Nabors Industries’s revenue
In NBR’s Drilling & Rig Services segment, revenues from the US fell by 56% in 2Q16 over 2Q15. Its revenues from International Operations, which accounted for 68% of its 2Q16 revenues, fell moderately by 12.5% during the same period. In comparison, McDermott International’s (MDR) 2Q16 revenues fell by ~33% versus 2Q15.
Why Nabors Industries’s operating income fell in 2Q16
Using adjusted EBITDA,[1. earnings before interest, tax, depreciation, and amortization] NBR’s International Operations segment fell the least, with a 15% decline, while its US Operations segment registered a 61% fall from 2Q15 to 2Q16. EBITDA is a measure of operating income. The falls can be attributed to:
- declining activity and margin erosion in North America
- 18% fewer rigs operated by NBR in 2Q16 compared to 1Q16
Positive factors affecting 2Q16 results
- Contract amendment to the MODS 400 platform rig in the Gulf of Mexico. This involves partial recovery of standby revenue for the past quarters.
- There was a resolution of a contract dispute in Angola.
Nabors Industries’s management views of US rigs
Nabors Industries’s management expects its rig count to increase gradually, as crude oil price improves. In its 2Q16 earnings press release, NBR disclosed, “A rig count improvement late in the quarter implies a bottoming in activity. Provided oil prices stabilize into the $50 per barrel range, the Company expects the near-term rig count to increase gradually, albeit at lower average margins, as legacy contracts renew at current spot day rates.”
Next, we’ll discuss Nabors Industries’s returns.