The business model of Nabors Industries
The company's Canadian segment lost about $8 million, which is the worst performance there since the early '90s. When retailers complain about weather affecting sales, I tend to roll my eyes. But when the drillers talk about bad weather, they really mean it. Rig activity was cut fully in half from the prior year, and management foresees next quarter's results coming in 50% lower than the prior year.
In the U.S. onshore market, there's significant pressure on rig margins, particularly old mechanical rigs. This isn't too terrible for Nabors, because the company has already begun rolling out a significant fleet upgrade. Still, Nabors does have a fair amount of rigs with unfavorable economics at present dayrates, and it's addressing this glut by moving rigs to international markets. The company says that at least 15 will leave the U.S. this year. Other stacked rigs will be kept on hand, rather than sold for scrap, just in case there's a big hurricane around the corner.
On the international front, new markets like Mexico and Russia are looking promising, and the company continues to dominate in the Middle East and North Africa. Operating income was up 70% over the prior year and 30% sequentially. A lot of contracts are coming up for renewal, and since international contracts tend to be signed by national oil companies with longer time horizons, these are generally multiyear deals. Pricing has improved dramatically over the past few years, so renewals will drive incremental revenue gains in this segment over the next 18 months.
As far as catalysts for the foundering stock price go, there are at least two. The company realizes there may be more value in its manufacturing division as a stand-alone entity. A quick comparison of the P/E multiple on Nabors vs. National Oilwell Varco