Commenting on these results, Gene Isenberg, Nabors' Chairman and Chief Executive Officer said, "Virtually all areas of our business showed solid improvement in the first quarter with numerous developments providing a solid base for the rest of the year and beyond. I am particularly pleased with the sizeable improvement in earnings and especially adjusted income derived from operating activities.
"Compared to the immediately preceding quarter ending December 31, 2003, Canada's seasonally strong first quarter had the greatest impact on our performance, substantially surpassing its previous high quarter. Although Canada's contribution in the second quarter will be seasonally reduced the full year is all but certain to set a new record. Our U.S. Offshore and International businesses have tangible bases for improving results over the balance of the year as a number of incremental projects commence and current strong bid flow translates into contracts. In our U.S. Offshore unit, we commissioned the first of three new MODS class rigs for deepwater SPAR and TLP platforms in January, with the other two commencing late in the second quarter. Our barge drilling Rig 300, recently upgraded to a drilling capacity of 35,000 feet, commenced its first deep-shelf well in very shallow water at the end of the quarter. These new deployments combined with a strong market for our 1,000-horsepower and larger platform rigs and higher levels of utilization and pricing on our smaller platform and jack-up workover rigs, point to a strong year. Internationally, favorable results in Ecuador, Trinidad and Yemen were offset by lower activity in Colombia and later than anticipated startups in Algeria. In addition to the forward contribution of the Algerian rigs, the number of near-term prospects for additional rig activity keeps our full-year expectations on track, although slightly more back-end loaded.
"Margins for both our U.S. Lower 48 Land Drilling and U.S. Well Servicing businesses were affected by the usual first quarter spike in costs that results from early year payroll taxes. In Well Servicing, results were also impacted by an unusually high number of lost work days due to inclement weather, although this business improved substantially in March with a run rate that reinforces our expectation of significant year-over-year growth. Our U.S. Lower 48 Land Drilling business also incurred the expected extra expense related to relocating a large number of underutilized rigs for contracts in more active markets, primarily the Rocky Mountain Region. This brings to 23 the total number of rigs we have added to the Rockies in the last twelve months, and we expect the number of rigs operating in this region to reach 60 by June 1, 2004 as seasonal operating limitations expire. Our rig activity in the U.S. Lower 48 improved throughout the quarter, with further increases anticipated in the near-term. We also began to see the start of meaningful price improvement, reflecting the benefits of a tightening market with subsequent quarters showing an increasingly significant improvement in margins. We are optimistic that the Baker Hughes U.S. Land rig count will surpass the peak levels of 2001 during the second half of this year, with Nabors continuing to garner a disproportionately large share of this incremental work. Only in Alaska do we expect lower results this year, the results of the completion of three significant long-term contracts late last year and a dramatic drop in reinvestment by the major operators. Income from our previously announced oil and gas investment further added to the improved quarter.
"In April we further improved our capital structure and its attendant cost with the redemption upon maturity of $295 million in Senior Notes carrying a 6.8% coupon thereby reducing our annualized interest expense by over $20 million.
"Our outlook for the full year and beyond remains quite bullish. The totality of developments in our first quarter supports our conviction in the strong outlook for our business over the longer-term."
The Nabors companies own and operate almost 600 land drilling and approximately 950 land workover and well-servicing rigs worldwide. Offshore, Nabors operates 45 platform, 16 jack-up, and three barge rigs in the domestic and international markets. Nabors markets 31 marine transportation and support vessels, primarily in the U.S. Gulf of Mexico. In addition, Nabors manufactures top drives and drilling instrumentation systems and provides comprehensive oilfield hauling, engineering, civil construction, logistics and facilities maintenance, and project management services. Nabors participates in most of the significant oil, gas and geothermal markets in the world.
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