Nabors Industries Ltd. CEO Gene Isenberg said his company’s 1Q2010 results were boosted by larger-than-expected increases in the U.S. Lower 48, as well as its Alaskan and Canadian business segments.
“Operating income in the Lower 48 was frankly a pleasant surprise,” Isenberg told financial analysts during a conference call Wednesday. “Quarter to quarter [from 4Q2009 to 1Q2010], we went from $49 million to $60 million…Today I think we have 173 rigs working, which is 14 more than we averaged in the quarter.
“While activity in the predominantly gas shales is off, leveling off and might even decline, we don’t know, we continue to see a ramp-up in coal-directed areas like the Bakken [shale] in North Dakota and Wolfberry area from the basin. The shale is way more important to us. That kind of shale, the oil shales are more important. and the oily or liquid-heavy, what had been considered the gas shales, they’re even more important.”
In its U.S. land drilling unit Nabors “started out six, eight months ago thinking we’d be lucky to do $150 million operating income in this unit, and we’ve gradually gone up even compared to six — compared to the middle of last quarter, we’re up $40 million. So we’re now frankly expecting to do $250 million in this quarter and the future will be a function of what’s an underlying trend of increasing rates on the spot market for everything including renewals of Pace rigs [a Nabors line] up to a run-off of the highly priced rigs that we did two, three years ago.”
In Canada “the outlook is still pretty bad, but we did have an improvement in the performance compared to expectations. There was an improvement quarter to quarter…We expect this quarter to be negative” because of the spring break-up, which slows drilling operations. “We expect to see sequential quarterly improvements for the rest of the year.”
Isenberg said he’s said it before and he’s saying it again: “I think the British Columbia shales are going to be a significant part of Canada down the road, and if that’s an indication of where Canada drilling is going, we go from an under 10% marketing condition in all of Canada now to a 40%, 45% position in the British Columbia shales with our drilling rates.”
The CEO said he was “obviously aware of the North American gas prices. I firmly believe that today’s prices are not reflective of costs to replace the commodity in the long term. Or even the intermediate term. I remain bullish about gas and its long-term impact on Nabors…We’re adaptable. We’re going to go to the liquids-rich gas plays…
“But obviously, our outlook is materially different. There is a two-year average price [for natural gas] of $6.50 or $6.00 or higher…”
Nabors’ total adjusted income from operations was $138.5 million in the first three months of this year, compared with $274.1 million in the year-ago period and $133 million in 4Q2009. Net income was $40.2 million (14 cents/share) in the latest period, compared with $184.4 million (65 cents) in 1Q2009.
“Our first quarter operating results were modestly ahead of both consensus estimates and our fourth quarter results, and were primarily attributable to larger-than-expected increases in our U.S. Lower 48 land drilling business and our Alaskan and Canadian segments,” said Isenberg. “These gains more than offset the much larger-than-anticipated decrease in our International operations.
“The quarter’s results would have reflected an even larger increase were it not for weather-related startup delays in our U.S. offshore segment.”
The Nabors companies own and operate about 548 land drilling and approximately 729 land workover and well-servicing rigs in North America. The offshore fleet consists of 40 platform rigs, 13 jackup units and three barge rigs in the United States and multiple international markets.
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