Nabors Beats Q2 Earnings Estimates on Improved US Operations

Land drilling contractor Nabors Industries Ltd. (NBR) reported second-quarter 2014 earnings from continuing operations of 24 cents per share (excluding charges related to the sale of non-core assets), beating the Zacks Consensus Estimate by a penny. The bottom line also increased by a whopping 200% from the year-ago figure of 8 cents per share (from continuing operations). Impressive U.S. and international operations along with improved production services aided the results.

Total revenue of $1,623.5 million was up 10.1% from $1,474.2 million in the year-ago period. Higher sales from the Drilling and Rig Services segment and the Completion and Production Services unit led to the improvement.

Segment Analysis

Nabors reports its operations in two major segments: Drilling and Rig Services, comprising U.S., Canada, International and Rig Services; and Completion and Production Services that includes Production Services and Completion Services.

Drilling and Rig Services

During the quarter, Drilling and Rig Service revenues were up 13.9% year over year to $1,140.8 million, while the segment’s operating income improved approximately 48.7% to $149.8 million. Total rig years rose to 364.2 from 338.4 in the second quarter of 2013.

Nabors’ U.S. operations recorded quarterly revenues of $532.9 million, up 14.1% from the year-ago level. Moreover, operating income increased 28.9% year over year to $90.0 million.

The Canadian market registered a year-over-year decline of 15.3%, recording revenues of $54.9 million. The operating profit was reported at only $0.2 million, reflecting a 94.3% nosedive from the year-ago quarter.

Nabors’ international operations saw substantial progress in revenue generation (up 11.3% year over year) and operating income moved up 55.7% from second-quarter 2013. Increased rig activities supported the upside.

Revenues at the Rig Services segment were up 36.9% to $161.7 million from the prior-year quarter. The unit reported operating profit of $9.1 million, against operating loss of $5.4 million in the year-earlier quarter.

Completion and Production Services

Completion Services posted revenues of $276.6 million, up 8.9% from the year-ago quarter. However, the operating loss for the segment came in at $0.6 million against a profit of $6.9 million in second-quarter 2013. Unfavorable weather conditions affected the results.

Revenues and operating income at the Production Services segment increased 5.6% and 27.4% year over year, respectively.

Direct Cost

The direct expenses related to operation came at $1,066.5 million, up 9.7% from the year-ago quarter.

Balance Sheet

As of Jun 30, 2014, Nabors had $486.3 million in cash and short-term investments and $3,956.3 million in long-term debt, with a debt-to-capitalization ratio of approximately 39.4%.

Definitive Agreement

Nabors has entered into a definitive contract with C&J Energy Services, which primarily provides hydraulic fracturing, pressure pumping and related oilfield services.

Per the deal, Nabors will likely combine the operations of C&J Energy Services with its Completion & Production Services unit to expand the scope of its oilfield services.

Zacks Rating

Nabors Industries currently has a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months.

One can also look at industry players like New Source Energy Partners L.P. (NSLP), North Atlantic Drilling Limited (NADL) and Patterson-UTI Energy Inc. (PTEN). All these stocks share the same Zacks Rank with Nabors Industries.