Nabors Industries Rebuilding Energy Profits

Thursday, 12 Jan 2012 06:45 AM

By Tim Plaehn

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Drilling services company Nabors Industries (NBR) suffered some setbacks in mid-2011, but now the company is poised to start rebuilding its profits on the growth in North American energy production.

Nabors Industries manufactures and leases oil and natural gas drill rigs and well service rigs. The company also provides service crews and is one of the largest providers of hydraulic pumping services, required for many of the new natural gas regions.

Company operations are focused on United States, Alaska, and Canada land drilling, offshore rigs and international rigs, both land and offshore, jack-up types. The U.S. land drilling segment generates the largest amount of operating income, followed by the pressure pumping division.

Other segments generating a significant portion of operating income include international operations, Canada operations and what Nabors calls "other operating segments."

For the first three quarters of 2011, Nabors Industries reported net income from operations of $282 million or 96 cents per share, up from $172 million or 59 cents per share for the same period of 2010.

For the full year 2011, the consensus earnings estimate is $1.47 per share, compared to earnings of $1.13 in 2010. The Wall Street 2012 average earnings estimate is $2.27 per share.

Cashing out

Nabors Industries owns a portfolio of oil and gas exploration and production assets which the company states it wants to "expeditiously monetize." Of the $2.1 billion invested in these assets, $855 million has been "monetized," leaving more than $1.2 billion of assets the company would like to turn into cash.

As these assets are sold off, the proceeds will be used to reduce the company's debt load, increasing financial flexibility.

Like many companies in the energy production sector, the forecasts for Nabors Industries cover a wide range of possible results. The Wall Street earnings estimates for 2012 range from a low of $1.77 per share to a high of $2.76. Note that the entire range is well above 2011 earnings.

Recently, the analysts at BMO Capital Markets upgraded NBR to outperform from market perform with a target price 50 percent above the current share value.

The company next reports on Feb. 14.

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