uploads///Revenues and Net Income

What Could Nabors Industries’ Value Drivers Be in Fiscal 2Q16?

By

Updated

Nabors Industries’ revenue growth

Nabors Industries’ (NBR) Drilling & Rig Services segment witnessed a 43% decline in revenue for fiscal 1Q16 over fiscal 1Q15. Its Completion & Production Services segment recorded a ~58% decline in revenue during this same period. Halliburton’s (HAL) 1Q16 revenue declined 40% compared to a year earlier.

Article continues below advertisement

Nabors Industries’ operating income

By adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), the Drilling & Rig Services and Completion & Production Services segments saw 52.6% and 56% declines, respectively. EBITDA is a measure of operating income. NBR is 0.19% of the iShares North American Natural Resources (IGE). The Oil & Gas Equipment & Services industry makes up 13.9% of IGE.

What affected Nabors Industries’ reported earnings in fiscal 1Q16?

In fiscal 1Q16, NBR’s reported net loss was ~$398 million. This was a steep deterioration compared to fiscal 1Q15 when NBR reported $123.6 million in net income. Year-over-year, NBR’s income decline reflects lower rig counts and lower exploration and drilling spend by upstream companies, driven by lower energy prices. The net loss also reflects the impairment of NBR’s investment in C&J Energy Services.

Article continues below advertisement

Factors that affected Nabors Industries’ performance

  • operating loss in North America due to activity declines and margin erosion following term contract expirations
  • ~188 rigs operated by NBR in fiscal 1Q16 compared to ~223 rigs in fiscal 4Q15, a decline of 15.6%
  • additional pricing concessions, unfavorable cost impacts, and rig moving activity in NBR’s international operations

Partially offsetting these negative factors were cost savings in NBR’s Rig Services operations.

What will Nabors Industries’ value drivers be for fiscal 2Q16?

  • In the onshore rig market in North America, NBR’s rig count could average in the low 40s in fiscal 2Q16.
  • In Latin America, NBR’s workover rig, which generates marginal income, could decrease significantly.
  • NBR’s EBITDA in international markets could decline 6%–8% in fiscal 2Q16 over fiscal 1Q16. NBR’s management believes that an additional ten to 12 drilling rigs are vulnerable in the current market environment.
  • NBR expects its technology initiatives to result in a near-term revenue advantage.

Next, we’ll take a look at Nabors Industries’ free cash flow.

Advertisement

More From Market Realist