Cultural, Strategic Changes Brighten Outlook for Nabors

A brighter future lies ahead for Nabors Industries thanks to the cultural and strategic transformation occurring under its new CEO Tony Petrello, according to a recent EnergyPoint Research report.

The decision to sell non-core businesses is a crucial step in this transformation, Energypoint noted.

"The previously announced sale of its [exploration and production] investments and JV seems an especially appropriate move, as we believe oilfield suppliers that partake in the E&P side of the business can be viewed, and thus treated, as potential competitors by some clients."

"Accordingly, it's our feeling that the company's quasi-competitor status has impeded the company's ability to work with certain E&P companies in the past," EnergyPoint said.

Nabors has announced plans to sell its Gulf of Mexico offshore jackup barge rig business and potentially its international jackup rigs. The company has already completed a sale of its oilfield hauling business in parts of Texas and is looking to sell its Canadian aircraft and well-servicing business.

The company said in an April statement that it is streamlining its operations into two principal business lines. Its drilling and rig services would include rig operations and rig-related services, and completion and production services would consist of its workover, well-servicing and coiled tubing operations, combined with Nabors' fluids management and pressure pumping operations.

Nabors continues to see additional growth opportunities internationally, EnergyPoint said, noting that data suggests Northern American land drillers "can bring much to the table" in the global market, particularly for shale and tight-gas development.

"If international markets do in fact become robust and deep enough, we would not be surprised to see the company refocus further by eventually separating itself from other non-drilling related businesses, including pressure pumping operators it purchased in 2010," said EnergyPoint.

"In short, if history is any indication, Nabors' best prospects lie in swapping its Jack-of-all-trades mindset for a greater focus on a smaller, but potentially more powerful, set of core drilling activities," EnergyPoint commented..

EnergyPoint noted it wasn't sure if new CEO Petrello, who previously served as the company's COO and was viewed by some as agreeing with the strategies and business approach of former CEO Gene Isenberg, was taking the initiatives of his own accord or from specific direction from the increasing proactive board of directors.

"Either way, if carried out, we believe the changes in progress portend a better future for the company and its clients," EnergyPoint said.

The company currently rates low overall but is trending upward in EnergyPoint's independent oilfield customer satisfaction ratings. Driven by widespread efficiency and productivity gains, customer satisfaction scores for North American land drilling contractors continue to show improvement in EnergyPoint's surveys.

"With ratings for four of the five major drillers we track currently on the rise, adjusted scores for the group are now up to 10.1 percent compared to a year ago," EnergyPoint said.

Energypoint said it was encouraged by comments from Nabors' new CEO Tony Petrello on the value of long-term contracts to both Nabors and its customers.

"While the current environment is generally adversely impacting customer preparedness to enter into new long-term contracts, customers who have a long-term market view and corresponding programs continue to see value in our new A/C rigs," said Petrello in the company's first quarter earnings release on April 24.

Petrello noted that the company had signed long-term contracts for nine additional newbuild rigs. The increased number of term contracts for Nabors' existing rigs, coupled with the 18 remaining new rig commitments yet to be delivered, bolster Nabors' positive outlook for the segment into 2013.

"The growing incidence of longer-term contracts in the onshore drilling market, and the greater levels of visibility provided suppliers and customers, allows for more confident and consistent investment in the assets, people and operations needed to continually improve performance and efficiency," EnergyPoint said.

In February, Nabors' longtime CEO Eugene Isenberg agreed to terminate his employment pact and waive his claim to a $100 million payment triggered by the naming of the new CEO Tony Petrello, Dow Jones reported. The payout agreement was viewed excessive by some analysts, according to a 2011 Dow Jones article.


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