Commenting on these results, Gene Isenberg, Nabors' Chairman and Chief Executive Officer, said, "Our quarterly adjusted income derived from operating activities more than doubled, generating all-time records in net income and earnings per share, despite a higher effective tax rate associated with the increased North American income. Return on capital employed, one of our most important metrics, reached 15% for the quarter on the strong operating results. The biggest contributor to this performance was our U.S. Lower 48 Land Drilling business, primarily as a result of substantially higher revenues as demand for rigs continues to be strong in the face of limited supply. High activity levels and tight supply characterized nearly all of our other drilling and well servicing markets, with Alaska and the shallow U.S. Gulf of Mexico being the only notable exceptions. Our U.S. Land Well Servicing unit derived significant pricing improvement as supply/demand reached equilibrium for both our rigs and trucks. This quarter was also bolstered by an all-time record quarter in Canada, the start-up of several rigs in our International unit and improving results in our Other Operating Segments.
"Compared to the immediately preceding fourth quarter of 2004, adjusted income derived from operating activities increased by more than 75% in our U.S. Lower 48 Land Drilling operations, primarily on higher average margins. Canada achieved an increase of 50% with the seasonally high activity associated with the winter season bolstered by significantly higher average dayrates. Our U.S. Land Well Servicing operations saw a nearly 30% sequential increase as modestly higher rig hours were overshadowed by a significant increase in the average hourly rate for both rigs and trucks. We also experienced a significant increase our in international results, although the initial contribution of several long-term contracts, most notably in Saudi Arabia, was partially offset by timing delays and temporary lulls in activity in some other areas. Our U.S. Offshore unit posted modestly higher results on higher utilization of its workover jackup and platform rigs, coupled with some improvement in pricing. Our Other Operating Segments have returned to a meaningful level of profitability with higher activity in almost every component. Alaska was up sequentially with the winter exploratory season but down compared to last year.
"We expect the remainder of this year to significantly surpass our previous expectations, with higher average pricing in most of our businesses and further increases in international rig activity. In our U.S. Lower 48 Land Drilling operation we expect substantial gross margin improvements throughout the year although less than the $1,650 per rig, per day sequential increase we achieved this quarter. Recently we have seen an increase in customer interest in longer-term contract durations at higher dayrates, so as to secure the efficiencies associated with a continuous work program and quality crews and rigs.
"We expect the industry to continue to add capacity at a limited pace in response to the continuing increase in rig demand. However, it must be emphasized that compared to any time in the recent past, rig and component equipment costs are higher and lead times longer, which should minimize oversupply concerns. Nabors enjoys a relatively favorable position to accommodate this demand in terms of capital cost and time advantages due to our long-standing key relationships with suppliers and steady order flow. This also gives us the flexibility to adjust the pace of our rig remanufacturing and upgrade program to suit the market, although our current plans are to continue at a pace of only four to five rigs per quarter. Our emphasis is on like-new remanufactured rigs which incorporate the latest technologies and new innovative configurations to facilitate improved drilling efficiency and faster moves in both over-the-highway and on-pad applications. Most of these rigs are readily adaptable to fit the requirements of any of our U.S. Lower 48 Land Drilling, International or Canadian operations, and utilize Nabors' proprietary A/C PLC (Programmable Logic Control) systems. We have already deployed a large number of these rigs, with several configured for pad drilling in the Canadian tar sands and the U.S. Rocky Mountains.
"Canada is on track for a record year despite an early arrival of the spring thaw, with indications of higher than usual activity throughout the spring, summer and fall periods, weather permitting. We recently commissioned the first of our innovative A/C coiled tubing / drill pipe drilling rigs and have initiated plans to construct additional units. Internationally, we also expect a record year as the contributions of the last of the ten new Saudi Arabian contracts commence in the second quarter and temporarily idle rigs in other venues return to work. Ongoing strong demand internationally, particularly for higher horsepower rigs, coupled with previously identified prospects bodes well for sustained growth in our international results.
"The strong demand for well servicing and workover rigs is being reflected in significant price increases in our U.S. Land Well Servicing business. We expect this pricing momentum to continue for the next few quarters as increases take effect across the full fleet and the contribution from our new millennium rigs begins at the rate of two per month early in the third quarter. Our U.S. Offshore business is forecasting steady but modest improvement for the remainder of the year, as is the case for our Other Operating Segments and Oil and Gas operations. Alaska remains the only unit that expects lower results both sequentially and year-over-year, but there is emerging upside from the pending development of heavy oil deposits and some recent discoveries, followed by the prospects for opening of the Arctic National Wildlife Refuge (ANWR) in the longer-term.
"The current cycle represents the first time I have seen this many of our individual business units performing well simultaneously and exhibiting a solid upward bias. The continuing high commodity price environment is a direct indication that supply challenges persist and is enabling our customers to continue generating returns well in excess of their costs of capital, even in the face of higher costs. Additional drilling will be needed for an extended period to meet these supply challenges, and our ongoing investment in rig upgrades and renovations are a significant factor in the improved drilling efficiencies that are mitigating the impact of higher costs on our customers' economics. Nabors' established global infrastructure and the largest procurement and supply chain management systems in our industry uniquely position us to be the most competitive source of incremental rigs both internationally and in North America. While we expect strong earnings growth from our international unit and eventually other areas like ANWR, the near-term will be dominated by the almost daily favorable developments emanating from our North American land operations."
Most Popular Articles
From the Career Center
Jobs that may interest you