During a conference call with analysts following the release of disappointing third quarter results last week, Nabors Industries Ltd. CEO Gene Isenberg said the outlook for the North American drilling rig market isn't particularly attractive for next year either, but if there is further decline in 2008, it likely won't be as bad as the 2006-2007 period.
Nabors reported a 26% decline in profits in the third quarter, saying weakness in the markets for U.S. land and offshore rigs hurt its results. Adjusted income derived from operating activities was $287.3 million for the third quarter compared to $368.2 million in the third quarter of 2006. Net income was $218 million (76 cents/diluted share) for the third quarter compared to $292.8 million ($1.02/diluted share) in the third quarter of 2006.
"Our third quarter results reflect the persistent challenges in our North American gas-centric and U.S. offshore operations, as well as our land well-servicing markets," said Isenberg. "Our International business again was impacted by timing and unusual cost issues, which masked the early stages of the powerful upside that is emerging.
"Year-over-year quarterly results significantly improved in our international, oil and gas, Alaskan and other operating segments. Other than Alaska these units posted sequential improvements over those of the second quarter, albeit most were below our previous expectations. Canada also improved over the seasonally low second quarter. The largest sequential decline came from our U.S. Lower 48 land drilling operations, followed by our U.S. offshore and Alaskan units."
He noted that the company's oil and gas operations posted improved results with the early quarter sale of properties in the Fayetteville Shale, which resulted in a pre-tax gain of approximately $15 million. Nabors also completed a larger sale of properties in the Barnett Shale in early October, which will result in a pre-tax gain of approximately $70 million, to be reflected in the fourth quarter.
Isenberg said Nabors' Canadian operations "rebounded sharply" from the second quarter but are still at less than one half of income realized in the third quarter of 2006. "We expect further improvement in the fourth quarter with the onset of the winter activity ramp-up, leading to a full-year result that is also less than one-half the prior year," he said. "The outlook for 2008 is essentially the same with no visible reasons to expect a recovery before the 2008-2009 winter drilling season.
"We expect the fourth quarter to show a reduction in income as we enter the seasonally slowest period of the year due to the holidays and short daylight hours. The possibility of further deterioration in this largely oil-driven business has been the most significant adverse surprise, leading us to significantly reduce our 2008 expectations to essentially flat."
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