(Nabors, 27.Jul.2021) — Nabors Industries Ltd. (NYSE: NBR) reported second quarter 2021 operating revenues of $489mn, compared to operating revenues of $461mn in the first quarter of 2021. The net loss from continuing operations attributable to Nabors common shareholders for the quarter was $196mn, or $26.59 per share. The second quarter results included charges of $81mn comprised mainly of an impairment of assets in Canada, related to the pending sale of our Canada drilling rigs, and a tax reserve for contingencies in our International segment. This compares to a loss from continuing operations of $141mn, or $20.16 per share in the prior quarter. Excluding the above unusual items in the second quarter, the net loss improved by $26mn, primarily reflecting higher adjusted EBITDA, and lower depreciation and income tax expense. Second quarter adjusted EBITDA was $117mn, compared to $108mn in the first quarter.
Anthony G. Petrello, Nabors Chairman, CEO and President, commented, “Our second quarter results validate our strategy as we made concrete progress on our goals. All of our segments performed well. Second quarter adjusted EBITDA was 9% higher than the first quarter, and above our expectations. We benefitted from continued activity increases in U.S. and International markets. Sequential improvements were achieved in our Drilling Solutions business, as well as Rig Technologies, which recorded its highest performance in the last year.
“We had another outstanding quarter in terms of free cash flow generation, which drove further progress in cutting our debt.
“During the second quarter, global oil prices increased steadily. Oilfield activity responded, and in particular in our drilling markets. The Lower 48 land drilling market grew by 16% on average in the second quarter. Activity also strengthened in our major international markets, notably for Nabors, in Saudi Arabia and Latin America. With the strength in commodity markets since the pandemic lows, we expect continued increases in drilling activity both in the U.S. and internationally. In tandem with improved utilization, we also expect pricing to increase in the second half of 2021.”
Consolidated and Segment Results
The U.S. Drilling segment reported $59.8mn in adjusted EBITDA for the second quarter of 2021, a 2% increase from the prior quarter. For the quarter, Nabors’ average Lower 48 rig count, at 64, increased by more than seven rigs, or 13%. Average daily margins in the Lower 48 were $7,017, as rigs were added at current market rates. The U.S. Drilling segment’s rig count currently stands at 72, with 67 rigs in the Lower 48. Based on the company’s current outlook, the third quarter average Lower 48 rig count is expected to increase by four to six rigs over the second quarter average. Nabors expects third quarter Lower 48 drilling margins in line with the second quarter level. For the third quarter, for the U.S. Offshore and Alaska operations, the Company expects adjusted EBITDA similar to the second quarter.
International Drilling adjusted EBITDA increased sequentially by 14%, to $71.3mn. The rig count averaged 68 rigs, a 5% increase from the first quarter. This improvement was driven primarily by new contracts in Colombia and the resumption of drilling rigs that had been temporarily idled in Saudi Arabia. Average margin per day was $13,420, an increase of more than $500, driven by improved performance in Saudi Arabia and more generally in the Eastern Hemisphere.
The third quarter outlook for the International segment includes a slight decline in rig count, and daily margins in line with the second quarter. This change in rig count reflects idle time as one of the company’s rigs moves between customers and an additional rig moves between platforms to accommodate the client’s change in activity profile.
In Drilling Solutions, adjusted EBITDA of $12.8mn increased by 12% compared to the previous quarter, due to stronger activity across all service lines. The main contributors to the improvement were performance drilling software and casing running services. The company expects third quarter Drilling Solutions adjusted EBITDA to increase versus the second quarter.
In the Rig Technologies segment, second quarter adjusted EBITDA was $2mn, an improvement of $2.6mn compared to the first quarter. The increase was mainly due to a better sales mix of repairs and capital equipment. The company expects third quarter adjusted EBITDA for Rig Technologies above the second quarter level.
Canada Drilling reported second quarter adjusted EBITDA of $3mn, reflecting the usual seasonal reduction in activity. The previously announced sale of the Canada drilling assets is expected to close around the end of July.
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 $68mn in the second quarter after funding capital expenditures of $77mn. The company improved total debt by $76mn during the second quarter and improved net debt, defined as total debt less cash, cash equivalents and short-term investments, by $58mn. For the full year, capital expenditures are expected to total approximately $300mn, including roughly $100mn funded by SANAD, to support the SANAD rig newbuild program.
William Restrepo, Nabors CFO, stated, “The improving commodity markets are favorable for oilfield activity. We have seen clients become increasingly selective in their vendors, favoring those that can deliver high performance with advanced drilling and information solutions, combined with best in class safety results. We believe our fleet capabilities combined with our smart app portfolio continue to be industry leading.
“We have seen a strong activity response by our client base to the improvement in commodity prices over the past year. The Lower 48 appears poised to strengthen further, especially among private and smaller operators. We are optimistic for growth in our International markets later in 2021.
“Our commitment to capital discipline was once again demonstrated by strong free cash flow generation. With our cash flow performance, we have funded the global operation, including the newbuild rigs for SANAD, while improving our net debt. We recently launched an innovative delevering transaction with the issuance of warrants to shareholders. We believe the exercise of these warrants will be one more milestone in our progress towards a strong capital structure.”
Mr. Petrello concluded, “The second quarter results exceeded our expectations. We made solid progress on our twin goals to generate free cash flow and reduce net debt. Our improving operating performance and timely asset sales demonstrate our commitment to optimizing our capital allocation and improving our leverage.
“Our commitment to ESG and Sustainability continues. We recently improved our performance in both Environmental and Social score metrics, and are working to advance these efforts further.
“We made additional progress on our initiatives in the energy transition. We are making investments in geothermal companies with potentially disruptive technology. We also signed agreements that give us access to technologies in fuel efficiency and emissions reduction, as well as carbon capture. These efforts are in addition to our own internal initiatives focused on power management and energy storage.
“In parallel, we are pressing our leadership position further in the automation and digitalization of the well construction process. We are determined to continue delivering and realizing value with our advanced solutions.
“For the second half of 2021, we expect further improvement in oilfield industry fundamentals, notwithstanding the challenges posed by the COVID Delta variant. With our outstanding workforce, global fleet capability that is second to none, and our growing technology portfolio, we believe we will make even more progress on our financial goals this year.”
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