Nabors Announces FY 2016 and Fourth Quarter Results

Source Press Release
Company Nabors Industries Ltd 
Tags Financial & Operating Data
Date February 22, 2017

Nabors Industries Ltd. ("Nabors") (NYSE: NBR) today reported full-year 2016 operating revenue of $2.2 billion, compared to operating revenue of $3.9 billion in the prior year, which included $366 million in revenue from the Completion and Production Services segment (NCPS), a business line that merged with C&J Energy Services, Inc. (CJES) on March 24, 2015 and ceased to be consolidated with Nabors on that date.  Net income from continuing operations for the year was a loss of $1.0 billion, or $3.58 per share, compared to a loss of $330 million, or $1.14 per share, in FY 2015.  Included in the net loss from continuing operations for full year 2016 were total after-tax impairments and other charges of $487 million, or $1.71 per share, as well as $0.80 per share in Nabors' proportional share of CJES' net loss for the period.  This compares to prior year impairments and other charges of $380 million, or $1.31 per share, and $0.29 per diluted share for the company's proportional share of CJES' net loss.     

Revenue for the quarter of $539 million represented an increase of $19.2 million, the first sequential increase in nine quarters.  Net loss from continuing operations for the fourth quarter totaled $331 million, or $1.17 per share.  The fourth quarter results include $245 million in net after-tax charges, or $0.87 per share, related primarily to the impairment and retirement of certain assets.  These results compare to a loss of $99.0 million, or $0.35 per share, in the preceding quarter.

Anthony Petrello, Nabors' Chairman and CEO, commented, "2016 was a challenging year with the U.S. rig count reaching its lowest point since rig counts were first published.  Nabors was proportionally impacted with our working U.S. land rig count declining as much as 81% from our late 2014 high.  Our U.S. rig count bottomed in the second quarter while our international count appears to have done so at the end of 2016.  We believe the fourth quarter should mark the low point in our financial results both in North America and internationally.  Despite the challenges of 2016, we delivered positive free cash flow while funding the continued upgrading of our U.S. fleet.  We also were able to implement our new operating system, maintain our critical engineering projects, such as the development of automation initiatives, and keep our dividend commitment.  We achieved this through stringent costs control, disciplined capital allocation and efficiencies derived from the streamlining of our operations, engineering and support organizations.  We also deployed a significant number of new and upgraded rigs and rolled out our SmartRig™ systems and introduced our iRig® technology.  These new technologies represent a game changer in the implementation of a high degree of automation of both surface and downhole drilling systems. 

"The high point of the year was the fourth quarter signing of a joint venture agreement with Saudi Aramco, a key strategic relationship and growth driver for both parties.  We expect to form the JV at the end of the second quarter.  The formation of this new company will be a significant step in creating a best-in-class local drilling operation, utilizing locally manufactured rigs, in accordance with the Kingdom's Vision 2030 initiative."

Consolidated and Segment Results

Adjusted operating income for the Company was a loss of $70.2 million during the quarter as compared to a loss of $72.0 million in the prior quarter.  Drilling & Rig Services adjusted operating income was a loss of $36.4 million, slightly better than the loss of $38.4 million in the third quarter.  Quarterly adjusted EBITDA for the Company showed a slight decrease sequentially at $146 million, compared to $149 million in the third quarter.  For the quarter, the Company averaged 177 rigs operating at an average gross margin of $12,482 per rig day, compared to 164 rigs at $14,029 per rig day in the third quarter.

International adjusted EBITDA decreased sequentially by $20.5 million to $128 million.  The decrease was attributable to several factors, the most impactful being a reduction of 5.5 average rigs working.  These reductions are mostly temporary and consist of three rigs in Algeria and single rigs in various other venues for a portion of the quarter.  Aggregating to a slightly larger impact were an unusually high number of non-revenue days for rig maintenance in Saudi combined with a lesser amount of discrete favorable items in the fourth quarter in comparison to the third.  The Company has recently had five high-specification rigs commence with another rig startup imminent.  Most of these rigs commenced either late in, or subsequent to, the fourth quarter.  This leads to an expectation of gradually improving results in the near term and more meaningful increases as the year progresses.  Although some tenders have been delayed, there are still numerous awards pending with second-half start dates, further supporting the improving outlook.  Canada operations increased sequentially with seasonally stronger winter activity. 

The U.S. Drilling segment posted adjusted EBITDA of $49.2 million for the quarter, primarily as a result of a 26% increase in rig activity and higher revenues in Alaska.  Nearly all of the rig count increase was realized in the lower 48 operation which averaged 64 rigs operating in the quarter compared to 50 in the third quarter.  The Company currently has 86 rigs on revenue in the lower 48 operation, but expects lower average margins in the near term as more rigs return to work at current market rates and incur start-up expenses.  However, with improving pricing and relatively short average contract durations, this margin trend can reverse quickly.  This segment expects to complete six X, R and M800 new built rigs by year end and utilize some existing components to construct four M1000 rigs, all but one of which already have customer commitments.   All of this supports the expectation of increasingly improving results throughout the balance of 2017. 

Rig Services, which consists of the Company's manufacturing, directional drilling, and complementary services, reported positive adjusted EBITDA of $0.9 million compared to a loss of $4.3 million in the third quarter.  The improved results were primarily from increased penetration by Nabors Drilling Solutions (NDS), and a modest improvement in Canrig primarily attributable to reduced costs and higher revenues from service and repair operations.  The Company expects these trends to accelerate throughout 2017.

William Restrepo, Nabors' Chief Financial Officer, stated, "2016 was a productive year in which we continued to execute on our near and longer term goals.  We significantly enhanced the capabilities of our lower 48 fleet while maintaining capital and cost discipline.  We signed a joint venture with our largest customer.  We started to turn our NDS vision into a reality and increased our market lead in rig automation and integration.  Finally, we generated free cash flow throughout the down cycle, and recently extended our debt maturity profile through attractively priced six-year senior notes.  

"I am excited about our prospects for 2017.  We expect to accelerate NDS growth and deliver on our goal of fully automating our rigs and the drilling process through increased integration.  We plan to complete the upgrading of our U.S. fleet into the most modern and capable in the industry.  We believe 2017 will allow us to grow our U.S. and International rig counts, while making significant progress in pricing.  Nabors is committed to remain disciplined and focused on our strategy to deliver solid cash generation and return on capital to our shareholders." 

Mr. Petrello concluded, "We expect the fourth quarter to represent the bottom in our results with a gradual progression in the first half followed by a more meaningful improvement throughout the second half, assuming stable oil prices.  Our rig counts and margins are increasing with our highest specification rigs, the PACE®-X and PACE®-M800 operating at full utilization.  NDS has achieved positive adjusted EBITDA and increased market penetration.  We continue to implement our Rigtelligent™ operating system and upgrade our AC rigs to SmartRig™ system configuration at a steady pace.  As of today, we have 61 SmartRig™ system upgrades in service and plan to have completed 100 by year end.  We expect to begin deploying our new iRacker™ automated drill pipe and casing handling system later this year.  There are clear signs of building momentum in our business, particularly considering the customer commitments for nine of our ten 2017 new deployments in the low $20,000 per day range.  All of this bolsters our confidence in an improving 2017 outlook.  Meanwhile, we will continue to focus on controlling costs, reducing leverage and restoring attractive rates of return on our capital."

NABORS INDUSTRIES LTD. AND SUBSIDIARIES 
                     
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) 
                     
(Unaudited) 
                     
    Three Months Ended    Year Ended 
    December 31,    September 30,    December 31, 
                     
(In thousands, except per share amounts)    2016    2015    2016    2016    2015 
                     
Revenues and other income:                     
Operating revenues     $  538,948    $  738,872    $         519,729    $  2,227,839    $ 3,864,437 
Earnings (losses) from unconsolidated affiliates      (45,367)      (221,914)    (75,081) 
Investment income (loss)    260    180    310    1,183    2,308 
  Total revenues and other income    539,212    693,685    520,041    2,007,108    3,791,664 
                     
Costs and other deductions:                     
Direct costs    331,560    445,130    306,436    1,344,298    2,371,436 
General and administrative expenses    52,603    61,056    56,078    227,639    324,328 
Research and engineering    8,764    9,354    8,476    33,582    41,253 
Depreciation and amortization    216,187    231,137    220,713    871,631    970,459 
Interest expense    47,557    46,410    46,836    185,360    181,928 
Other, net    275,270    124,568    10,392    542,673    329,795 
      Total costs and other deductions    931,941    917,655    648,931    3,205,183    4,219,199 
                     
Income (loss) from continuing operations before income taxes    (392,729)    (223,970)    (128,890)    (1,198,075)    (427,535) 
                     
Income tax expense (benefit)    (62,533)    (62,880)    (31,051)    (186,831)    (98,038) 
                     
Income (loss) from continuing operations, net of tax    (330,196)    (161,090)    (97,839)    (1,011,244)    (329,497) 
Income (loss) from discontinued operations, net of tax    (4,266)    (1,730)    (12,187)    (18,363)    (42,797) 
                     
Net income (loss)    (334,462)    (162,820)    (110,026)    (1,029,607)    (372,294) 
     Less: Net (income) loss attributable to noncontrolling interest    (1,125)    (834)    (1,185)    (135)    (381) 
Net income (loss) attributable to Nabors    $ (335,587)    $ (163,654)    $        (111,211)    $ (1,029,742)    $   (372,675) 
                     
Amounts attributable to Nabors:                     
Net income (loss) from continuing operations    $ (331,321)    $ (161,924)    $          (99,024)    $ (1,011,379)    $   (329,878) 
Net income (loss) from discontinued operations    (4,266)    (1,730)    (12,187)    (18,363)    (42,797) 
Net income (loss) attributable to Nabors    $ (335,587)    $ (163,654)    $        (111,211)    $ (1,029,742)    $   (372,675) 
                     
Earnings (losses) per share:                     
   Basic from continuing operations    $       (1.17)    $         (.57)    $                (.35)    $          (3.58)    $         (1.14) 
   Basic from discontinued operations    (.01)    (.01)    (.04)    (.06)    (.15) 
    Basic    $       (1.18)    $         (.58)    $                (.39)    $          (3.64)    $         (1.29) 
                     
   Diluted from continuing operations    $       (1.17)    $         (.57)    $                (.35)    $          (3.58)    $         (1.14) 
   Diluted from discontinued operations    (.01)    (.01)    (.04)    (.06)    (.15) 
    Diluted    $       (1.18)    $         (.58)    $                (.39)    $          (3.64)    $         (1.29) 
                     
                     
Weighted-average number                        
   of common shares outstanding:                     
   Basic      276,793    276,371    276,707    276,475    282,982 
   Diluted      276,793    276,371    276,707    276,475    282,982 
                     
                     
Adjusted EBITDA    $   146,021    $   223,332    $         148,739    $      622,320    $ 1,127,420 
                     
Adjusted operating income (loss)    $   (70,166)    $     (7,805)    $         (71,974)    $    (249,311)    $    156,961 

NABORS INDUSTRIES LTD. AND SUBSIDIARIES 
             
CONDENSED CONSOLIDATED BALANCE SHEETS 
 
             
             
    December 31,    September 30,    December 31,  
(In thousands)    2016    2016    2015 
    (Unaudited)     
ASSETS             
Current assets:             
Cash and short-term investments    $        295,202    $          200,650    $         274,589 
Accounts receivable, net    508,355    503,966    784,671 
Assets held for sale    76,668    69,436    75,678 
Other current assets    275,614    298,028    340,959 
     Total current assets    1,155,839    1,072,080    1,475,897 
Property, plant and equipment, net    6,267,583    6,616,711    7,027,802 
Goodwill    166,917    167,131    166,659 
Investment in unconsolidated affiliates    893    889    415,177 
Other long-term assets    595,783    567,693    452,305 
     Total assets    $     8,187,015    $      8,424,504    $      9,537,840 
             
LIABILITIES AND EQUITY             
Current liabilities:             
Current debt    $               297    $                120    $             6,508 
Other current liabilities    821,637    787,742    999,991 
     Total current liabilities    821,934    787,862    1,006,499 
Long-term debt    3,578,335    3,475,978    3,655,200 
Other long-term liabilities    531,951    561,970    582,273 
     Total liabilities    4,932,220    4,825,810    5,243,972 
             
Equity:             
Shareholders' equity    3,247,025    3,591,929    4,282,710 
Noncontrolling interest    7,770    6,765    11,158 
     Total equity    3,254,795    3,598,694    4,293,868 
     Total liabilities and equity    $    8,187,015    $     8,424,504    $     9,537,840 

NABORS INDUSTRIES LTD. AND SUBSIDIARIES 
                     
SEGMENT REPORTING 
(Unaudited) 
                     
The following tables set forth certain information with respect to our reportable segments and rig activity: 
                     
                     
    Three Months Ended    Year Ended 
    December 31,    September 30,    December 31, 
                     
(In thousands, except rig activity)    2016    2015    2016    2016    2015 
                     
                     
Operating revenues:                     
    Drilling & Rig Services:                       
      U.S.    $ 148,959    $ 222,060    $         116,095    $    554,072    $ 1,256,989 
      Canada    16,917    28,312    10,444    51,472    137,494 
      International    343,259    448,507    363,552    1,508,890    1,862,393 
      Rig Services (1)    63,659    72,862    58,950    215,710    391,066 
       Subtotal Drilling & Rig Services    572,794    771,741    549,041    2,330,144    3,647,942 
                     
    Completion & Production Services:                     
      Completion Services            207,860 
      Production Services            158,512 
       Subtotal Completion & Production Services            366,372 
                     
    Other reconciling items (2)    (33,846)    (32,869)    (29,312)    (102,305)    (149,877) 
      Total operating revenues    $ 538,948    $ 738,872    $         519,729    $ 2,227,839    $ 3,864,437 
                     
Adjusted EBITDA: (3)                     
    Drilling & Rig Services:                       
      U.S.    $   49,245    $   94,254    $           37,299    $    190,657    $    513,003 
      Canada    2,647    10,041    196    5,325    39,757 
      International    128,289    160,716    148,833    576,049    719,266 
      Rig Services (1)    914    (4,491)    (4,334)    (15,334)    20,978 
       Subtotal Drilling & Rig Services    181,095    260,520    181,994    756,697    1,293,004 
                     
    Completion & Production Services:                     
      Completion Services            (28,110) 
      Production Services            23,043 
       Subtotal Completion & Production Services            (5,067) 
                     
    Other reconciling items (4)    (35,074)    (37,188)    (33,255)    (134,377)    (160,517) 
      Total adjusted EBITDA    $ 146,021    $ 223,332    $         148,739    $    622,320    $ 1,127,420 
                     
Adjusted operating income (loss): (5)                     
    Drilling & Rig Services:                       
      U.S.    $ (42,947)    $    (7,398)    $         (58,876)    $  (197,710)    $      87,051 
      Canada    (8,553)    (1,034)    (10,156)    (36,818)    (7,029) 
      International    20,351    51,850    43,595    164,677    308,262 
      Rig Services (1)    (5,246)    (13,505)    (12,937)    (48,484)    (12,641) 
       Subtotal Drilling & Rig Services    (36,395)    29,913    (38,374)    (118,335)    375,643 
                     
    Completion & Production Services:                     
      Completion Services            (55,243) 
      Production Services            (3,559) 
       Subtotal Completion & Production Services            (58,802) 
                     
    Other reconciling items (4)    (33,771)    (37,718)    (33,600)    (130,976)    (159,880) 
   Total adjusted operating income (loss)    $ (70,166)    $    (7,805)    $         (71,974)    $  (249,311)    $    156,961 
                     
Earnings (losses) from unconsolidated affiliates (6)    $            4    $ (45,367)    $                    2    $  (221,914)    $    (75,081) 
                     
Rig activity:                     
Average Rigs Working: (7)                     
   U.S.    72.1    91.0    57.3    62.0    120.0 
   Canada    13.3    14.4    8.8    9.7    16.7 
   International    91.9    117.5    97.4    100.2    124.0 
      Total average rigs working      177.3    222.9    163.5    171.9    260.7 

   
(1)  Includes our other services comprised of our manufacturing, directional drilling and complementary services. 
 
(2)  Represents the elimination of inter-segment transactions. 
 
(3)  Adjusted EBITDA is computed by subtracting the sum of direct costs, general and administrative expenses and research and engineering expenses from operating revenues. Adjusted EBITDA is a non-GAAP financial measure and should not be used in isolation or as a substitute for the amounts reported in accordance with GAAP. However, management evaluates the performance of our operating segments and the Company's consolidated results based on several criteria, including adjusted EBITDA and adjusted operating income (loss), because it believes that these financial measures reflect our ongoing profitability and performance.  In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance.  Other companies in our industry may compute these measures differently.  A reconciliation of this non-GAAP measure to income (loss) from continuing operations before income taxes, which is the most closely comparable GAAP measure, is provided in the table set forth immediately following the heading "Reconciliation of Non-GAAP Financial Measures to Income (loss) from Continuing Operations before Income Taxes". 
 
(4)  Represents the elimination of inter-segment transactions and unallocated corporate expenses. 
 
(5)  Adjusted operating income (loss) is computed by subtracting the sum of direct costs, general and administrative expenses, research and engineering expenses and depreciation and amortization from operating revenues. Adjusted operating income (loss) is a non-GAAP financial measure and should not be used in isolation or as a substitute for the amounts reported in accordance with GAAP. However, management evaluates the performance of our operating segments and the Company's consolidated results based on several criteria, including adjusted EBITDA and adjusted operating income (loss), because it believes that these financial measures reflect our ongoing profitability and performance.  In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance.  Other companies in our industry may compute these measures differently.  A reconciliation of this non-GAAP measure to income (loss) from continuing operations before income taxes, which is the most closely comparable GAAP measure, is provided in the table set forth immediately following the heading "Reconciliation of Non-GAAP Financial Measures to Income (loss) from Continuing Operations before Income Taxes". 
 
(6)  Represents our share of the net income (loss), as adjusted for our basis difference, of our unconsolidated affiliates accounted for by the equity method, including losses of $45.4 million for the three months ended December 31, 2015 and $221.9 million and $81.3 million for the years ended December 31, 2016 and 2015, respectively, related to our share of the net loss of C&J Energy Services, Ltd. ("C&J"), which we reported on a quarter lag through June 30, 2016.  Beginning in the third quarter of 2016, we ceased accounting for our investment in C&J under the equity method of accounting. 
 
(7)  Represents a measure of the number of equivalent rigs operating during a given period.  For example, one rig operating 182.5 days during a 365-day period represents 0.5 average rigs working.  
 

NABORS INDUSTRIES LTD. AND SUBSIDIARIES 
                     
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO  
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 
(Unaudited) 
                     
                     
                     
                     
    Three Months Ended    Year Ended 
    December 31,    September 30,    December 31, 
                     
(In thousands)    2016    2015    2016    2016    2015 
                     
Adjusted EBITDA    $    146,021    $    223,332    $         148,739    $      622,320    $  1,127,420 
Depreciation and amortization     (216,187)    (231,137)    (220,713)    (871,631)    (970,459) 
Adjusted operating income (loss)    (70,166)    (7,805)    (71,974)    (249,311)    156,961 
                     
Earnings (losses) from unconsolidated affiliates      (45,367)      (221,914)    (75,081) 
Investment income (loss)    260    180    310    1,183    2,308 
Interest expense    (47,557)    (46,410)    (46,836)    (185,360)    (181,928) 
Other, net    (275,270)    (124,568)    (10,392)    (542,673)    (329,795) 
Income (loss) from continuing operations before income taxes    $    (392,729)    $    (223,970)    $       (128,890)    $   (1,198,075)    $    (427,535) 
                     

NABORS INDUSTRIES LTD. AND SUBSIDIARIES 
             
RECONCILIATION OF NET DEBT TO TOTAL DEBT 
 
             
    December 31,    September 30,    December 31,  
(In thousands)    2016    2016    2015 
    (Unaudited)     
             
             
             
Current debt    $               297    $                120    $             6,508 
Long-term debt    3,578,335    3,475,978    3,655,200 
     Total Debt    3,578,632    3,476,098    3,661,708 
Less: Cash and short-term investments    295,202    200,650    274,589 
     Net Debt    $     3,283,430    $      3,275,448    $      3,387,119 
             

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd