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WIKI ANALYSIS
Nabors (NYSE:NBR) is the largest onshore drill rig contractor in the United States. The company owns 542 onshore drilling rigs, 558 domestic and 172 internationally deployed onshore well work-over and well-servicing rigs, as well as 40 offshore platform rigs, 13 jack-ups, 3 barges, and a host of marine transport units.[1] Nabors has benefited from rising dayrates as oil companies compete for the world's limited number of rigs. However, since most of the company's revenue comes from contracting onshore drilling rigs, its dayrates have not grown nearly as fast as those of contractors like Transocean, who operate primarily offshore, because there are far more onshore than offshore rigs in the world. Furthermore, 75% of the company's revenue comes from North America, a region that has seen declining production over the last five years. Many of the larger exploration and production companies are moving abroad, to try to ramp up production in markets that were previously left alone thanks to political instability and terrorism. The company earned $3.5 billion in revenue but incurred a net loss of $86 million in 2009.[2]
The need for globalization has not been lost on Nabors; the company has been growing abroad, with international sales accounting for 25% of revenues. Especially significant to the company is its joint venture in Saudi Arabia, which gives it access to an oil goliath at a time when satellite photos suggest that the country is using more equipment than ever to maintain high levels of production. Demand for Nabors' services may not be sustained in the long term, however, as a growing American sentiment against oil, thanks to fears of climate change and record gasoline prices, has triggered governmental debates on renewable energy mandates or carbon trading schemes that would drastically reduce American dependence on the black gold. Nabors competes with other American onshore drilling companies, including Patterson-UTI Energy, Grey Wolf, Unit, and Pioneer Drilling Co.
Company Overview
Barbados-based Nabors Industries Ltd. (NBR) conducts oil, gas, and geothermal land drilling operations and is the largest land-drilling contractor in the world. It is also one of the largest land well servicing companies and workover contractors in the U.S. The company offers a number of ancillary wellsite services, including oilfield management, engineering, transportation, construction, maintenance, well logging, and other support services in select domestic and international markets. Nabors has 542 onshore drilling rigs, 558 domestic and 172 internationally deployed onshore well workover and well-servicing rigs, 40 offshore platform rigs, 13 jack-ups, 3 barges, and a host of marine transport units.[1]
Business Segments[3]
Nabors divides its operations into three main segments: Contract Drilling (accounts for most of the company's revenue), Oil and Gas (negative sales), and Others (accounts for the rest).
- The Contract Drilling segment's operations are spread across 6 sub-segments: U.S. Lower 48 Land Drilling, U.S. Well Land Servicing, U.S. Offshore, Alaska, Canada and International; approximately 75% of the company's total contract drilling revenue comes from North America. In addition to its contract drilling operations, Nabors also provides logistic services to onshore drilling and well-servicing operators in Canada using helicopters and fixed-wing aircraft purchased from Airborne Energy Solutions Ltd.
- The company's Oil and Gas segment includes oil and gas exploration, development, and production business.
- The Other segment houses a number of Nabors' sideline businesses, including marine transportation and supply services, drilling technology and top drive manufacturing, and construction and logistics operations.
Business Growth
FY 2009 (ended December 31, 2009)[2]
- Net revenue fell by 34% to $3.5 billion. The company attributes some of the decline to falling crude oil prices, which averaged $61.99 per barrel in 2009, compared to $99.92 per barrel in the previous year. Revenue from all of the company's product segments fell by more than 31%.
- The company incurred a net loss of $86 million compared to a get gain of $480 million in the prior year.
Trends and Forces
Nabors' Onshore Drilling Focus Means it is Missing Out on the Dayrate Growth of the Offshore Sector
Oil and gas prices have fluctuated heavily over the past few years. With oil prices so high, E&P companies are desperate to ramp up production, causing demand (and dayrates) for drilling rigs to skyrocket. Rates have risen much faster and much higher in the offshore segment than in the onshore segment, mostly because easy to reach deposits have been exhausted and companies are turning to the 71% of the Earth that is covered with water to find new sources of the precious fossil fuel. However, there are far fewer offshore rigs around the globe than there are onshore rigs - and, in the U.S., the number of offshore rigs has been falling while the number of land rigs has been growing. By operating primarily onshore, Nabors is missing out on fast revenue and margins growth afforded to companies invested in the offshore sector.
International Expansion Positions Nabors to Take Advantage of Oil Companies' Drive to Increase Production
The possibility of a slow death for American petroleum production has not been lost on Nabors, and the company has been busy expanding its international operations to make up for losses in its largest market. The company has expanded into Asia, Africa, and the Middle East -- 25% of the company's revenue comes from overseas. Many of these deals have long-term potential; Nabor's ownership of 50% of a joint venture in Saudi Arabia, for instance, gives the company access to the world's largest oil producer. Many believe that Saudi Arabia is finally reaching a peak oil state of declining production. This is not a Indication that were running out of oil just per say that the oil is taking longer to reproduce of its natural Cycle. Everyone needs to know that will never run out of oil and just because the prices decrease that doesn't mean that it helps the world. Satellite photos of Saudi Arabian oilfields have shown increased oilfield services activities in the last year, indicating that the country is working much harder to keep production up.[4] As the country struggles to keep production up (and, odds are, increase it in order to keep the image of geopolitical strength) by increasing drilling, Nabors will be in a strong position to contract with Saudi companies like Saudi Aramco.
Legislation Supporting the Development of Renewable Energy Threatens the Long-Term Strength of Hydrocarbons in the U.S.
Whether it’s because of the desire for energy independence, the rising price of oil, or fears of climate change, people are attracted to the search for alternatives to petroleum. Environmentalists have been calling for a shift to renewable energy for years, and though the river of change is running slow, it is running deep. The Energy Independence and Security Act of 2007 is the first step towards a grander series of changes. By forcing automakers to achieve 35 mpg by 2020 and setting a Renewable Fuel Standard of 36 billion gallons of biofuels in 2022[5], the Act has potential to get the ball rolling to greatly reduce American dependence on hydrocarbons. In emerging markets like China and India, the drive for economic growth supersedes environmental concerns, but since 63% of Nabors' operations occur in the U.S. and the majority of the oil and gas produced with Nabors' services is sold to the U.S., a changing American environmental and energy legislation landscape would be disastrous to its business without the development of some effective carbon sequestration technology.
Competition
Offshore drilling is Nabors smallest segment; for the most part, the company competes with other onshore drilling companies.
- Patterson-UTI Energy - Patterson markets 350 onshore drilling rigs in the United States, making it the second largest land drill contractor in North America.
- Unit - Unit operates 129 land rigs in Wyoming, Utah, Colorado, New Mexico, Texas, Oklahoma, Kansas, and Louisiana. Since the company is also involved in E&P, many of these rigs are used internally.[6]
- Pioneer Drilling Co: Pioneer operates mainly around Texas, with a fleet of 67 land drilling rigs. The company is planning on expanding into international markets.
- Grey Wolf: Grey Wolf primarily focuses on drilling contracts in the US, with a fleet size of 121 drilling rigs.
- Helmerich & Payne - H&P operates 157 rigs in the U.S., 27 rigs internationally, and 9 offshore rigs in the Gulf of Mexico. It's FlexRigs, which make up almost 80% of its onshore fleet, have advanced drilling technologies for drilling unconventional wells and increasing productivity.[7]
References
- ↑ 1.0 1.1 NBR 2009 10-K "Introduction" pg. 1
- ↑ 2.0 2.1 NBR 2009 10-K "Selected Financial Data" pg. 22
- ↑ NBR 2009 10-K pg. 26-27
- ↑ Forbes" "Economic Consequences Of Sky-Rocketing Oil"
- ↑ WhiteHouse.gov, Fact Sheet: Energy Independence and Security Act of 2007
- ↑ Unit Web Site: Rig Fleet Map
- ↑ H&P Website: FlexRig® Program - New Builds
