Here's Why Nabors Industries' Stock Fell 15% in July

What do you expect when rig demand remains weak and contract rates for those rigs continue to decline?

Tyler Crowe
Tyler Crowe
Aug 9, 2015 at 2:11PM
Energy, Materials, and Utilities

What: Shares of Nabors Industries (NYSE:NBR) declined 15% last month, as total rig counts in the U.S. remain at five-year lows and dayrates in the industry continue to decline. 

So what: Like many of its offshore compatriots, Nabors is trying to navigate the challenge of supplying the drilling industry with the new technology needed to drill for oil and gas in shale formations. While it does have a sizable fleet of rigs capable of handling these operations, it's also saddled with a large fleet of legacy rigs that are a bit out of favor in the market. So as drilling activity has declined over the past several months, it's been forced to idle several rigs, which hampers profitability since a rig company has operational costs with these idled rigs.

On top of the decline int total rigs in operation, Nabors and the rest of the industry have seen their pricing power evaporate just as quickly as oil producers have been demanding better rates for rigs. Accoding to RigData's Day Rate Report, rig rates in the United States have declined 12% since the end of 2014. 

Now what: It will probably take some time before Nabors is able to retire all of its legacy fleet of land rigs. In fact, it wouldn't be surprising if instead of outright retiring its legacy rigs in the U.S., it moved them to international markets that don't quite have the demand for high-specification land rigs as in the U.S. today. In the past several years the company has been managing this transition while trying to trim some fat off the balance sheet. If it can right-size its land fleet in the U.S., it could be in a good position to see strong results once demand for rigs in the U.S. improves.