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Nabors is the largest onshore drill rig contractor in the United States. The company owns 535 onshore drilling rigs, 564 domestic and 173 internationally deployed onshore well work-over and well-servicing rigs, as well as 35 offshore platform rigs, 12 jack-ups, 4 barges, and a host of marine transport units. Thanks to record-high oil prices since the last half of 2007, oil companies have stepped up their demand for drilling rigs in order to increase production. 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 need for globalization has not been lost on Nabors; the company has been growing abroad, increasing its international share of revenues from 17% in 2006 to 25% in 2007.^[1] 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.^[2] 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 a Presidential race in which all the major candidates support 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.

Contents 1 Business and Financials 1.1 Business Segments 2 Trends and Forces 2.1 Nabors' Onshore Drilling Focus Means it is Missing Out on the Dayrate Growth of the Offshore Sector 2.2 Nabors is Dependent on a Stagnating U.S. E&P Market 2.3 International Expansion Positions Nabors to Take Advantage of Oil Companies' Drive to Increase Production 2.4 Legislation Supporting the Development of Renewable Energy Threatens the Long-Term Strength of Hydrocarbons in the U.S. 3 Competition 4 References

[edit] Business and Financials

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 535 onshore drilling rigs, 564 domestic and 173 internationally deployed onshore well workover and well-servicing rigs, 35 offshore platform rigs, 12 jack-ups, 4 barges, and a host of marine transport units.^[4]

[edit] Business Segments

Nabors divides its operations into three main segments: Contract Drilling (accounted for roughly 89% of the company's 2007 operating revenue), Oil and Gas (about 3.5%), and Others (the remaining 7.5%).

• 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 in 2007 came from North America.^[5] 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.

[edit] Trends and Forces

[edit] 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, though since mid-2007, the trend has been up. Oil traded on international markets for $120/bbl in early May, a record high, while natural gas traded at over $10/Mcf.^[6] 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. As of April 25th 2008, the U.S. had 1,842 land rigs, an increase of 95 from April 25th 2007, whereas the U.S. offshore rig count dropped by six, to 67.^[7] In 2007, Nabors owned 535 land drilling rigs and 737 land workover/well-servicing rigs (used to make existing wells produce more) - but only 51 offshore rigs. Offshore dayrates for rigs not in the shallow Gulf of Mexico (which, like the onshore Lower 48, is seeing declining production) have nearly tripled since the beginning of 2005^[8]; Nabors' onshore Lower 48 segment saw revenues increase by about 48% from 2005 to 2006, mostly because of dayrate increases, and then decrease by about 9%, mostly because dayrates stagnated while utilization fell. At the end of 2007, two thirds of Nabors' land rigs were new or upgraded^[9], allowing the company to command a premium over other land-rig operators, but even this would not give the company the same kind of earnings power that high-end offshore rig operators command. By operating primarily onshore, Nabors is missing out on fast revenue and margins growth afforded to companies invested in the offshore sector.

[edit] Nabors is Dependent on a Stagnating U.S. E&P Market

Nabor's earns the largest share of its revenue from North American operations. In 2007, 75% of Nabor's revenue came from drilling and producing North America (a drop from 83% in 2006), making the company heavily exposed to the declining North American land market.^[11] From 2006 to 2007, North America's oil and gas reserves (both onshore and off) were in decline. Because of this, many oil companies, especially the oil majors, are moving out of the Gulf of Mexico and into more exotic, more unstable regions like the Middle East and West Africa, in order to increase production and take advantage of soaring oil prices. The exception is Alaska, which saw its share of Nabors' revenue increase between '06 and '07 from 2.5% to 3.4%^[12], thanks to increased drilling activity in previously protected or unopened oilfields.

[edit] 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. Between 2006 and 2007, the international share of Nabors' drilling revenue increased from 17% to 25%^[13], as the company expanded into Asia, Africa, and the Middle East. 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. 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.^[14] 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.

[edit] 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^[15], the Act has potential to get the ball rolling to greatly reduce American dependence on hydrocarbons.

Already, 26 states across the country have adopted Renewable Energy Standards to increase the share of renewables in their energy mixes, while both Democratic candidates for President have pledged to reduce carbon emissions 80%, to below 1990 levels by 2050.^[16][17] While the Republican candidate isn't so tough on climate action, he still supports a strong cap-and-trade system. 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.^[18] 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.

[edit] 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.^[19]
• 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.^[20]
• 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.^[21]
• Grey Wolf: Grey Wolf primarily focuses on drilling contracts in the US, with a fleet size of 121 drilling rigs.^[22]
• Helmerich & Payne - H&P operates 157 rigs in the U.S., 27 rigs internationally, and 9 offshore rigs in the Gulf of Mexico.^[23] It's FlexRigs, which make up almost 80% of its onshore fleet, have advanced drilling technologies for drilling unconventional wells and increasing productivity.^[24]

[edit] References

1. ↑ NBR 2007 10-K, Page 20
2. ↑ Forbes" "Economic Consequences Of Sky-Rocketing Oil"
3. ↑ NBR 2007 10-K, Page 20
4. ↑ NBR 2007 10-K, Page 3
5. ↑ NBR 2007 10-K, Page 20
6. ↑ Energy Prices Data, Accessed May 7th, 2008
7. ↑ RigZone: "Weekly Land-Based, Offshore Rig Counts Both Increase", April 25th, 2008
8. ↑ Energy Current: "Deepwater rig day rates hit new high", November 9th, 2007
9. ↑ Morningstar Analysis, Nabors Industries, Ltd., 4-23-2008
10. ↑ NBR 2007 10-K, Page 20
11. ↑ NBR 2007 10-K, Page 20
12. ↑ NBR 2007 10-K, Page 20
13. ↑ NBR 2007 10-K, Page 20
14. ↑ Forbes" "Economic Consequences Of Sky-Rocketing Oil"
15. ↑ WhiteHouse.gov, Fact Sheet: Energy Independence and Security Act of 2007
16. ↑ CNN Election Center: Issues: Environment
17. ↑ Washington Post: "A Green(er) Obama"
18. ↑ NBR 2007 10-K, Page 20
19. ↑ PTEN 2007 10-K, Page 1
20. ↑ Unit Web Site: Rig Fleet Map
21. ↑ PDC 2007 10-KT, Page 2
22. ↑ GW 2007 10-K, Page 4
23. ↑ HP 2007 10-K
24. ↑ H&P Website: FlexRig® Program - New Builds

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