(Nabors, 25.Oct.2023) — Nabors Industries Ltd. (NYSE: NBR) reported third quarter 2023 operating revenues of $734mn, compared to operating revenues of $767mn in the second quarter. The net loss attributable to Nabors shareholders for the quarter was $49mn, compared to net income of $5mn in the second quarter. This equates to a loss of $6.26 per diluted share, compared to a loss per diluted share of $0.31 in the second quarter. The third quarter results included a charge, related to mark-to-market treatment of Nabors warrants, of $8mn, or $0.86 per diluted share, compared to a gain of $18mn, or $1.95 per diluted share, in the second quarter. Third quarter adjusted EBITDA was $210mn, compared to $235mn in the previous quarter.
Anthony G. Petrello, Nabors Chairman, CEO and President, commented, “Drilling activity across our markets generally met our expectations. As we had anticipated in the Lower 48, rig count decreased in the third quarter but it appears to have bottomed, while leading-edge pricing also seems to have stabilized. The reduced drilling activity in the U.S. did impact our Nabors Drilling Solutions and Rig Technologies results somewhat more than we expected. In line with our forecasts, international markets have continued to expand with higher pricing.
“During the quarter we experienced challenges with our newbuild rigs and some of their critical components in Saudi Arabia, which resulted in deployment delays and significant downtime. We are currently addressing the quality assurance issues on these assets delivered by our third-party supplier. We expect our supplier’s performance to improve rapidly as its local manufacturing experience increases.
“On the positive side, margins in our Lower 48 operation remained at higher levels than in any prior upcycle. During the third quarter we saw the early signs of the expected market upturn. In preparation, we have 14 warm stacked rigs ready to return to work immediately at minimum cost, as soon as drilling activity turns around.
“In our International segment, multiple rigs commenced operations, contributing to an increase in sequential revenue. We are encouraged by the prospects for a significant number of additional rigs in our international markets through 2024 and beyond.
“Broad demand for our technology portfolio in Nabors Drilling Solutions drove meaningful increases in U.S. third-party and international revenue.
“In Rig Technologies, our Energy Transition initiatives continued to gain momentum as we expanded our PowerTAP deployments, and our customers increased their demand for our innovative solutions.”
Segment Results
The U.S. Drilling segment reported $117.4mn in adjusted EBITDA for the third quarter of 2023. Nabors’ average Lower 48 rig count totaled 74. Daily adjusted gross margin in the Lower 48 market averaged $15,855.
International Drilling adjusted EBITDA totaled $96.2mn. Improved results across multiple markets were offset by start-up expenses in Saudi Arabia and lower rig count in Colombia and Kuwait. International rig count averaged 77, in line with the previous quarter. Daily adjusted gross margin for the third quarter averaged $15,778, down approximately 3% from the prior quarter.
Drilling Solutions adjusted EBITDA declined sequentially by approximately $2.3mn, to $30.4mn. Growth of 8% in both U.S. third-party revenue and international operations was more than offset by decreased Lower 48 activity on the reductions in Nabors rig count.
In Rig Technologies, adjusted EBITDA totaled $7.2mn, compared to $6.4mn in the second quarter. Increases in aftermarket margins and growth from the Energy Transition products accounted for the sequential improvement in adjusted EBITDA.
Adjusted Free Cash Flow
Adjusted free cash flow was negative $5mn in the third quarter. Capital expenditures totaled $157mn, which included $52mn for the newbuilds in Saudi Arabia. This compares to $152mn in the second quarter, including $66mn supporting the newbuilds in Saudi Arabia.
At the end of the third quarter, net debt was $2.1bn.
William Restrepo, Nabors CFO, stated, “The results delivered by our operating rigs were encouraging. Our rig count in the Lower 48 held up well in the third quarter despite total market rig count landing a bit below expectations. In addition, our revenue per day and daily gross margin remained near the record high levels set the prior quarter. We remain well positioned to take advantage of any recovery in U.S. drilling activity. Internationally we continued to deploy rigs at attractive pricing, offsetting the contract expirations in Colombia and Kuwait. In the fourth quarter we expect rig count increases in the U.S. as well as in international markets, as compared to the current levels. And we expect Nabors Drilling Solutions to resume its growth trajectory.
“During the quarter, on top of the $5mn EBITDA shortfall on our new builds in Saudi Arabia, we faced several unexpected items that negatively affected our adjusted free cash flow. Most of these were one-offs or timing shifts across quarters. Capital expenditures were the largest of these items as they exceeded our forecast by $33mn. This increase was driven by higher capital spending in Saudi Arabia and by the $9.5mn purchase of our operating base in Vaca Muerta, Argentina. We had been attempting without success to lock in this critical facility over the last couple of years and had the opportunity to do so during the third quarter. We expect capital spending to fall materially in the fourth quarter as these items should not repeat. In addition, our accounts receivable and other working capital items were approximately $40mn higher than we had forecast at the end of last quarter. We expect this impact to reverse in the fourth quarter.
“Mainly as a result of higher capital expenditures, an EBITDA shortfall in Saudi Arabia of $11mn in the second half, and lower NDS and Rig Technologies EBITDA of about $13mn combined in the second half, our full year free cash flow is now expected to total $225mn to $250mn, as compared to our prior forecast at the end of the second quarter of $300mn to $350mn. The impact from higher capital expenditures during the second half, an increment of approximately $40mn, comes from the acceleration of deployments in Algeria, which will shift $20mn in capital expenditures from early 2024 into the fourth quarter of 2023, from capital spending in Saudi Arabia which is expected to be some $10mn higher than forecast earlier, and from the acquisition of the Vaca Muerta base, which was not part of our prior forecast.
“We are now beginning the forecasting process for 2024. Although we are not yet ready to discuss these projections, we do expect meaningful year over year increases in both EBITDA and free cash flow.”
Outlook
Nabors expects the following metrics for the fourth quarter 2023:
U.S. Drilling
- Lower 48 average rig count of 72 – 74 rigs
- Lower 48 adjusted gross margin per day of $15,000 – $15,200
- Alaska and Gulf of Mexico adjusted EBITDA up by $1.5mn
International
- Rig count up by one to two rigs versus the third quarter average
- Adjusted gross margin per day of approximately $16,200 – $16,300
Drilling Solutions
- Adjusted EBITDA up by approximately 10% vs the third quarter
Rig Technologies
- Adjusted EBITDA up by approximately 20% vs the third quarter
Capital Expenditures
- Capital expenditures of $95mn, with approximately $35mn for the newbuilds in Saudi Arabia
Adjusted Free Cash Flow
- Adjusted free cash flow for the fourth quarter of $165mn to $190mn and for the full year 2023 of $225mn to $250mn
Mr. Petrello concluded, “As we look to the fourth quarter, we expect improvements in our financial results, especially in free cash flow. With the international expansion already in hand, and the indications we have seen for growth in the U.S., we are positioned for meaningful improvement in 2024. The momentum we are now generating with our Energy Transition initiatives gives us additional confidence in this positive outlook.”
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