Understanding Upstream Operators’ Capex and Nabors’s Margin in 2Q17



Nabors Industries’ EBITDA margin

Nabors Industries’ (NBR) EBITDA (earnings before interest, tax, depreciation, and amortization) margin fell to 21.6% in 2Q17 from 29% in 2Q16. The EBITDA margin is a measure of a company’s operating earnings.

Notably, NBR makes up only 0.01% of the iShares Dow Jones US ETF (IYY). From June 30, 2016, to June 30, 2017, IYY rose 16%, compared with the ~19% fall in NBR’s stock price during the same period.

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Upstream capex 

From 2Q16 to 2Q17, 19 of the largest US upstream companies, in aggregate, have reduced their capital expenditures or capex by 8%. NBR’s EBITDA margin, which fell ~17% in 1Q17, received a small breather in 2Q17.

Typically, lower upstream capex results in lower revenues and operating margins for OFS (oilfield services and equipment) companies.

NBR’s peers and the US rig count

By comparison, Schlumberger’s (SLB) EBITDA margin was 23% in 2Q17, while Weatherford International’s (WFT) was 7%. Fairmount Santrol Holdings’ (FMSA) 2Q17 EBITDA margin came in at 19.3%.

In 2Q17, the US rig count more than doubled over 2Q16. This led to higher North America revenues and an increased revenue share from this region for NBR.

Since June 30, 2017, the US rig count has risen another 1% as of August 11, 2017. In July 2017, the international rig count fell by one rig from the total in June 2017. The lower rig count could decrease Nabors’s revenues and earnings in 3Q17.

Next, we’ll discuss NBR’s revenues and earnings.


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