Nabors Industries was impacted by non-cash, pre-tax adjustment of $75 million related to the ceiling test applied to the value of the reserves of one its oil and gas joint ventures using commodity prices on March 31, 2009. When these charges are excluded adjusted income derived from operating activities was $274.1 million for the first quarter of 2009, compared with the $286.4 million in the first quarter of previous year and $364.2 million in the sequential quarter ended December 31, 2008.
Likewise, net income was $184.4 million or $0.65 per diluted share compared to $212 million or $0.74 per diluted share in the first quarter of previous year, and $208 million or $0.73 per diluted share in the fourth quarter of 2008, the latter also excluding goodwill impairment in Canada.
Gene Isenberg, Nabors Industries chairman and chief executive officer, commented, Our first quarter results were better than expected led by a strong International showing and solid performance from Alaska, US Offshore and our Other Operating Segments. Our US Land business performed relatively well due to the high number of term contracts covering not only our new PACE rigs, but also other premium rigs which constitute two-thirds of our fleet.”
The largest increase in year-over-year quarterly operating income came from our International business which was up 14% to $103 million. Our US Offshore business was up $10.4 million, posting $16.8 million in the quarter. Our Other Operating Segments, our Alaska business and even our US Lower 48 land drilling unit all posted smaller but meaningful increases over their respective prior year quarterly results. Conversely, our Canadian operations declined by nearly $29 million over the prior year and finished at $13.2 million, followed closely by US Well Servicing operations which declined to $13.7 million from 2008 first quarter results of more than $30 million.”
Our US Lower 48 land drilling business posted operating income of $129.2 million in the first quarter with 193 rigs employed. Average margins were $11,200 per rig day, or $9,725 excluding that portion of the lump-sum payments that would have been earned in future quarters. Today the number of rigs employed is 137, including 31 rigs which are not currently crewed or working but are receiving revenue. During the first quarter we recognized $31.3 million in lump-sum contract settlements and we anticipate recognizing another $11.5 million in the second quarter, including about $5.4 million in income that would have been earned in each quarter of 2009 anyway.”
“In addition, for a number of rigs, we are receiving daily standby payments or lump-sum early contract termination payments which are being amortized over the original duration of the contracts. In the aggregate, these amounts to about $70 million with $48 million allocated to 2009. Meanwhile our market positions remain strong, especially in the most active areas such as the Haynesville Shale where Nabors Industries enjoys the dominant position with an average of 35 rigs operating during the first quarter. The decline in our rig count is slowing and we are optimistic we will see it stabilize in the near future.”
Our International business continues to anticipate more than a 20% increase in year-over-year income with the only weakness confined to lower contributing markets and asset classes. These are more than offset by deployments of incremental higher specification rigs during the year. In January one of our new offshore rigs commenced operations on a high-profile project in the Congo. We expect to start up three more rigs in the second quarter followed by another three in the second half, with potential for several more in 2009 pending the outcome of current discussions.”
“We have recently seen significant decreases in activity in some areas, most notably Argentina and Colombia. However, these are having minimal effect since our margins in the Latin American markets are significantly lower than in other areas, particularly Argentina where operations primarily consist of workover and small drilling rigs. This is reflected in the quarter’s lower rig count and the corresponding sizeable increase in average per rig day margins. These higher average margins in the face of a flat rig count will generally characterize this unit’s performance for the balance of the year.”
As indicated, our US Well Servicing unit has experienced a large decrease in quarterly income primarily attributable to a more than 30% decrease in rig hours and a rapidly deteriorating pricing environment. While rig hours are beginning to show signs of stabilization, rig rates continue to decrease, most notably in the Mid Continent area and the West and South Texas regions. This has tempered our outlook for the full year, although the impact on Nabors Industries should be muted by our performance in less susceptible markets.”
Our US Offshore operations are faring relatively well at more than double last year’s first quarter results. Significantly weaker activity among our barge and SuperSundowner platform rigs is essentially offset by ongoing high utilization of our MASE and MODS platform drilling rigs, which has recently been augmented by the January deployment of newly constructed MODS Rig 202 on a term contract. We currently expect the full year to be essentially flat to the prior year.”
The outlook in Canada continues to deteriorate as this unit posted a very weak first quarter during the period that historically accounts for 40% of the year’s income. Our Canadian management team is taking aggressive steps to reduce costs while preserving our ability to react to the inevitable recovery. The emergence of the British Columbia shales is shifting the rig market in Canada in favor of Nabors Industries. This development along with our strategic customer alliances puts us in a position to recover quickly when this market corrects.”
Alaska posted its best quarter ever but the full year outlook has been muted by weakening market conditions and now appears flat. This dampened outlook results from the winding down of a very busy winter exploration season and the prospective release of one of our core rigs and several other competitive rigs. A full year’s contributions from two rigs which deployed in 2008 and the current start-up of our new state-of-the-art coiled tubing / stem drilling rig should offset these losses in activity and pricing.”
Our Other Operating Segments posted its best quarter ever on seasonally high and record contributions from our Peak Oilfield Services joint venture. The outlook for the balance of the year is lower with slowing activity in our Canrig and directional drilling businesses and seasonally lower contributions from our Alaskan joint ventures. New products in Canrig and essentially flat results in our Alaskan joint ventures will limit the downside.”
As previously noted our Oil and Gas Operations again incurred significant non-cash impairment in the value of reserves related to the ceiling test. The impairment amounted to $75 million in the first quarter based upon a quarter ending gas price of $3.59 per MCF. Despite these impairments the long-term potential of this business is very good given the portfolio of properties it has in multiple producing and rapidly emerging areas. We also continue to pursue attractive investment opportunities.”
