Upstream Operators’ Capex and Nabors Industries’ Margin

Nabors Industries’ EBITDA margin

As the graph below shows, Nabors Industries’ (NBR) EBITDA[1. Earnings before interest, tax, depreciation, and amortization] margin (or EBITDA as a percentage of revenues) declined to 20.7% in 3Q17 from ~29% in 3Q16. EBITDA margin is a measure of a company’s operating earnings. Nabors Industries is 0.01% of the iShares Dow Jones US ETF (IYY). From September 30, 2016, to September 29, 2017, IYY rose 16% versus a ~34% fall in NBR’s stock price during this period.

From 3Q16 to 3Q17, 20 of the top upstream companies by market capitalization constituting the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) increased their capex by 29% in aggregate. Higher upstream capex typically results in higher prices for oilfield services and equipment (or OFS) companies, which boosts OFS companies’ operating revenues and margins. From 3Q16 to 3Q17, the average EBITDA margin (or EBITDA as a percentage of revenues) for the oilfield equipment and services (or OFS) companies constituting the VanEck Vectors Oil Services ETF (OIH) rose from 14.6% to 19.6%. NBR’s operating margin, meanwhile, declined.Upstream Operators’ Capex and Nabors Industries’ Margin

EBITDA margin for NBR’s peers

Schlumberger’s (SLB) EBITDA margin was 22.7% in 3Q17 while Weatherford International’s (WFT) EBITDA margin was 11% in 3Q17. Fairmount Santrol Holdings’ (FMSA) 3Q17 EBITDA margin was 25.3%. Read more about SLB in Market Realist’s Schlumberger: A Look at Its Fiscal 3Q17 Performance.

Rig count and its effects

The international rig count rose 2% in October 2017 compared to a month ago. As of the week ending November 10, the US rig count was 907, or ~4% lower compared to the level on September 29. Acceleration or deceleration in the rig count can affect NBR’s revenues and earnings growth in 4Q17.

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