2023-07-31 07:42:48 ET
Summary
- Total revenues were $767.07 million (Total revenue and others were $778.81 million) in the second quarter of 2023, up from $630.94 million a year ago.
- Nabors Industries exited 2Q23 with 88.6 rigs, the average rig working in the U.S. (96.4 rigs in 2Q22). The daily margin increased to $16,890 per day.
- I recommend buying NBR stock between $115.3 and $110 to accumulate again, with potential lower support at $100.5.
Introduction
Nabors Industries Ltd. ( NBR ) released its second quarter of 2023 results on July 25, 2023.
Note: This article is an update of my April 28, 2023 article. I have followed NBR on Seeking Alpha since September 2014.
1 - NBR's 2Q23 results snapshot
Total revenues were $767.07 million ( Total revenue and others were $778.81 million) in the second quarter of 2023, up from $630.94 million a year ago.
NBR reported a second-quarter 2023 income of $4.61 million and a loss of $0.31 per share, compared with a loss of $82.92 million last year. The second-quarter 2023 adjusted loss was $2.26 per share.
The figures missed analysts' expectations even if revenues were higher year-over-year. Nabors' adjusted EBITDA increased from $158 million to $235.02 million YoY.
Anthony G. Petrello, Nabors Chairman, CEO, and President, said in the press release:
Our global market activity was essentially in line with our expectations, with the exception of the Lower 48, where oil related drilling fell somewhat in addition to the already anticipated reduction in gas basins. Total adjusted EBITDA declined slightly, reflecting a decrease in U.S. rig count. Although leading edge pricing in the Lower 48 has peaked, daily revenue increased by $300 beyond the first quarter level.
Nabors Industries exited 2Q23 with 88.6 rigs, the average rig working in the U.S. (96.4 rigs in 2Q22). The daily margin increased to $16,890 per day , up $200 from $16,690 in 1Q23.
For the International segment, NBR exited 2Q23 with 77.1 rigs with a daily margin improving at $16,276 daily.
2 - Stock performance
Nabors Industries has dropped significantly on a one-year basis, down 11%. However, HP did a little bit better and is flat YoY. Both companies turned bearish in 2023, with oil and gas prices weakening. However, oil turned bullish in early July, and NBR and HP are turning more bullish.
3 - Investment thesis
The investment thesis for Nabors Industries continues to be somewhat challenging, especially if we compare NBR with its direct competitor, Helmerich & Payne, Inc. ( HP ).
The onshore drilling business is notoriously volatile, with low-profit margins (see net income and free cash flow history), making a long-term investment particularly risky.
As I said in my preceding article, NBR is highly associated with oil and gas prices. Therefore, I suggest trading LIFO over 70% of your long-term position to reduce the risk attached to this industry.
To make things even worse, the company is not paying a dividend, and therefore, investing in NBR must be considered attractive only for those who trade short-term a large part of their position.
Thus, I recommend NBR as an excellent trading tool but do not push for a large long-term position.
Nabors Industries - Balance Sheet History ending 2Q23: The Raw Numbers
Nabors Industries | 2Q22 | 3Q22 | 4Q22 | 1Q23 | 2Q23 |
Total Revenues and other income in $ Million | 630.94 | 694.14 | 760.15 | 779.14 | 767.07 |
Net income in $ Million | -82.92 | -13.78 | -69.07 | 49.22 | 4.61 |
EBITDA $ Million | 144.33 | 221.59 | 181.09 | 292.25 | 88.84 |
EPS diluted in $/share | -9.41 | -1.80 | -7.87 | 4.11 | -0.31 |
Operating cash flow in $ Million | 120.80 | 138.95 | 199.99 | 154.05 | 168.47 |
CapEx in $ Million | 76.63 | 111.19 | 101.37 | 118.73 | 144.76 |
Free Cash Flow in $ Million | 44.16 | 27.76 | 98.62 | 35.32 | 23.71 |
Total cash $ Million | 417.98 | 425.07 | 452.32 | 475.73 | 429.06 |
Long-term debt in $ Million | 2601.5 | 2,585.5 | 2,537.5 | 2,562.3 | 2.503.3 |
Shares outstanding (Basic) in Million | 9.08 | 9.10 | 9.10 | 9.87 | 9.20 |
Courtesy: NBR 10-Q .
Balance Sheet Snapshot
1 - Revenues were $767.07 million in 2Q23. Total Revenues and others were $778.81 million.
Note: Operating income plus investment income was $778.81 million.
Nabors Industries reported second-quarter 2023 operating revenues totaling $767.07 million , up from $630.94 million in the same quarter last year (please see the chart above).
The second quarter adjusted EBITDA was $235.02 million compared to $138.04 million in the second quarter of 2022.
1.1 - NBR revenues per segment
As we can see, U.S. and International Drilling represent 85.1% of the total output.
1 - U.S. Drilling
Operating revenues were $314.83 million , up 24.4% from the year-ago quarter of $253.01 million. It was slightly lower than expected due to a decreased rig count. Operating profit totaled $75.4 million compared with the prior year.
2 - International Drilling:
Operational revenues of $337.65 million, up from the year-ago quarter’s $296.3 million. This was due to strong performance in the Middle East. Operating profit totaled $10.4 million compared with the prior-year quarter’s profit of $4.6 million.
3 - Drilling Solutions:
Revenues from the segment totaled $76.855 million , up 37.6% from the prior year quarter. It was a good quarter due to the efficient performance of drilling software & digitalization product lines. The operating income is $28.4 million .
4 - Rig Technologies
Revenues increased about 41% to $63.6 million from 2Q22. A successful quarter due to international sales of capital equipment and spare parts and energy transition. The segment’s operating profit totaled $5.1 million.
2 - Free cash flow was estimated at $23.71 million in 2Q23.
Note: The Generic free cash flow is cash from operations minus CapEx. The company indicated an adjusted free cash flow of $26.8 million.
NBR's trailing 12-month free cash flow was $185.411 million , with $23.71 million in 2Q23. The company is not paying a dividend, making it less attractive to its main competitor, Helmerich & Payne, which pays a 2.25% dividend yield.
3 - Net debt is now down to $2.07 billion at the end of 2Q23
As we can see in the chart above, NBR is slowly reducing debt. Total debt in the second quarter was $2,503.25 million . The total cash was $429.06 million.
Technical Analysis (Short Term) and Commentary
NBR forms an ascending channel pattern, with resistance at $125 and support at $114.6.
Ascending channel patterns are generally short-term bullish, but these patterns often form within longer-term downtrends as continuation patterns.
The short-term trading strategy is to trade LIFO about 60% of your position and keep a core long-term amount for a much higher payday.
Thus, I suggest selling over 50% of your position between $124.5 and $126 , with possible higher resistance at $132, and waiting for a retracement between $115.3 and $110 to accumulate again, with potential lower support at $100.5.
It is crucial to watch oil prices like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Nabors Industries: Domestic Drilling Activity Is Declining