Nabors Industries Inc., which owns and operates the world's largest land-based drilling rig fleet, said Wednesday the story that has been playing out for contract oilfield service operators remains the same, as activity in North America is forecast to continue to slide this year.
Management is doing what it can to preserve liquidity and reduce overhead. But even as Nabors made progress to scale its business, the fourth quarter was the lowest for the U.S. rig count in 17 years. U.S. rig hours declined during 4Q2015 from a year ago to 91 from 212.2, and in Canada, rig hours plunged to 14.4 from 36.9. The operating environment looks no better going forward, CEO Tony Petrello said during a conference call.
"From the year-end level, we expect additional decreases in drilling activity and rig count in the Lower 48 and Canada, at least through the second quarter of this year with more rigs converting to spot pricing," he said. "We remain resilient internationally; however, no region is immune to lower oil prices."
The "key differentiator" for Nabors in a future recovery is to develop technological solutions that would drive rig sales.
"With the timing of a recovery still uncertain, our focus is primarily on continuing to exercise stringent control over our operating, support and capital spending in order to meet our goals of breakeven free cash flow and preserving more than adequate liquidity," Petrello said.
Net losses during 4Q2015 totaled $163.7 million (minus 58 cents/share), versus year-ago losses of $891.1 (minus $3.08). Revenue tumbled 61% year/year and 13% sequentially to $693.7 million. For 2015, Nabors lost $373.7 million (minus $1.29/share), compared with losses in 2014 of $670.7 million (minus $2.28).
U.S. operating revenue fell by more than half year/year in 4Q2015 to $222 million from nearly $545 million, while Canadian revenue plunged to $28.3 million from $88.2 million.
In the drilling and rig services segment, operating income fell by one-third in the latest period, with 223 rigs on average operating at an average gross margin of $14,229/rig day. That compares to 3Q2015, when Nabors had on average 242 rigs working for an average of $14,567/rig day.
The U.S. drilling segment posted adjusted operating losses of $7.4 million in 4Q2015. The Lower 48 had 13% fewer rigs working than in the third quarter for an average rig count of 78. The lower rig count was offset in part by higher margins from a favorable mix of Nabors' higher-spec Pace-X and Pace-B rigs, as well as lower compensation costs.
Rig services, which consists of the manufacturing and directional drilling operations, reported negative adjusted income of $13.5 million, as newbuild and drilling activity plunged.
"If oil prices persist at current levels, we expect further decreases in the North American land rig count over the next couple of quarters," CFO William Restrepo said. "Paramount in this kind of environment are cost and capital control, squeezing cash out of our operations and maintaining a strong liquidity position."
Despite the declines in profits, Nabors remained cash flow positive in the final quarter as it continued to reduce overhead.
"Our operations implemented healthy reductions in direct costs, as we contained the reduction in adjusted income to acceptable levels, despite the reduced revenue," Restrepo said. "We also maintained the capital discipline we have implemented throughout the year."
This year, said the CFO, "we will remain vigilant by continuing to align all of our costs to the new market reality. Not only will we continue to rapidly scale our direct costs to our rig count, but we are also targeting additional reductions in overhead costs, cuts in annual capital expenditures to under $500 million and additional reductions to our debt level with any excess liquidity."