Executive Summary / Key Takeaways

• Nabors Industries (NBR) has undergone a significant capital structure transformation, notably through the strategic divestiture of Quail Tools for $625 million, enabling a substantial reduction in net debt to a 10-year low of approximately $1.7 billion.
• The company's core investment thesis is anchored in its advanced technological differentiators, particularly in drilling automation and energy transition solutions, which enhance operational efficiency and competitive positioning across its global fleet.
• International Drilling, especially the SANAD joint venture in Saudi Arabia, is a primary growth engine, with an unparalleled newbuild program offering long-term contracts and strong EBITDA contributions, offsetting U.S. market volatility.
• Despite a challenging U.S. Lower 48 market, Nabors is focused on cost optimization and leveraging its technology-focused Drilling Solutions (NDS) segment, which contributes significantly to overall EBITDA and demonstrates strong margins.
• Management projects full-year 2025 adjusted free cash flow to be breakeven, with a commitment to further debt reduction, targeting notes maturing in 2028, and a long-term goal of reducing net debt to $1.1 billion to $1.2 billion.

A Global Leader's Strategic Evolution and Technological Edge

Nabors Industries Ltd. (NBR) stands as a global provider of drilling and drilling-related services, operating land-based and offshore oil and natural gas wells across more than 20 countries. Founded in 1952, the company has cultivated a diverse business portfolio encompassing drilling rig operations, performance tools, tubular running services, directional drilling, advanced drilling equipment, rig instrumentation, and technologies aimed at energy efficiency and emissions reduction. This extensive footprint and service offering position Nabors as a significant player in the dynamic Drilling Oil & Gas Wells industry.

A cornerstone of Nabors' long-term strategy is its technological differentiation. The company develops and deploys advanced drilling automation capabilities, setting new standards for operational excellence. Its Drilling Solutions (NDS) segment offers specialized technologies such as ROCKit, a directional steering control system, SmartNAV, a collaborative guidance and advisory platform, and SmartSLIDE, another directional steering control system. These systems, along with RigCLOUD, a digital infrastructure that integrates applications for real-time operational insights, enhance drilling performance and reliability.

A prime example of this innovation is the PACE-X Ultra rig, deployed in the Eagle Ford for Caturus. This upgraded X rig boasts a 10,000 psi circulating system, 35,000 feet of racking capacity, a 1 million-pound mast, and an upgraded high-torque top drive. The PACE-X Ultra, which includes a full automation package and integrated managed pressure drilling (MPD), has already demonstrated superior performance, drilling its first two wells ahead of target and averaging over 240 feet per hour in the lateral. This represents a cost-effective solution for increasingly demanding drilling requirements, exceeding the capabilities of existing industry fleets. The penetration of NDS services on Nabors' own rigs in the Lower 48 reached an all-time high of 7 services per rig in Q3 2025, underscoring the value proposition of these technologies. Nabors' commitment to energy transition is also evident through its Nabors Energy Transition Solutions (NETS) portfolio, which includes SmartPOWER advisory and control for engine optimization, Canrig PowerTAP for rig electrification, and the Hybrid Energy Management System (hEMS) with CleanDesign Battery for energy storage, all designed to improve energy efficiency and reduce emissions.

Competitive Landscape and Strategic Positioning

Nabors operates in a highly competitive industry characterized by excess drilling capacity, which can impact market share, utilization rates, and dayrates. Key direct competitors include global oilfield service giants like Halliburton Company (HAL), Schlumberger NV (SLB), and Baker Hughes Company (BKR), as well as land drilling specialist Helmerich & Payne Inc. (HP).

Compared to larger, more diversified players such as Halliburton and Schlumberger, Nabors differentiates itself through its specialized rig technologies and software platforms. While competitors like Halliburton offer a broader global footprint and integrated services, Nabors' proprietary systems like REVit for real-time stick-slip mitigation and RigCLOUD provide targeted, real-time data analytics that can lead to superior operational execution in challenging environments. Similarly, against Schlumberger's comprehensive digital integration, Nabors' ROCKit and SmartSLIDE systems offer specialized directional control that can provide notable efficiency gains in wellbore placement.

Against Baker Hughes, Nabors' advanced steering control technologies may offer materially greater efficiency in directional drilling, enhancing its value proposition. In the U.S. land drilling market, where Helmerich & Payne is a strong presence, Nabors leverages its RigCLOUD for integrated insights, potentially offering significantly better data-driven decision-making. While these larger competitors often demonstrate more consistent revenue expansion and stronger financial resilience due to their scale, Nabors' technological edge aims to capture market share in specialized, high-performance drilling segments.

Nabors' strategic positioning also benefits from its global rig fleet and operational expertise, which are crucial in securing customer loyalty and potentially achieving superior margins. The company's focus on long-term development markets, particularly in the Middle East, allows it to leverage its advanced technology where performance and efficiency are highly valued.

Financial Performance and Liquidity Transformation

Nabors' financial performance in the third quarter of 2025 reflected a significant shift in its capital structure and strategic focus. The company reported operating revenues of $818.2 million, a slight sequential decrease of 1.8% from Q2 2025, primarily due to the divestiture of Quail Tools. However, consolidated revenue, excluding Quail Tools, grew sequentially. Net income attributable to Nabors for Q3 2025 was $274.2 million, or $16.85 per diluted share, a substantial increase from a net loss of $55.8 million, or $6.86 per diluted share, in Q3 2024. This remarkable improvement was largely driven by a $415.6 million gain on the disposition of Quail Tools.

For the nine months ended September 30, 2025, operating revenues increased by $186.9 million to $2.40 billion compared to the same period in 2024. Net income attributable to Nabors for this period was $276.3 million, or $17.54 per diluted share, a $398.7 million increase from a net loss of $122.4 million, or $15.69 per diluted share, in 2024. This was significantly influenced by a $116.5 million gain on bargain purchase from the Parker acquisition and the $415.6 million gain on Quail Tools disposition, partially offset by $26.5 million in asset impairments related to Russia and $19.9 million in transaction-related costs.

The strategic divestiture of Quail Tools, LLC on August 20, 2025, for a net consideration of $625 million, including a seller note fully prepaid by October 9, 2025, was a "transformational development" for Nabors' capital structure. The proceeds were instrumental in paying down approximately $330 million of debt in Q3 2025, reducing pro forma net debt to approximately $1.7 billion, its lowest level in over 10 years. Management has explicitly stated its commitment to deploying the entire proceeds from the Quail sale to further debt reduction, concentrating on outstanding notes maturing in 2028, and plans to refinance 2027 outstanding notes. This deleveraging is expected to materially reduce annual cash interest payments, boosting free cash flow.

As of September 30, 2025, Nabors maintained a healthy liquidity position with $428.1 million in cash and short-term investments and working capital of $744.2 million. The company was in compliance with all covenants under its 2024 Credit Agreement, including an interest coverage ratio of 4.0 and a minimum guarantor value of 99.80. Net cash provided by operating activities totaled $447.4 million during the nine months ended September 30, 2025.

Segment Performance and Outlook

Nabors' four reportable segments—U.S. Drilling, International Drilling, Drilling Solutions, and Rig Technologies—each contribute to its overall performance and strategic direction.

U.S. Drilling experienced a 2% decrease in operating revenues in Q3 2025 compared to Q3 2024, primarily due to declines in the Lower 48 land rig market, partially offset by incremental revenue from acquired Parker rig operations in Alaska and U.S. Offshore. Lower 48 daily rig margins declined by 5.4% sequentially in Q3 2025 due to rig churn and more demanding drilling conditions. For Q4 2025, the Lower 48 average rig count is expected to be 57-59 rigs, with daily adjusted gross margin around $13,000. Alaska and U.S. Offshore combined EBITDA is projected at approximately $25 million for Q4 2025, anticipating scheduled maintenance. Management believes U.S. activity should stabilize and could see an uptick in late 2026, particularly in natural gas basins.

International Drilling continues to be a robust growth driver. Operating revenues increased by 10% in Q3 2025 compared to Q3 2024, largely due to incremental revenue from acquired Parker rig operations and recently deployed rigs. The SANAD joint venture in Saudi Arabia, equally owned by Nabors and Saudi Aramco, drove most of this growth, alongside Kuwait. SANAD deployed another newbuild rig in Q3 2025, with one more scheduled for 2025, four for 2026, and two for 2027, completing the fourth tranche of 20 newbuilds. Discussions for a fifth tranche of five newbuilds are ongoing, which would bring the total to 25. These newbuilds operate under initial six-year contracts structured for a five-year return on invested capital, offering unparalleled visibility and long-term utilization. Early SANAD units generate over $10 million per year in EBITDA, with more recent ones projected to produce approximately $30 million annually, reflecting cost inflation and rig mix. SANAD's newbuild fleet is projected to generate over $140 million in EBITDA in 2025 and approximately $200 million in 2026. For Q4 2025, the International Drilling average rig count is projected at approximately 91 rigs, with daily adjusted gross margin in the $18,100-$18,200 range. Nabors also recently announced that SANAD will reactivate two previously suspended rigs in Saudi Arabia in March and June 2026, with extended contract terms.

Drilling Solutions (NDS) saw operating revenues increase by 78% in Q3 2025 compared to Q3 2024, primarily due to acquired Parker operations. Excluding Quail Tools, NDS's EBITDA increased modestly in Q3 2025, outperforming the Lower 48 market. NDS EBITDA margin without Quail reached 37.5% in Q3 2025, an improvement of 79 basis points sequentially. For Q4 2025, NDS EBITDA is expected to be approximately $39 million, reflecting a full quarter without Quail and some marginal decline in the Lower 48 market. The non-Quail businesses retained from Parker are expected to earn $70 million in EBITDA in 2026, a substantial increase from an initial estimate of $7 million.

Rig Technologies operating revenues decreased by 22% in Q3 2025 compared to Q3 2024 due to an overall decline in activity. For Q4 2025, EBITDA is expected to increase sequentially to $5.5 million, mainly from committed capital equipment deliveries.

Overall, management has revised total capital expenditures for 2025 to be in the range of $715 million to $725 million, with approximately $300 million supporting the SANAD newbuild program. Capital expenditures for 2026 are not expected to decrease from 2025 levels, largely due to approximately $60 million of newbuild milestones originally planned for 2025 shifting to 2026. Full-year 2025 adjusted free cash flow is expected to be breakeven.

Risks and Challenges

Despite a strong strategic direction, Nabors faces several risks. Geopolitical events, such as the military hostilities between Russia and Ukraine, have led to the suspension of Russian operations and impairment charges of $26.5 million in 2025. The demand for services is highly sensitive to volatile oil and natural gas prices. Customer consolidations in the U.S. can also impact rig demand.

In Mexico, the company has experienced significant payment delays from its customer, Pemex, with a $50 million receivable outstanding at year-end 2024. While a structured transaction by the Mexican government in 2025 offered hope for resolution, timely settlement of outstanding receivables related to 2025 operations is crucial for Q4 2025 adjusted free cash flow. The company's non-investment grade senior unsecured debt ratings could impact its ability to access debt markets and increase future borrowing costs. Furthermore, significant changes in U.S. or other national trade policies, including tariffs, could increase supply chain costs and adversely affect operations.

Conclusion

Nabors Industries is undergoing a profound transformation, strategically leveraging its technological prowess and international growth opportunities to enhance shareholder value. The recent divestiture of Quail Tools has fundamentally reshaped its capital structure, significantly reducing debt and positioning the company for improved financial flexibility and reduced interest expenses. This strategic deleveraging, coupled with the unparalleled, long-term growth trajectory of the SANAD joint venture in Saudi Arabia, forms the bedrock of Nabors' investment thesis.

While the U.S. Lower 48 market presents near-term challenges, Nabors' focus on cost optimization and the strong performance of its technology-driven Drilling Solutions segment provide a crucial counterbalance. The company's commitment to innovation, exemplified by the PACE-X Ultra rig and its comprehensive suite of digital drilling solutions, reinforces its competitive moat and ability to deliver efficiency in an evolving energy landscape. As Nabors continues to execute its strategy of international expansion and technological leadership, its disciplined approach to capital allocation and debt reduction is expected to unlock substantial long-term value, making it a compelling consideration for discerning investors.