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Nabors 1Q2005 Net Income Sets Record at $0.80 per Diluted Share
28 April 2005
Nabors Industries Ltd. (AMEX:NBR - News) today reported its financial results for the first quarter of 2005. Adjusted income derived from operating activities(1) was $171.9 million compared to $85.1 million in the prior year comparable quarter and $113.8 million in the prior quarter ended December 31, 2004. Net income was $127.4 million or $0.80 per diluted share. This net income result compares to $71.7 million or $0.46 per diluted share in the same period of 2004 and $108.8 million or $0.68 per diluted share in the fourth quarter of 2004. Operating revenues and Earnings from unconsolidated affiliates for this quarter were $785.7 million compared to $596.8 million in the prior year comparable quarter and $684.1 million in the fourth quarter of 2004.
Commenting on these results, Gene Isenberg, Nabors' Chairman and Chief Executive Officer, said, "Our quarterly adjusted income derived from operating activities more than doubled, generating all-time records in net income and earnings per share, despite a higher effective tax rate associated with the increased North American income. Return on capital employed, one of our most important metrics, reached 15% for the quarter on the strong operating results. The biggest contributor to this performance was our U.S. Lower 48 Land Drilling business, primarily as a result of substantially higher revenues as demand for rigs continues to be strong in the face of limited supply. High activity levels and tight supply characterized nearly all of our other drilling and well servicing markets, with Alaska and the shallow U.S. Gulf of Mexico being the only notable exceptions. Our U.S. Land Well Servicing unit derived significant pricing improvement as supply/demand reached equilibrium for both our rigs and trucks. This quarter was also bolstered by an all-time record quarter in Canada, the start-up of several rigs in our International unit and improving results in our Other Operating Segments.
"Compared to the immediately preceding fourth quarter of 2004, adjusted income derived from operating activities increased by more than 75% in our U.S. Lower 48 Land Drilling operations, primarily on higher average margins. Canada achieved an increase of 50% with the seasonally high activity associated with the winter season bolstered by significantly higher average dayrates. Our U.S. Land Well Servicing operations saw a nearly 30% sequential increase as modestly higher rig hours were overshadowed by a significant increase in the average hourly rate for both rigs and trucks. We also experienced a significant increase our in international results, although the initial contribution of several long-term contracts, most notably in Saudi Arabia, was partially offset by timing delays and temporary lulls in activity in some other areas. Our U.S. Offshore unit posted modestly higher results on higher utilization of its workover jackup and platform rigs, coupled with some improvement in pricing. Our Other Operating Segments have returned to a meaningful level of profitability with higher activity in almost every component. Alaska was up sequentially with the winter exploratory season but down compared to last year.
"We expect the remainder of this year to significantly surpass our previous expectations, with higher average pricing in most of our businesses and further increases in international rig activity. In our U.S. Lower 48 Land Drilling operation we expect substantial gross margin improvements throughout the year although less than the $1,650 per rig, per day sequential increase we achieved this quarter. Recently we have seen an increase in customer interest in longer-term contract durations at higher dayrates, so as to secure the efficiencies associated with a continuous work program and quality crews and rigs.
"We expect the industry to continue to add capacity at a limited pace in response to the continuing increase in rig demand. However, it must be emphasized that compared to any time in the recent past, rig and component equipment costs are higher and lead times longer, which should minimize oversupply concerns. Nabors enjoys a relatively favorable position to accommodate this demand in terms of capital cost and time advantages due to our long-standing key relationships with suppliers and steady order flow. This also gives us the flexibility to adjust the pace of our rig remanufacturing and upgrade program to suit the market, although our current plans are to continue at a pace of only four to five rigs per quarter. Our emphasis is on like-new remanufactured rigs which incorporate the latest technologies and new innovative configurations to facilitate improved drilling efficiency and faster moves in both over-the-highway and on-pad applications. Most of these rigs are readily adaptable to fit the requirements of any of our U.S. Lower 48 Land Drilling, International or Canadian operations, and utilize Nabors' proprietary A/C PLC (Programmable Logic Control) systems. We have already deployed a large number of these rigs, with several configured for pad drilling in the Canadian tar sands and the U.S. Rocky Mountains.
"Canada is on track for a record year despite an early arrival of the spring thaw, with indications of higher than usual activity throughout the spring, summer and fall periods, weather permitting. We recently commissioned the first of our innovative A/C coiled tubing / drill pipe drilling rigs and have initiated plans to construct additional units. Internationally, we also expect a record year as the contributions of the last of the ten new Saudi Arabian contracts commence in the second quarter and temporarily idle rigs in other venues return to work. Ongoing strong demand internationally, particularly for higher horsepower rigs, coupled with previously identified prospects bodes well for sustained growth in our international results.
"The strong demand for well servicing and workover rigs is being reflected in significant price increases in our U.S. Land Well Servicing business. We expect this pricing momentum to continue for the next few quarters as increases take effect across the full fleet and the contribution from our new millennium rigs begins at the rate of two per month early in the third quarter. Our U.S. Offshore business is forecasting steady but modest improvement for the remainder of the year, as is the case for our Other Operating Segments and Oil and Gas operations. Alaska remains the only unit that expects lower results both sequentially and year-over-year, but there is emerging upside from the pending development of heavy oil deposits and some recent discoveries, followed by the prospects for opening of the Arctic National Wildlife Refuge (ANWR) in the longer-term.
"The current cycle represents the first time I have seen this many of our individual business units performing well simultaneously and exhibiting a solid upward bias. The continuing high commodity price environment is a direct indication that supply challenges persist and is enabling our customers to continue generating returns well in excess of their costs of capital, even in the face of higher costs. Additional drilling will be needed for an extended period to meet these supply challenges, and our ongoing investment in rig upgrades and renovations are a significant factor in the improved drilling efficiencies that are mitigating the impact of higher costs on our customers' economics. Nabors' established global infrastructure and the largest procurement and supply chain management systems in our industry uniquely position us to be the most competitive source of incremental rigs both internationally and in North America. While we expect strong earnings growth from our international unit and eventually other areas like ANWR, the near-term will be dominated by the almost daily favorable developments emanating from our North American land operations."
The Nabors companies own and operate almost 600 land drilling and approximately 870 land workover and well servicing rigs worldwide. Offshore, Nabors operates 43 platform rigs, 19 jack-up units, and three barge rigs in the United States and multiple international markets. Nabors markets 28 marine transportation and support vessels, primarily in the U.S. Gulf of Mexico. In addition, Nabors manufactures top drives and drilling instrumentation systems and provides comprehensive oilfield hauling, engineering, civil construction, logistics and facilities maintenance, and project management services. Nabors participates in most of the significant oil, gas and geothermal markets in the world.
The information above includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission. As a result of these factors, Nabors actual results may differ materially from those indicated or implied by such forward-looking statements.
For further information, please contact Dennis A. Smith, Director of Corporate Development of Nabors Corporate Services, Inc. at 281-775-8038. To request Investor Materials, call our corporate headquarters in St. Michael, Barbados at 246-421-9471 or via e-mail at dan.mclachlin@nabors.com. Nabors will conduct a conference call to discuss the quarter's results and the near-term outlook, tomorrow April 28, 2005, at 11:00 a.m. Eastern Daylight Time. The call can be accessed on our website at www.nabors.com, or through First Call at www.firstcallevents.com.
(1) Adjusted income derived from operating activities is computed by: subtracting direct costs, general and administrative expenses, depreciation and amortization, and depletion expense from Operating revenues and then adding Earnings from unconsolidated affiliates. Such amounts should not be used as a substitute to those amounts reported under accounting principles generally accepted in the United States of America (GAAP). However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income derived from operating activities, because it believes that this financial measure is an accurate reflection of the ongoing profitability of our company. A reconciliation of this non-GAAP measure to income before income taxes, which is a GAAP measure, is provided within the table set forth immediately following the heading "Segment Reporting."
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
-------------------------------------
March 31, December 31,
------------------------ ------------
(In thousands, except per share
amounts) 2005 2004 2004
------------ ----------- ------------
Revenues and other income:
Operating revenues $783,728 $592,981 $684,683
Earnings (losses) from
unconsolidated affiliates 2,003 3,822 (626)
Investment income 11,788 12,253 16,958
------------ ----------- ------------
Total revenues and other
income 797,519 609,056 701,015
------------ ----------- ------------
Costs and other deductions:
Direct costs 474,626 390,040 435,584
General and administrative
expenses 58,641 45,599 54,800
Depreciation and amortization 68,188 60,488 69,379
Depletion 12,353 15,610 10,465
Interest expense 10,737 15,859 10,728
Losses (gains) on sales of
long-lived assets,
impairment charges and other
expense (income), net 3,871 1,329 (1,290)
------------ ----------- ------------
Total costs and other
deductions 628,416 528,925 579,666
------------ ----------- ------------
Income before income taxes 169,103 80,131 121,349
Income tax expense 41,689 8,414 12,583
------------ ----------- ------------
Net income $127,414 $71,717 $108,766
============ =========== ============
Earnings per share (1):
Basic $.84 $.48 $.73
Diluted $.80 $.46 $.68
Weighted-average number of
common shares outstanding (1):
Basic 152,165 147,984 149,805
------------ ----------- ------------
Diluted 158,777 163,110 165,368
------------ ----------- ------------
Adjusted income derived from
operating activities (2) $171,923 $85,066 $113,829
============ =========== ============
(1) See "Computation of Earnings Per Share" included herein as a
separate schedule.
(2) Adjusted income derived from operating activities is computed by:
subtracting direct costs, general and administrative expenses,
depreciation and amortization, and depletion expense from
Operating revenues and then adding Earnings from unconsolidated
affiliates. Such amounts should not be used as a substitute to
those amounts reported under accounting principles generally
accepted in the United States of America (GAAP). However,
management evaluates the performance of our business units and the
consolidated company based on several criteria, including adjusted
income derived from operating activities, because it believes that
this financial measure is an accurate reflection of the ongoing
profitability of our company. A reconciliation of this non-GAAP
measure to income before income taxes, which is a GAAP measure, is
provided within the table set forth immediately following the
heading "Segment Reporting".
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(In thousands, except ratios) 2005 2004
------------- -------------
ASSETS
Current assets:
Cash and short-term investments $1,008,481 $900,551
Accounts receivable, net 646,598 540,103
Other current assets 137,342 140,320
------------- -------------
Total current assets 1,792,421 1,580,974
Long-term investments 545,975 510,496
Property, plant and equipment, net 3,358,068 3,275,495
Goodwill, net 331,251 327,225
Other long-term assets 160,512 168,419
------------- -------------
Total assets $6,188,227 $5,862,609
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $809,562 $804,550
Other current liabilities 431,117 394,766
------------- -------------
Total current liabilities 1,240,679 1,199,316
Long-term debt 1,196,389 1,201,686
Other long-term liabilities 532,728 532,214
------------- -------------
Total liabilities 2,969,796 2,933,216
Shareholders' equity 3,218,431 2,929,393
------------- -------------
Total liabilities and shareholders'
equity $6,188,227 $5,862,609
============= =============
Cash, short-term and long-term
investments $1,554,456 $1,411,047
Funded debt to capital ratio:
- Gross 0.38 : 1 0.41 : 1
- Net of cash and investments 0.12 : 1 0.17 : 1
Interest coverage ratio: 17.8 : 1 14.1 : 1
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
SEGMENT REPORTING
(Unaudited)
The following tables set forth certain information with respect to our
reportable segments and rig activity:
Three Months Ended
-------------------------------------
March 31, December 31,
------------------------ ------------
(In thousands, except rig
activity) 2005 2004 2004
------------ ----------- ------------
Reportable segments:
Operating revenues and Earnings
from unconsolidated affiliates:
Contract Drilling: (1)
U.S. Lower 48 Land
Drilling $258,990 $153,368 $221,299
U.S. Land Well-servicing 106,113 79,479 96,992
U.S. Offshore 38,067 31,321 35,972
Alaska 24,768 29,337 17,815
Canada 173,402 138,766 136,711
International 124,030 102,987 122,499
------------ ----------- ------------
Subtotal Contract
Drilling (2) 725,370 535,258 631,288
Oil and Gas (3) 15,299 21,126 15,788
Other Operating Segments (4)
(5) 68,916 55,938 55,529
Other reconciling items (6) (23,854) (15,519) (18,548)
------------ ----------- ------------
Total $785,731 $596,803 $684,057
============ =========== ============
Adjusted income (loss) derived
from operating activities:
Contract Drilling: (1)
U.S. Lower 48 Land Drilling $73,459 $8,568 $41,813
U.S. Land Well-servicing 19,428 9,733 15,074
U.S. Offshore 7,011 4,817 6,491
Alaska 5,972 7,210 2,564
Canada 47,280 43,272 31,410
International 29,767 18,591 27,154
------------ ----------- ------------
Subtotal Contract Drilling
(2) 182,917 92,191 124,506
Oil and Gas (3) 874 4,506 4,316
Other Operating Segments (4)
(5) 3,550 (431) 298
Other reconciling items (7) (15,418) (11,200) (15,291)
------------ ----------- ------------
Total 171,923 85,066 113,829
Interest expense (10,737) (15,859) (10,728)
Investment income 11,788 12,253 16,958
Gains (losses) on sales of long-
lived assets, impairment
charges and other income
(expense), net (3,871) (1,329) 1,290
------------ ----------- ------------
Income before income taxes $169,103 $80,131 $121,349
============ =========== ============
Rig activity:
Rig years: (8)
U.S. Lower 48 Land Drilling 222.4 175.2 217.2
U.S. Offshore 15.6 13.8 14.0
Alaska 6.7 7.8 6.7
Canada 66.2 63.2 54.4
International (9) 75.2 65.0 73.3
------------ ----------- ------------
Total rig years 386.1 325.0 365.6
============ =========== ============
Rig hours: (10)
U.S. Land Well-servicing 296,611 275,148 286,104
Canada Well-servicing 114,336 117,596 105,025
------------ ----------- ------------
Total rig hours 410,947 392,744 391,129
============ =========== ============
(1) These segments include our drilling, workover and well-servicing
operations, on land and offshore.
(2) Includes Earnings from unconsolidated affiliates, accounted for by
the equity method, of $0.7 million, $1.2 million and ($.37)
million for the three months ended March 31, 2005 and 2004 and
December 31, 2004, respectively.
(3) Represents our oil and gas exploration, development and production
operations.
(4) Includes our marine transportation and supply services, drilling
technology and top drive manufacturing, directional drilling, rig
instrumentation and software, and construction and logistics
operations.
(5) Includes Earnings (losses) from unconsolidated affiliates,
accounted for by the equity method, of $1.3 million, $2.6 million
and ($.26) million for the three months ended March 31, 2005 and
2004 and December 31, 2004, respectively.
(6) Represents the elimination of inter-segment transactions.
(7) Represents the elimination of inter-segment transactions and
unallocated corporate expenses.
(8) Excludes well-servicing rigs, which are measured in rig hours.
Includes our equivalent percentage ownership of rigs owned by
unconsolidated affiliates. Rig years represents a measure of the
number of equivalent rigs operating during a given period. For
example, one rig operating 182.5 days during a 365-day period
represents 0.5 rig years.
(9) International rig years include our equivalent percentage
ownership of rigs owned by unconsolidated affiliates which totaled
3.7, 4.0 and 4.0 years during the three month periods ended March
31, 2005 and 2004, and December 31, 2004, respectively.
(10)Rig hours represents the number of hours that our well-servicing
rig fleet operated during the period.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:
Three Months Ended
-------------------------------------
March 31, December 31,
------------------------ ------------
(In thousands, except per share
amounts) 2005 2004 2004
------------ -------- ------------
Net income (numerator):
Net income - basic $127,414 $71,717 $108,766
Add interest expense on
assumed conversion of our
zero coupon
convertible/exchangeable
senior debentures/notes, net
of tax:
$1.381 billion due 2021
(1) - 3,081 3,139
$700 million due 2023
(2) - - -
------------ -------- ------------
Adjusted net income - diluted $127,414 $74,798 $111,905
------------ -------- ------------
Earnings per share:
Basic $.84 $.48 $.73
Diluted $.80 $.46 $.68
Shares (denominator):
Weighted average number of
shares outstanding - basic
(3) 152,165 147,984 149,805
Net effect of dilutive stock
options and warrants based
on the treasury stock method 6,612 6,635 7,072
Assumed conversion of our
zero coupon
convertible/exchangeable
senior debentures/notes:
$1.381 billion due 2021
(1) - 8,491 8,491
$700 million due 2023
(2) - - -
------------ -------- ------------
Weighted average number of
shares outstanding - diluted 158,777 163,110 165,368
------------ -------- ------------
(1) Diluted earnings per share for the three months ended March 31,
2004 and December 31, 2004 reflects the assumed conversion of our
$1.381 billion zero coupon convertible senior debentures due 2021,
as the conversion in those periods would have been dilutive.
Diluted earnings per share for the three months ended March 31,
2005 excludes approximately 8.5 million potentially dilutive
shares initially issuable upon the conversion of these debentures.
Such shares did not impact our calculation of diluted earnings per
share for that period as we are required to pay cash up to the
principal amount of any debentures converted resulting from the
issuance of a supplemental indenture relating to the debentures in
October 2004. We would only issue an incremental number of shares
upon conversion of these debentures, and such shares would only be
included in the calculation of the weighted-average number of
shares outstanding in our diluted earnings per share calculation,
if the price of our shares exceeded approximately $95.
(2) Diluted earnings per share for the three months ended March 31,
2005 and 2004 and December 31, 2004 excludes approximately 10.0
million potentially dilutive shares initially issuable upon the
exchange of our $700 million zero coupon senior exchangeable notes
due 2023. Such shares did not impact our calculation of diluted
earnings per share for these periods as we are required to pay
cash up to the principal amount of any notes exchanged. We would
only issue an incremental number of shares upon exchange of these
notes, and such shares would only be included in the calculation
of the weighted-average number of shares outstanding in our
diluted earnings per share calculation, if the price of our shares
exceeded $70.10.
(3) Includes the following weighted-average number of common shares of
Nabors and weighted-average number of exchangeable shares of
Nabors Exchangeco, respectively: 152.0 million and .2 million
shares for the three months ended March 31, 2005; 147.6 million
and .4 million shares for the three months ended March 31, 2004;
and 149.6 million and .2 million shares for the three months ended
December 31, 2004. The exchangeable shares of Nabors Exchangeco
are exchangeable for Nabors common shares on a one- for-one basis,
and have essentially identical rights as Nabors Industries Ltd.
common shares, including but not limited to voting rights and the
right to receive dividends, if any.
--------------------------------------------------------------------------------
Contact:
Nabors Corporate Services, Inc.
Dennis A. Smith, 281-775-8038
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Source: Nabors Industries Ltd.
Source: Business Wire
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