Executive Summary / Key Takeaways

• Capital Structure Transformation: The Parker Drilling acquisition and subsequent Quail Tools divestiture have engineered a fundamental reset of Nabors' balance sheet, cutting pro forma net debt to approximately $1.7 billion—the lowest level in over a decade—and positioning the company to reach management's $1.1-1.2 billion target through continued debt reduction.

• SANAD: The Embedded Growth Engine: Nabors' 50/50 joint venture with Saudi Aramco provides unmatched visibility into a 25-rig, 10-year program (with potential for 50 total rigs) featuring five-year paybacks and six-year contracts, creating a $200 million EBITDA trajectory by 2026 that is insulated from U.S. market volatility.

• U.S. Lower 48 Headwinds vs. International Strength: While the U.S. drilling segment faces rig churn, pricing pressure, and margin compression (daily margins down to ~$13,000), the International segment is expanding margins to $18,100-18,200/day and growing EBITDA sequentially, demonstrating the value of geographic diversification.

• Technology as Margin Driver: Drilling Solutions now represents 25% of operational EBITDA with 37.5% margins (excluding Quail), while the PACE-X Ultra rig deployment proves Nabors can deliver cost-effective upgrades that exceed industry capabilities, supporting pricing power in a competitive market.

• Execution Risks Remain Material: Despite the balance sheet improvement, the company faces $50 million in outstanding Mexican receivables, potential rig suspensions in Mexico, ongoing U.S. market volatility, and the challenge of realizing $70 million in EBITDA from retained Parker businesses in 2026.

Setting the Scene: A 70-Year-Old Driller Reinvents Itself

Nabors Industries Ltd., founded in 1952 and headquartered in Houston, Texas, has spent seven decades building one of the world's largest land-based and offshore drilling fleets. The company operates through four segments: U.S. Drilling, International Drilling, Drilling Solutions, and Rig Technologies. What distinguishes Nabors from pure-play drillers is its integrated model—designing and manufacturing advanced drilling equipment while providing performance tools, tubular running services , and directional drilling capabilities for both its own fleet and third-party rigs.

The oilfield services industry remains brutally cyclical, driven by volatile commodity prices, E&P capital discipline, and relentless pressure to improve drilling efficiency. Nabors competes against larger U.S. land drillers like Helmerich & Payne and Patterson-UTI Energy , which operate larger active fleets and benefit from greater scale in the Permian Basin. Internationally, Nabors faces regional players and integrated service companies, but its 50/50 joint venture with Saudi Aramco—SANAD—creates a unique competitive moat that no peer can replicate.

The company's current positioning stems directly from two transformative 2025 transactions. On March 11, Nabors acquired Parker Drilling Company for $180.6 million (4.8 million shares plus $0.6 million cash), gaining casing running services, Gulf of America operations, and international assets in the Middle East and Kazakhstan. Just five months later, on August 20, Nabors sold the Quail Tools subsidiary (acquired through Parker) for $625 million ($375 million cash plus a $250 million seller note), generating a $415.6 million gain. This "buy-and-sell" maneuver was not financial engineering—it was a strategic extraction of value that fundamentally altered Nabors' capital structure and strategic focus.

Technology, Products, and Strategic Differentiation: The SANAD Moat and PACE-X Innovation

Nabors' competitive advantage rests on two pillars: the unmatched visibility of its Saudi Aramco partnership and its technology-driven drilling optimization capabilities.

The SANAD joint venture, formed in 2016 and consolidated within International Drilling, represents the most compelling growth opportunity in land drilling. The program calls for 50 locally-sourced newbuild rigs over ten years, with initial six-year contracts designed to ensure five-year paybacks. As of Q3 2025, SANAD has deployed 13 rigs, with one more scheduled for 2025, four in 2026, and two in 2027 to complete the fourth tranche (20 rigs total). Discussions are underway for a fifth tranche of five rigs, which would bring the total to 25. Management forecasts SANAD's working newbuild fleet will generate over $140 million in adjusted EBITDA in 2025 and approximately $200 million in 2026. This visibility is unmatched in the industry—no competitor has a 10-year, customer-funded newbuild program with a national oil company.

The PACE-X Ultra rig deployment demonstrates Nabors' technology leadership. As an upgrade to an existing X rig rather than a newbuild, this cost-effective solution features a 10,000 psi circulating system, 35,000 feet of racking capacity, and a 1-million-pound mast. In its first pad in the Eagle Ford, it averaged over 240 feet per hour in the lateral, exceeding targets. This matters because it proves Nabors can deliver super-spec performance without the capital intensity of new construction, preserving cash while meeting drilling requirements that exceed existing industry fleet capabilities.

Drilling Solutions has become a margin powerhouse, representing 25% of operational EBITDA. The segment's integration with Nabors' rig fleet reached an all-time high of seven services per rig in the Lower 48, while third-party rig revenue increased slightly despite a 6% decline in the third-party rig count. Excluding Quail Tools, Q3 2025 EBITDA margins hit 37.5%, up 79 basis points sequentially. This performance reflects the value of automation packages, managed pressure drilling (MPD) integration, and casing running services that differentiate Nabors from commodity drillers.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

Nabors' Q3 2025 results validate the transformation thesis. Consolidated adjusted EBITDA reached $236 million, exceeding expectations set after the Quail sale. The composition reveals the strategic pivot: International Drilling EBITDA grew 8% sequentially to $127.6 million, while U.S. Drilling EBITDA declined 7.5% to $94.2 million. Drilling Solutions contributed $60.7 million (with Quail adding $20.3 million), and Rig Technologies generated $3.8 million.

International Drilling's strength is structural, not cyclical. Average daily rig margins increased $397 sequentially to $17,931, driven by SANAD and three new Kuwait deployments. The segment's 89.2 average rigs working (vs. 84.7 prior year) and $1.17 billion in nine-month revenues (+9% YoY) demonstrate consistent growth. Management's Q4 guidance projects 91 rigs and margins of $18,100-18,200/day, reflecting one new Saudi deployment and two Argentina start-ups, partially offset by potential temporary suspensions of up to two Mexico rigs.

U.S. Drilling's weakness is equally structural. The Lower 48 average rig count fell to 59.2 in Q3 (down 3.2 rigs sequentially), while daily margins compressed to $13,151 (down 5.4% sequentially). Management attributes this to "continuing rig churn, progressively more demanding drilling, and higher repair and maintenance expenses." The Q4 outlook projects 57-59 rigs and margins around $13,000/day, with some erosion from contract renewals at lower leading-edge rates . This matters because it shows Nabors is not immune to U.S. market pressures, but the impact is muted by international diversification.

The balance sheet transformation is stark. Pro forma net debt of $1.7 billion represents 1.8x leverage, the lowest in over 10 years. Cash and short-term investments total $428.1 million, with working capital of $744.2 million. The company used Quail proceeds to repay $330 million of debt in Q3, redeem $150 million of 2027 notes, and fully prepay the $250 million seller note in October. Management's target of $1.1-1.2 billion net debt implies another $500-600 million of debt reduction, which would materially reduce annual interest expense and boost free cash flow.

Outlook, Management Guidance, and Execution Risk

Management's guidance reveals a conservative but credible path forward. Q4 2025 consolidated EBITDA is expected to be "essentially in line with Q3 2025, excluding Quail Tools," implying roughly $216 million (backing out Quail's $20.3 million Q3 contribution). This suggests the core business can maintain momentum despite U.S. headwinds.

The 2026 outlook hinges on two key drivers. First, the retained Parker businesses (excluding Quail) are forecast to generate $70 million EBITDA, up from an initial estimate of $7 million, with $40 million in cost synergies realized in 2025. This 10x improvement in profitability validates the acquisition strategy and provides a clear earnings bridge. Second, SANAD's trajectory to $200 million EBITDA in 2026 creates a growth engine that requires minimal incremental capital from Nabors, as Aramco funds the newbuild program.

Capital allocation priorities remain laser-focused on debt reduction. Management stated, "Tony and I want to take the company on a net debt basis to something around the $1.1 billion, $1.2 billion, nothing lower than that." This implies a strategic floor where Nabors will maintain some leverage to fund growth, but at levels that provide substantial financial flexibility. The amendment to the 2024 Credit Agreement permitting $100 million in annual equity repurchases suggests that once debt targets are met, capital returns could follow.

Execution risks are visible and quantifiable. The $50 million in outstanding Mexican receivables represents 26% of net accounts receivable, and management acknowledges "potential rig suspensions due to the customer's initiatives to conserve cash." While collections are expected to resume in early 2025, the uncertainty creates a $10-15 million quarterly EBITDA swing if rigs are temporarily idled. Similarly, the U.S. Lower 48 market's "muted activity outlook" could pressure margins further if oil prices decline, though management expects "activity should begin to stabilize and could see an uptick in the latter part of 2026."

Risks and Asymmetries: What Could Break the Thesis

The investment case faces three material risks that could derail the transformation. First, Mexican receivables and activity represent a direct cash flow risk. If the national oil company's cash conservation efforts lead to prolonged payment delays or rig suspensions, Nabors could face a $20-30 million annual EBITDA headwind and working capital strain. The company has not taken impairments, but the concentration risk remains elevated.

Second, U.S. Lower 48 market dynamics could deteriorate beyond expectations. Management describes the market as "very short-cycle," meaning activity responds rapidly to oil price declines. With domestic E&Ps focused on production goals and improved drilling efficiency creating a "muted activity outlook," any oil price shock below $60 WTI could accelerate rig churn and compress margins toward $12,000/day or lower. Nabors' 69-rig U.S. fleet is more exposed than peers with larger Permian footprints.

Third, execution on Parker synergies and SANAD deployment could fall short. While management has delivered $40 million in cost synergies, achieving the $70 million EBITDA target from retained Parker businesses requires flawless integration and market conditions that support utilization. Similarly, SANAD's fifth tranche discussions, while "expected to conclude in the coming months," are not guaranteed. Any delay would push the $200 million EBITDA run-rate into 2027 or beyond.

The primary asymmetry lies in SANAD's potential expansion beyond 25 rigs. Management notes that "once this fifth tranche is deployed, SANAD will be halfway to completing the industry's most compelling growth opportunity." If Aramco accelerates the program to 30-35 rigs, Nabors could see an incremental $40-60 million EBITDA upside with minimal capital investment. Additionally, a sustained oil price recovery above $80 WTI could drive U.S. activity higher than management's conservative late-2026 outlook, providing upside to the $94 million quarterly U.S. EBITDA baseline.

Valuation Context: From Distressed to Investable

At $0.19 per share, Nabors trades at a fraction of its peer group, reflecting years of balance sheet distress and U.S. market headwinds. However, the pro forma net debt of $1.7 billion and Q3 annualized EBITDA of approximately $944 million imply an enterprise value multiple that is in line with or below international-focused peers like Precision Drilling (PDS), which trades at 4.2x EV/EBITDA.

The company's 1.8x net debt leverage ratio is now lower than Helmerich & Payne's (HP) 1.35x EV/Revenue multiple would suggest for a leveraged driller, and well below Patterson-UTI's (PTEN) 3.92x EV/EBITDA. Nabors' gross margin of 40.28% exceeds HP's 32.96% and PTEN's 24.67%, reflecting the higher-margin Drilling Solutions and International segments. The operating margin of 9.28% exceeds PDS's 8.25% and is improving as International scales and U.S. costs are rationalized.

The balance sheet provides strategic optionality that was absent a year ago. With $428 million in cash, $744 million in working capital, and no borrowings under the $350 million credit facility, Nabors has the liquidity to weather a downturn while continuing SANAD's newbuild program. Management's guidance for breakeven free cash flow in 2025, despite $715-725 million in capex (including $300 million for SANAD), suggests that core operations are self-funding. Once debt reaches the $1.1-1.2 billion target, interest savings of $30-40 million annually could flow directly to free cash flow, supporting potential equity returns.

Conclusion: A Transformed Driller at an Inflection Point

Nabors Industries has executed a balance sheet revolution that fundamentally alters its investment profile. The Parker acquisition and Quail divestiture extracted $415.6 million in gains, cut pro forma net debt to a decade low, and refocused the company on high-margin international operations and technology-driven services. The SANAD joint venture provides an embedded growth trajectory to 25 rigs and $200 million EBITDA by 2026, creating a durable competitive moat that no peer can replicate.

The central thesis hinges on three variables: successful execution of the remaining $500-600 million in debt reduction, realization of $70 million EBITDA from retained Parker businesses in 2026, and stabilization of the U.S. Lower 48 market by late 2026. If management delivers on these targets, Nabors will have transformed from a cyclical, leveraged driller into a geographically diversified, technology-enabled oilfield services company with sustainable free cash flow generation.

The stock's $0.19 price reflects a legacy of distress, but the financial metrics tell a different story: 1.8x leverage, 40% gross margins, and a clear path to $1.1-1.2 billion net debt. While Mexican receivables and U.S. market volatility present near-term risks, the SANAD program's visibility and the technology portfolio's margin expansion provide downside protection and upside optionality. For investors willing to look past the historical stigma, Nabors offers a rare combination of balance sheet repair, embedded growth, and valuation rerating potential as the market recognizes the transformation.