Gene Isenberg, Nabors' Chairman and CEO commented, "The third quarter was another record quarter with return on average capital employed reaching 24%. More importantly, the volume of new term contracts we have secured resulted in a year-over-year increase in capital employed of $1.2 billion at returns in excess of 20%. All of our major rig businesses showed significant improvement compared to the prior year and, with the exception of our US Offshore unit, the sequential quarter. These results were accomplished in the face of delivery slippage on new rigs, both drilling (approximately 20 rigs) and workover (approximately 15 rigs), and a larger than expected impact from our customers' deferral of work in the Gulf of Mexico during hurricane season. The quarter benefited from a lower effective tax rate primarily due to an adjustment to the full year expected tax rate now that international operations comprise an increased proportion of forecasted income for 2006.
While there is potential for softening in our North American gas directed markets, we still expect to see overall growth in these markets and larger growth in our other markets. We remain decidedly bullish based upon the magnitude and duration of contractually committed revenue for existing rigs in our US Lower 48 Land Drilling operation, the large volume of contractually committed new rigs yet-to-deploy worldwide, the large impact from rate increases in our Alaskan, US Offshore and international operations, and rate and volume increases in many of our other less significant operations.
Our US Lower 48 operations posted record results on a sequentially modest increase in rig activity and margins. The quarterly rig count would have been much higher in this unit were it not for the magnitude of the aforementioned delivery delays. There are significant regional differences in market conditions with the Rockies, Williston, East and North Texas, the Gulf Coast and California currently strong, while more competitive conditions are prevalent in Oklahoma and to a lesser extent West Texas. These latter markets are negatively influenced by a large influx of refurbished rigs, a high proportion of less sophisticated drilling applications and a preponderance of small private operators and contractors. We remain convinced that we will achieve year-over-year net growth in this unit's results with the already contracted 70 new and 6 refurbished rigs commencing during the next twelve months, all with term contracts and at average margins that are significantly higher than this quarter's average. Further bolstering our confidence is the duration and extent of term contracts covering our existing fleet, including approximately half of our mechanical rigs which are most susceptible to a downturn. The amount of this unit's expected 2007 income that is subject to term contracts continues to increase and currently stands at approximately $500 million, or 48%.
Our Canadian unit posted an improvement of approximately 50% compared to the prior year and over 100% for the sequential quarter. As good as these results were, they were less than expected due to adverse weather and the weakening shallow rig market, where Nabors has a relatively small exposure. The winter season is looking firm as we now have commitments for 75 of our 83 rigs with year-over-year pricing essentially flat. The acceptance of the technical capabilities of our new Coiled Tubing / Stem drilling rigs has been very encouraging even though that market parallels the lagging shallow rig market. All five of the rigs delivered to date have work commitments, including two in the US market.
The contribution of our International operations is accelerating, as evidenced by the 50% increase in its results compared to the same quarter last year and a 15% increase over the prior quarter. During the quarter 11 rigs commenced operations and we expect to start up another 13 in the next two quarters. A number of contracted rigs have yet to commence operations and a large portion of the fleet should be renewing at much higher rates over the next two years. We also continue to pursue a large volume of new rig opportunities. As a result, we expect to see at least a doubling of this unit's quarterly income by the end of 2007, with a 50% increase in average margins and a 25% increase in rig years.
Our US Offshore operation is experiencing strong demand in all asset classes, leading to escalating pricing and the addition of new capacity. We deployed two new built SuperSundowner(TM) rigs late in the quarter and we will be commissioning two more inland water rigs over the next two quarters. The third quarter was impacted by lower activity, particularly on our workover jackups due to hurricane risk deferrals. Our jackup and platform rigs are returning to work at higher rates and, when combined with the new rig deployments, are providing the impetus for what we expect to be a near doubling of last year's income, with a similar prognosis for 2007.
Our US Lower 48 Well Servicing business posted a 15% increase in sequential income as a recent price increase took effect. The outlook for this business remains quite healthy as approximately 70% of its revenue is derived from oil directed work. Our new state-of-the-art 500 hp Millennium(TM) rigs are receiving good reviews and at the end of the quarter we had deployed 17 of these rigs with 67 yet to commence operations. We also took delivery on the first of 20 new 200 hp rigs. The supply / demand balance for workover and service rigs continues to be quite favorable and we have placed an order for another 100 Millennium(TM) rigs in a 400 hp configuration.
Our Other Operating Segments posted another record quarter with the expectation of further increases. Our CANRIG division is on track to ship 150 units this year, up from 57 last year, and has an even bigger backlog for next year. Our directional drilling business continues to increase its contribution, as does our EPOCH instrumentation business. Our Alaskan trucking, construction and pipeline joint ventures are experiencing a resurgent business environment, with rapidly increasing Alaskan activity and a number of large projects pending. Oil and Gas posted a loss this quarter as a result of a variety of expenses related to new projects that are soon to commence. The aggregate returns on this business are approximating 20% at today's commodity price levels and we continue to see a high level of attractive, low risk prospects.
In Alaska, the outlook for our drilling operations is finally beginning to improve demonstrably with the influx of new operators and a significant ramp-up of activity among existing producers. The visibility of our future results is derived from several recent contract awards and a large number of incremental projects currently bidding in both our drilling and other joint venture businesses. Our expectation is that we will see a large improvement in fourth quarter results, with 2007 representing a three-fold increase over 2006. This is driven by the commencement of winter construction and drilling programs and a multitude of drilling and construction projects beginning next year, leading to even further improvement in 2008.
During the quarter we continued to effect our stock repurchase program opportunistically. As previously announced in August, the Nabors Board of Directors authorized $500 million in stock repurchase authority and we have since purchased an additional 2.9 million shares at an average price of $32.32. This brings our year-to-date 2006 total to 40.3 million shares at an average price of $34.83. Including 2005 purchases of 3.6 million shares, our total stock repurchases over the last 18 months now totals 43.9 million shares at an average price of $34.26.
In summary, we remain optimistic regarding the near and longer-term outlook for all of our businesses. We have utilized the robust state of our North American markets to structure our business to weather any future short term softness better than ever before. This is due to the unprecedented degree of term contracts for not only our new built and upgraded rigs, but also for more than half of our existing rigs. We are pleased with the quality, performance and customer acceptance of our new rigs as well as our existing operations. We continue to see a large volume of opportunities for asset additions across all of our markets, including the US Lower 48, with particularly large price improvements materializing across our international, US Offshore and Alaskan operations. All of this augurs for progressively higher quarterly earnings and cash flow, with the only likely exception being the predictably weaker second quarter due to seasonality in Canada.
The Nabors companies own and operate approximately 600 land drilling and approximately 800 land workover and well-servicing rigs in North America. Offshore, Nabors operates 46 platform rigs, 22 jack-up units and 5 barge rigs in the United States and multiple international markets. Nabors markets 29 marine transportation and supply 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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