Company Overview and History

Nabors Industries Ltd. (NBR) is a leading provider of advanced technology for the energy industry, with a global presence and a diverse portfolio of drilling and drilling-related services. The company's story is one of resilience, innovation, and strategic alliances that have positioned it as a key player in the ever-evolving energy landscape.

Founded in 1926 as a small, family-owned business, Nabors has since grown into a multinational corporation with operations spanning over 15 countries. The company's journey has been marked by a relentless pursuit of technological advancements, strategic acquisitions, and a steadfast commitment to delivering exceptional service to its customers. Nabors Industries Ltd. was formally established as a Bermuda exempted company on December 11, 2001, building upon its rich history in the drilling industry. Initially focusing on land-based drilling operations in the U.S. Lower 48, Canada, and Alaska, Nabors has successfully expanded its reach to become a global player in both land and offshore operations across major oil and gas markets worldwide.

Growth Strategy and Partnerships

The company's growth strategy has been driven by a combination of organic expansion and strategic acquisitions, allowing it to diversify its portfolio and strengthen its market position. In 2016, Nabors made a significant move by entering into a joint venture agreement with Saudi Aramco, the world's largest oil producer, to form SANAD. This partnership, which began operations in the fourth quarter of 2017, has been a game-changer for Nabors, providing a unique large-scale opportunity in one of the industry's most crucial markets. The SANAD joint venture has been a significant contributor to Nabors' financial performance, generating consistent cash flow and providing a clear path for future growth.

Challenges and Resilience

Throughout its history, Nabors has faced and overcome various challenges. In 2011, the company encountered legal issues in Algeria related to alleged violations of foreign currency exchange controls. The case has since gone through multiple courts, with Nabors continuing to appeal the matter. More recently, the military hostilities between Russia and Ukraine in 2022 have impacted Nabors' operations, with 0.7% of its property, plant, and equipment located in Russia and 0.9% of its operating revenues coming from Russian operations as of December 31, 2024.

Market Presence and Technology

In addition to its successful international ventures, Nabors has also maintained a strong presence in the U.S. market, particularly in the Lower 48 region. The company's fleet of high-performance drilling rigs, coupled with its advanced drilling technologies and solutions, has enabled it to navigate the volatile U.S. market conditions and maintain its position as a preferred service provider for major oil and gas operators.

Business Segments

Nabors' business consists of four reportable segments: U.S. Drilling, International Drilling, Drilling Solutions, and Rig Technologies.

U.S. Drilling Segment

Nabors operates one of the largest land-based drilling rig fleets in the U.S. As of December 31, 2024, Nabors' U.S. fleet consisted of 158 AC land rigs, 9 SCR land rigs, and 12 offshore platform rigs. The company has introduced several advanced rig models, such as the PACE-X800, PACE-M800, and PACE-M1000, which are designed to improve efficiency and mobility for multi-well pad drilling. In 2024, the U.S. Drilling segment generated $1.03 billion in operating revenues, with an adjusted operating income of $176.28 million. The average number of rigs working in the U.S. was 75.1 during the year.

International Drilling Segment

Nabors operates in major international oil and gas markets, primarily in the Middle East and Latin America. The company's international fleet consisted of 118 land-based drilling rigs and 14 actively marketed platform rigs as of December 31, 2024. Many of Nabors' international rigs are designed to address the specific challenges of working in environments such as desert climates, mountainous regions, and tropical zones. In 2024, the International Drilling segment reported $1.45 billion in operating revenues and $107.86 million in adjusted operating income. The average number of rigs working internationally was 83.7 during the year.

Drilling Solutions Segment

Nabors' Drilling Solutions segment offers specialized drilling technologies, such as proprietary drilling-bit steering systems and rig instrumentation software, that enhance drilling performance and reliability, as well as wellbore placement. Key products and services include ROCKit, SmartNAV, SmartSLIDE, and Tubular Running Services. In 2024, the Drilling Solutions segment generated $314.07 million in operating revenues and $112.39 million in adjusted operating income.

Rig Technologies Segment

Nabors' Rig Technologies segment, primarily comprising its Canrig subsidiary, manufactures and sells top drives, catwalks, wrenches, drawworks, and other drilling-related equipment, which are installed on both onshore and offshore drilling rigs. The Rig Technologies segment also provides aftermarket sales and services for the installed base of its equipment. In 2024, this segment reported $201.68 million in operating revenues and $20.24 million in adjusted operating income.

Financials and Performance

Nabors' financial performance has been a mixed bag in recent years, reflecting the cyclical nature of the industry. In 2024, the company reported operating revenues of $2.93 billion, a slight decrease from the previous year's $3.01 billion. However, the company's adjusted EBITDA remained relatively stable at $221 million, demonstrating its ability to adapt to market conditions and maintain profitability.

The company's annual net income for 2024 was -$176.08 million, with annual operating cash flow of $581.43 million and annual free cash flow of $13.51 million. In the most recent quarter (Q4 2024), Nabors reported revenue of $738.65 million and a net income of -$53.67 million. The decrease in revenue and net income compared to the prior year quarter was primarily due to a decrease in activity in the U.S. Lower 48 market, which impacted both the U.S. Drilling and Drilling Solutions segments. The company also faced delays in collections from a customer in Mexico.

Despite the challenges posed by the COVID-19 pandemic and the ensuing market volatility, Nabors has continued to invest in its technology portfolio, with a focus on driving energy efficiency and emissions reductions. The company's Nabors Drilling Solutions (NDS) segment, which offers specialized drilling technologies and services, has been a shining example of Nabors' commitment to innovation, contributing significantly to the company's overall financial performance.

Performance by Geographic Markets

Nabors operates in major international oil and gas markets, primarily in the Middle East and Latin America, most notably Saudi Arabia, Argentina, Colombia and Mexico. In 2024, 31% of Nabors' consolidated operating revenue was from Saudi Arabia, highlighting the importance of its international operations to the company's overall performance.

Strategic Vision and Acquisitions

Looking ahead, Nabors' strategic vision remains firmly focused on capitalizing on the growing demand for natural gas, both domestically and internationally. The company's recent acquisition of Parker Drilling Company, which will expand Nabors' capabilities in drilling, casing and tubular running services, is a testament to Nabors' commitment to expanding its capabilities and strengthening its position in the market. This acquisition is expected to be accretive to Nabors' free cash flow in FY 2025, even before accounting for synergies.

Liquidity and Financial Position

Nabors' financial position, as of the end of 2024, showcases its ability to navigate the industry's challenges. The company reported a net debt of $2.12 billion, with a debt-to-equity ratio of 18.60. While the company's free cash flow generation has been impacted by short-term headwinds, such as the delayed payments from a customer in Mexico and the accelerated pace of new build deployments in Saudi Arabia, Nabors remains committed to reducing its debt burden and improving its overall financial flexibility.

As of December 31, 2024, Nabors had $397.30 million in cash and short-term investments and $722.96 million in cash and restricted cash. The company has a $350 million revolving credit facility and a $125 million letter of credit facility, of which $51.60 million was outstanding in letters of credit as of the end of 2024. The company's current ratio was 1.75 and quick ratio was 1.52, indicating a solid short-term liquidity position.

Outlook and Future Prospects

The company's outlook for 2025 is cautiously optimistic. Nabors is guiding for the following in FY 2025:

• Lower 48 average rig count of 62-64 rigs, with daily gross margin of around $14,600.

• International drilling average daily margin of $17,600, with average rig count of 88-89 rigs.
• Drilling Solutions EBITDA to improve by around 6% to $140 million.
• Rig Technologies EBITDA to improve slightly to $30 million.

Nabors' total capital expenditure guidance for FY 2025 is in the range of $710-$720 million, with $360 million allocated for the SANAD new build program (5 rigs). Excluding the SANAD business, Nabors expects to generate around $150 million in free cash flow in FY 2025, which they plan to use to reduce gross debt.

Industry Trends

The drilling and oilfield services industry has seen volatility in recent years due to fluctuations in oil and gas prices. However, the industry is expected to see a CAGR of approximately 5-7% over the next 5 years, driven by the recovery in global energy demand and increased investment in oil and gas exploration and production activities. Nabors' focus on technological innovation and operational efficiency positions it well to capitalize on these industry trends.

Conclusion

Nabors' success in navigating the industry's challenges can be attributed to its unwavering commitment to innovation, strategic partnerships, and a focus on delivering value to its customers. As of December 31, 2024, Nabors boasted a fleet of 285 actively marketed rigs for land-based drilling operations and 26 actively marketed rigs for offshore platform drilling operations. The company has leveraged its core competencies in drilling, engineering, automation, data science, and manufacturing to position itself as a leader in advanced technology for the energy industry. As the energy industry continues to evolve, Nabors remains well-positioned to capitalize on emerging opportunities and solidify its position as a leading provider of advanced technology and drilling solutions.