Driller Nabors Industries Ltd. said last week it expects its results for the third quarter to be lower than current analyst consensus estimates due to operational and other factors.

“The operational component of our reduced third quarter outlook primarily is attributable to lower than expected rig activity across most of our North American rig operations and various factors in our international business unit,” said Nabors CEO Gene Isenberg. “We also expect a net negative impact from several cash and noncash items in our other income and investment income categories.”

The company currently estimates that third quarter earnings will be 73-76 cents/diluted share, inclusive of gains noted in the second quarter arising from the sale of certain oil and gas properties and its Sea Mar entity.

“Our outlook for the near term has been dampened by the increased potential for persistent weak market conditions throughout 2008 in our North American natural gas directed and U.S. land well servicing businesses,” he said. “We do anticipate that the fourth quarter’s results will be in line with consensus estimates, as our oil and gas segment will post significantly higher operating income, on the order of $75-80 million…”

The U.S. land drilling unit is running slightly below expectations, he said, with a further increase in idle rigs to 84 at the end of the quarter and a larger than indicated reduction in average rates.

Nabors’ experience is reflected in the industry snapshot provided by the Backer Hughes Rotary Rig Count. For the week ending Oct. 5, the North American count stood at 2,087, down 20 rigs from the week-ago period and 86 rigs from a year ago. Looking back a year, land drilling rigs are up by 64, but offshore rigs are down 40 with Gulf of Mexico rigs down 37. However, Canada has seen the largest decline from a year ago, a drop of 117 rigs.

“We anticipate the largest variances in operating results to be in our U.S. offshore, U.S. well servicing, and international units followed by our U.S. Lower 48 land drilling entity,” Isenberg said. “In the U.S. offshore segment, operating days for both our workover jackups and smaller Sundowner workover platform rigs was less than 50% of the level experienced in the first two quarters of 2007, as several customers suspended plans given weaker natural gas prices and the prospects for significant hurricane interruptions during the quarter. We also experienced significant damage to one of our new barge rigs as a result of an engine room fire in July. We anticipate the rig to be back in service by the start of the first quarter of 2008. In our U.S. land well servicing operations, quarterly hours are expected to be lower than the second quarter by roughly 12,000 hours leading to a disproportionate decrease in operating income, as costs are not readily scalable to volume in this operation.”

Isenberg said international operations should post a sequential earnings increase but not as significant as previously expected due to excessive downtime on several rigs and the early cessation of work of two other rigs.

Results in the oil and gas segment will be sequentially higher with operating income benefiting from the sale of the properties noted in the second quarter. “In Canada we anticipate results to be up significantly compared to the second quarter but inhibited by fewer rigs working due to persistent market weakness and wetter than normal weather during the quarter,” Isenberg said.

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