Nabors Industries Earnings Call NUGGETS: International Rig Fleet Exit Rate, Utilization Weakness

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On Wednesday, Nabors Industries Ltd (NYSE:NBR) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

International Rig Fleet Exit Rate

James Rollyson – Raymond James & Associates: Tony, it sounds like on the international front that opportunity is still around; you’re still seeing interest levels in bidding for different parts of the world on rig activity, and it seems like the big challenge you’ve had is just kind of delays in one shape or another from really driven by customers it sounds like, and so I appreciate the fact that visibility is a little bit challenging. But curious what you think with what you know today, maybe what your exit rate looks like for the international rig fleet at the end of the year?

Anthony G. Petrello – Chairman, President and CEO: Yeah, I think the exit count at the end of the year is like 127 to 130 rigs; that order of magnitude.

James Rollyson – Raymond James & Associates: Okay, which I think last quarter you were right around 130 was the expectations. So that still hasn’t necessarily changed just the timing of when this flows in through the rest of the year?

Anthony G. Petrello – Chairman, President and CEO: Correct.

James Rollyson – Raymond James & Associates: On the domestic side you gave pretty good color, I think on the rig side of the business, just some of the softness you’ve seen in leading edge rates and terms shrinking down a bit. On the contract kind of cancellations or buyouts, have you started seeing much of those? It looks like from the slides that you’ve got an uptick and expected payments on contracts going over $8 million. So I’m curious if you’re starting to see customers wanted to try and buy out more rigs. We’ve seen that in a couple of other guys. So far I’m curious what you are seeing there?

Anthony G. Petrello – Chairman, President and CEO: Well, we’ve had three, but I’ll have Joe comment.

Joe M. Hudson – President, Nabors Drilling USA LP: Yes, the answer is we are seeing customers looking to (indiscernible) some contracts, so yes, the answer is to-date we had maybe six through the process that if they’re not buying the contract (and off) the rigs were actually (indiscernible). As Tony mentioned, there is three rigs right now; payments through the month which is what the contract was.

Anthony G. Petrello – Chairman, President and CEO: And one of the things I think where you – given our portfolio of assets we’re able to do is also try to work with customers to make it less painful and in the long-term make it a win-win, so we have a lot of other services that we can give people and one the benefits of doing stuff with Nabors is the fact that we have a full range of other things to offer. So, we’re always looking to – on the one hand we want to get the value for what we have invested in and received in terms of contract commitments, but on the other hand, we want to make sure we’re providing value to the customer and helping him through his problems. It’s our job to sort of manage that balance.

James Rollyson – Raymond James & Associates: Joe are you finding it possible to contract those rigs elsewhere, when you get buyouts, or is it market just a little too squishy right now?

Joe M. Hudson – President, Nabors Drilling USA LP: No, we’ve been able to secure some work with of the rigs that are specifically on the lump sum terms that are paid out and in some cases we’ve been able to redeploy those rigs. In some cases we got some commitments, but it’s not near-term and maybe 30, 45 days down the road, but then — to pick-up the assets, but yes that is an option, as Tony mentioned recently we’ve had the opportunity with a major operator that he chose to redeploy that term to Canada and live the term in the U.S. So, it’s a great opportunity for our Canadian guys to have the contract structured in the U.S., I guess we used to call in metric days and now it’s been redeployed to the Canadian market.

Utilization Weakness

Jeff Tillery – Tudor Pickering & Holt: In the slide, Tony, one of the titles there was kind of U.S. rig count had an inflection point, and I was just curious if you could talk either basin or regionally where you think Nabors will show or is showing the more significant utilization weakness, and I’m sure it’s going to be a kind of compound of both your contracted and uncontracted exposures as well as what the customers are doing, but just curious what you’re seeing in the utilization weakness?

Anthony G. Petrello – Chairman, President and CEO: Sure. Joe. What are the regions are you seeing the weaker market right now in utilization in particular for the industry.

Joe M. Hudson – President, Nabors Drilling USA LP: The critical area for us right now is we are seeing – I mean there is still, although it’s moderated, as Tony’s comment said in East Texas the Haynesville, that’s actually strengthening of the gas market that’s abated. The Eagle Ford we are seeing some weakness there and that’s mainly along the lines as you mentioned on the natural gas liquids. So there are areas across the U.S. and then the rigs are continuing to flow into the Bakken, although lands are strong in this area, then being impacted commercially by all of the offers from other companies. But conversed to that there are areas that we fine Central Texas some areas that we are seeing some improvement and that’s what as Tony mentioned we can’t give excuse, so we’re going to find places to redeploy the assets and that’s what we’ve done.

Jeff Tillery – Tudor Pickering & Holt: And then from the Pressure Pumping business have the spreads on contract. I guess two questions along those lines. Are the spot fleets profitable from an EBIT standpoint at this point? And then if you can just give us some color on when some of the contracts start to roll, and the additional spreads hit the spot market?

Anthony G. Petrello – Chairman, President and CEO: Ronnie?

Ronnie Witherspoon – SVP, Marketing & Business Development: Yeah, I think that as far as pricing in the spot market, we’re still seeing pressure, albeit maybe not as much in some of the dry gas markets, but as we’re starting to see rebalancing of assets, we are continuing to see some pressure in the liquid-rich areas. What was the second part of the question?

Jeff Tillery – Tudor Pickering & Holt: It’s really…

Ronnie Witherspoon – SVP, Marketing & Business Development: Yeah, a little color on the contracts. Outside of one LTSA that will expire at the end of this year, the rest will expire at various points in 2013, with the number going into 2014 as well.

Jeff Tillery – Tudor Pickering & Holt: And then those spot spreads, are those still profitable for you guys at this point, or is there – and are still they cash flow positive; are they actually generating EBIT?

Ronnie Witherspoon – SVP, Marketing & Business Development: Yes, they are.

Dennis A. Smith – Director, Corporate Development: Dependent upon utilization, Jeff. You don’t need to lose much utilization to…

Ronnie Witherspoon – SVP, Marketing & Business Development: The utilization has got to be there, but the pricing as it is right now does make a profitable revenue.

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