A Driller With an Ace in the Hole

Most oil services investors are probably aware that land drilling hulk Nabors Industries (NYSE: NBR  ) has the biggest market share in the North American shale plays. But did you know the company also has a billion-dollar interest in the shale assets themselves?

I've been writing about Nabors' joint venture with leading energy private equity shop First Reserve for several years now, but I'm not sure that this operation (called NFR Energy) is on many investor radar screens. That should change over the next year. Nabors is talking about doing an initial public offering of the joint venture in the first half of 2011, through which the driller expects to net $1 billion in proceeds. That compares to an investment of $500 million. Not bad for less than four years' work!

NFR Energy is actually just one of three different E&P operations that Nabors is looking to monetize in the year ahead. The company also has significant interests in Colombia and Western Canada that it is actively shopping around.

The Colombian assets should prove to be a very hot commodity, as their production is 100% oil, and the country's prospectivity for further discoveries is top-notch. Chinese and Korean outfits have made their interest in the country's oil very plain and would be natural bidders for Nabors' assets. If you want to read more about the Colombian oil scene, I wrote something up on Ecopetrol (NYSE: EC  ) and Gran Tierra Energy (AMEX: GTE  ) late last year.

As for the Canadian shale assets, this is another area in which Asian megafirms have been snapping up assets. Encana (NYSE: ECA  ) is partnering up with Chinese and Korean national oil companies to develop some of these plays, such as the Horn River. India's energy giant is rumored to be sniffing around Quicksilver Resources' (NYSE: KWK  ) assets here as well.

Between Colombia and British Columbia, Nabors could potentially pull in another $1 billion. Combined with the IPO, that would represent $2 billion of gross cash proceeds for a company with a total enterprise value of roughly $8 billion. I don't really see this potential cash generation priced into the stock today, when I compare Nabors' trading multiples to those of Patterson-UTI (Nasdaq: PTEN  ) or Helmerich & Payne (NYSE: HP  ) .

As long as your energy demand outlook is positive for the year ahead, Nabors looks like a strong bet.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1251704, ~/Articles/ArticleHandler.aspx, 3/28/2015 10:40:03 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!