Shares of drilling rig owner and operator Nabors Industries (NYSE:NBR) are up 10.5% as of 11 a.m. EST. The price jump comes after the company announced some financial highlights for its upcoming fourth-quarter earnings report that included significant debt reduction, a dividend cut, and a cut to executive pay.
Nabors' stock has been hit particularly hard during this recent oil price decline. Before this latest uptick, shares were trading at their lowest prices in close to 30 years. The reason the stock has taken a hammering is a combination of a few things:
- It has a large presence internationally, a portion of the business that has struggled to recover since 2015.
- It continues to maintain a fleet of older legacy rigs in the U.S. that aren't effective at drilling shale wells and therefore drag on profitability.
- Its balance sheet has looked questionable for years, with way too much debt and little to no sign of improvement despite it being a management priority.
Because these are some of the problems plaguing Nabors, yesterday's announcement after the close was a welcome one. Management noted that this past quarter, the company announced it had reduced net debt by $230 million last quarter and intends to reduce debt even further in 2019 by cutting its dividend by 83% to a penny a quarter starting in the second quarter of 2019. Also, according to Bloomberg, Nabors CEO Anthony Petrello agreed to forfeit about $4 million in stock grants and will take a 10% pay cut.
It's encouraging that management is finally tackling its debt problem with some conviction. Management has said for years in its investor slides that debt reduction was a priority, but nothing ever came of it. Seeing shares rise after announcing a dividend cut is a clear sign that debt was Wall Street's more pressing concern.
It's also encouraging that management is paying some penance for this underperformance. It should be noted, though, that Petrello has been one of the highest-paid CEOs in the oil and gas industry this past decade (feel free to insert your own jokes about paying for performance).
Whether these moves make the stock a buy remains to be seen. Again, debt reduction has been in the business plan for the better part of this decade without any real results. Investors should probably wait and see if management can finally deliver what it's promising.
Check out the latest Nabors Industries earnings call transcript.