The free fall in crude prices has been hurting Nabors Industries Ltd’s NBR business for more than six months now. This forced the land drilling contractor to slash its workforce by 12%.
Owing to plentiful North American shale supplies in the face of lackluster global demand the West Texas Intermediate (WTI) crude pricing environment has been weak since last August. Moreover, oil price is also not going to improve immediately according to most of the analysts.
Low crude price is not favorable for drilling business as exploration and production companies are not giving new long-term contracts to the drillers. On top of that, there is oversupply in the land drilling rigs which drag down the day rates significantly.
Hence, in a business scenario where improving profit is a challenge, one of the ways to survive is to significantly lower operating expenses. Nabors, which shut 32% of the U.S. rigs that were operating at a significant pace during the October to December quarter last year, has now left jobless roughly 3,480 of its total 29,000 workforce.
Moreover, the company is again planning to cut operating cost by 15% in 2015.
Nabors added that it will invest roughly $1 billion this year, 50% below than the amount expended in 2014. The company plans to cut 2015 capital budget as drilling business needs a perennial flow of capital which does not bode well during unfavorable business conditions. Other energy players slashing 2015 capital spending are Royal Dutch Shell plc RDS.A, BP plc BP and Chevron Corporation CVX.
Barbados-based Nabors conducts oil, gas, and geothermal land drilling operations and is the largest land-drilling contractor in the world. Early this week, the company reported weaker-than-expected fourth-quarter 2014 results. Adjusted earnings from continuing operations came at 33 cents per share, which lagged the Zacks Consensus Estimate of 39 cents. The bottom line also came below the year-ago figure of 42 cents per share. (Read our blog:Nabors Shares Fall as Q4 Earnings Miss Estimates.)
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