Nabors Industries Ltd. 2022 Form 10-K Summary
Business context and reporting period
Nabors is a Bermuda-incorporated global provider of land-based and offshore drilling, drilling-related services, drilling technologies, equipment manufacturing and energy-transition solutions. The filing covers the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020. Although the request references 2022 Q4, this source is an annual Form 10-K rather than a standalone quarterly filing.
At December 31, 2022, Nabors actively marketed 300 land-based rigs and 29 offshore platform rigs across more than 15 countries. Reportable segments were U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions and Rig Technologies. Canada Drilling assets were sold in July 2021.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Operating revenue | $2.654 billion | $2.018 billion | Up 32% |
| Income (loss) before taxes | $(245.7) million | $(488.1) million | Improved $242.4 million |
| Net loss attributable to common shareholders | $(350.3) million | $(572.9) million | Improved $222.7 million |
| Diluted loss per share | $(40.52) | $(76.58) | Improved |
| Net cash from operating activities | $501.1 million | $428.8 million | Up $72.3 million |
| Capital expenditures | $373.4 million | $234.0 million | Up $139.4 million |
| Interest expense | $177.9 million | $171.5 million | Up 4% |
| Long-term debt, net | $2.538 billion | $3.263 billion | Down $725.3 million |
Reported net loss margin was approximately negative 13.2% of operating revenue, compared with approximately negative 28.4% in 2021. Adjusted segment operating income, a non-GAAP operating measure, was $194.4 million versus a loss of $80.8 million in 2021, equivalent to approximately 7.3% of 2022 revenue.
Cash and short-term investments totaled $452.3 million at year-end, down from $991.5 million. Working capital was $404.2 million, compared with $1.0 billion in 2021. The company had no borrowings under its $350 million secured 2022 Credit Agreement and had $66.2 million of letters of credit outstanding under that facility. Total letter-of-credit facilities provided $515.5 million of remaining availability.
Segment results and changes versus the prior period
- U.S. Drilling: Revenue increased 64% to $1.101 billion; adjusted operating income improved to $108.5 million from a $76.5 million loss. Average rigs working increased 37% to 97.2, while activity and dayrates improved.
- International Drilling: Revenue increased 15% to $1.199 billion; adjusted operating loss narrowed to $0.9 million from $40.1 million. Average rigs working increased 9% to 74.2.
- Drilling Solutions: Revenue increased 41% to $243.3 million; adjusted operating income increased 138% to $77.9 million.
- Rig Technologies: Revenue increased 31% to $195.1 million; adjusted operating income increased to $8.9 million from $0.2 million.
- Canada Drilling: No 2022 revenue following the July 2021 asset sale; 2021 revenue was $39.3 million.
- Revenue growth reflected higher utilization, increased drilling activity and improved dayrates as oilfield markets recovered from the pandemic-related downturn.
- The company recorded no impairment and other charges in 2022, compared with $66.7 million in 2021, including $58.5 million associated with the Canada Drilling asset sale.
- Other, net increased to a $131.7 million loss, primarily because of approximately $95.9 million of mark-to-market losses on common stock warrants. The warrant liability was approximately $80.9 million at year-end.
- Financing cash flow was negative $661.5 million, primarily reflecting $460.0 million of net revolver repayment and $182.6 million of senior-note repayments. Debt principal declined from approximately $3.294 billion to $2.560 billion.
Outlook, commentary and unusual items
Management expected modest increases in U.S. activity during 2023 and expected international activity to remain near pre-COVID-19 levels in key markets. The outlook remains dependent on oil and natural gas prices, customer capital spending, commodity-market volatility and the effects of the Russia-Ukraine conflict.
Inflation, labor, energy and supply-chain costs increased in 2022, and management expected inflationary pressures to continue affecting margins in 2023. The company also noted that its floating-rate credit facility would expose it to higher interest costs if borrowings increased.
Future cash sources were expected to include cash on hand, operating cash flow, asset monetization, equity or debt issuance and credit facilities. Management stated that projected liquidity was expected to fund scheduled debt service, capital expenditures and other requirements, including repayment of approximately $52.1 million of 5.10% senior notes due September 2023, but cautioned that projections could be affected by depressed commodity prices, inflation, interest rates and geopolitical events.
Debt maturities included approximately $52.1 million in 2023, $177.0 million in 2024, $683.5 million in 2025, $557.9 million in 2026, $700.0 million in 2027 and $389.6 million thereafter. Expected aggregate future interest payments were $616.0 million, including $156.0 million due within 12 months.
Other notable items included the consolidated SPAC, Nabors Energy Transition Corporation, with $284.8 million of restricted cash held in trust and a corresponding redeemable noncontrolling interest. The company also reported approximately $727.1 million of U.S. federal net operating loss carryforwards, subject to potential Section 382 limitations and future taxable income.
Principal risks and contingencies
- Revenue and cash flow are highly sensitive to oil and natural gas prices, customer capital spending, utilization and dayrates.
- Saudi Aramco represented approximately 26% of 2022 consolidated revenue; the three largest contract-drilling customers represented approximately 36%.
- Customers may renegotiate, suspend or terminate contracts, sometimes without sufficient early termination compensation.
- Long-term debt, covenant requirements, non-investment-grade ratings and substantial refinancing needs could constrain financial flexibility.
- Inflation, higher interest rates, supply-chain constraints and labor availability may pressure operating margins and capital costs.
- International operations expose the company to geopolitical instability, sanctions, currency risk, local-content requirements and regulatory or anti-corruption compliance risks.
- Climate regulation, energy transition, changing investor preferences and reduced financing availability for fossil-fuel-related businesses could affect demand and cost of capital.
- Drilling operations carry risks of accidents, environmental damage, equipment loss, weather events, inadequate insurance and uninsured liabilities.
- The company disclosed approximately $216.9 million of tax audit claims that it is contesting and had $62.5 million of liabilities for uncertain tax positions at year-end. Management had not accrued the tax assessments and did not expect a material adverse financial-statement effect.
- An Algeria legal matter could result in a loss of up to $12.6 million in excess of accrued amounts, although management stated that the ultimate litigation exposure was not expected to be material to consolidated financial position or cash flows.
- The company had approximately $247.3 million of purchase commitments at year-end, primarily for rig enhancements, sustaining capital, operating expenses and inventory, with approximately $247.2 million expected to be paid in 2023.
Important facts for investors to verify
- Whether improving U.S. and international utilization and dayrates continue sufficiently to offset inflation, interest expense and depreciation.
- The refinancing or repayment plan for the 2023-2027 debt maturities and compliance with the 2022 Credit Agreement’s increasing interest-coverage requirements.
- The sustainability of operating cash flow after capital expenditures, debt repayments and working-capital investment.
- Customer concentration, particularly exposure to Saudi Aramco and the SANAD joint venture.
- The economic impact and potential dilution from outstanding warrants and exchangeable notes.
- Potential impairment exposure if commodity prices, utilization or dayrates decline.
- The resolution of tax assessments, uncertain tax positions, litigation and the Algeria proceeding.
- The future value and liquidity implications of NETC’s proposed business combination or other business-combination activities.
The consolidated financial statements were audited by PricewaterhouseCoopers LLP, which reported an unqualified opinion and concluded that internal control over financial reporting was effective as of December 31, 2022.