Wednesday November 30, 2011
by Elliott Gue, editor The Energy Strategist
Nabors Industries (NBR), a holding in our Gushers Portfolio, is the world’s leading land drilling contractor and one of the largest land well-servicing and work-over contractors in the US and Canada.
In the third quarter, the company generated operating revenue of $1.63 billion, up 50 percent from year-ago levels and 19 percent sequentially.
Whereas demand for older rigs was practically nonexistent, frenzied drilling in liquids-rich US shale plays continues to support robust demand for newly built units.
During a conference call to discuss third-quarter results, CEO Eugene Isenberg noted that 216 of the company’s rigs working at the end of October 2011 and that the firm is “continually getting requests for built-for-purpose rigs.”
At the end of the second quarter, about 70 percent of Nabors Industries’ land rigs in the Lower 48 were tier-one or tier-two rigs.
This momentum should continue into next year. With the contracts on about 95 of Nabors Industries’ land rigs slated to expire in 2012, the company has ample opportunity to book new deals that offer superior terms to the day-rates that prevailed even a few years ago.
At the same time, management learned its lesson from the Great Recession and has dramatically increased the percentage of the firm’s revenue that’s covered by term contracts.
As Isenberg acknowledged, “We’re trying to make hay while the sun shines and do what we can to convert into multi-year contracts.”
Better still, about 75 percent of the firm’s current income in the US and Canada comes from oil and liquids--commodities that still command elevated prices.
Nabors Industries’ international division posted a sequential decline in operating income, largely because of project delays in the Middle East and weak demand for its shallow-water assets.
Nevertheless, management stuck by its previous forecast that the company will have 30 rigs working in Saudi Arabia by the second quarter of 2012.
We remain bullish on Nabors Industries’ near-term growth prospects and rate the stock a buy.
Learn more about this financial newsletter at Elliott Gue, editor The Energy Strategist.