Nabors Industries Ltd. (NYSE:NBR) Q4 2019 Earnings Conference Call - Final Transcript

Feb 21, 2020 • 11:00 am ET

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Nabors Industries Ltd. (NYSE:NBR) Q4 2019 Earnings Conference Call - Final Transcript

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Executive
Anthony G. Petrello

Dallas Fed Energy Survey, half of E&P respondent reported using WTI in the $53 to $56 range for the 2020 capital planning. Since the beginning of 2020, the price of near month WTI has declined from $61 to $51. Oil prices are reacting to fears of reduced economic growth and crude oil demand in China and elsewhere.

These fears have been triggered by the recent coronavirus outbreak in China. The impact to global oil demand is uncertain. The reports estimate consumption in China has declined by as much as 3 million barrels per day. At the same time, OPEC has proposed temporary production cut to mitigate the lower demand. As I anticipated on our prior earnings call, industry-wide drilling activity in the Lower 48 declined through the end of the year.

This reduction resulted from the combination of limited access to capital as well as investor pressure to generate free cash flow. During the fourth quarter, the average US Lower 48 land industry rig count declined by 97 rigs, and a 11% reduction from the third quarter average. I will have some more thoughts on this when I cover our quarterly customer surveys in a few minutes.

For our international markets, the macro picture remains positive. Pricing is improving, activity is increasing. In most markets, the level of oil prices has continued to support incremental activity even after the recent softening. The typical international customer in NOC or IOC is increasingly committed to longer-term development plans.

As such, we expect improving conditions across most of our markets to drive incremental rig demand. Fourth quarter adjusted EBITDA of $203 million solidly [Phonetic] in line with our expectations held up well, despite the reductions in the US activity. Sequentially, our Canada Drilling Solutions, US offshore and international operations, all recorded improvement. Our Lower 48 average rig count declined by ten rigs. Daily gross margin was essentially flat as somewhat higher average revenue per day was offset by a similar increase in daily operational expenses. In our International segment, adjusted EBITDA increased by about 1% despite a significant reduction in amortizing [Phonetic] revenue following recent contract renewal.

This improvement reflects better operating performance across several markets. In other segment, Drilling Solutions improved sequentially even as market conditions deteriorated. This marks three quarters of sequential improvement in NDS. Canada results increased with the seasonal lift in drilling activity.

Rig Technologies declined as sales of capital equipment tailed off into the end of the year. Now, let me discuss our view of the market in more detail. During the fourth quarter, the industry rig count in the Lower 48 averaged 790 rigs. Last week, the rig count stood at 757, that is down by 17 rigs from the end of the fourth quarter, which stood at 774, a 2% reduction. Over the past 12 months, the rig counts declined by 259 rigs or 26%.

For the full year 2019, Nabors' Lower 48 rig count outperformed the industry. Our full year average rig count improved by