(Nabors, 24.Apr.2023) — Nabors Industries Ltd. (NYSE: NBR) today reported first quarter 2023 operating revenues of $779mn, an increase of 2.5%, compared to operating revenues of $760mn in the fourth quarter of 2022. The net income attributable to Nabors shareholders for the quarter was $49mn, or $4.11 per diluted share. This compares to a loss of $69mn, or $7.87 per diluted share, in the fourth quarter. The first quarter results included a gain, related to mark-to-market treatment of Nabors warrants, of $34mn, or $3.48 per diluted share. The quarter also included a $25mn, or $2.06 per diluted share, gain on the redemption of debt. Results for the fourth quarter of 2022 included a mark-to-market charge of $36mn, or $3.98 per diluted share, for the warrants. Excluding the impact of the Nabors warrants on each quarter’s results and the debt redemption gain, the net loss improved sequentially by $28mn. First quarter adjusted EBITDA was $240mn, compared to $230mn in the previous quarter.
Anthony G. Petrello, Nabors Chairman, CEO and President, commented, “Our overall results for the first quarter were essentially in line with our expectations. Total adjusted EBITDA increased, driven by growth in the U.S. Drilling and Drilling Solutions segments. In U.S. Drilling, adjusted daily gross margin in the Lower 48 market reached a new record. Drilling Solutions’ growth was broad-based across service lines.
“In the Lower 48, we continued repricing our rigs upward. Daily rig revenue increased by more than $3,700. Daily gross margin increased by more than $2,000.
“In our International segment, results benefitted from a full quarter of our second newbuild rig in Saudi Arabia. The remaining three rigs of the initial five awards are expected to commence operations over the balance of 2023. Construction of the second tranche of five units commenced during the quarter, with deployment expected to begin around the end of 2023.
“Revenue and adjusted EBITDA in our Drilling Solutions segment increased by 5% in the first quarter. Third party revenue increased 10% sequentially, affirming our strategy to target this market.
“In the Rig Technologies segment, revenue and adjusted EBITDA from our Energy Transition solutions increased, demonstrating the growing demand for this portfolio. Installations of several of these solutions increased in the first quarter, demonstrating their rapid acceptance in the market.
“Also during the quarter, the planned business combination between Nabors affiliate Nabors Energy Transition Corporation (NYSE: NETC, NETC.U, NETC.WS) and Vast Pty Ltd was announced. With its innovative technology, Vast is positioned at the forefront of next-generation concentrated solar power. This combination reinforces Nabors’ commitment to the energy transition.”
Segment Results
The U.S. Drilling segment reported $156.5mn in adjusted EBITDA for the first quarter of 2023, a 9% increase from the prior quarter. Nabors’ average Lower 48 rig count, at 93, decreased by two rigs. Daily adjusted gross margin in the Lower 48 market averaged $16,690, more than 14% above the prior quarter.
International Drilling adjusted EBITDA totaled $88.6 mn. Improved performance and higher dayrates on renewal contracts in Saudi Arabia contributed to the results. The International rig count averaged 76.4, up one rig sequentially. Daily adjusted gross margin for the first quarter averaged $15,222, up $320 from the prior quarter.
Drilling Solutions adjusted EBITDA increased sequentially by 5% to $31.9mn. Growth was especially strong in the Performance Software and Managed Pressure Drilling product lines.
In Rig Technologies, adjusted EBITDA totaled $5mn, compared to $7.6mn in the fourth quarter. Delays in deliveries of capital equipment components largely accounted for the sequential decline in adjusted EBITDA.
Adjusted Free Cash Flow
Adjusted free cash flow totaled $37mn in the first quarter, primarily driven by higher financial results, strong collections, and disciplined capital spending. Capital expenditures for the first quarter totaled $119mn, including $37mn supporting the newbuilds in Saudi Arabia.
At the end of the first quarter, net debt was $2.087bn.
William Restrepo, Nabors CFO, stated, “We are pleased with the strength of our cash flow generation in the first quarter, as well as our expectations for the second quarter and the remainder of the year. Despite the softness in several of the Lower 48’s predominantly gas basins, our rig count and pricing held up relatively well in this market, and we continued to deliver increases in daily revenue, gross margin, and EBITDA. Our International and Drilling Solutions segments continued to demonstrate solid performance, with multiple paths toward continued growth.
“Our target of $400mn in adjusted free cash flow for 2023 remains unchanged. We reconfirm our commitment to improve our capital structure and reduce leverage this year.
“Recently, that priority was highlighted by the issue of $250mn of convertible notes maturing in 2029, with the proceeds used to redeem our 9% senior notes due in 2025. This transaction effectively extends the maturity of approximately $209mn of our outstanding notes by four years and reduces the annual cost of our debt by more than $15mn. In addition, during the second quarter we intend to redeem the remaining $52mn of the September 2023 notes using the quarter’s cash flow generation.”
Outlook
Nabors expects the following metrics for the second quarter 2023:
U.S. Drilling
- Lower 48 average rig count of 85 rigs
- Lower 48 adjusted gross margin per day of approximately $16,900 – $17,000
International
- Rig count approximately in-line with the first quarter average
- Adjusted gross margin per day of approximately $15,900 – $16,100
Drilling Solutions
- Adjusted EBITDA up by approximately 3% above the first quarter level
Rig Technologies
- Adjusted EBITDA up by approximately $2mn – $3mn vs the first quarter
Capital Expenditures
- Capital expenditures of $140mn, of which approximately $55mn supports newbuilds in Saudi Arabia
- Expect reductions in our prior target capital expenditures for the full year 2023 in the Lower 48 and Colombia in line with the current market environment
Adjusted Free Cash Flow
- Adjusted free cash flow for the full year 2023 of approximately $400mn
Mr. Petrello concluded, “Our first quarter results demonstrate the strength of our strategy. Our commitments to value-based rig pricing and disciplined capital spending, coupled with continued focus on growth of our advanced performance solutions and international operations, position us to make further progress on our financial goals in 2023.”
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