Nabors Announces Fourth Quarter 2019 Results

HAMILTON, Bermuda, Feb. 20, 2020 /PRNewswire/ --

• Reduced total debt during the fourth quarter by $184 million to $3.3 billion and reduced net debt by $218 million to $2.9 billion
• Amended 2018 Credit Agreement in December 2019 to provide additional covenant flexibility
• Issued $1 billion of six- and eight-year notes in January 2020. Successfully tendered for approximately $950 million of existing '21 and '23 notes
• Generated cash provided by operating activities of $254 million in the fourth quarter, which translates into free cash flow of $232 million  
• Averaged 98 rigs working in Lower 48 during the quarter, at average daily gross margin of $10,218

Nabors Industries Ltd. ("Nabors" or the "Company") (NYSE: NBR) today reported fourth quarter 2019 operating revenues of $714 million, compared to operating revenues of $758 million in the third quarter.  Net loss from continuing operations attributable to Nabors common shareholders for the quarter was $267 million, or $0.77 per share, compared to a loss of $123 million, or $0.37 per share, in the prior quarter. The fourth quarter's net loss included the impact of the Company's periodic review for potential asset impairments. In addition, the Company wrote down certain assets in geographic locations which have been shut down or where political risk has increased. After-tax charges totaled $186 million, or $0.53 per share, primarily related to these impairments of fixed assets, goodwill and intangibles, as well as other asset write-downs.  The third quarter's results included after-tax charges of $23.3 million, or $0.06 per share, related to a foreign tax settlement and currency losses.

For the fourth quarter, adjusted EBITDA was $203 million as compared to $207 million in the prior quarter. A 9.6% decline in the U.S. land rig count and a soft market for rig components were partially offset by improved drilling activity outside the U.S. and better results for Nabors Drilling Solutions.  

Anthony G. Petrello, Nabors Chairman, CEO and President, commented, "I am pleased with our fourth-quarter results, particularly considering the decrease in industry activity in the U.S.  The strength of our financial results during the quarter allowed us to reduce net debt by $218 million, to $2.88 billion.  We also completed a series of transactions during and after the quarter that enhance our financial flexibility.

"Our operating performance further confirms that we are pursuing the correct strategic initiatives. We remain dedicated to providing our customers with a market-leading value proposition, combining the highest quality global rig fleet, crews and drilling technologies.   

"In the U.S. Lower 48, E&P operators continued to rationalize their activity levels through the fourth quarter. Although our rig count has fallen, our daily rig margins were essentially unchanged versus the third quarter. We remain disciplined in our pricing, and our excellent operating performance has reinforced our rate structure. The demand for high-specification rigs in the major oil basins in the Lower 48 remained resilient through the end of the year. For the full year, the Company's average Lower 48 rig count increased by 1%, in stark contrast to the industry's decline of 9%.

"Our Drilling Solutions segment continued its sequential growth trajectory in the fourth quarter. For the full year, a 1% increase in revenues yielded a 34% increase in adjusted EBITDA as a result of increasing adoption of our automation and integration technologies, which have allowed us to offset the softer market in the U.S., while increasing our margins.  We have a broad portfolio of advanced products and services, which enhance drilling performance and ultimately generate value for our customers, as well as Nabors. Our newest Navigator^TM automated directional guidance platform has drilled more than 1000 wells, including 370 wells drilled with our ROCKit^® Pilot steering control system. Today 80 percent of our directional jobs running these technologies are de-manned or manless at the rig.  Our drilling automation offerings provide: consistency of drilling outcomes at the highest level; lower-cost remote operations; and fewer employees in harm's way. These solutions continue to gain traction with our customers."

Consolidated and Segment Results

The U.S. Drilling segment reported $113 million in adjusted EBITDA for the fourth quarter of 2019, a $7.8 million reduction from the prior quarter.  A decline in the Lower 48 was somewhat offset by a modest improvement in the U.S. Offshore. During the quarter, the Lower 48 rig count decreased by 10 rigs while average margins per rig day were stable at $10,218.  The Company expects competitive pressures to reduce daily margins to approximately $10,000 in the first quarter of 2020.  This segment's rig count currently stands at 98, with 90 rigs working in the Lower 48.  Based on the Company's current outlook, the first quarter Lower 48 rig count should range between 90 and 92, and begin to increase in the second quarter.    

International Drilling adjusted EBITDA increased sequentially by 1%, to $96 million. The quarterly average rig count declined by one to 87, while the average margin per day improved by more than $400 to $14,144.  This increase was a result of additional progress from previously-implemented initiatives to improve operating costs, as well as favorable operating performance.  The segment's cash flow generation improved materially quarter over quarter. The international working rig count currently stands at 88. The Company expects first quarter adjusted EBITDA to decline slightly, due mainly to certification-related rig downtime.

Canada Drilling adjusted EBITDA increased significantly to $5.3 million, as that market ramps toward its usual seasonal peak.  Both average daily gross margin and the average working rig count jumped during the quarter.  For the first quarter of 2020, the Company expects an improvement in daily margin and a further increase in rig count.

In Drilling Solutions, adjusted EBITDA of $24.8 million was $1.3 million higher than the third quarter, despite the decrease in the industry rig count in the Lower 48.  These results capped three consecutive increases in quarterly segment adjusted EBITDA, in the face of declining U.S. rig count over the same periods. In the fourth quarter, profitability was buoyed by an increase in higher-margin integrated tubular running services (TRS) work.  In the Lower 48, integrated TRS jobs comprised 51% of fourth-quarter jobs, up from less than 3% in the first quarter this year.

In the Rig Technologies segment, fourth-quarter adjusted EBITDA was a loss of $1.6 million, a decrease of $3.7 million from the third quarter. That decline was mainly due to lower sales of parts, and a decrease in repair activity. 

Capital Expenditures and Liquidity

Free cash flow, defined as cash provided by operating activities less cash used for investing activities, reached $232 million, as compared to $82 million in the prior quarter. The fourth quarter results included significant reductions in working capital and capital expenditures, while the third quarter results included approximately $70 million in semiannual cash interest payments.

William Restrepo, Nabors Chief Financial Officer, stated, "As the land drilling market in the U.S. gas basins weakened and many of our more U.S.-focused peers experienced significant drops in both EBITDA and free cash flow, Nabors delivered our strongest quarter of the year, with stable adjusted EBITDA and sharply increased free cash flow."

"Capital expenditures were $61 million in the fourth quarter, $26 million less than the preceding quarter. For the full year 2019, capital expenditures totaled $424 million. For 2020 we expect capital expenditures of approximately $350 million to $370 million.  With this expected reduction as well as initiatives for working capital and other items, we are targeting free cash flow of at least $300 million in 2020.

"In December, we amended our 2018 Credit Agreement. Notably, the amendment replaced the previous capitalization covenant with a more relevant covenant comparing net funded indebtedness to EBITDA, as those terms are defined in the 2018 Credit Agreement.  Following that, in January we issued $1 billion of new senior guaranteed notes, with $600 million due in 2026 and $400 million due in 2028. Those issuances were paired with a successful tender for approximately $950 million of our previously outstanding notes due in 2021 and 2023. Combined, these transactions extended the maturity of approximately $1 billion of debt by more than four years and significantly reduced nearer-term debt maturities."

Mr. Petrello concluded, "Our short-term expectations have grown more cautious in North America. The impacts of the coronavirus outbreak on global economic activity in general, and oil demand specifically, are uncertain. That has resulted in downward pressure on commodity prices, which adds additional friction to what was already a slow ramp in activity in the New Year. For our International operations, the view is more positive. Activity in those markets is less responsive to short-term declines in oil prices. Demand for high specification rigs remains strong, which should continue to support an increasing rig count and higher pricing, particularly as the availability of rigs tightens.

"We remain more confident across all of our segments over the longer-term.  Signals in the market suggest the current oil supply/demand situation will tighten. Notwithstanding the potential for near-term volatility, over time we expect improving consolidated results. 

"Our focus on improving free cash flow, generating returns on capital, and reducing debt are unwavering. Our fourth-quarter results demonstrate that we can reach these goals."

About Nabors

Nabors, (NYSE: NBR) owns and operates one of the world's largest land-based drilling rig fleets and provides offshore platform rigs in the United States and several international markets. Nabors also provides directional drilling services, tubular services, performance software, and innovative technologies for its own rig fleet and those of third parties. Leveraging our advanced drilling automation capabilities, Nabors highly skilled workforce continues to set new standards for operational excellence and transform our industry.

Forward-looking Statements

The information included in this press release 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 a number of 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.  The forward-looking statements contained in this press release reflect management's estimates and beliefs as of the date of this press release.  Nabors does not undertake to update these forward-looking statements. 

Non-GAAP Disclaimer

This press release presents certain "non-GAAP" financial measures.  The components of these non-GAAP measures are computed by using amounts that are determined in accordance with accounting principles generally accepted in the United States of America ("GAAP").  Adjusted operating income (loss) represents income (loss) from continuing operations before income taxes, interest expense, earnings (losses) from unconsolidated affiliates, investment income (loss), impairments and other charges and other, net. Adjusted EBITDA is computed similarly, but also excludes depreciation and amortization expenses. In addition, adjusted EBITDA and adjusted operating income (loss) exclude certain cash expenses that the Company is obligated to make. Net debt is calculated as total debt minus the sum of cash, cash equivalents and short-term investments.  Free cash flow represents net cash provided by operating activities less cash used for investing activities. Free cash flow is an indicator of our ability to generate cash flow after required spending to maintain or expand our asset base. Management believes that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies. Each of these non-GAAP measures has limitations and therefore should not be used in isolation or as a substitute for the amounts reported in accordance with GAAP. However, management evaluates the performance of its operating segments and the consolidated Company based on several criteria, including adjusted EBITDA, adjusted operating income (loss), net debt, and free cash flow, because it believes that these financial measures accurately reflect the Company's ongoing profitability and performance.  Securities analysts and investors also use these measures as some of the metrics on which they analyze the Company's performance. Other companies in this industry may compute these measures differently.  Reconciliations of consolidated adjusted EBITDA and adjusted operating income (loss) to income (loss) from continuing operations before income taxes, net debt to total debt, and free cash flow to cash flow provided by operations, which are their nearest comparable GAAP financial measures, are included in the tables at the end of this press release. 

Media Contact:  Dennis A. Smith, Senior Vice President of Corporate Development & Investor Relations, +1 281-775-8038 or William C. Conroy, Senior Director of Corporate Development & Investor Relations, +1 281-775-2423.   To request investor materials, contact Nabors' corporate headquarters in Hamilton, Bermuda at +441-292-1510 or via e-mail mark.andrews@nabors.com

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SOURCE Nabors Industries Ltd.