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Can Nabors Industries’ Strategies Improve Returns in 2017?

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Nov. 20 2020, Updated 4:54 p.m. ET

Nabors Industries vis-à-vis the industry

In the past year, as of June 19, 2017, Nabors Industries (NBR) has fallen 20.0%. The Energy Select Sector SPDR ETF (XLE), the broader energy industry fund, has fallen 2.0% since June 20, 2016. NBR underperformed the VanEck Vectors Oil Services ETF (OIH), which tracks 25 OFS (oilfield services and equipment) companies. OIH has fallen 13.0% in the past year. Nabors Industries has significantly underperformed the SPDR S&P 500 ETF (SPY), which has risen 18.0% during the same period. The Dow Jones Industrial Average (DJIA-INDEX) has risen 21.0% in the period.

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Crude oil and US rigs

Since the start of 2017, the price of WTI (West Texas Intermediate) crude oil has fallen 10.0%. In 2016, crude oil had a strong recovery, rising 45.0%. You can read the latest on crude oil prices in What’s Compelling a Shift in Energy Sector Returns? Even with the current weakness in the price of crude oil, the US rig count rose 120.0% in the past year. You can read how OFS companies such as Halliburton (HAL) and Weatherford International (WFT) have been faring recently in Market Realist’s Weighing SLB, NBR, NOV, and WFT after 1Q17.

To find out about Nabors Industries’ various value drivers, be sure to read Market Realist’s Does Nabors Industries’ Performance Mirror Its Confidence?

Nabors Industries’ strategies: Rig modernization

  • NBR expects to upgrade 27 rigs over the next few quarters, taking the total number of upgrades to 100 SmartRigs (a highly technological rig) at the end of 2017.
  • In May 2017, NBR’s PACE-X800 rig started operating on contract. PACE-X rigs are NBR’s most advanced rigs designed for multi-well drilling on a pad.
  • Contracts with more than 75.0% of NBR’s onshore rigs are expected to roll out within the next six months.
  • NBR’s management expects rig revenue per day to increase in 2Q17 over 1Q17.
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Joint venture initiatives

  • On February 1, 2017, NBR and Weatherford International signed a memorandum of understanding to form an alliance to deliver superior drilling solutions to US onshore upstream companies.
  • In October 2016, NBR signed an agreement to form a joint venture (or JV) with Saudi Aramco, one of the top energy companies in the world. The JV will own, manage, and operate onshore drilling rigs. In May 2017, Saudi Aramco signed agreements with other US OFS companies such as Schlumberger (SLB) and National Oilwell Varco (NOV).

Series highlights

In this series, we’ll analyze what the market indicators are suggesting for NBR stock and look at Wall Street’s recommendations for the company. Let’s start with Nabors Industries’ historical valuation multiples.

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