Despite declines in the U.S. rig count, Nabors’ daily rig margins exceeded expectations as the oilfield service (OFS) company continued to focus on automation and performance with its high-spec rigs.

Nabors, like its OFS peers, is banking on increased international growth, particularly in the Middle East. Nabors expects its pipeline of scheduled international deployments to drive a 20% increase in rig count from the end of 2023 through the end of 2025.

But Nabors showed second quarter resiliency in the Lower 48, which CEO Tony Petrello attributed to a focus on rig automation and performance.

 “In the U.S., our Lower 48 results were supported by continued high utilization of high-spec rigs and strong pricing,” Petrello said in the company’s July 23 earnings release. “In the second half of the year, we see opportunities to add rigs and offset some of the attrition in the natural gas markets and expect our rig count to increase moderately for the balance of the year.”

Evercore ISI analyst Jason Bandel said Nabors’ expectations for rig counts to “very modestly increase in the second half” was a surprise, given the company’s growing customer base of public operators.

Nabors’ exposure to public operators has increased to approximately 75% of its active rig count compared to 60% in 2023, Bandel said.

 “The Lower 48 market continues to experience high levels of rig churn as it remains impacted by customer consolidation, capital discipline, and caution about plans for gas directed activity,” Bandel wrote in a July 24 commentary. “Leading edge pricing for high performance rigs have shown resiliency. NBR [Nabors] noted that leading edge pricing has remained in the low to mid-$30k/day range for almost a year. Lower 48 daily margins will continue to decline given the impact from rig churn in the near term.” 

Nabors' second quarter Lower 48 average rig count totaled 69 compared to 72 in the first quarter. Daily adjusted gross margin averaged $15,600, down 2% from the first quarter.

Nabors’ third quarter outlook calls for an average rig count of approximately 70 rigs and daily adjusted gross margin of $15,100 to $15,200.

In the Lower 48 market, stable pricing for high-performance rigs supported near-record daily rig margins, according to the company.

The company highlighted its drilling successes, including a major operator in the Delaware Basin that used Nabors’ PACE-X rig to drill its fastest 4-mile lateral, while another operator in the Eagle Ford, used Nabors’ PACE-M1000 rig to drill a single-run, 4-mile lateral in 14 days, the company said.

A Bakken operator committed to Nabors’ full automation suite across all of its rigs, including SmartDRILL and SmartSLIDE. With the installations, Nabors Drilling Solutions (NDS) will reach record penetration of its automated directional drilling solution on Nabors rigs, the company said.

In the second quarter, Nabors’ U.S. drilling segment and its international business were neck and neck in generating EBITDA. U.S. drilling contributed adjusted EBITDA of $114 million, down from $120.4 million in the first quarter.

Internationally, drilling adjusted EBITDA totaled $106.4 million, compared to $102.5 million in the first quarter.

That divide is likely to grow wider as the company expands overseas. International rig counts increased to 84 from 81 in the previous quarter, driven by rig additions in Algeria and Saudi Arabia. Daily adjusted gross margin for the second quarter averaged $16,050, essentially in line with the prior quarter.

 “The strength of the international expansion is evident when looking at the considerable number of incremental rig awards and deployments,” Petrello said during a July 24 earnings call. “Nabors has been successful capitalizing on this environment. We’ve seen this in our own international rig count and our roster of pending deployments.”

The growing international rig counts, combined with the already in-hand rig awards in the Middle East and Latin America, set a “well-defined trajectory” for international expansion, the company said in its July 23 earnings release.

After being shortlisted in the Middle East in the first quarter, Nabors was awarded multiyear contracts for three high-specification rigs by the Kuwait Oil Co. Also in the Middle East, Nabors’ SANAD newbuilds (in a joint venture with Saudi Aramco) are progressing, with plans for more deployments through 2026, the company said.

Nabors’ total adjusted EBITDA for the second quarter reached $218 million, with its global average rig count holding steady and international rig count seeing a slight increase.

Nabors’ technology and innovation efforts, particularly through its NDS business, have been successful internationally, driving revenue growth through solutions like casing running and managed pressure drilling.

The average daily margin from its Drilling and Drilling Solutions businesses combined was $19,100 during the quarter. Of that, NDS contributed $3,500 per day, marking a slight increase in performance over the first quarter.

The company’s energy transition initiatives, notably the PowerTAP module connecting rigs to the grid, have contributed positively to their Rig Technology segment, reducing emissions and operational costs.

Regarding market outlook, Nabors executives were optimistic about international opportunities, with visibility on additional near-term rig awards across Asia, the Middle East and North Africa region and Latin America. Nabors said it is emphasizing strategic selectivity in expanding the company’s work portfolio amidst increasing tender activity and firming pricing.

“The growing adoption of our rig innovations by our client base across the globe gives us confidence that we are on the right track,” Petrello said. “We expect the strength of the international markets to continue driving our growth over the coming years.”

Nabors Industries reported second-quarter 2024 operating revenues of $735 million, compared to $734 million in the first quarter. The second quarter results were better than the company expected. Adjusted free cash flow was $57 million in the second quarter.

Second quarter capex totaled $138 million, which included $56 million supporting the newbuilds in Saudi Arabia. Nabors management said they expect full-year 2024 capex of $590 million, including funding for recent rig awards.

The company posted a second quarter net loss attributable to shareholders of $32 million, which is comparable to last quarter’s net loss of $34 million.

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