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Could Acquisitions and JV Initiatives Improve NBR’s Returns?

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NBR’s returns compared to the industry

Nabors Industries’ (NBR) one-year stock price was down 35% until August 18, 2017. We discussed Nabors Industries’ various value drivers in Market Realist’s Can Nabors Bank on Synergies from Tesco?

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Crude oil prices and US rigs

Crude oil prices have been volatile in the past four months. Since the beginning of 2017, the West Texas Intermediate (or WTI) crude oil price has declined 10%. During 2016, crude oil’s price had recovered strongly and rose 45%. Please read how you can trade crude oil price’s recent volatility in Oil: How It Affects the Equity Market.

Regardless of the current weakness in crude oil prices, the US rig count has increased 93% in the past year. You can read how oilfield equipment and services (or OFS) companies like Schlumberger (SLB) and Weatherford International (WFT) have fared recently in Which Oilfield Service Stocks Look Attractive after 2Q17?

Nabors Industries’ projects

  • NBR has received qualification for wellbore placement in the Saudi Arabia market. NBR expects the Saudi Arabia market to drive growth. In October 2016, NBR signed an agreement to form a joint venture with Saudi Aramco, a top energy company. The JV would own, manage, and operate onshore drilling rigs.
  • NBR’s management estimates it has 20% directional drilling penetration on its rigs. By the end of 2017, NBR expects to execute jobs on 44 rigs, up from the current 27 rigs.
  • NBR’s management expects Canrig Drilling Technology to contribute positive EBITDA[1. earnings before interest, tax, depreciation, and amortization] in 3Q17. Canrig Drilling Technology, a part of NBR’s Rig Services segment, sells top drives, catwalks, wrenches, and draw works. Canrig sales increased in 2Q17.
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NBR’s acquisition and joint venture 

  • On August 14, 2017, Nabors Industries signed an agreement to acquire OFS industry peer Tesco Corporation (TESO) in a deal valued at ~$215 million.
  • On February 1, 2017, NBR and Weatherford International signed a memorandum of understanding to form an alliance to deliver drilling solutions to US onshore upstream companies.

Series highlights

In this series, we’ll analyze what the market indicators are suggesting for NBR stock as well as Wall Street analysts’ recommendations on Nabors Industries. We’ll start with Nabors Industries’ historical valuation multiples.

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