Nabors Industries (NBR) Cuts Q2 Expectations; Cites Pressure Pumping Performance

July 17, 2012 7:05 AM EDT
Nabors Industries Ltd. (NYSE: NBR) expects its second quarter operating results to be below consensus estimates. The shortfall is attributable to lower than expected results primarily from its Pressure Pumping and, to a lesser extent, its International operations, partially offset by better results in its other US land operations. The lower results are primarily attributable to higher costs. As previously indicated, income from continuing operations will also reflect a non-cash impairment representing Nabors' portion of the lower reserve valuation in its NFR Energy affiliate resulting from the quarterly ceiling test utilizing the lower 12-month rolling average natural gas price. In addition, the company anticipates other non-cash impairments associated with the consolidation of two of its segments and the retirement of inactive rigs in its Canadian operations.

Tony Petrello, Nabors' Chairman and CEO commented, "This quarter's shortfall is disappointing, notwithstanding the progress we are making in streamlining and focusing the company's operations. The largest component of the shortfall is attributable to the increasingly competitive spot market in pressure pumping where pricing and utilization continued to deteriorate while costs spiked in the quarter. Nonetheless, our US Pressure pumping results will reflect operating cash flow in the range of $70 - $75 million as a result of our favorable mix of term versus spot work. The international shortfall resulted from a combination of higher costs and the slippage of the startup of two impactful rigs into July. The higher costs are primarily attributable to unreimbursed local labor and other operating costs in certain Middle East venues, as well as higher repair and maintenance expenses associated mostly with bulk purchases of critical spares for certain operations.

"As a part of our announced strategy to improve our operating performance, we have taken initial steps to consolidate our US well-servicing and pressure pumping operations into one entity, Nabors Completion and Production Services, which we believe will better position the Company to serve our customers in a more unified and disciplined manner. This necessitates the impairment of the intangible asset value associated with the Superior trade name amounting to approximately $75 million. Combined with the impairment of inactive Canadian drilling rigs, miscellaneous other Completion and Production Services assets and approximately $26 million of goodwill in our International and US Offshore units, we expect these non-cash charges to approximate $150 million. Our portion of the NFR Energy ceiling test should amount to a reduction in our carrying value of approximately $150 million.

"Despite these cost issues and a more than $80 million seasonally driven sequential decrease in our Alaska and Canada operations, our operating cash flow remains healthy at nearly $500 million for the seasonally low second quarter and nearly $1.1 billion for the first half."

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