Outlook And Key Drivers: Nabors Industries (NBR) recently added many rig awards across the Middle East and Latin America. It has scheduled 19 rig deployments over the next 18 months in international markets. It has ambitious plans for its international market. Its management expects the pipeline of scheduled international deployments to drive a 20% increase in rig count through 2025. The rig additions will primarily happen in Algeria, Argentina, Kuwait, and Saudi Arabia. In the US onshore, it expects high utilization of high-spec rigs and strong pricing to drive growth. In FY2024, the company expects an adjusted free cash flow of $100 million -$200 million.
Key Drivers In Q2: Quarter-over-quarter, revenues in the company’s International Drilling operating segment – its largest segment by sales, witnessed a marginal rise in Q2. In contrast, the topline in the U.S. Drilling segment declined by 5%. On the other hand, Drilling Solutions witnessed a 10% sequential revenue rise. Rig margins in U.S. Drilling and International Drilling, the two main operating segments, changed little during this period. The net loss reduced marginally to $32 million in Q2 compared to a $34 million loss in Q1.
The company’s pricing remained stable in the US onshore, although the average rig count decreased in Q2. This was due primarily to lower drilling activity in Northeast and South Texas. In contrast, the rig count in International Drilling increased in Q2.
Cash Flows Strengthen But Leverage Too High: NBR’s cash flow from operations strengthened (69% up) in Q2 2024 compared to a year ago. As a result, its FCF increased significantly (by 6x). Debt-to-equity (5x) is high, primarily due to low shareholders’ equity and high long-term debt. During Q2, it increased its revolving credit facility and extended it until 2029.
Thanks for reading the NBR Take Three, designed to give you three critical takeaways from NBR’s earnings report. Soon, we will present a second update on NBR’s earnings, highlighting its current strategy, news, and notes we extracted from our deeper dive.
