Nabors Industries (NBR)

Q2 2011 Earnings Call

July 27, 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

Unknown Executive -

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

David Wallace - Chief Risk Officer

Analysts

Brian Uhlmer - Global Hunter Securities, LLC

Kevin Simpson - Miller Tabak + Co., LLC

Scott Gruber - Sanford C. Bernstein & Co., Inc.

Arun Jayaram - Crédit Suisse AG

James Rollyson - Raymond James & Associates, Inc.

John Daniel - Simmons & Company International

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

Geoff Kieburtz - Weeden & Co., LP

Robin Shoemaker - Citigroup Inc

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Nabors Industries' Second Quarter 2011 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, July 27, 2011. I would now like to turn the conference over to our host, Mr. Dennis Smith, Director of Corporate Development. Please go ahead, sir.

Dennis Smith

Thank you, operator. Good morning, everybody, and thank you for joining us for our second quarter earnings conference call. With us today, in addition to Gene Isenberg, our Chairman and CEO; and myself, is Tony Petrello, our President and Chief Operating Officer; Clark Wood, our Principal Financial Officer; and Laura Doerre, our General Counsel; and every business unit head that we have so is here with us as well.

We'll follow our customary format where Gene will give some overview remarks on the quarter and some comments about the outlook and how we see things and then we'll open it up for Q&A. We'll limit the call to approximately 1 hour and wind it up at that time. I just want to remind everybody that since we're discussing the outlook and this constitutes forward-looking statements and as such are subject to those provisions of the Securities and Exchange laws.

With that, I'll turn it over to Gene.

Eugene Isenberg

Thanks. Welcome again everybody to the conference call for the second quarter. I want to thank everybody for participating this morning. As usual, we have posted to the Nabors' website a series of slides that contain details about performance of the various segments of the company. Please refer to these as we proceed.

Our second quarter results came in slightly better than we had indicated in our pre-release, primarily on the strength of our North American operations. We achieved significant improvement in our U.S. Land Drilling business and in Nabors Well Services and better-than-expected results in both Canada and Alaska during what is essentially a seasonally low period for those 2 units. While results in our International operations were somewhat disappointing, they were completely in line with expectations and also flat to the first quarter. Results in our Pressure Pumping operations were short of expectations for the full quarter but improved significantly in the month of June, and the shortfall prior to that was really de facto investing to Europe.

Net income of $68.1 million and earnings per share of $0.23 reflected a significantly higher tax rate due to lower contributions from our International [indiscernible] contributions from our International operation and obviously more income from the U.S. higher tax operations with the North American wells. It also reflected higher expenses and other items.

Income from discontinued operations was $128.4 million (sic) [ $123.9 million ], reflecting the sale of our Colombia E&P operations. Total proceeds from those sales will be around $250 million, yielding a gain of around $129 million. While that's discontinued and others are nonrecurring, from our viewpoint, it's all income and we don't -- we take it in a way that maximizes it to the company and not worrying about what's recurring, nonrecurring, discontinued and all that stuff. From my viewpoint, it fits our earnings.

Our financial position and balance sheet remains strong. During the quarter, we gained approximately $1.4 billion in convertible notes that we obviously had been anticipating for quite a while. This was funded by a combination of cash on hand, the E&P proceeds and a cash withdrawal of our $1.4 billion revolver, which is pretty low cost LIBOR plus 1.5. Bottom line is we reduced our debt by approximately $200 million and still managed to fund approximately $670 million in capital expenditures during the quarter.

Now let's turn to the units. Nabors Drilling USA results in terms of operating income for the US Land operations were $99-plus a little million. That was up approximately $19 million over the first quarter. $7 million of this income resulted from lump sum payments for early termination of rig contract. The rigs involved in those transactions have since been put to work on new contracts. Results for the balance of the quarter were attributable to rig count, up approximately 6 rigs to 194, and today, we have some new working jobs [ph] 200 and net improvement in our rig margins of a little over $400 per day, excluding the impact of the early termination payments.

During the second quarter, this unit was awarded 7 more new builds contracts increasing the total of new builds to 144, 36 of which was set to be deployed on long-term contracts are yet to be deployed, and we expect 13 of these by the end of this year and the rest next year, and we obviously hope, based on current inquiry activities, that this total will increase.

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