Land drilling contractor Nabors Industries Ltd. NBR reported second-quarter 2015 loss from continuing operations of 14 cents per share, wider than the Zacks Consensus Estimate for a loss of 10 cents. The dismal bottom line was in contrast to the profit earned in the year-ago quarter. The underperformance could be attributed to activity declines across most business lines on the back of steep drop in oil prices, which outweighed the effects of aggressive cost reduction.
However, total revenue of $863.4 million managed to surpass the Zacks Consensus Estimate of $835 million though it fell 46.6% from $1,623.5 million in second-quarter 2014. The top line beat came on account of strong results from the company’s ‘International’ segment.
Segment Analysis
Till recently, Nabors used to report 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. However, effective Mar 24, 2015, Nabors’ Completion and Production Services unit has merged with C&J Energy Services Ltd. CJES.
Drilling and Rig Services: During the quarter, Drilling and Rig Service revenues were down 21% year over year to $901.4 million. Moreover, the segment’s operating income deteriorated 30% to $104.9 million, as land drilling activity slowed. Total rig years declined to 256.3 from 364.2 in the second quarter of 2014.
Nabors’ U.S. operations recorded quarterly revenues of $321.2 million, down 39.7% from the year-ago level, while operating income nosedived 65.1% year over year to $31.4 million.
The Canadian market witnessed a year-over-year decline of 61% in revenues, recording sales of $21.4 million. Besides, the segment incurred a loss of $8.3 million, as against operating profit of $225,000 in the year-ago quarter. Steep drop in activity levels caused the plunge.
Nabors’ international operations saw substantial progress in revenue generation (up 17.1% year over year to $458.2 million) and operating income moved up 64.6% from second-quarter 2014 to $83.3 million. New rig deployments and contribution from earlier quarter startups supported the upside.
Revenues at the Rig Services segment decreased 37.8% to $100.6 million from the prior-year quarter. The unit incurred loss of $1.6 million, compared to income of $9.1 million in the year-earlier quarter.
Direct Cost
The direct expenses related to operations came at $488.5 million, down 54.2% from the year-ago quarter.
Balance Sheet
As of Jun 30, 2015, the Zacks Rank #3 (Hold) company had $469.9 million in cash and short-term investments and $3,691.4 million in long-term debt, with a debt-to-capitalization ratio of approximately 42.8%.
Outlook
Nabors – which counts Patterson-UTI Energy Inc. PTEN and Helmerich & Payne Inc. HP as its competitors – expects its third-quarter results to reflect another sequential decline though it might signal the bottom in most regions outside of the U.S. Lower 48. The fourth quarter is expected to be much better with international rig startups and seasonal upticks in Alaska and Canada likely to partially offset any further domestic downside.
In short, the bearish market conditions are set to continue in North America for some more time though international operations are expected to be strong, particularly in the Middle East and North Africa.
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