Adjusted income derived from operating activities was $349.0 million compared to $370.5 million in the first quarter of last year and $339.6 million in the quarter ended December 31, 2006. Net income was $262.2 million or $0.92 per diluted share compared to $256.8 million or $0.79 per diluted share in the first quarter of last year and $237.8 million or $0.84 per diluted share in the fourth quarter of 2006.
Operating Revenues and Earnings from unconsolidated affiliates for this quarter rose to $1.27 billion compared to $1.17 billion in the comparable quarter of the prior year and $1.29 billion in the fourth quarter of 2006. The quarter's results reflect a reduction in our estimated 2007 tax rate primarily resulting from the increasingly larger proportion of our income expected from International sources. Earnings per share also benefited from a reduced year-over-year share count.
Gene Isenberg, Nabors' Chairman and Chief Executive Officer, said, "These results are particularly noteworthy considering the weaker market conditions that prevailed in our US and Canadian land drilling markets, delays and unexpected costs in three of our other core units, and the incurring of several higher than usual charges. Despite these impediments the Company posted a solid quarter and remains on track to achieve another strong year.
"The unusual charges in the first quarter amounted to nearly $23 million, $12.3 million of which consisted of professional fees and taxes related to the review of Company options granting practices during the last 19 years. The balance consisted of additional legal reserves and asset retirement charges.
"Reviewing our operational results, severe market weakness in Canada and more moderate softness in our U.S. Lower 48 Land Drilling operation produced the most significant impact on Nabors' performance for the quarter. Results were also impacted by smaller than expected increases in our U.S. Offshore and International units and lower results in our U.S. Land Well Servicing operation, although performance in these units was impacted by circumstances that should largely be isolated to the first quarter.
"Compared to the sequential fourth quarter of 2006, our U.S. Lower 48 Land Drilling operations posted lower but respectable results despite the significant increase in idle rigs and a less significant contraction in margins. We averaged 243 rigs working with 61 rigs idle at the end of the quarter, the majority of which were released in January and February. The decline in our rig count has since moderated and today we have 65 idle rigs, including five which have been reclassified to inactive status and another five which are in the process of being redeployed on long-term contracts in our International operations. We expect second quarter average margins per rig day to reflect another modest decline and then stabilize as 45 new rigs deploy at higher average margins over the balance of the year. Our new rigs are being well received, particularly our M-Series rigs, where the first wells drilled by two of these rigs set new records for two different customers. We have received recent orders and ongoing interest in additional new rigs from customers who also have experience with competitive offerings.
"Our Canadian operations posted sequentially improved results in the seasonally high first quarter, although they represented a 36% reduction compared to the first quarter of 2006. This is indicative of the challenges that characterize this market, which are reflected in our projection of a loss for this unit in the second quarter. We have also sliced our full year expectations to roughly one-half of what we forecast only two quarters ago.
"Our U.S. Well Servicing operation was down modestly as a result of losing roughly 24,000 rig hours of revenue to ice storms in Oklahoma, Texas and California. The outlook for this business remains quite healthy as we continue to see strong demand in most markets with the possible exception of West Texas, where an influx of new rigs by numerous competitors appears to have stemmed demand. At the end of the quarter we had deployed 44 of the 80 new 500 HP Millennium rigs in multiple regions and 10 of the 20 new 200 HP service rigs in California. The remaining rigs in each class are expected to deploy by the end of the year. In the fourth quarter we expect to commence deployment of another 100 new Millennium rigs in a 400 HP configuration, all of which are scheduled to deliver by the end of the first quarter of 2009. Upon completion of this extensive fleet upgrade over 50% of our U.S. Well service fleet will be either new or recently remanufactured, providing us with the industry's most modern and capable fleet. The acceptance of our new rigs by customers has been good and their enhanced performance, workability and safety features are also proving to be valuable in attracting and retaining the best crews.
"Our U.S. Offshore operations also posted lower results, primarily attributable to the high costs incurred with five rigs moving concurrently during winter storms. These same storms also delayed several rig startups, which, combined with a general lack of urgency among customers to commence new projects, further dampened results. Activity has improved since the end of the quarter with two jackups returning to work at steady rates. We also expect to deploy two new barge rigs on initial contracts in May. These rigs along with the rest of our active fleet are expected to achieve high utilization and rates for the balance of the year.
"In our International operations results were flat compared to the fourth quarter and short of our expectations due to a number of factors, the most significant of which was a multi-week shipyard delay in completing regulatory dry-docking for a jackup, retarding its return to work on a long-term contract for Pemex offshore Mexico. Additionally, we incurred higher than usual maintenance costs and start-up delays on multiple other rigs in various venues. The full year outlook remains very strong for this unit and should approximate a doubling of last year's results, with a continuation of extraordinary growth expected for the foreseeable future. Underpinning this robust outlook is the incremental contribution of new rig deployments last year and this year, as well as the realization of much higher current market rates as long-term contracts renew. During 2006 this operation deployed 21 incremental rigs and currently has commitments underwriting the deployment of 17 more in 2007, with ongoing strong bid flow a reason for further optimism. Included in the 17 rigs are recent commitments for five additional deep land rigs for work in Mexico. These consist of three 2,000 HP and two 1,500 HP rigs, all of which are recently idled from our U.S. Lower 48 land rig fleet and require only minimal capital investment before commencing operations in the second quarter.
"Alaska's seasonally strong first quarter doubled its fourth quarter result and represented a three-fold increase over the same quarter last year. We expect to achieve the same magnitude of increase for the full year as rates are improving rapidly and demand is increasing for a limited supply of rigs. This operation will continue to be an increasingly significant contributor as two new heli-portable rigs deploy on long-term contracts later this year and the prospects for additional new rigs are promising.
"Our Other Operating Segments continues to post excellent results on the strength of a strong construction and rig support season in Alaska, solid results in Ryan Energy Technologies, and ongoing improvement in Canrig and EPOCH. Our SeaMar operations that are included in this segment will be sold by mid year. Our Oil and Gas operations are achieving numerous successes, but near-term income results continue to be dampened by front loaded expenses related to seismic and geologic evaluation costs. Our previously announced new joint venture, NFR Energy, has installed an experienced, high quality management team and has commenced selected investments in several attractive projects.
"Going forward we expect to see a lower but strong level of income for the seasonally low second quarter. Subsequent quarters should show steady improvement, culminating in another strong year in 2007. Supporting this view are indications our U.S. Lower 48 Land drilling operations are stabilizing and likely to post a very solid year with results that should be approximately 75- 80% of last year's level. Furthermore, we anticipate that future quarters in Canada will be in line with our greatly reduced expectations. Meanwhile, we expect meaningful improvements in our U.S. Well Servicing and U.S. Offshore entities, while our Alaskan and International businesses should post much larger incremental improvement."
The Nabors companies own and operate approximately 640 land drilling and approximately 795 land workover and well-servicing rigs in North America. Nabors' actively marketed offshore fleet consists of: 41 platform rigs, 14 jack-up units and 4 barge rigs in the United States and multiple international markets. Nabors markets 25 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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