Nabors Industries Ltd. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2022, compared with the same period in 2021. Nabors provides land-based and offshore drilling and related technologies in more than 15 countries. At quarter-end, the company had 301 actively marketed land rigs and 29 actively marketed offshore rigs.
Financial performance and liquidity
- Operating revenue: $568.5 million, up 23% from $460.5 million.
- Pre-tax loss from continuing operations: $161.0 million, compared with $118.6 million; pre-tax margin was approximately negative 28.3% versus negative 25.7%.
- Net loss attributable to Nabors common shareholders: $184.5 million, or $22.51 diluted loss per share, compared with a $140.7 million loss, or $20.16 per share.
- Net loss margin: approximately negative 32.5%, compared with negative 30.6% in the prior-year quarter.
- Operating cash flow: $41.4 million, down from $79.5 million, primarily because higher activity increased working-capital requirements.
- Capital expenditures: $84.3 million, more than double $40.9 million in the prior-year period.
- Cash used in financing: $555.3 million, including $460.0 million of net revolving-facility repayments and $86.1 million of long-term debt repayments.
- Cash and short-term investments: $394.0 million at March 31, 2022, compared with $991.5 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $676.2 million.
- Working capital: $430.6 million, compared with approximately $1.0 billion at year-end 2021.
- Debt: $2.61 billion of long-term debt, down from $3.26 billion. The company had no borrowings under its new $350 million secured revolving credit facility, which has a potential $100 million accordion feature.
- Credit availability: $543.5 million remained available under letter-of-credit facilities; $62.6 million of letters of credit were outstanding under the 2022 Credit Agreement.
Material changes versus the prior comparable period
- Revenue increased across U.S. Drilling, International Drilling, Drilling Solutions and Rig Technologies. Canada Drilling revenue fell to zero following the sale of its assets in July 2021.
- U.S. Drilling revenue rose 53% to $217.6 million, with average rigs working up 49% to 90.3.
- International Drilling revenue rose 13% to $279.0 million, with average rigs working up 11% to 72.0.
- Drilling Solutions revenue increased 52% to $54.2 million, and adjusted operating income increased to $14.7 million from $4.7 million.
- Total segment adjusted operating loss improved to $0.2 million from $35.9 million, despite the consolidated net loss worsening.
- The principal offset to operating improvement was a $73.2 million mark-to-market loss on common stock warrants, compared with no such loss in the prior-year quarter. Other, net increased to an $80.4 million loss from a $7.3 million loss.
- Interest expense increased 9% to $46.9 million, mainly because of the $700 million issuance of 7.375% senior priority guaranteed notes in November 2021.
- Depreciation and amortization decreased 7% to $164.4 million, reflecting assets reaching the end of their useful lives and the sale of Canada Drilling assets.
- The 2018 revolving credit facility was repaid and terminated on January 21, 2022, and replaced by the 2022 Credit Agreement.
Guidance, outlook, commentary and risks
- Management expects measured but steady increases in Lower-48 activity and generally higher international activity through the remainder of 2022, as markets recover from pandemic-related weakness.
- Higher oil and gas prices may support oilfield activity, but the company stated that the ultimate effects of the Russia-Ukraine war, sanctions and supply-chain changes remain uncertain.
- Management expects existing liquidity, operating cash flow, financing proceeds and credit facilities to fund expected requirements for at least the next 12 months, but this depends on current projections and assumptions.
- The company expects to remain compliant with the 2022 Credit Agreement covenants over the following 12 months; failure to comply could terminate commitments or accelerate outstanding borrowings.
- Purchase commitments totaled approximately $251.8 million at March 31, 2022. Financial standby letters of credit and other surety instruments had a maximum amount of $92.7 million.
- Approximately $136.0 million of receivables had been sold to and remained uncollected by third-party purchasers under the accounts-receivable facility, which has a commitment of approximately $150 million and may expire earlier than scheduled if specified 2023 notes remain outstanding.
- Russia represented 1.4% of first-quarter operating revenue and 1.3% of net property, plant and equipment. Sanctions, export controls, potential operational suspension and possible nationalization of Russian assets present material uncertainties.
- Other key risks include oil and gas price volatility, customer capital-spending decisions, contract renewals, customer concentration, operating hazards, high leverage, refinancing and credit-rating risk, tax disputes, litigation and foreign-exchange exposure.
- An Algerian legal matter remains pending, with potential exposure of up to $11.8 million above accrued amounts. Management does not expect pending litigation overall to materially affect consolidated financial position or cash flows, although a particular period could be materially affected.
- Management reported effective disclosure controls and procedures and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue and rig activity growth translates into sustainable positive operating cash flow and improved consolidated profitability.
- The effect of warrant fair-value changes on reported earnings and the potential dilution from approximately 2.5 million warrants outstanding at March 31, 2022.
- Liquidity relative to near-term maturities, including 2023 notes, the accounts-receivable facility’s potential earlier expiration and required credit-agreement covenant compliance.
- Capital-expenditure levels and whether cash generation can support planned spending, debt service and purchase commitments.
- The continuing impact of Russia-related sanctions and any operational, asset-impairment or compliance consequences.
- The status and potential exposure of the Algerian litigation and other contingencies.