Nabors Industries Ltd. 2021 Form 10-K Summary
Business context and reporting period
Nabors is a Bermuda-based global drilling contractor providing land and offshore drilling, directional drilling, measurement-while-drilling, tubular running, drilling software, equipment manufacturing and related technologies. The company operates through five reportable segments: U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions and Rig Technologies. The filing covers the fiscal year ended December 31, 2021, with comparisons primarily to 2020 and 2019.
- At December 31, 2021, Nabors had 301 actively marketed land rigs and 29 actively marketed offshore rigs, operating in approximately 20 countries.
- Average rigs working declined to 145.3 from 152.6 in 2020, principally because international activity fell 10%; U.S. average rigs working increased 4%.
- Saudi Aramco represented approximately 31% of consolidated operating revenue, up from 29% in 2020.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Operating revenue | $2.018 billion | $2.134 billion | Down 5% |
| Loss from continuing operations attributable to common shareholders | $(572.9) million | $(820.3) million | Loss narrowed $247.3 million |
| Diluted loss per share | $(76.58) | $(118.69) | Improved |
| Income (loss) before taxes | $(488.1) million | $(705.6) million | Improved $217.5 million |
| Net loss margin | Approximately (28.4%) | Approximately (37.7%) | Improved |
| Adjusted operating income (loss), total segments | $(80.8) million | $(171.5) million | Improved $90.7 million |
| Net cash provided by operating activities | $428.8 million | $349.8 million | Up $79.0 million |
| Capital expenditures | $234.0 million | $195.5 million | Up $38.5 million |
| Cash used in investing activities | $(117.2) million | $(165.5) million | Use narrowed |
| Cash provided by financing activities | $488.4 million | $(148.0) million | Improved substantially |
The filing does not provide a clear consolidated EBITDA value or consolidated operating margin. Adjusted operating income is a non-GAAP segment performance measure and excludes interest, taxes, impairments, debt gains or losses and other items.
- Direct costs were $1.287 billion, or approximately 63.8% of revenue. General and administrative expense increased 5% to $213.6 million, and research and engineering expense increased 5% to $35.2 million.
- Depreciation and amortization declined 18% to $693.4 million, reflecting asset impairments, limited recent capital spending and assets reaching the end of their useful lives.
- Impairments and other charges fell to $66.7 million from $410.6 million. The 2021 amount included a $58.5 million impairment related to the Canada asset sale.
- Interest expense declined 17% to $171.5 million. Gains on debt buybacks and exchanges declined to $13.4 million from $228.3 million in 2020.
Segment results
| Segment | 2021 revenue | 2021 adjusted operating income (loss) | Revenue change |
|---|---|---|---|
| U.S. Drilling | $669.7 million | $(76.5) million | Down 6% |
| Canada Drilling | $39.3 million | $2.9 million | Down 28% |
| International Drilling | $1.043 billion | $(40.1) million | Down 8% |
| Drilling Solutions | $172.5 million | $32.8 million | Up 15% |
| Rig Technologies | $149.3 million | $0.2 million | Up 13% |
Drilling Solutions showed the strongest improvement, with adjusted operating income rising from $6.2 million to $32.8 million. Rig Technologies returned to approximately breakeven. U.S. and International Drilling remained loss-making on an adjusted operating basis.
Liquidity, debt and balance sheet
- Cash and short-term investments were $991.5 million at year-end, compared with $481.7 million in 2020. Working capital increased to approximately $1.0 billion from $616.0 million.
- Total debt principal was approximately $3.3 billion; carrying value of long-term debt was $3.263 billion, compared with $2.969 billion in 2020.
- Nabors issued $700 million of 7.375% senior priority guaranteed notes due May 2027 in November 2021. Proceeds were available for general corporate purposes, including debt repayment.
- The company had $460 million outstanding under its 2018 revolving credit facility at December 31, 2021, against total capacity of $524.1 million, plus $62.7 million of letters of credit.
- On January 21, 2022, the 2018 facility was replaced by a secured revolving facility with $350 million of committed capacity and a $100 million accordion feature. The facility includes increasing interest-coverage requirements and a minimum guarantor-value covenant.
- Debt maturities disclosed at year-end included approximately $567.4 million in 2023, $287.3 million in 2024, $766.5 million in 2025 and $560.0 million in 2026. The company also disclosed $861.5 million of future interest payments, including $182.1 million due within twelve months.
- The accounts receivable facility had a maximum purchase commitment of approximately $150 million, with $73 million of receivables purchased as of year-end. The facility was extended to August 2023, subject to an earlier potential expiration tied to 2023 debt.
Material changes versus prior comparable period
- Revenue declined despite improving U.S. activity because international activity remained depressed and U.S. pricing lagged the recovery in rig utilization.
- Losses narrowed primarily because impairment charges decreased by approximately $344 million, depreciation declined by $160.3 million and interest expense declined by $34.8 million. These benefits were partly offset by a $214.9 million reduction in debt retirement gains.
- Nabors sold its Canada Drilling assets in July 2021 for approximately $94 million. The sale reduced the Canada segment’s reported revenue and contributed a $58.5 million impairment.
- Operating cash flow improved by $79.0 million, helped by $188.1 million of cash generated from working-capital changes.
- Capital expenditures increased to $234.0 million, while proceeds from asset sales and insurance claims increased to $124.3 million, primarily because of the Canada asset sale.
- The company co-sponsored Nabors Energy Transition Corporation, a SPAC that raised approximately $276 million in its November 2021 initial public offering. Nabors also acquired development-stage energy-transition technologies, expensing approximately $14.7 million and issuing approximately $12.9 million of common shares in connection with the transaction.
- Nabors distributed approximately 3.2 million warrants to shareholders in June 2021. The warrants initially carried an exercise price of approximately $166.67 per warrant and expire in June 2026, subject to possible acceleration.
Guidance, outlook, risks and unusual items
Management expected measured but steady increases in Lower-48 activity during 2022 and generally higher international activity as government restrictions eased. The filing does not provide quantified revenue, earnings or cash-flow guidance.
- The business remains highly sensitive to oil and natural gas prices, customer exploration and production budgets, dayrates and rig utilization.
- Customer concentration is significant: Saudi Aramco accounted for approximately 31% of 2021 revenue, and the three largest contract drilling customers represented approximately 44%.
- International operations expose Nabors to geopolitical instability, sanctions, currency movements, local-content requirements, state-owned customer risks and regulatory uncertainty.
- Debt and covenant compliance are central risks. Management expected to remain compliant with the 2022 Credit Agreement for the following twelve months, but cautioned that this depends on operating projections and underlying assumptions.
- The company reported non-investment-grade senior unsecured debt ratings and warned that further downgrades could raise funding costs or restrict capital-market access.
- Additional impairment charges remain possible if oil prices, dayrates, utilization or asset values deteriorate. Long-lived asset impairment testing relies on significant management estimates.
- Tax risks include approximately $46.0 million of recorded uncertain tax positions, approximately $128.6 million of contested income-tax assessments for which no accrual was recorded, and substantial NOL carryforwards whose utilization may be limited.
- Other notable exposures include a potential loss of up to approximately $12.3 million above accrued amounts in an Algerian legal matter, a backstop obligation for Nabors’ share of certain SANAD rig purchases, and $92.2 million of maximum disclosed financial guarantees.
- COVID-19, climate regulation, greenhouse-gas requirements, cybersecurity, environmental incidents, insurance adequacy and alternative-energy adoption remain material risks.
Most important facts for investors to verify
- Whether the anticipated 2022 recovery in U.S. and international rig activity translated into higher utilization, dayrates and sustainable positive adjusted operating income.
- The company’s ability to refinance or repay 2023–2026 maturities while satisfying the 2022 Credit Agreement’s escalating interest-coverage covenant.
- The degree to which revenue and cash flow remain dependent on Saudi Aramco and other concentrated customers.
- Whether further asset impairments, restructuring costs or losses on idle and sold rigs are required.
- The cash-flow quality after working-capital movements, capital expenditures, debt service and obligations associated with the A/R facility, SANAD and guarantees.
- The outcome of contested tax assessments and the practical realizability of the company’s NOL and other tax attributes.
- The terms and eventual business combination outcome of Nabors Energy Transition Corporation, including potential dilution from warrants and other equity-linked instruments.