Gene Isenberg, Nabors' Chairman and CEO, commented on the Company's results. "Our fourth quarter and full year results set records as the underlying strength of our operations easily overcame several factors, such as downtime on offshore rigs due to hurricane repairs and regulatory recertification, asset retirement charges and a higher effective tax rate. Meaningful year-over-year improvements were achieved in each of our operating units, led by our US Lower 48 Land Drilling business which posted a fivefold increase. Our US Land Well-Servicing and US Offshore businesses nearly doubled, while Canada and International both gained over 50%. Our Other Operating Segments also made a significant contribution following a loss in 2004. All of this resulted in new records in return on average capital employed as the Company posted 24% in the quarter and 19% for the year. Nabors' ability to deploy growth capital and generate substantially assured returns of greater than 20% is unmatched in our history and probably the industry.
"Customer acceptance of our new rigs is proceeding at an extraordinary pace and is best evidenced by the 21 new awards we have received in the seven weeks since our December 14th analyst meeting. This brings the total number of term contracts securing new built rigs to 82 in less than 13 months, making our previous projection of 100 new rig contracts company wide by mid 2007 readily achievable. In addition, 8 existing rigs are completing reactivation/refurbishment before beginning term contracts, with another 10 expected to be completed and operating under term contracts by year's end.
"Meanwhile the pace of margin improvement continues to exceed our expectations in virtually every area of our business, with our US Lower 48 operations achieving a margin increase of $4,250 per rig day for the year and $1,031 per rig day for the sequential quarter with the fourth quarter averaging $8,634 per rig day and nearly $10,500 per rig day in our Canadian drilling business. Demand for rigs continues unabated and customer commitments and forward plans lead us to believe that a shortfall in rig supply will persist for several years. The visibility of our future results has never been better with the magnitude of current and prospective term contracts assuring an increasing proportion of our income expectations throughout all of our rig units. However, we still retain a high degree of discretion as to the proportion of our existing fleet that is committed to term contracts or exposed to spot market pricing and new build tie-in opportunities.
"Our US Lower 48 Land Drilling business realized the largest increase in results, largely on the strength of increased pricing and refurbished rigs. Demand for rigs remains strong against a constrained supply and this imbalance continues to increase pricing faster than we previously anticipated. An increasing proportion of this unit's future growth will be derived from new built rigs, virtually all with three year contracts. This is evident by the 10 commitments we have received since our mid-December analyst meeting, bringing the total number of new rig commitments in the last nine months to 57. The certainty of future results is being enhanced by term contracts on existing rigs, which increased by 15 to 112 out of the 255 currently working. Safety, performance and efficiency are also at extraordinarily high levels, particularly when you consider that in the last three years this unit increased its aggregate man-hours worked by 132% to over 15 million in 2005 while reducing the number and severity of lost time incidents by almost 60% to 0.17 per 0.2 million man-hours.
"Canada set a new quarterly and full year record, surpassing the customarily peak first quarter by over 30% and the previous year by 50% on the strength of a substantial increase in margins and unseasonably high activity late in the year. The performance in the fourth quarter, where results were nearly double the prior year, portends a new record for the first quarter and full year 2006 with an expectation of even higher utilization and margins. In recent weeks Canada has also secured five commitments for new PACE rigs and expects to roll out three of our new coiled tubing/stem drilling rigs in the first quarter. These rigs have abundant opportunities in both Canada and the US Lower 48.
"Our US Land Well-Servicing business achieved an 87% increase in 2005, ending the year with a record performance in what is traditionally the weakest quarter of the year. This was fueled by significantly higher pricing and a less than normal seasonal decline in rig hours worked. This is indicative of the strength of demand in this market, which is leading to further price increases in the first quarter. We also continue to see further opportunities for investment in this area.
"Our US Offshore unit saw an 88% increase in its full year results, despite a significantly weaker fourth quarter following the hurricanes. Not only did we lose revenue from multiple rigs under repair, but we also saw a number of projects postponed or cancelled by various customers. Our Barge Rig 300 returned to service last week and our jackup rig 54 is nearly ready to return to work. The outlook for this business is very strong with substantial increases in jackup rates exerting the greatest impact. During the second half of the year we expect to see even greater improvement with the deployment of Barge 301 and SuperSundowners® XX and XXI, all new rigs currently under construction.
"Our International results increased by over 50% during 2005 and should see an even larger increase in 2006, primarily in the second half as the effects of multiple rig repricings and 18 incremental rig deployments are realized. Commencement of 11 of these rig contracts will occur in the first half including: Dolphin 111 jackup offshore Angola; the newly constructed MODS 175 rig for offshore New Zealand; the first two of four platform rigs (two MASE and two SuperSundownwers) awarded by PEMEX for offshore Mexico; and seven land rigs, six newly constructed and one refurbished. These land rigs will be deployed in Saudi Arabia, Venezuela, Algeria, and Oman. Another two PACE rigs will commence operations in Saudi Aramco in the third quarter of 2006. This unit also was the recipient of seven new PACE rig awards in the last few weeks, all of which are expected to commence in 2006. The awards are for term contracts in Saudi Arabia (2), Oman (2), Libya (1), Tanzania (1) and Brunei (1). There remain a large number of current and prospective opportunities for additional new PACE rigs. International's fourth quarter 2005 results were dampened by downtime associated with two jackups in dry-dock for much of the quarter due to regulatory recertification, a situation that will also effect the first quarter.
"Our Other Operating Segments continue to improve at a rapid rate led by our Marine Transportation unit. Ryan, Canrig and EPOCH also fueled the increase with each showing sequential improvement of over 40%.
"During the quarter we continued to effect our stock buyback program with a repurchase of 289,100 additional shares at an average price of $65.39. This brings 2005's total purchases to 1,789,100 shares at an average price of $55.60 per share. We also expect to redeem for cash virtually all of our approximately $827 million (accreted value) in zero coupon convertible Senior Debentures due 2021 given that today is the first of a series of opportunities that occur on each fifth anniversary for holders to redeem the debentures. We will announce the magnitude of the redemption as soon as the final amount is known.
"During the quarter we were the defendant in a class-action arbitration hearing regarding compensation issues brought on behalf of field employees of our well-servicing unit operations in California. Late this afternoon, we received an interim judgment against the Company in the amount of $25.6 million (plus an undetermined amount of attorneys fees and costs), which was in excess of reserves established by the Company in the amount of $10.6 million as of September 30, 2005. Given the timing of the award, we have not yet had an opportunity to fully consider the arbitrator's decision.
"In summary, all of the developments we experienced throughout 2005 and particularly during the fourth quarter served to further reinforce our conviction in the strength and duration of this cycle. We are focused on capturing a disproportionate share of the increasing global demand for new and existing rigs. Our success to date in this effort is indicative of the inherent advantages we enjoy and is resulting in a substantially larger and newer global fleet underwritten with long-term contract commitments. This is providing us with the highest degree of performance visibility in our history and I look forward to continue reporting results that exceed even our optimistic projections."
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