Nabors Industries (NBR)

Q3 2010 Earnings Call

October 27, 2010 11:00 am ET

Executives

R. Wood - Principal Financial & Accounting Officer and Controller

Eugene Isenberg - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee

Dennis Smith - Director of Corporate Development at Nabors Corporate Services Inc

Analysts

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

Roger Read - Natixis Bleichroeder LLC

Arun Jayaram - Crédit Suisse AG

Kurt Hallead - RBC Capital Markets Corporation

J. Adkins - Raymond James & Associates

Ole Slorer - Morgan Stanley

Daniel Boyd - Goldman Sachs Group Inc.

Presentation

Dennis Smith

Good morning, ladies and gentlemen. Thank you for joining us today on Nabors' Conference Call. As usual, we'll limit the call about an hour. Gene

will give 20 to 30 minutes of remarks about the results of the quarter and the outlook as we see it. And then, we'll line up with 30 minutes or so of Q&A.

With us as usual besides Gene and myself today is Tony Petrello, our President, Chief Operating Officer; Laura Doerre, our General Counsel; Clark Wood, our Chief Accounting Officer; all of our Unit President including the most newest one, Dave Wallace, with the exception of SIGI [ph], he is figuratively safer than we're at today, sitting across the table from James [ph]. He is in the Middle East today.

I just want to remind everybody quickly that since we'll going to be talking about the outlook, that is considered forward-looking statements and subject to change. But we're trying to give you the best guess we have, and please refer to our risk factors in our various filings for the full download of the possible things that could go wrong. With that, I will pass it over to Gene.

Eugene Isenberg

Thanks, Denny. Again, welcome everybody to the third quarter conference earnings conference call. Again, I want to thank you for participating. As usual, we have posted to the Nabors' website a series of slides that contain details about the performance of the various segments of the company. Please refer to these as we proceed. I'll try to be as I usually try to be short of the normal and give the highlights and give room for questioning thereafter.

Again, it was a terrific quarter. I think the clear bottom line, however, is that because of our solid operational performance in our North American businesses, we had $164 million of operating income in the quarter, overall, and $0.29 in earnings per share, exclusive of items and I'll spend a few minutes on the items.

These are changes from GAAP results and as usual, you folks are welcome to and usually do making our own adjustments to what we think is an investment. Firstly, our Canadian and Colombian E&P assets are not only on sale, but I'll discuss later how that's proceeding. And so we've previously said in ourselves to classify those as discontinued operation, and the impact of that is that they were not discontinued operations, pro forma the adjusted earnings would have been $0.27 instead of the $0.29. So that's a $0.02 impact.

In addition, here are some of the other things, pretax. $37 million write-down of buildings in HH are Chinese rig manufacturer even though we have a sizable unrealized gain in that. We have expensed $7 million pretax cost related to the acquisition of Superior Well Services Inc. And finally, we have a number of pretax non-cash asset impairment, which added up to $0.33 per share after taxes. A pretax number of $54 million in E&P investments, which is unlikely to be recovered given the forward script of Gas. $45 million in goodwill is largely related to the spill and the impact of the spill on near term and certainty of utilization in some of Nabors offshore assets. And another $24 million pretax including North American Drilling, U.S. Wells Servicing and Canadian Drilling and our work over. So a whole bunch of stuff because of the low gas pricing and relatively little impact be in the test that's being written off.

An important development in the quarter was the acquisition of Superior for an enterprise value of approximately $900 million and essentially in all-cash transaction, which we're able to close in a pretty quick time. We funded this transaction through the placement of the $700 million debt offering, with about a 5% yield in cash on hand. Superior is a company with excellent equipment and great technical expertise that they have recently been constrained by lack of capital for growth and Nabors is ready and willing and able to submit the capital required to achieve Superiors potential.

Another notable achievement in the quarter was the securing of 11 new long-term contracts and new builds rigs in our Lower 48 drilling unit. A large percentage of this will go to the Bakken. We are the market leaders. Two more will go to Marcellus, we have some catching up to do. But we expect to have a dozen rigs operating there by the end of next year.

Before I turn to the unit pad, note that we're seeing what has become an industry trend. That being the natural operations continued to be weaker than expected for our U.S. results are exceeding expectations.

I should also obviously note the obvious thing that our domestic results were augmented by regularly strong contributions from Superior Well Services affecting operations even though that only reflected 20 days of operations. These 20 days yielded $12 million in operating income, which implied an annual rate of earnings of $220 million, which I think is a reasonable standard to hold us to even though there are risk. There are risk in the rig count, there are rigs on coming frac-ing equipment. And in particular, there are fourth quarter seasonal issues as we have in work over associated with the Frac-ing business.

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