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What Are Nabors Industries’ Plans to Preserve Liquidity?

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Aug. 25 2016, Updated 10:06 a.m. ET

Nabors Industries’ operating cash flows

Nabors Industries’ cash from operating activities (or CFO) fell 16.7% in 2Q16 over 2Q15. However, it did improve compared to 1Q16. NBR generated $175 million in CFO in 2Q16. Lower revenues in the past one year led to lower CFO.

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Nabors Industries’ free cash flow

NBR’s capex fell 69% in the past one year. Lower capex more than offset the shrinkage in CFO, and in effect, the 2Q16 FCF improved significantly compared to 2Q15. In 2Q16, NBR’s FCF was $112 million compared to a meager ~$8 million a year ago. Nabors Industries’ FCF has been positive in eight out of the past 12 quarters.

CARBO Ceramics (CRR), Nabors Industries’ lower market cap peer, generated $17 million in FCF in 2Q16. Nabors Industries makes up 0.35% of the iShares S&P Mid-Cap 400 Value ETF (IJJ).

What are NBR’s 2016 capex estimates?

In 2016, NBR expects to spend $450 million in capex. This would be 51% lower than in fiscal 2015.

What’s NBR’s management doing to preserve liquidity?

NBR’s operating cost reductions as a result of a rig count drop, as well as a stable daily margin, led to the steady free cash flow. NBR’s management aims to remain free cash flow positive through conservative cost structure and lower capex spending in 2016 to preserve liquidity. This is because NBR’s management believes the crude oil price is uncertain. If energy price falls, it could strain NBR’s margin again.

Next, we will discuss Nabors Industries’ historical valuation multiples.

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