Nabors Industries (NBR)

Q4 2010 Earnings Call

February 16, 2011 11:00 am ET

Executives

Joseph Hudson - President of U.S. Land Drilling Business

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

David Wallace - Chief Risk Officer

Analysts

Geoff Kieburtz - Weeden & Co. Research

Kevin Simpson - Miller Tabak

Judson Bailey - Jefferies & Company, Inc.

Arun Jayaram - Crédit Suisse AG

Marshall Adkins - Raymond James & Associates

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

Daniel Boyd - Goldman Sachs Group Inc.

Presentation

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to Nabors Investors Ltd. Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. Dennis Smith, Director of Corporate Development. Please go ahead, sir.

Dennis Smith

Good morning, everyone, and thank you for joining us today. As usual, we'll have our call here with about 20 to 30 minutes remarks by Gene, followed by a question-and-answer and wind up in one hour. Besides Gene and myself today is Tony Petrello, our President and Chief Operating Officer; Laura Doerre, our General Counsel; Clark Wood, our Chief Accounting Officer; and most of the heads of our principal business units. I just want to remind you that what we're going to be talking about obviously is the outlook for the business and as such, these constitute forward-looking statements under SEC rules and are subject to uncertainty and change. And we encourage you to look at our various filings. And with that, I'll hand it to Gene to get started.

Eugene Isenberg

Thanks again, welcome to the fourth quarter conference call. Again, I want to thank everybody for joining and as usual, we have posted to the Nabors website a series of slides that contain details about the performance of the various units or segments of the company. Please refer to these as we speak.

The fourth quarter was a significant beat, with earnings per share increasing, this is sort of non-GAAP from $0.29 to $0.44, an increase of approximately 20% over the first call consensus of $0.37. Our most important metric which we always emphasize is operating income, which rose to $222 million from $164 million in prior quarter, and this also was substantially above consensus. This was due to the strong performance from our North American land operations, better-than-expected performance from our International unit and a full quarter's contribution from our Superior Well Services business unit.

The quarter's results for '10 is a significant improvement in 2011. Despite of not only relative, but absolutely anemic gas price, a protractive period of recovery in our International markets, which we obviously will discuss more later, and continued delays in the resumption of normalized activity in the Gulf of Mexico. Financially, we remain in pretty good shape as we've previously brought back half of the $2.75 billion convertible debt which is due May 15 of this year. We have adequate liquidity to pay off the remaining $1.4 million while still funding a pretty ambitious capital expenditure requirement. And to do this, we used our current and anticipated cash flow on hand, proceeds from the sale of our Colombian E&P properties, mostly oil, as well as the temporary draw on our revolving line of credit. Our safety record remains one of the best in the industry and we continue to emphasize this along with our program to achieve a zero incidence rate, which we continue to strive for make our growth.

Looking ahead to 2011, we're optimistic in factors that there are numbers that are in fact, tracking ahead of the book current consensus. And while there is obviously downside to this projection, the medium is projection. I personally believe there is a lot more potential in sizable upside possibilities.

Let me first turn to Superior Well Servicing, this is the largest driver or outperformance in the fourth quarter. In its first full quarter with Nabors, the units posted approximately $55 million in operating income despite a seasonally low December. Demand in average pricing in this unit continue to improve and we are, therefore, in light of the pricing returns, we're converting a significant of amount capital to the expansion of our company capacity and to enter into the coiled tubing business, which is pretty ancillary to our existing businesses.

When we first acquired Superior, they were operating 12 large spreads. They now are operating 14, and we expect to hit 23 or 24 by the end of the year. Needless to say, we are quite pleased with the contribution this unit has made in such a short time and we believe initially those incremental capital investments will continue to produce outstanding returns.

We expect to receive the first increment of increase in petrol pumping spreads in March and increase thereafter approximately one per month. We also have a number of coiled tubing units on order and we'll start receiving those in May or June at the rate of at least about a month to the first six months, and perhaps thereafter. There has been a logical shift in both rigs and Pressure Pumping so this is delayed from our conventional dry gas areas and towards the oil- and liquids-rich plays, as well as to the premium market which is the Marcellus shale. As a result of this, we expect this unit to continually improve in 2011 even as the industry had substantial tracking capacity.

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