Morningstar | NBR Updated Forecasts and Estimates from 15 Apr 2019
We were somewhat disappointed by land driller Nabors' fourth-quarter results. Revenue was flat sequentially, as an increase in U.S. Drilling was offset by a decrease in the International segment. Adjusted operating margins fell to negative 3% from negative 1% as the weakness in the International segment more than offset strength in U.S. Drilling. For now, our fair value estimate and no-moat rating are unchanged.The International segment's revenue decreased 8% sequentially, owing chiefly to an 8% decrease in the segment rig count. Most of the lower rig count came from the sale of the company's Argentina workover rigs as well as disruptions in the operations of Nabors' Venezuela rigs during the fourth quarter. The latter factor also contributed to a fall in the segment adjusted operating margin to 0% from 7% in the prior quarter. More worryingly, however, the rollover of contracts in Saudi and elsewhere to lower pricing was a key driver of the deterioration in profitability. This had not been previously guided by management.
A 11% sequential increase in U.S. Drilling revenue was driven chiefly by a 10% increase in Lower 48 drilling revenue, due to a 5% increase in Nabors' Lower 48 rig count (outpacing the 2% increase in the overall U.S. horizontal rig count) as well as higher day rates. Higher day rates caused Lower 48 gross margin per rig day to increase to about $9,400 from $8,700 previously--Nabors' strongest such posting in three years.
The Drilling Solutions segment reached $23 million in EBITDA in the fourth quarter, almost hitting management's $25 million goal. We had thought this goal was overly ambitious when set a year ago, but management got much closer to achieving it than we had thought, achieving a 57% EBITDA boost vs. first-quarter 2018 levels. So far, Nabors is leading its land driller peers in profitably, adding higher-tech drilling services (incorporated in the Drilling Solutions segment) to its portfolio.
Nabors Industries, through its subsidiaries, owns and operates land-based drilling rig fleet and is a provider of offshore platform drilling rigs in the U.S. and several international markets. The company also provides directional drilling services, tubular services, performance tools, and technologies for its own rig fleet and those of third parties. The company's business is comprised of its land-based and offshore drilling rig operations and other rig related services and technologies, consisting of equipment manufacturing, rig instrumentation and optimization software. The company has five reportable segments: U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions and Rig Technologies.
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