Capital expenditures for the fourth quarter totaled $103mn, including $16mn supporting the SANAD newbuilds. Full-year capital expenditures totaled $382mn, of which $91mn was for SANAD newbuilds.
At the end of the fourth quarter, net debt was $2.085bn, a $75mn reduction compared to the third quarter.
William Restrepo, Nabors CFO, stated, “We benefitted from strong financial performance in the fourth quarter across all of our segments. U.S. Drilling delivered continued increases in pricing, as well as higher rig count. At the same time our International business continued its steady upward progression with more growth expected over the coming quarters, as activity across the globe expands from its current levels and dayrates have started to increase. Our low-capital-intensity businesses grew briskly during the quarter with both Drilling Solutions and Rig Technologies exceeding their quarterly targets.
“In the Lower 48, dayrate increases were significant as we repriced nearly two-thirds of the fleet. Our revenue per day average for the fleet reached $32,000. There’s still plenty of room to run as we reprice our fleet to the current leading edge dayrates.
“We intend to capitalize on this environment to further improve our capital structure and reduce leverage. We are already seeing the impact our cash flow generation and debt reduction has had on the cost of our debt, with interest rate spreads compressing significantly over the last quarter. For 2023, we estimate we will generate adjusted free cash flow exceeding $400mn. We intend to allocate our cash flow primarily to debt reduction and we expect to close the year with net debt of approximately $1.7bn.”
Outlook
Nabors expects the following metrics for the first quarter 2023:
U.S. Drilling
- An increase in average Lower 48 rig count of one rig vs. the fourth quarter average
- Lower 48 adjusted gross margin per day of approximately $16,100 – $16,300
- A $2 to $3mn decrease in adjusted EBITDA for Alaska and U.S. Offshore combined, mainly due to two Alaska rigs going on standby rate
International
- Rig count up approximately one to two rigs vs. the fourth quarter average
- Adjusted gross margin per day approximately in line with the fourth quarter
Drilling Solutions
- Adjusted EBITDA up by approximately 6% above the fourth quarter level
Rig Technologies
- Adjusted EBITDA approximately in line with the fourth quarter
Capital Expenditures
- Capital expenditures of $150mn, of which approximately $45mn supports SANAD newbuilds
- Capital expenditures for the full year 2023 of $490mn, including $180mn for SANAD and an incremental $20mn for sustaining capex on the higher rig count
Adjusted Free Cash Flow
- Adjusted free cash flow for the full year 2023 to exceed $400mn
Mr. Petrello concluded, “Our fourth quarter results capped a year of significant achievement. We reached noteworthy milestones across the company. Looking into 2023, the momentum from higher dayrates, newbuild deployments in Saudi Arabia, greater penetration of our advanced performance solutions, the start of expanding activity in international markets, and broader recognition of our decarbonization initiatives sets us up for a strong 2023.”
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