NABORS INDUSTRIES LTD. Form 10-K Annual Report For the Year Ended December 31, 2024

Nabors Industries: Navigating Volatility in the Energy Sector

Overview

Nabors Industries is a leading provider of advanced technology for the energy industry. With operations in over 15 countries, the company has established a global network to deliver safe, efficient and sustainable energy production. By leveraging its core competencies in areas like drilling, engineering, automation and data science, Nabors aims to innovate the future of energy and enable the transition to a lower carbon world.

Outlook: Navigating Market Volatility

The demand for Nabors’ services and products is closely tied to spending by oil and gas companies on exploration, development and production activities. This spending is highly sensitive to fluctuations in energy commodity prices, which have experienced significant volatility in recent years.

In 2023 and 2024, global energy markets saw high levels of volatility. In the U.S., operators generally reduced drilling activity in response to these market conditions. However, recent production cuts by large international producers have been supportive of oil prices and activity, especially internationally. Natural gas prices in the U.S. declined significantly, leading to reduced natural gas-directed drilling.

Economic sentiment was also impacted by concerns about a potential global recession. The U.S. Federal Reserve’s interest rate hikes reduced capital availability in the energy market, contributing to a decline in U.S. rig counts. More recently, the Fed has reduced rates, which could provide some relief in the coming quarters.

Despite the reduced drilling activity, Nabors has maintained pricing discipline, supporting rig dayrates and margins. U.S. oil and gas production has proved resilient, while international markets are seeing an expansion of production capacity and unconventional resource development, driving an expected increase in oilfield activity.

Recent Developments

In 2024, Nabors amended and restated its credit agreement, providing up to $350 million in revolving loans and a $125 million letter of credit facility. The company also issued $550 million in 8.875% senior guaranteed notes due 2031, using the proceeds to redeem outstanding debt.

Nabors also announced plans to acquire Parker Drilling Company, a provider of drilling services and tubular rentals across global energy markets. The $478 million transaction, expected to close in early 2025, will expand Nabors’ capabilities and geographic reach.

Financial Results

In 2024, Nabors’ operating revenues totaled $2.9 billion, a 3% decrease from 2023. The company reported a net loss from continuing operations of $176.1 million, compared to a $11.8 million loss in 2023.

The decline in revenue and increased net loss were driven by several factors:

• A 33% decrease in adjusted operating income in the U.S. Drilling segment due to reduced activity, partially offset by increased international activity.
• Lower mark-to-market gains on common share warrants and losses on debt repurchases, compared to gains in 2023.
• A $25.6 million increase in interest expense due to rising interest rates.

General and administrative expenses increased 2% to $249.3 million, reflecting higher workforce and operating costs. Depreciation and amortization expense decreased 2% to $633.4 million as older assets reached the end of their useful lives.

Segment Performance

Nabors’ business consists of four reportable segments: U.S. Drilling, International Drilling, Drilling Solutions and Rig Technologies.

U.S. Drilling Operating revenues in this segment decreased 15% to $1.03 billion, primarily due to a 13% decline in average rigs working, while pricing remained stable.

International Drilling Operating revenues increased 7% to $1.45 billion, driven by an 8% increase in average rigs working as market conditions and demand improved.

Drilling Solutions Operating revenues grew 4% to $314.1 million, as increased international and third-party services offset a decline in the U.S. market.

Rig Technologies Operating revenues decreased 17% to $201.7 million due to the overall decline in U.S. activity. However, adjusted operating income was relatively flat, as the business focused on higher-margin product lines.

Liquidity and Capital Resources

Nabors’ primary sources of liquidity are cash, investments, availability under its credit facility, and cash flow from operations. As of December 31, 2024, the company had $397.3 million in cash and short-term investments, and $427.6 million in working capital.

The company had no borrowings and $51.6 million in letters of credit outstanding under its $350 million credit facility as of year-end 2024. Nabors is required to maintain certain financial ratios and covenants under this agreement, which it was in compliance with as of the report date.

Nabors also has accounts receivable purchase agreements that provide up to $250 million in additional liquidity. The company expects its current cash, investments, cash flow, and financing capacity to be sufficient to fund its commitments, capital expenditures, and other cash requirements for at least the next 12 months.

Risks and Uncertainties

Nabors faces several key risks and uncertainties:

Foreign Currency Risk: The company’s international operations expose it to foreign exchange rate fluctuations, particularly in Argentina and Russia, which are generally unhedged.

Credit Risk: While Nabors’ customer base includes major oil and gas companies, it still faces credit risk and maintains reserves for potential losses, which have historically been within expectations.

Interest Rate and Price Risk: Nabors’ debt instruments, investments, and derivative contracts expose the company to interest rate and market price risks, which it seeks to manage through monitoring and diversification.

Litigation and Insurance: As a capital-intensive business, Nabors faces various operational hazards that could result in litigation and insurance claims. The company maintains reserves based on historical experience, but actual outcomes could differ.

Outlook and Conclusion

Nabors is navigating a volatile period in the energy industry, marked by swings in commodity prices, economic uncertainty, and shifting market dynamics. The company’s diverse global footprint, technological capabilities, and disciplined approach to operations and finance have positioned it to weather these challenges.

Looking ahead, Nabors expects to benefit from increased international activity and the addition of Parker Drilling’s complementary services and assets. While the near-term outlook remains uncertain, the company’s focus on innovation, operational excellence, and prudent financial management should enable it to capitalize on opportunities and deliver value for shareholders over the long term.