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How Will Nabors Industries Use Its Free Cash Flow after 3Q17?

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Nabors Industries’ operating cash flows

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Nabors Industries’ free cash flow

NBR’s capital expenditure (or capex) rose 45% in the past year up to 3Q17. So a negative CFO, coupled with higher capex, led to negative and deteriorating FCF in 3Q17 versus 3Q16. In 3Q17, NBR’s FCF was -$160 million, compared to -$24 million FCF a year ago. In seven of the past 13 quarters, Nabors Industries’ FCF had been negative.

FCF comparison with peers

Tesco Corporation (TESO) generated -$8 million in FCF in 3Q17. Oceaneering International’s (OII) FCF was $8 million in 3Q17. Fairmount Santrol Holdings’ (FMSA) 3Q17 FCF was $31 million. Nabors Industries is 0.09% of the iShares North American Natural Resources ETF (IGE). IGE fell 4% in the past year, compared to a 57% fall in NBR’s stock price.

What are NBR’s capex and cash flow outlook?

In 2017, NBR expects to spend between $500 million and $550 million in capex, which would be approximately 29% higher than its 2016 capex. William J. Restrepo, NBR’s CFO, commented on the 3Q17 earnings call, “Our longer-term forecast continued to indicate material cash flow generation starting 2018 and ramping up through 2020. Our free cash flow will be allocated primarily to debt reduction.”

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