Land drilling contractor Nabors Industries Ltd. (NBR) reported better-than-expected fourth-quarter 2013 earnings on impressive gains from international operations. The earnings beat led to a 2.6% share price rise on the NYSE, in after-market trade hours.
Earnings from continuing operations (excluding tax benefits) came in at 26 cents per share, surpassing the Zacks Consensus Estimate of 20 cents.
However, the figure decreased a significant 42.2% from the fourth-quarter 2012 level of 45 cents per share (from continuing operations), owing to weak U.S activities along with substantially reduced operations in Canada.
Revenues of $1,606.5 million were up marginally by 0.3% from $1,602.0 million in the year-ago period. The top line also beat the Zacks Consensus Estimate of $1,554.0 million. Improved sales from the Drilling and Rig Services segment, and the Completion and Production unit favored the results.
For the year ended Dec 31, 2013, Nabors reported income from continuing operations (excluding non-operating items) of 87 cents per share, above the Zacks Consensus Estimate of 82 cents. However, the figure fell 45.3% from the 2012 level. Revenues were recorded at $6.3 billion against the year-ago number of $6.6 billion.
Segment Analysis
Nabors reports its operations in 2 major segments: Drilling and Rig Services – comprising U.S., Canada, International and Rig Services; and Completion and Production Services – including Production Services and Completion Services.
Drilling and Rig Services:
During the quarter, Drilling and Rig Service revenues were up a nominal 0.9% year over year to $1,099.8 million, while the segment’s operating income increased approximately 10.9% to $157.3 million. Total rig years rose to 355.5 from 345.9 in the fourth quarter of 2012.
Nabors’ U.S. operations recorded quarterly revenues of $471.0 million, down 4.9% from the year-ago level. Additionally, operating income decreased 8.7% year over year to $75.4 million.
The Canadian market registered a year-over-year decline of 23.4%, recording revenues of $88.6 million. The operating profit was reported at $14.5 million, reflecting a 46.3% fall from the year-ago quarter.
Nabors’ international operations saw a substantial progress in revenue generation (up 25.5% year over year) and operating income moved up by a whopping 197.6% from fourth-quarter 2012. Increase in rig activity aided the segment’s results.
The revenues of the Rig Services segment were down 14.2% to $132.5 million from the prior-year quarter. The unit reported operating loss of $2.2 million in this quarter as compared to a profit of $8.7 million in the year-ago period.
Completion and Production Services:
Completion Services posted revenues and operating income of $292.0 million (down 1.3%) and $14.1 million (down 53.6%), respectively. The results were affected by unfavorable weather conditions hampering the company’s northern activities.
Revenues and operating income at the Production Services segment increased 7.2% and 25.1% year over year, respectively. Improved truck hours aided the results.
Balance Sheet
As of Dec 31, 2013, Nabors had $507.1 million in cash and short-term investments and $3,904.1 million in long-term debt, with a debt-to-capitalization ratio of approximately 39.5%.
Zacks Rating
Nabors Industries currently has a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players in the oil and gas drilling sector like Helmerich & Payne Inc. (HP), New Source Energy Partners LP (NSLP) and Seadrill Partners LLC (SDLP). All the players sport a Zacks Rank #1 (Strong Buy).
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