HOUSTON Feb.7, 2007 (Dow Jones Newswires)
Nabors Industries Ltd. (NBR) drilling operations in the U.S. and Canada will decline in 2007, as low natural gas prices and high service costs turn off producers, chief executive Gene Isenberg said Wednesday.
Canadian operations will drop by 20% in 2007, and margins on Nabors rigs will fall by a similar figure, he said in a conference call with analysts.
U.S. activity and prices will experience a smaller downturn, excluding Alaska, Isenberg said.
Natural gas prices have been cut in half since hitting record highs in December 2005. A shortage of manpower and equipment caused production costs to continue to rise, however, giving Nabors and other land drillers record profits in 2006, but an uncertain future.
Nabors and several of its competitors scaled back forecasts for fourth-quarter earnings last month, as major producers, especially large independents active in Canada, announced that they will cut 2007 exploration budgets.
Fourth quarter profits for the world's largest land driller still rose 31% from 2005, to $276.1 million, or 97 cents a share. That missed analysts' consensus forecast by 3 cents, according to Thomson Financial. Before Nabors updated its guidance in January, analysts had expected fourth-quarter earnings to be $1.11 a share.
The Bermuda-based company cited the "dismal market" in Canada, and a jump in idle rigs, from 11 to 41.
Nabors isn't alone as it experiences lower demand for its rigs. Over 300 new rigs, commissioned during the height of the gas boom, are expected to enter the market between the second half of 2006 and the end of 2007.
As a result, U.S. rig utilization for all drillers fell below 80% for the first time in two years, a key benchmark that typically leads to a decline in prices, analysts at Jefferies & Co. said last week.
Isenberg said he believes any downturn will be "shallow and rapidly self-correcting."
Copyright (c) 2007 Dow Jones & Company, Inc.
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