Nabors Industries Ltd. — FY2023 Form 10-K Summary
Business context and reporting period
Nabors is a Bermuda-based global provider of land and offshore drilling services, drilling technologies, performance tools, equipment manufacturing and energy-transition solutions. It operated in more than 15 countries with 291 actively marketed land rigs and 28 offshore platform rigs as of December 31, 2023. The filing covers the fiscal year ended December 31, 2023; separate fourth-quarter results are not clearly provided in the filing text.
The company reports U.S. Drilling, International Drilling, Drilling Solutions and Rig Technologies as active operating segments. Canada Drilling assets were sold in 2021.
Financial and operating metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenue | $3.006 billion | $2.654 billion | +13% |
| Income before taxes | $129.1 million | $(245.7) million | Improved by $374.8 million |
| Net income attributable to Nabors | $(11.8) million | $(350.3) million | Loss reduced by $338.5 million |
| Diluted loss per share | $(5.49) | $(40.52) | Improved |
| Adjusted operating income | $433.7 million | $194.4 million | +123% |
| Operating cash flow | $637.9 million | $501.1 million | +27% |
| Capital expenditures | $540.9 million | $373.4 million | +45% |
| Interest expense | $185.3 million | $177.9 million | +4% |
Reported net margin was approximately negative 0.4% of revenue. Adjusted operating income represented approximately 14.4% of revenue, although this is a non-GAAP segment measure and is not directly comparable to operating income under U.S. GAAP.
- U.S. Drilling revenue increased 10% to $1.208 billion; adjusted operating income increased 142% to $262.4 million despite average rigs working declining 11% to 86.3.
- International Drilling revenue increased 12% to $1.345 billion; adjusted operating income improved to $40.9 million from a $0.9 million loss, while average rigs working increased 5% to 77.6.
- Drilling Solutions and Rig Technologies revenue each increased 24%, to $301.8 million and $242.8 million, respectively.
- Cash and short-term investments totaled $1.070 billion at year-end, compared with $452.3 million at December 31, 2022. Working capital was $431.7 million.
- Total debt principal was $3.175 billion, with carrying value of $3.142 billion after deferred financing costs. No borrowings were outstanding under the $350 million secured revolving credit facility; $47.8 million of letters of credit were outstanding.
- The company reported a 5.17:1 interest coverage ratio and 99.77% minimum guarantor value at December 31, 2023, compared with required thresholds of 2.50:1 and 90%, respectively.
Material changes versus the prior comparable period
- Revenue growth and improved pricing increased segment profitability across all operating segments, particularly U.S. Drilling.
- Net loss narrowed substantially, supported by approximately $239.3 million of higher adjusted operating income, a $153.8 million favorable change in warrant mark-to-market results and approximately $20.7 million of gains related to debt repurchases. These benefits were partly offset by a $30.6 million increase in foreign-currency losses.
- Capital expenditures increased materially, primarily for rig-related enhancements and international drilling projects.
- Nabors issued $250 million of 1.75% senior exchangeable notes due 2029 and $650 million of 9.125% senior priority guaranteed notes due 2030. It also issued a redemption notice for its remaining $474.1 million of 5.75% senior notes due 2025.
- In January 2024, the company used $629.6 million of cash to repay the remaining $474.1 million of 5.75% senior notes and $155.5 million of 0.75% senior exchangeable notes.
- Nabors completed the NETC business combination with Vast Renewables in December 2023 and retained a significant noncontrolling investment. The transaction generated an approximately $7.2 million net gain in the fourth quarter.
- NETC II completed a $305 million initial public offering in July 2023. Approximately $315.5 million remained in its restricted trust account at year-end and is not available for general corporate operations.
Guidance, outlook, commentary, risks and unusual items
Management stated that U.S. operators reduced drilling activity during 2023 as natural-gas prices declined and financing conditions tightened, while pricing discipline remained intact. Entering 2024, U.S. production was resilient despite lower rig counts, and management expected international activity to benefit from expanded production capacity and unconventional-resource development. The filing does not provide specific 2024 revenue, earnings or cash-flow guidance.
- Results remain highly sensitive to oil and natural-gas prices, customer capital spending, utilization, dayrates and contract renewals.
- Saudi Aramco represented approximately 26% of 2023 consolidated operating revenue, and the three largest contract-drilling customers represented approximately 37%, creating significant customer concentration.
- Joint ventures generated approximately 24% of 2023 operating revenue. SANAD is consolidated and involves a potential backstop obligation for Nabors’ share of purchases of the first 25 rigs if third-party financing or joint-venture cash is insufficient.
- Inflation, labor and energy costs, supply-chain constraints and higher interest rates are expected to continue pressuring margins in 2024.
- Material financial commitments included approximately $351.4 million of purchase commitments at year-end, of which $336.5 million was expected to be paid in 2024, and $818.6 million of future interest payments on outstanding debt.
- The company reported $144.9 million of assessed income-tax audit claims that it is contesting and for which it has not accrued a liability. It also disclosed an Algerian legal matter with potential exposure of up to $13 million in excess of amounts accrued.
- Bermuda enacted a 15% corporate income tax regime effective for qualifying multinational groups beginning in 2025. Nabors recorded a $171.9 million deferred tax asset and an equal valuation allowance related to Bermuda net operating losses.
- Potential future impairment charges, geopolitical events, sanctions, currency volatility, cybersecurity incidents, environmental regulation and energy-transition developments remain significant risks.
- PwC issued an unqualified audit opinion and concluded that internal control over financial reporting was effective as of December 31, 2023.
Most important facts for investors to verify
- Whether international activity and dayrate increases offset declining U.S. rig counts and any further natural-gas weakness.
- Debt maturities, refinancing capacity and compliance with the revolving-credit agreement’s tightening interest-coverage covenant.
- Cash availability after the January 2024 debt repayments, excluding restricted SPAC trust cash.
- Saudi Aramco and broader customer concentration, contract renewal terms and potential termination or suspension rights.
- Execution and cash requirements for the elevated capital-expenditure program, particularly in International Drilling.
- Potential dilution from 2.5 million outstanding warrants, the 1.75% exchangeable notes and other equity-linked instruments.
- Resolution of contested tax assessments, litigation matters, the SANAD backstop obligation and other guarantees.
- Whether the Vast investment and NETC II business-combination strategy generate returns without diverting liquidity from the core drilling business.