Nabors Industries has announced its financial results for the second quarter and first six months of 2009. Excluding previously announced non-cash items, the Company posted adjusted income derived from operating activities of $143.9 million for the current quarter compared to $265.1 million in the second quarter of last year and $274.1 million in the first quarter of this year.
Net income excluding the aforementioned non-cash items was $90.9 million ($0.32 per diluted share) for the current quarter compared to $176.4 million ($0.60 per diluted share) in the second quarter of last year and $184.4 million before ceiling test adjustments ($0.65 per diluted share) in the first quarter of this year. Operating revenues and earnings from unconsolidated affiliates totaled $868 million in the current quarter compared to $1.28 billion in the second quarter of last year and $1.21 billion in the first quarter of this year. For the six months ended June 30, 2009, adjusted income derived from operating activities before the non-cash items was $417.9 million compared to $551.6 million in the first six months of 2008. Net income excluding non-cash items for the first six months of 2009 was $275.3 million ($0.97 per diluted share) compared to $388.5 million ($1.34 per diluted share) in the first six months of 2008. Operating revenues and earnings from unconsolidated affiliates (before non-cash items) for the first six months of 2009 totaled $2.1 billion compared to $2.6 billion for the first six months of 2008.
Gene Isenberg, Nabors Chairman and CEO, commented, "The quarter's results reflect the well known declines in activity among our North American gas-centric businesses since late fourth quarter combined with less robust international results, particularly in Latin America. Virtually all of our units experienced both sequential and year-over-year declines in quarterly operating income, but we believe most have stabilized with the exception of our US Lower 48 land drilling operations.
"In our US lower 48 land drilling operations we believe the working rig count has reached stability, although third quarter operating income is
"Internationally we experienced a flat sequential quarter as the contribution from six recent rig startups was more than offset by project deferrals and suspensions. Additionally, downtime on two jackups and other miscellaneous cost items dampened the quarter. Average daily rig margins reached a high of $18,084 per day even though rig years dropped to 104, nearly 20 rigs below the peak in 2008. The strengthened margins resulted from the premium rates associated with new rig deployments and other contracted rigs, which now account for 92% of the projected gross margin for the balance of 2009. The lower level of activity in the first half was concentrated in four countries and has tempered our full-year expectations to a modest year-over-year increase in income. Over 80% of the shortfall from original projections is attributable to numerous project cancellations and deferrals in Mexico, Colombia and Libya, along with multiple, politically induced issues in Argentina. Some of the suspended activity has recently resumed in Mexico and Colombia and we are experiencing a healthy increase in bidding activity in virtually every venue. We fully expect the robust growth that has characterized this business over the last five years to resume late this year and accelerate in 2010.
"As expected, our US Well Servicing results declined to $6.2 million which reflects a significant quarter-to-quarter reduction in hourly rig rates, principally in West and South Texas, combined with a moderating decline in rig hours. This unit appears to be stabilizing with improving oil prices. We expect third and fourth quarter results to be flat, with slightly lower hours and rates substantially offset by further aggressive cost reductions.
"Results during the seasonally low second quarter in Canada show a smaller loss than last year at $10 million on significantly less rig activity,
"Results in our US Offshore operations declined to $6.7 million in the second quarter from $16.8 million in the first quarter as all of our
"Alaska results were down to $16.4 million as the first quarter seasonal peak in activity wound down and two of our long-running rigs were released as Prudhoe Bay activity scaled back. Third quarter results are expected to decline by another 50% with three rigs on reduced summer standby rates and higher expenses attributable to summer maintenance shutdowns on year-round in-field rigs. Our new AC coiled tubing / stem drilling rig deployed May 1 and is performing exceptionally well with the overall project exceeding the customer expectations. We continue to develop and expand the capabilities and applications for this cutting-edge technology.
"Our Other Operating Segments posted $5 million in operating income in the quarter as a result of a net loss in our Canadian construction and logistics businesses, a sharp drop off in directional drilling services in Ryan Technologies, the customary seasonal slowing in our Alaskan joint ventures, and reduced third party sales in Canrig. Our full year expectations are for results approximating 50% of those achieved last year. Meanwhile we continue to see building demand for our proprietary ROCKIT(TM) system, which is in many cases eliminating the need for rotary steerable motor systems. The system is most readily implemented on our AC top drives and is also stimulating Canrig's rental business.
"Our Oil and Gas segment posted a loss (before non-cash items) of $6.9 million in the second quarter as increasing gas production at cash market gas prices and high seismic expenses offset the income from higher value hedges. We have curtailed our 2009 drilling plans, but continue to be optimistic about the longer-term potential given our highly prospective acreage positions in most of the prominent shale plays.
"Our financial position remains strong and our expectation of 2009 free cash flow of approximately $300 million remains intact despite the contraction in our businesses. Reductions in capital, operating and overhead expenditures along with more modest reductions in net working capital and US tax liability have all served to offset the lower cash generation from our operations. The most painful measures have been the overhead reductions we implemented which consisted of both headcount and compensation rollbacks. Salary adjustments were implemented on a worldwide basis with the largest proportion absorbed by our more highly compensated management group and lesser or no reductions for our lower compensated employees. Further reductions in capital spending and operating costs will benefit 2010 cash flow and comfortably assure us of more than adequate liquidity to repay the debt due this year and in May of 2011. The $1.125 billion debt placement we accomplished in early January allowed us to maintain a comfortable level of liquidity and gives us additional flexibility to pursue opportunities that may arise. We have since deployed the majority of these proceeds to repurchase $945 million in shorter term debt at discounts aggregating to $120 million of the face value of the debt.
"I believe that the third quarter will likely represent a bottom in all of our operations, although it remains difficult to predict the timing and pace of the eventual upturn in natural gas driven activity. Regardless, Nabors will fare relatively well throughout this cycle given the extent of long-term contracts in our US Land drilling unit, the ongoing strength of our international operations and our other more oil dependent businesses. The important issue is how Nabors is positioned to prosper when North American gas markets recover. Our market-leading and record-setting performance in the prominent shale plays in both the US Lower 48 and Canada, along with the premium nature of our high-specification PACE and SCR rigs and much of our legacy fleets, position us to do exceptionally well in any recovery. Similarly, the premium nature and geographic breadth of our International fleet, as well as the innovative and often proprietary rig designs that make up our US Offshore and Alaskan fleets, give us market-leading positions and generate abundant opportunities. Our large acreage positions in some of the most promising shale plays and new innovative products in our Canrig division further enhance our opportunity set. The upside represented by the combination of these elements is unique to Nabors and will increasingly differentiate us from our peers regardless of how the market evolves."
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