Driller's Results - Pre Royalty Review Slowdown

Prior to the Royalty Review, in Alberta there has been a dramatic slow down in conventional oil and gas activities. The industry isn't doing very well. Layering a massive cost onto the industry in terms of increased royalties will hurt the conventional industry very badly.

Title: Nabors Reports Q3/07 Results

Details & Analysis: Nabors reported Q3/07 EPS of US$0.76, slightly ahead of consensus of US$0.73 but well below Q3/06 EPS of US$1.02. The company’s Canadian operations generated revenues of US$132.4 million, a 21% decline from Q3/06. Operating earnings for the Canadian segment were US$16.9 million versus Q3/06 of US$42.5 million. Canadian drilling days of roughly 3,365 represented a 30% decline from the 4,813 operating days in 2006. Our current Q3/07 estimates for the Canadian drillers in our coverage universe reflect an average year-over-year decline in operating days of 25% for their Canadian operations.

Nabors’ Canadian operating income margins fell from 25% in Q3/06 to just 13% in Q3/07, a decline of 1,200 bps. Our current Q3/07 EPS estimates for our Canadian drillers assume an average year-over-year margin contraction of roughly 700 bps. Canadian well servicing hours fell 20% compared to Q3/06. Nabors’ U.S. land drilling segment delivered revenues of US$416.5 million, down from US$498.2 million last year. U.S. operating days fell 14% from 23,414 to 20,166 while operating earnings margins contracted from 44% in Q3/06 to 31% in Q3/07. Operating margins per day fell US$767/day despite the addition of 16 new rigs during the quarter. Our current EPS estimates for our U.S. land drillers assume a margin decline of roughly US$800/day. Consistent with our current outlook, Nabors indicated that it expects weakness in the Canadian market through to the beginning of the 2008/2009 drilling season.

Precision also reported today, very bad results:


















A colleague pointed to some interesting items wrt the Precision results:

Couple of interesting points – despite the large drop in Revenue, their earnings are still relatively healthy, so they are still managing to defend their margins – this is good, because it means there is still scope for them to drop day rates while staying profitable.

Also, note the shift of resources to the U.S. – from 81 to 533 operating days y/y