Improved pricing on a higher rig count in the Lower 48, along with customers clamoring for high-specification rigs, helped improve U.S. drilling results during the first quarter for Nabors Industries Ltd.
The Bermuda, Hamilton-based oilfield services operator said there was an $11 million improvement in the U.S. market during 1Q2019 from a year ago. However, the Canada rig count and margins fell as the normal seasonal peak was “overwhelmed” by the currently weak market.
"Our U.S. drilling segment continues to perform exceptionally well,” said CEO Anthony G. Petrello, “principally due to improved pricing on a slightly higher rig count in our Lower 48 operations.”
The U.S. drilling segment’s average rig count in the Lower 48 increased slightly, as contracted deployments of upgraded rigs offset a minor decline in the number of legacy rigs operating. Nearly all of the high-specification rigs remained under contract.
The U.S. rig count during 1Q2019 averaged 121, versus 117 a year ago and 111 in the fourth quarter. The domestic rig count currently stands at a cyclical high of 123, with 115 working in the Lower 48.
The company still expects the Lower 48 rig count to increase to around 120 by year’s end, as the remaining contracted rig upgrades deploy.
U.S. drilling average margins increased to $12,350/day in 1Q2019, up from sequential margins of $11,428. Lower 48 margins jumped 8% sequentially to $10,170. Nabors upgraded two of its top Pace rigs in the Permian Basin during the quarter, with additional Pace deployments scheduled through June.
“Our current rig count in the Lower 48 stands at 115 rigs, four more than both our quarterly average and our exit rate for the first quarter,” Petrello said. “Dayrates for our high-specification rigs continue to exceed the mid-$20,000 level. We expect to see further improvement in this market throughout the year.”
“In the U.S., our strategy of deploying high-specification intelligent rigs to the industry's most demanding customers is paying off in both utilization and rates. The second quarter should continue to deliver higher margins on higher rig count in the Lower 48 as we continue to deploy contracted rig upgrades…
“Notwithstanding the uncertainty during the first half of this year, we anticipate further progress throughout 2019 with an acceleration in the second half of this year."
While the U.S. arm performed well, there was an $8 million reduction in the international business during 1Q2019.
Results in Latin America were affected by market-related and operational issues, including the U.S. sanctions and turmoil in Venezuela, as well as an activity drop in Argentina driven by the recent reduction in regulated natural gas prices.
The international segment was hampered by “activity and operational issues in Latin America,” the CEO said. “Canada also faced headwinds as the current market weakness resulted in an atypical sequential reduction in what should be our peak seasonal quarter."
Canada operations were adversely impacted by the industry-wide weak rig count “in what would usually be the seasonally strongest quarter.” Daily gross margin decreased sequentially to nearly $6,100.
The Canada rig count between January and March averaged 16, down from 18 a year ago and 21 in 4Q2018. The international rig count averaged almost 90 in 1Q2019, versus 88 a year ago and close to 95 in the final quarter of 2018.
In the international business, Nabors deployed one upgraded rig in Argentina during 1Q2019, with two rig deployments pending in Mexico and one each in Algeria, Argentina, Italy Kazakhstan and Saudi Arabia.
During the quarter, Nabors also achieved several milestones within its automation and integration initiatives, including multiple commercial jobs for the Navigator and ROCKit Pilot directional drilling automation systems.
“Today the majority of these installations are operated remotely with no directional drillers at the rig site,” Petrello noted. “We also are seeing increasing adoption of our automated tubular running technologies and our rotary steerable system is delivering good results in customer field trials.”
Capital expenditures for the quarter were $146 million. Full-year spending is front-loaded, as most of the Lower 48 rig upgrades are planned through June. Spending in the second quarter is forecast at around $100 million.
"Cash flow consumption in the first quarter was near the top of the range of our internal expectations,” CFO William Restrepo said. “The first quarter is normally burdened with significant beginning-of-year cash outlays, which will not repeat during the year. We remain committed to containing capital spending to approximately $400 million for the full year.”
Operating revenue climbed year/year to $800 million from $734 million. U.S. drilling operating revenue improved year/year to $320 million from $304 million. Canada drilling revenue fell from a year ago to $25 million from $29 million.
Net losses totaled $122 million (minus 36 cents/share), versus a year-ago loss of almost $188 million (minus 55 cents).