Business Context and Reporting Period
Company: Nabors Industries Ltd.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: Nabors is the world's largest land drilling contractor and a major provider of land well-servicing, workover, and offshore platform services. The company operates globally with a fleet of approximately 550 land drilling rigs, over 700 land well-servicing/workover rigs, and various offshore units. It also engages in oil and gas exploration and production through wholly-owned subsidiaries and joint ventures.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Operating Revenues | $4,174.6 million | $3,683.4 million |
| Total Revenues & Other Income | $4,215.5 million | $3,553.6 million |
| Net Income (Attributable to Nabors) | $94.7 million | $(85.5) million |
| Diluted EPS | $0.33 | $(0.30) |
| Adjusted Income from Operating Activities | $655.4 million | $421.9 million |
| Capital Expenditures & Acquisitions | $1,878.1 million | $990.3 million |
| Long-Term Debt (Total) | $4.4 billion | $4.1 billion |
| Cash & Investments | $841.5 million | $1,191.7 million |
| Working Capital | $458.6 million | $1,568.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 19% to $4.2 billion, driven by higher drilling activity in the U.S. Lower 48 and Canada, and the inclusion of the Superior Well Services acquisition.
- Profitability Turnaround: The company returned to profitability with $94.7 million in net income, reversing a net loss of $85.5 million in 2009. Adjusted income from operating activities rose 55%.
- Acquisitions: Completed the acquisition of Superior Well Services, Inc. in September 2010 for approximately $681.3 million, adding significant pressure pumping and hydraulic fracturing capabilities. Also acquired Energy Contractors LLC in December 2010 for $53.4 million.
- Impairments: Recorded total impairments and other charges of $260.9 million, a decrease from $331.0 million in 2009. This included $192.2 million related to oil and gas assets and $10.7 million in goodwill impairments (primarily U.S. Offshore).
- Discontinued Operations: Reclassified oil and gas assets in Canada (Horn River basin) and Colombia (Llanos basin) as discontinued operations, resulting in a net loss of $11.3 million for the period.
Guidance, Outlook, and Risks
- Outlook: Management expects operating results for 2011 to increase from 2010 levels, supported by incremental revenue from the Superior acquisition and the deployment of newer, higher-margin rigs. However, the outlook is tempered by expectations of lower commodity prices and regulatory uncertainty in the U.S. Offshore sector.
- U.S. Offshore Challenges: Operations in the Gulf of Mexico remain constrained by the suspension of drilling activities and delays in obtaining government permits following the mid-2010 oil spill. Customers have suspended operations, leading to lower utilization and standby rates.
- Alaska Operations: Continued negative impact due to spending constraints by key customers, resulting in a surplus of rigs and price competition.
- Liquidity & Debt: The company faces a significant debt maturity of approximately $1.4 billion in 0.94% senior exchangeable notes due in May 2011. Management plans to meet this obligation through cash on hand, operating cash flows, asset dispositions, and credit facility availability ($750 million available as of Jan 2011).
- Key Risks: Fluctuations in oil and natural gas prices, global economic conditions, regulatory changes (specifically regarding hydraulic fracturing and offshore drilling), and the potential for further asset impairments if commodity prices decline.
Investor Verification Checklist
- Debt Maturity: Verify the company's specific plan and funding sources for the $1.4 billion exchangeable note maturity in May 2011.
- Superior Integration: Monitor the integration progress and synergy realization of the Superior Well Services acquisition in the Pressure Pumping segment.
- Offshore Permitting: Track the status of U.S. Gulf of Mexico drilling permits and the resumption of customer operations to assess the recovery of the U.S. Offshore segment.
- Commodity Prices: Assess the sensitivity of the Oil and Gas segment and drilling activity to sustained changes in natural gas and crude oil prices.
- Discontinued Operations: Review the timeline and terms for the sale of the Canadian and Colombian oil and gas assets classified as held for sale.